UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

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

Commission File Number 1-13783

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.)

1800 West Loop South, Suite 500, Houston, Texas 77027
(Address of principal executive offices and ZIP code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, par value $0.01 per share		NASDAQ

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ

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 (§232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

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 Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of the securities under a plan confirmed by a court. Yes þ No o

The aggregate market value of the voting stock of the Registrant on March 31, 2010 held by non-affiliates was approximately $33.0 million. On December 10, 2010, there were 14,735,482 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information contained in the Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be held on February 3, 2011 is incorporated by reference into Part III of this Form 10-K.

 

 

FORM 10-K

INTEGRATED ELECTRICAL SERVICES, INC.
Table of Contents

		Page
PART I
DEFINITIONS			3
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS			3
Item 1 BUSINESS			4
Item 1A RISK FACTORS			10
Item 1B UNRESOLVED STAFF COMMENTS			14
Item 2 PROPERTIES			14
Item 3 LEGAL PROCEEDINGS			14
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			14
PART II
Item 5 MARKET FOR REGISTRANT’S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			14
Item 6 SELECTED FINANCIAL DATA			17
Item 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			18
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			35
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			36
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			74
Item 9A CONTROLS AND PROCEDURES			74
Item 9B OTHER INFORMATION			75
PART III
Item 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			75
Item 11 EXECUTIVE COMPENSATION			77
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			77
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE			78
Item 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES			78
PART IV
Item 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			78
SIGNATURES			83
Exhibit 10.45
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I

DEFINITIONS

In this Annual Report on Form 10-K, the words “IES”, the “Company”, the “Registrant”, “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 Annual Report on Form 10-K 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 the Company’s actual future outcomes 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;
•		a general reduction in the demand for our services;
•		a change in the mix of our customers, contracts and business;
•		our ability to successfully manage construction projects;
•		possibility of errors when estimating revenue and progress to date on percentage-of-completion contracts;
•		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 associated with our work and the potential for vehicle accidents;
•		success in transferring, renewing and obtaining electrical and construction licenses;
•		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 which 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 or require additional collateral at their discretion;
•		increases in bad debt expense and days sales outstanding due to liquidity problems faced by our customers;
•		changes in the assumptions made regarding future events used to value our stock options and performance-based stock awards;
•		the recognition of potential goodwill, long-lived assets and other investment impairments;
•		uncertainties inherent in estimating future operating results, including revenues, operating income or cash flow;
•		disagreements with taxing authorities with regard to tax positions we have adopted;
•		the recognition of tax benefits related to uncertain tax positions;
•		complications associated with the incorporation of new accounting, control and operating procedures;
•		the financial impact of new or proposed accounting regulations;
•		the ability of our controlling shareholder to take action not aligned with other shareholders;
•		the possibility that certain tax benefits of our net operating losses may be restricted or reduced in a change in ownership;
•		credit and capital market conditions, including changes in interest rates that affect the cost of construction financing and mortgages, and the inability for some of our customers to retain sufficient financing which could lead to project delays or cancellations; and
•		the sale or disposition of the shares of our common stock held by our majority shareholder, which, under certain circumstances, would trigger change of control provisions in contracts such as employment agreements and financing and surety arrangements.

You should understand that the foregoing, as well as other risk factors discussed in this document, including those listed in Part I, Item 1A of this report under the heading “Risk Factors” could cause future outcomes to differ materially from those experienced previously or those expressed in such forward-looking statements. 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 Form 10-K 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.

Item 1. Business

Integrated Electrical Services, Inc., a Delaware corporation, was founded in June 1997 to establish a leading national provider of electrical services, focusing primarily on the communications, residential, commercial and industrial service and maintenance markets. We provide a broad range of services, including designing, building, maintaining and servicing electrical, data communications and utilities systems for communications, residential, commercial and industrial customers. As of September 30, 2010, we provide our services from 69 locations serving the continental 48 states.

Our electrical contracting services include design of electrical systems within a building or complex, procurement and installation of wiring and connection to power sources, end-use equipment and fixtures, as well as contract maintenance. We service commercial, industrial, residential and communications markets and have a diverse customer base, including: general contractors; property managers and developers; corporations; government agencies; municipalities; and homeowners. We focus on projects that require special expertise, such as design-and-build projects that utilize the capabilities of our in-house experts, or projects which require specific market expertise, such as hospitals or power generation facilities. We also focus on service, maintenance and certain renovation and upgrade work, which tends to be either recurring or have lower sensitivity to economic cycles, or both. We provide services for a variety of projects, including: high-rise residential and office buildings, power plants, manufacturing facilities, data centers, chemical plants, refineries, wind farms, solar facilities, municipal infrastructure and health care facilities and residential developments, including both single-family housing and multi-family apartment complexes. Our communications services include planning, design, implementation and maintenance of a variety of low voltage products for technology, financial, hi-tech manufacturing, co-location facilities, private higher education, healthcare, government, corporations and universities. Our utility services consist of overhead and underground installation and maintenance of electrical and other utilities transmission and distribution networks, installation and splicing of high-voltage transmission and distribution lines, substation construction and substation and right-of-way maintenance. Our maintenance services generally provide recurring revenues that are typically less affected by levels of construction activity.

In 2010, our Communications segment was separated from our Commercial & Industrial segment to form a new operating segment. The decision to report Communications as a separate segment was made as the Company changed its internal reporting structure and the communications business gained greater significance as a percentage of consolidated revenues, gross profit and operating income. Moreover, the Communications segment is a separate and specific part of future strategic growth plans of the Company. We now manage and measure performance of our business in three distinct operating segments: Communications, Residential and Commercial & Industrial.

Safety Culture

Performance of our contracting and maintenance services exposes us to unique potential hazards associated specifically with the electrical contracting industry. In light of these risks, we are resolute in our commitment to safety and maintaining a strong safety culture, which is reflected in our safety program and the significant reductions in loss time cases and OSHA recordable incidents over the past ten years. We employ eight full-time regional safety managers. We have also standardized safety policies, programs, procedures and personal protection equipment throughout all operating locations, including our program to train new employees, which is beneficial to employees new to the industry and new to IES. To further emphasize our commitment to safety, we have also tied incentives to safety performance.

Business Operations

We have 69 locations serving the continental 48 states. This helps to reduce our exposure to negative developments in any given region.

Customer Relationships

Our customer relationships extend over multiple markets and include general contractors, property developers and managers, facility owners and managers of large retail establishments, manufacturing and processing facilities, utilities, government agencies and homeowners. No single customer accounted for more than 10% of our revenues for the year ended September 30, 2010.

Access to Bonding

The ability to post surety bonds provides us with an advantage over competitors that are smaller or have fewer financial resources. We believe that the strength of our balance sheet, as well as our strong relationship with our bonding provider, enhances our ability to obtain adequate financing and surety bonds.

Industry Overview

According to McGraw Hill Construction, construction starts in the United States were estimated at $411 billion in 2010, a 2% year-over-year decline, that follows declines of 25% in 2009 and 13% in 2008. Slowing economic conditions have lead to a sharp decrease in demand for residential housing since the middle of 2007, with commercial demand beginning to slow, thereafter, in 2008. A more severe decline was experienced during 2009 for commercial as well as industrial and multi-family construction. The 2010 decline, while less severe, did not meet previous expectations for recovery.

McGraw Hill Construction further indicated that construction starts are forecasted to be $446 billion in 2011, an increase of 8% from 2010. While positive, this forecasted increase remains well below peak activity in 2006 due to the slow recovery of jobs and consumer spending affecting the economic recovery.

McGraw Hill Construction included the following information which we consider key points for the construction markets we compete within:

•

Single family housing is forecasted to increase approximately 27% in 2011, but the activity level may remain weak, about the same as 2008 activity levels and 65% below its peak in 2005.

•		Multifamily housing is forecasted to improve by approximately 24% in 2011, due to its more stable revenue stream, despite restrained financing.
•		Commercial construction is forecasted to increase approximately 16% in 2011, following a three-year decline of 62%, but activity levels for stores, warehouses, offices and hotels should remain weak by historical standards.
•		Industrial construction activity is forecasted to increase 9% in 2011, due to the lower value of the U.S. dollar relative to other currencies, encouraging export growth.
•		Institutional building construction is forecasted to decrease 1% in 2011, retreating for the third straight year, due to the difficult fiscal climate for states and localities. School construction should be dampened, while health care facilities should partially offset projected declines.
•		Public works construction is forecasted to decline 1% in 2011, given the fading benefits of the federal stimulus act for highways and bridge construction offset by growth expected for sewer and water supply systems.
•		Electric utility construction activity is forecasted to drop 10% in 2011, falling for the third year in a row since the record high in 2008. Alternative power projects, such as wind and solar, should assume a greater share of the total electrical utilities. These projects tend to be smaller in scope than massive gas-fired plants. Construction starts for nuclear power facilities may be delayed past 2011.

Looking well beyond the recent economic downturn and prolonged recovery, numerous factors could positively affect construction industry growth, including (i) population growth, which will increase the need for commercial, industrial and residential facilities, (ii) aging public infrastructure which must be replaced or repaired, and (iii) increased emphasis on environmental and energy efficiency, which may lead to both increased public and private spending. We believe these factors will continue to drive demand for the electrical contracting services we offer over the long-term.

The Markets We Serve

Communications Market — Our Communications segment is a leading national service provider specializing in the planning, design, implementation and maintenance of structured cabling and other low voltage infrastructure projects. Projects range from single user connections to multi-site communication systems. We provide structured cabling, security, audio-visual, wireless data communications, fire alarms and other custom specialty systems.

In addition, we assist our customer’s with their project management needs including a specialized engineering team, a web-based quote and service request portal, dedicated and integrated project and service teams and BICSI training facilities across the US.

We specialize in data center installations, site and national account support. We service most markets with a focus on technology, financial, hi-tech manufacturing, as well as co-location facilities, private higher education, healthcare and government.

Our Communications segment represented approximately 17.2%, 11.8% and 9.9% of our consolidated revenues for the twelve-month periods ended September 30, 2010, 2009 and 2008, respectively. For additional financial information on the Communications segment, see Note 11, “Operating Segments” to the Consolidated Financial Statements, which are incorporated herein by reference.

Residential Market—Our work for the Residential segment consists primarily of electrical installations in new single-family housing and low-rise, multi-family housing, for local, regional and national homebuilders and developers. Demand for our Residential services is dependent on the number of single-family and multi-family home starts in the markets we serve. Single-family housing starts are affected primarily by the level of interest rates and general economic conditions in the region. A competitive factor particularly important in the Residential market is our ability to develop relationships with homebuilders and developers by providing services in multiple areas of their operations. Also bolstering these relationships is our financial strength which differentiates us from many of the smaller, private competitors in the current challenging economic and credit market environment. This ability has become increasingly important as consolidation has occurred in the Residential construction industry, and homebuilders and developers have sought out service providers that can provide consistent service in all of their operating regions. In addition to our core electrical construction work, the Residential segment is expanding its offerings by providing services for the installation of residential solar power, installing smart meters, and installing and servicing stand-by generators, both for new construction and existing residences.

The Residential segment is generally less capital intensive than our Commercial & Industrial segment; however, market conditions experienced in 2009 and 2010 have greatly reduced demand for new home construction. Residential contracting also has lower barriers to entry and has a much lower requirement for surety bonding.

We are one of the largest providers of electrical contracting services to the United States residential construction market, and we have a large market share in many of the markets we serve. Over the past three years, however, our results of operations have been adversely impacted by the downturn in the residential housing market. In line with the downturn in single-family housing, we experienced a 27% decline in our Residential revenues in fiscal year 2010 as compared to fiscal year 2009. Our Residential segment represented approximately 25.2%, 23.7% and 26.3% of our consolidated revenues for the twelve-month periods ended September 30, 2010, 2009 and 2008, respectively. For additional financial information on the Residential segment, see Note 11, “Operating Segments” to the Consolidated Financial Statements, which are incorporated herein by reference.

Commercial & Industrial Market — Our Commercial & Industrial segment provides electrical design, installation, renovation, engineering and maintenance and replacement services within a variety of markets:

		Markets				Customers
•		airports		•		general contractors
•		community centers		•		developers
•		high-rise apartments and condominiums		•		building owners and managers
•		hospitals and health care centers		•		engineers
•		hotels		•		architects
•		casinos		•		consultants
•		military installations
•		office buildings
•		retail stores and centers
•		data centers
•		schools
•		theaters, stadiums and arenas
•		electrical transmission and distribution operators
•		refineries and chemical plants
•		power generation facilities
•		alternative energy facilities including solar and wind
•		agricultural operations
•		pulp and paper mills

Demand for our Commercial & Industrial services is driven by construction and renovation activity levels, economic growth, and availability of bank lending. Commercial construction starts began to slow in mid 2008, and with a more severe decline starting in 2009 and continuing through 2010 due to the recession and tightening of the credit markets. Certain of our industrial projects have longer cycle times than our typical Commercial & Industrial services and generally follow the economic trends with a lag. Demand for our construction services is driven primarily by manufacturing capacity utilization, while demand for our utilities services is driven by industry deregulation, maintenance activities, capital expenditures on existing systems, and electricity demand growth. Due to the recent recession in the United States, manufacturing capacity utilization rates declined considerably, which when coupled with reduced availability of bank lending, has had a negative effect on our industrial services since 2009. Our Commercial & Industrial segment represented approximately 57.6%, 64.5% and 63.8% of our consolidated revenues for the twelve-month periods ended September 30, 2010, 2009 and 2008, respectively. For additional financial information on the Commercial & Industrial segment, see Note 11, “Operating Segments” to the Consolidated Financial Statements, which are incorporated herein by reference.

Projects we design and build generally provide us with higher margins. “Design and build” gives the Company full or partial responsibility for the design specifications of the installation. “Design and build” is an alternative to the traditional “plan and spec” model, where the contractor builds to the exact specifications of the architect and engineer. We prefer to perform “design and build” work because it allows us to use our specialized expertise to install a more value-added system for our customers with generally lower risk and higher profitability. Once a project is awarded, it is executed in scheduled phases, and progress billings are rendered to the customer for payment, typically less retention of 5% to 10% of the construction cost of the project. We generally provide the materials to be installed as a part of these contracts, which vary significantly in size from a few hundred dollars up to several million dollars and vary in duration from less than a day to more than a year.

Service and maintenance revenues are derived from service calls and routine maintenance contracts, which tend to be recurring and less sensitive to short term economic fluctuations. Most service work is warranted for 30 days. Service personnel work out of our service vehicles, which carry an inventory of equipment, tools, parts and supplies needed to complete the typical service and maintenance requests.

Customers

We have a diverse customer base. During the twelve-month periods ended September 30, 2010, 2009 and 2008, no single customer accounted for more than 10% of our revenues. We will continue our emphasis on developing and maintaining relationships with our customers by providing superior, high-quality service.

Management at each of our operating units is responsible for developing and maintaining relationships with customers. Our operating unit management teams build upon existing customer relationships to secure additional projects and increase revenue from our customer base. These customer relationships are maintained through a partnering approach that includes project evaluation and consulting and quality performance. On an operating unit level, management maintains a parallel focus on pursuing growth opportunities with prospective customers. At times, certain operating units may provide services to customers of other operating units. In addition, our business development group promotes and markets our services for prospective large national accounts and projects that would require services from multiple operating units across the country.

Backlog

Backlog is a measure of revenue that we expect to recognize from work that has yet to be performed on uncompleted contracts, and from work that has been contracted but has not started. Backlog is not a guarantee of future revenues, as contractual commitments may change. As of September 30, 2010, our backlog was approximately $245.5 million compared to $240.5 million as of September 30, 2009. The Communications segment experienced a decline in backlog year-over-year due to timing of orders. The Residential segment experienced an increase in backlog in fiscal 2010 as compared to fiscal 2009, as multi-family housing starts increased incrementally. The Commercial & Industrial segment backlog declined year-over-year, due to competitive market pressures, project selection delays and project cancellations. We do not include single-family housing or time and material work in our backlog.

Employee Development

In the United States, the number of qualified electricians has fallen in recent years, making the recruitment, development and retention of these individuals an essential part of our overall strategy. We are committed to providing the highest level of customer service through the development of a highly trained workforce. Employees are encouraged to complete a progressive training program to advance their technical competencies and to ensure that they understand and follow the applicable codes, safety practices and our internal policies. We support and fund continuing education for our employees, as well as apprenticeship training for technicians under the Bureau of Apprenticeship and Training of the Department of Labor and similar state agencies. Employees who train as apprentices for four years may seek to become journeymen electricians and after additional years of experience, they may seek to become master electricians. We pay progressive increases in compensation to employees who acquire this additional training, and more highly trained employees serve as foremen, estimators and project managers. We also actively recruit and screen applicants for our technical positions and have established programs to recruit apprentice technicians directly from high schools and vocational technical schools in certain areas.

At September 30, 2010, we had 2,921 employees. We are not a party to any collective bargaining agreements with our employees. We believe that our relationship with our employees is strong.

Competition

The markets in which we operate are highly competitive. The electrical contracting industry is highly fragmented and is served by many small, owner-operated private companies. There are also several large private regional companies and a small number of large public companies in our industry. In addition, there are relatively few barriers to entry into some of the industries in which we operate and, as a result, any organization that has adequate financial resources and access to technical expertise may become a competitor. We believe that our strengths such as our safety performance, technical expertise and experience, financial and operational resources, nationwide presence, and industry reputation put us in a strong position. There can be no assurance, however, that our competitors will not develop the expertise, experience and resources to provide services that are superior in both price and quality to our services, or that we will be able to maintain or enhance our competitive position.

Regulations

Our operations are subject to various federal, state and local laws and regulations, including:

•		licensing requirements applicable to electricians;
•		building and electrical codes;
•		regulations relating to worker safety and protection of the environment;
•		regulations relating to consumer protection, including those governing residential service agreements; and
•		qualifications of our business legal structure in the jurisdictions where we do business.

Many state and local regulations governing electricians require permits and licenses to be held by individuals. In some cases, a required permit or license held by a single individual may be sufficient to authorize specified activities for all our electricians who work in the state or county that issued the permit or license. It is our policy to ensure that, where possible, any permits or licenses that may be material to our operations in a particular geographic area are held by multiple IES employees within that area.

We believe we have all licenses required to conduct our operations and are in compliance with applicable regulatory requirements. Failure to comply with applicable regulations could result in substantial fines or revocation of our operating licenses or an inability to perform government work.

Risk Management and Insurance

The primary risks in our operations include bodily injury, property damage and construction defects. We maintain automobile, general liability and construction defect insurance for third party health, bodily injury and property damage and workers’ compensation coverage, which we consider appropriate to insure against these risks. Our third-party insurance is subject to deductibles for which we establish reserves.

Seasonality and Quarterly Fluctuations

Results of operations from our Residential segment are more seasonal, depending on weather trends, with typically higher revenues generated during spring and summer and lower revenues during fall and winter. The Communications and Commercial & Industrial segments of our business are less subject to seasonal trends, as work generally is performed inside structures protected from the weather. Our service and maintenance business is generally not affected by seasonality. 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.

Available Information

General information about us can be found on our website at www.ies-co.com under “Investor Relations.” We file our interim and annual financial reports, as well as other reports required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the United States Securities and Exchange Commission (the “SEC”).

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 and exhibits to those reports are available free of charge through our website as soon as it is reasonably practicable after we file them with, or furnish them to, the SEC. You may also contact our Investor Relations department and they will provide you with a copy of these reports. The materials that we file with the SEC are also available free of charge through the SEC website at www.sec.gov. You may also read and copy these materials at the SEC’s Public Reference Room at 100 F Street, NE., Washington, D.C. 20549. Information on the operation of the Public Reference Room is available by calling the SEC at 1—800—SEC—0330.

We have adopted a Code of Ethics for Financial Executives, a Code of Business Conduct and Ethics for directors, officers and employees (the Legal Compliance and Corporate Policy Manual), and established Corporate Governance Guidelines and adopted charters outlining the duties of our Audit, Human Resources and Compensation and Nominating/Governance Committees, copies of which may be found on our website. Paper copies of these documents are also available free of charge upon written request to us. We have designated an “audit committee financial expert” as that term is defined by the SEC. Further information about this designee may be found in the Proxy Statement for the Annual Meeting of Stockholders of the Company.

Item 1A. Risk Factors

You should consider carefully the risks described below, as well as the other information included in this document before making an investment decision. Our business, results of operations or financial condition could be materially and adversely affected by any of these risks, and the value of your investment may decrease due to any of these risks.

Existence of a controlling shareholder.

A majority of our outstanding common stock is owned by Tontine Capital Partners, L.P. and its affiliates (collectively, “Tontine”). On May 13, 2010, Tontine, filed an amended Schedule 13D indicating its ownership level of 58.7%. As a result, Tontine can control some of our affairs, including the election of directors who in turn appoint management. Tontine controls any action requiring the approval of shareholders, including the adoption of amendments to our corporate charter and approval of any potential merger or sale of all or substantially all assets, divisions, or the Company itself. This control also gives Tontine the ability to bring matters to a shareholder vote that may not be in the best interest of our other stakeholders. Tontine also controls decisions requiring shareholder approval affecting our capital structure, such as the issuance or repurchase of capital stock, the issuance or repayment of debt, and the declaration of dividends. Additionally, Tontine is in the business of investing in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us.

Availability of net operating losses may be reduced by a change in ownership.

A change in ownership, as defined by Internal Revenue Code Section 382, could reduce the availability of net operating losses for federal and state income tax purposes. Should Tontine sell or exchange all or a portion of its position in IES, a change in ownership could occur. In addition a change in ownership could occur resulting from the purchase of common stock by an existing or a new 5% shareholder as defined by Internal Revenue Code Section 382. Currently, we have approximately $238.1 million of federal net operating losses that are available to use to offset taxable income, exclusive of net operating losses from the amortization of additional tax goodwill. In addition, we have approximately $31.8 million of net operating loss not currently available due to the limitation imposed by Internal Revenue Code Section 382, exclusive of net operating losses from the amortization of additional tax goodwill, and will be available to offset taxable income in future periods. Should a change in ownership occur, all net operating losses incurred prior to the change in ownership would be subject to limitation imposed by Internal Revenue Code Section 382 and this would substantially reduce the amount of net operating loss currently available to offset taxable income.

We may be unsuccessful at generating internal growth.

Our ability to generate internal growth will be affected by, among other factors, our ability to:

•		expand the range of services we offer to customers to address their evolving needs;
•		attract new customers;
•		increase the number of projects performed for existing customers;
•		hire and retain qualified employees;
•		expand geographically; and
•		address the challenges presented by difficult economic or market conditions that may affect us or our customers.

In addition, our customers may delay, reduce or cancel the number or size of projects available to us due to their inability to obtain capital or pay for services provided, the demand for their products and services and the risk of which has become heightened in light of the recent economic downturn. Many of the factors affecting our ability to generate internal growth may be beyond our control, and we cannot be certain that our strategies will be successful or that we will be able to generate cash flow sufficient to fund our operations and to support internal growth. If we are unsuccessful, we may not be able to achieve internal growth of our business or expand our operations.

To service our indebtedness and to fund working capital, we will require a significant amount of cash. Our ability to generate cash depends on many factors that are beyond our control.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. This is subject to our operational performance, as well as general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We cannot provide assurance that our business will generate sufficient cash flow from operations or asset sales and, that future borrowings will be available to us under our credit facility in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, on or before maturity. We cannot provide assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms, or at all. Our inability to refinance our debt on commercially reasonable terms could have a material adverse effect on our business.

The highly competitive nature of our industry could affect our profitability by reducing our profit margins.

The electrical contracting industry is highly fragmented and is served by many small, owner-operated private companies. There are also several large private regional companies and a small number of large public companies from which we face competition in the industry. In the future, we could also face competition from new competitors entering these markets because certain segments of electrical contracting have a relatively low barrier for entry. Some of our competitors offer a greater range of services, including mechanical construction, facilities management, plumbing and heating, ventilation and air conditioning services. Competition in our markets depends on a number of factors, including price. Some of our competitors may have lower overhead cost structures and may, therefore, be able to provide services comparable to ours at lower rates than we do. If we are unable to offer our services at competitive prices or if we have to reduce our prices to remain competitive, our profitability would be impaired.

Backlog may not be realized or may not result in profits.

Customers often have no obligation under our contracts to assign or release work to us, and many contracts may be terminated on short notice. Reductions in backlog due to cancellation of one or more contracts by a customer or for other reasons could significantly reduce the revenue and profit we actually receive from contracts included in backlog. In the event of a project cancellation, we may be reimbursed for certain costs but typically have no contractual right to the total revenues reflected in our backlog.

Our use of percentage-of-completion accounting could result in a reduction or elimination of previously reported profits.

As discussed in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” and in the notes to our Consolidated Financial Statements included in Item 8 “Financial Statements and Supplementary Data” hereof, a significant portion of our revenues are recognized using the percentage-of-completion method of accounting, utilizing the cost-to-cost method. This method is used because management considers expended costs to be the best available measure of progress on these contracts. The percentage-of-completion accounting practice we use results in our recognizing contract revenues and earnings ratably over the contract term in proportion to our incurrence of contract costs. The earnings or losses recognized on individual contracts are based on estimates of contract revenues, costs and profitability. Contract losses are recognized in full when determined to be probable and reasonably estimable and contract profit estimates are adjusted based on ongoing reviews of contract profitability. Further, a portion of our contracts contain various cost and performance incentives. Penalties are recorded when known or finalized, which generally occurs during the latter stages of the contract. In addition, we record cost recovery claims when we believe recovery is probable and the amounts can be reasonably estimated. Actual collection of claims could differ from estimated amounts and could result in a reduction or elimination of previously recognized earnings. In certain circumstances, it is possible that such adjustments could be significant.

The availability and cost of surety bonds affect our ability to enter into new contracts and our margins on those engagements.

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 subcontractors and vendors. We obtain surety bonds from two primary surety providers; however, there is no commitment from either of these providers to guarantee our ability to issue bonds for projects as they are required. Our ability to access this bonding capacity is at the sole discretion of our surety providers.

Due to seasonality and differing regional economic conditions, our results may fluctuate from period to period.

Our business is subject to seasonal variations in operations and demand that affect the construction business, particularly in residential construction. Untimely weather delay from rain, heat, ice, cold or snow can not only delay our work but can negatively impact our schedules and profitability by delaying the work of other trades on a construction site. Our quarterly results may also be affected by regional economic conditions that affect the construction market. Accordingly, our performance in any particular quarter may not be indicative of the results that can be expected for any other quarter or for the entire year. Additionally, cost increases in construction materials such as steel, aluminum, copper and lumber can alter the rate of new construction.

The estimates we use in placing bids could be materially incorrect. The use of incorrect estimates could result in losses on a fixed price contract. These losses could be material to our business.

We currently generate, and expect to continue to generate, more than half of our revenues under fixed price contracts. The cost of fuel, labor and materials, including copper wire, may vary significantly from the costs we originally estimate. Variations from estimated contract costs along with other risks inherent in performing fixed price contracts may result in actual revenue and gross profits for a project differing from those we originally estimated and could result in losses on projects. Depending upon the size of a particular project, variations from estimated contract costs can have a significant impact on our operating results.

Commodity costs may fluctuate materially and we may not be able to pass on all cost increases during the term of a contract.

We enter into many contracts at fixed prices and if the cost associated with commodities such as copper, aluminum, steel, fuel and certain plastics increase, our expected profit may decline under that contract.

We may be unsuccessful at integrating companies that we may acquire.

As a part of our business strategy, we may seek to acquire companies that complement or enhance our business. However, we cannot be sure that we will be able to successfully integrate each of these companies with our existing operations without substantial costs, delays or other operational or financial problems. If we do not implement proper overall business controls, our strategy could result in inconsistent operating and financial practices at the companies we acquire and our overall profitability could be adversely affected. Integrating acquired companies involves a number of risks, which could have a negative impact on our business, financial condition and results of operations.

We may experience difficulties in managing our billings and collections.

Our billings under fixed price contracts are generally based upon achieving certain milestones and will be accepted by the customer once we demonstrate those milestones have been met. If we are unable to demonstrate compliance with billing requests, or if we fail to issue a project billing, our likelihood of collection could be delayed or impaired, which, if experienced across several large projects, could have a materially adverse effect on our results of operations.

We have restrictions and covenants under our credit facility.

We may not be able to remain in compliance with the covenants in our credit facility. A failure to fulfill the terms and requirements of our credit facility may result in a default under one or more of our material agreements, which could have a material adverse effect on our ability to conduct our operations and our financial condition.

Our reported operating results could be adversely affected as a result of goodwill impairment write-offs.

When we acquire a business, we record an asset called “goodwill” if the amount we pay for the business, including liabilities assumed, is in excess of the fair value of the assets of the business we acquire. Accounting principles generally accepted in the United States of America (“GAAP”) requires that goodwill attributable to each of our reporting units be tested at least annually. The testing includes comparing the fair value of each reporting unit with its carrying value. Fair value is determined using discounted cash flows, market multiples and market capitalization. Significant estimates used in the methodologies include estimates of future cash flows, future short-term and long-term growth rates, weighted average cost of capital and estimates of market multiples for each of the reportable units. On an ongoing basis, we expect to perform impairment tests at least annually as of September 30. Impairment adjustments, if any, are required to be recognized as operating expenses. We cannot assure that we will not have future impairment adjustments to our recorded goodwill.

The vendors who make up our supply chain may be adversely affected by the current operating environment and credit market conditions.

We are dependent upon the vendors within our supply chain to maintain a steady supply of inventory, parts and materials under our existing just-in-time inventory system. Many of our divisions are dependent upon a limited number of suppliers, and significant supply disruptions could adversely affect our operations. Under recent market conditions, including both the construction slowdown and the tightening credit market, it is possible that one or more of our suppliers will be unable to meet the terms of our operating agreements due to financial hardships, liquidity issues or other reasons related to the prolonged market recovery.

Our operations are subject to numerous physical hazards associated with the construction of electrical systems. If an accident occurs, it could result in an adverse effect on our business.

Hazards related to our industry include, but are not limited to, electrocutions, fires, machinery-caused injuries, mechanical failures and transportation accidents. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment, and may result in suspension of operations. Our insurance does not cover all types or amounts of liabilities. Our third-party insurance is subject to deductibles for which we establish reserves. No assurance can be given that our insurance or our provisions for incurred claims and incurred but not reported claims will be adequate to cover all losses or liabilities we may incur in our operations; nor can we provide assurance that we will be able to maintain adequate insurance at reasonable rates.

Our internal controls over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur. Internal controls over financial reporting and disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objective will be met.

On a quarterly basis, we evaluate our internal controls over financial reporting and our disclosure controls and procedures, which include a review of the objectives, design, implementation and effectiveness of the controls and the information generated for use in our periodic reports. In the course of our controls evaluation, we sought (and seek) to identify data errors, control problems and to confirm that appropriate corrective action, including process improvements, are being undertaken. This type of evaluation is conducted on a quarterly basis so that the conclusions concerning the effectiveness of our controls can be reported in our periodic reports.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be satisfied. Internal controls over financial reporting and disclosure controls and procedures are designed to give reasonable assurance that they are effective and achieve their objectives. We cannot provide absolute assurance that all possible future control issues have been detected. These inherent limitations include the possibility that our judgments can be faulty, and that isolated breakdowns can occur because of human error or mistake. The design of our system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed absolutely in achieving our stated goals under all potential future or unforeseeable conditions. Because of the inherent limitations in a cost-effect control system, misstatements due to error could occur without being detected.

We have adopted tax positions that a taxing authority may view differently. If a taxing authority differs with our tax positions, our results may be adversely affected.

Our effective tax rate and cash paid for taxes are impacted by the tax positions that we have adopted. Taxing authorities may not always agree with the positions we have taken. We have established reserves for tax positions that we have determined to be less likely than not to be sustained by taxing authorities. However, there can be no assurance that our results of operations will not be adversely affected in the event that disagreement over our tax positions does arise.

Litigation and claims can cause unexpected losses.

In the construction business there are frequently claims and litigation. There are also inherent claims and litigation risk associated with the number of people that work on construction sites and the fleet of vehicles on the road everyday. 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.

Latent defect claims could expand.

Latent defect litigation is normal for residential home builders in some parts of the country; however, such litigation is increasing in certain states where we perform work. Also, in recent years, latent defect litigation has expanded to aspects of the commercial market. Should we experience similar increases in our latent defect claims and litigation, additional pressure may be placed on the profitability of the Residential and Commercial & Industrial segments of our business.

The loss of a group or several key personnel, either at the corporate or operating level, could adversely affect our business.

The loss of key personnel or the inability to hire and retain qualified employees could have an adverse effect on our business, financial condition and results of operations. Our operations depend on the continued efforts of our executive officers, senior management and management personnel at our divisions. We cannot guarantee that any member of management at the corporate or subsidiary level will continue in their capacity for any particular period of time. We have employment agreements in place with our executives and many of our key senior leadership; however, such employment agreements cannot guarantee that we will not lose key employees, nor prevent them from competing against us, which is often dependent on state and local employment laws. If we lose a group of key personnel or even one key person at a division, we may not be able to recruit suitable replacements at comparable salaries or at all, which could adversely affect our operations. Additionally, we do not maintain key man life insurance for members of our management.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Equipment

We operate a fleet of approximately 1,600 owned and leased trucks, vans, trailers, support vehicles and specialty equipment. We believe these vehicles are adequate for our current operations.

Facilities

At September 30, 2010, we maintained branch offices, warehouses, sales facilities and administrative offices at 69 locations. Substantially all of our facilities are leased. We lease our corporate office located in Houston, Texas. We believe that our properties are adequate for our present needs, and that suitable additional or replacement space will be available as required.

Item 3. Legal Proceedings

For further information regarding legal proceedings, see Note 16, “Commitments and Contingencies — Legal Matters” to the Consolidated Financial Statements, which is incorporated herein by reference.

Item 4. (Removed and Reserved)

Item 5. Market for Registrant’s Common Equity; Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock trades on the NASDAQ Global Select Market under the ticker symbol “IESC.” The following table sets forth the daily high and low close price for our common stock as reported on NASDAQ for each of the four quarters of the years ended September 30, 2010 and 2009.

		High				Low
Year Ended September 30, 2010
First Quarter		$	7.66			$	5.85
Second Quarter		$	5.93			$	4.65
Third Quarter		$	6.39			$	3.43
Fourth Quarter		$	3.84			$	3.10
Year Ended September 30, 2009
First Quarter		$	16.74			$	5.27
Second Quarter		$	13.39			$	7.62
Third Quarter		$	10.58			$	6.17
Fourth Quarter		$	9.97			$	6.44

As of December 10, 2010, the closing market price of our common stock was $3.24 per share and there were approximately 393 holders of record.

We have never paid cash dividends on our common stock, and we do not anticipate paying cash dividends in the foreseeable future. We expect that we will utilize all available earnings generated by our operations and borrowings under our credit facility for the development and operation of our business, to retire existing debt, or to repurchase our common stock. Any future determination as to the payment of dividends will be made at the discretion of our Board of Directors and will depend upon our operating results, financial condition, capital requirements, general business conditions and other factors that the Board of Directors deems relevant. Our debt instruments restrict us from paying cash dividends and also place limitations on our ability to repurchase our common stock. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

On December 12, 2007, our Board of Directors authorized the repurchase of up to one million shares of our common stock, and the Company has established a Rule 10b5-1 plan to facilitate this repurchase. This stock repurchase was allowed under an amendment to our Loan and Security Agreement that also allowed us to repay our Eton Park Term Loan and enter into our Tontine Term Loan. This share repurchase program was authorized through December 2009. As the share repurchase program terminated in December 2009, we did not repurchase common shares during the year ended September 30, 2010. During the year ended September 30, 2009, we repurchased 301,418 common shares under the share repurchase program at an average price of $13.36 per share.

Five-Year Stock Performance Graph

The following performance graph compares the Company’s cumulative total stockholder return on its common stock with the cumulative total return of (i) the Russell 2000, (ii) the 2010 peer group stock index (the “2010 Peer Group”), which was selected in good faith by the Company and comprised of the following publicly traded companies: Mastec, Inc., Willbros Group, Inc.,Comfort Systems USA Inc., Dycom Industries, Inc., Matrix Service Company, Pike Electric Corp., Insituform Technologies, Powell Industries, MYR Group, Inc., Team, Inc., Primoris Services Corp., Englobal Corp. and Furmanite Corp., and (iii) the 2009 peer group stock index (the “2009 Peer Group”), which was selected in good faith by the Company and comprised of the following publically traded companies: Comfort Systems USA, Inc., Dycom Industries, Inc., Mastec, Inc., Pike Electric Corp., Black Box Corporation, Layne Christensen Company, Matrix Service Company, Quanta Services, Inc., Tetra Tech, Inc. and Willbros Group, Inc. The cumulative total return computations set forth in the following performance graph assume (i) the investment of $100 in each of the Company’s common stock, the Russell 2000, the 2010 Peer Group and the 2009 Peer Group on September 30, 2005, and (ii) that all dividends have been reinvested. Shareholder returns over the period indicated should not be considered indicative of future shareholder returns.

The information contained in the following performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such filing.

		9/30/2005				9/30/2006				9/30/2007				9/30/2008				9/30/2009				9/30/2010
Integrated Electrical Services, Inc.		$	100.00				33.03				53.51				36.69				16.82				7.86
Russell 2000		$	100.00				109.92				123.49				105.60				95.52				108.27
2009 Peer Group		$	100.00				110.48				158.90				140.86				118.05				99.03
2010 Peer Group		$	100.00				109.78				152.14				131.89				102.61				89.22

Item 6. Selected Financial Data

The following selected consolidated historical financial information for IES should be read in conjunction with the audited historical Consolidated Financial Statements of Integrated Electrical Services, Inc. and subsidiaries, and the notes thereto, set forth in Item 8 “Financial Statements and Supplementary Data” to this Form 10-K.

		Successor																					Predecessor
																		Five					Seven
																		Months					Months
		Year Ended				Year Ended				Year Ended				Year Ended				Ended					Ended
		September				September				September				September				September					April
		30, 2010				30, 2009				30, 2008				30, 2007				30, 2006					30, 2006
		(In Millions, Except Share Information)
Continuing Operations:
Revenues		$	460.6			$	666.0			$	818.3			$	890.4			$	413.1				$	509.9
Cost of services			404.1				556.5				686.4				745.4				352.6					431.2
Gross profit			56.5				109.5				131.9				145.0				60.5					78.7
Selling, general and administrative expenses			84.9				108.3				119.1				137.0				53.1					69.4
(Gain) loss on sale of assets			(0.2	)			(0.5	)			(0.1	)			—				—					0.1
Restructuring charges			0.8				7.4				4.6				0.8				—					—
Income (loss) from operations			(29.0	)			(5.7	)			8.3				7.2				7.4					9.2
Reorganization items, net			—				—				—				—				1.4					(28.6	)
Other (income) expense:
Interest expense, net			3.2				4.1				6.6				5.8				2.6					14.9
Other (income) expense, net			(0.1	)			1.6				(0.9	)			(0.3	)			—					0.2
Interest and other expense, net			3.1				5.7				5.7				5.5				2.6					15.1
Income (loss) from operations before income taxes			(32.1	)			(11.4	)			2.6				1.7				3.4					22.7
Provision (benefit) for income taxes			—				0.5				2.4				2.3				0.4					0.8
Net income (loss) from continuing operations		$	(32.1	)		$	(11.9	)		$	0.2			$	(0.6	)		$	3.0				$	21.9
Discontinued Operations:
Income (loss) from discontinued operations			—				0.2				(0.6	)			(5.0	)			(11.1	)				(14.1	)
Provision (benefit) for income taxes			—				0.1				(0.2	)			(1.2	)			—					—
Net income (loss) from discontinued operations			—				0.1				(0.4	)			(3.8	)			(11.1	)				(14.1	)
Net income (loss)		$	(32.1	)		$	(11.8	)		$	(0.2	)		$	(4.4	)		$	(8.1	)			$	7.8
Basic earnings (loss) per share:
Continuing operations		$	(2.23	)		$	(0.83	)		$	0.01			$	(0.04	)		$	0.20				$	1.46
Discontinued operations		$	—			$	0.01			$	(0.02	)		$	(0.25	)		$	(0.74	)			$	(0.94	)
Total		$	(2.23	)		$	(0.82	)		$	(0.01	)		$	(0.29	)		$	(0.55	)			$	0.52
Diluted loss per share:
Continuing operations		$	(2.23	)		$	(0.83	)		$	0.01			$	(0.04	)		$	0.19				$	1.42
Discontinued operations		$	—			$	0.01			$	(0.02	)		$	(0.25	)		$	(0.72	)			$	(0.91	)
Total		$	(2.23	)		$	(0.82	)		$	(0.01	)		$	(0.29	)		$	(0.53	)			$	0.51

		Successor																					Predecessor
																		Five					Seven
																		Months					Months
		Year Ended				Year Ended				Year Ended				Year Ended				Ended					Ended
		September				September				September				September				September					April
		30, 2010				30, 2009				30, 2008				30, 2007				30, 2006					30, 2006
		(In Millions, Except Share Information)
Shares used in the computation of loss per share:
Basic			14,409,368				14,331,614				14,938,619				15,058,972				14,970,502					14,970,502
Diluted			14,409,368				14,331,614				15,025,023				15,058,972				15,373,969					15,373,969
Balance Sheet Data:
Cash and cash equivalents		$	32.9			$	64.2			$	64.7			$	69.7			$	28.2				$	17.0
Working capital			83.3				121.6				127.1				157.7				134.3					171.6
Total assets			205.1				268.4				320.5				353.4				375.5					379.3
Total debt			11.3				28.7				29.6				45.8				55.8					53.2
Total stockholders’ equity			101.6				132.5				146.2				153.9				154.6					160.3

We applied “fresh-start” accounting as of April 30, 2006. Under the provisions of fresh-start accounting, a new entity has been deemed created for financial reporting purposes. Fresh-start accounting requires us to allocate the reorganization value to our assets and liabilities in a manner similar to that which is required under Business Combinations accounting. References to “Successor” are in reference to reporting dates after April 30, 2006. References to “Predecessor” are in reference to reporting dates through April 30, 2006, including the impact of Plan provisions and the adoption of fresh-start reporting. As such, our financial information for the Successor is presented on a basis different from, and is therefore not comparable to, our financial information for the Predecessor for the period ended and as of April 30, 2006 or for prior periods.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto, set forth in Item 8“Financial Statements and Supplementary Data” of this Form 10-K. For additional information, see “Disclosure Regarding Forward Looking Statements” in Part I of this Form 10-K.

General

Recent Developments

Selected significant actions undertaken prior to and subsequent to our year ended September 30, 2010 include the following:

On November 30, 2010, a subsidiary of IES (“Seller”) and Siemens Energy, Inc., a Delaware corporation, (“Buyer”), executed an Asset Purchase Agreement (the “Agreement”) providing for the sale of substantially all the assets and assumption of certain liabilities of a non-strategic manufacturing facility engaged in manufacturing and selling fabricated metal buildings housing electrical equipment such as switchgears, motor starters and control systems. In addition, another subsidiary of Integrated Electrical Services which is also a party to the Agreement, sold certain real property where the fabrication facilities are located.

Pursuant to the terms of the Agreement assets excluded from the sale include, but are not limited to, cash and cash equivalents, rights to names which include “IES”, business records relating to pre-closing matters which as required by law to be retained by Seller, performed contracts and fulfilled purchase orders, insurance policies, non-assignable permits, licenses and software and tax refunds relating to periods ending prior to the closing. Buyer also assumed liabilities and obligations of Seller relating to certain customer contracts, vendor contracts and financing leases as well as accounts and trade payables arising in the ordinary course of business other than inter company account and trade payables.

The Purchase Price of $10.69 million may be adjusted upward or downward in the event of variances between Historical Working Capital and Closing Working Capital (as defined in the Agreement). We expect to record a gain on this transaction. Finally, the Agreement contains representations and warranties by Seller and Buyer as well as covenants by Seller, conditions to closing, termination provisions and indemnifications by Seller and Buyer. The transaction was completed on December 10, 2010.

In December 2010, we anticipate recording approximately $3.5 million impairment for software developed for internal use that we ceased using during that time.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist as of the date the Consolidated Financial Statements are published and the reported amounts of revenues and expenses recognized during the periods presented. We review all significant estimates affecting our Consolidated Financial Statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Judgments and estimates are based on our beliefs and assumptions derived from information available at the time such judgments and estimates are made. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements. There can be no assurance that actual results will not differ from those estimates.

Accordingly, we have identified the accounting principles, which 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 and asset impairment, our allowance for doubtful accounts receivable, the recording of our insurance liabilities and estimation of the valuation allowance for deferred tax assets. These accounting policies, as well as others, are described in Note 2, “Summary of Significant Accounting Policies” of our Consolidated Financial Statements, set forth in Item 8 “Financial Statements and Supplementary Data” of this Form 10-K, and at relevant sections in this discussion and analysis.

Revenue Recognition. We enter into contracts principally on the basis of competitive bids. We frequently negotiate the final terms and prices of those contracts with the customer. Although the terms of our contracts vary considerably, most are made on either a fixed price or unit price basis in which we agree to do the work for a fixed amount for the entire project (fixed price) or for units of work performed (unit price). We also perform services on a cost-plus or time and materials basis. Our most significant cost drivers are the cost of labor, the cost of materials and the cost of casualty and health insurance. These costs may vary from the costs we originally estimated. Variations from estimated contract costs along with other risks inherent in performing fixed price and unit price contracts may result in actual revenue and gross profits or interim projected revenue and gross profits for a project differing from those we originally estimated and could result in losses on projects. Depending on the size of a particular project, variations from estimated project costs could have a significant impact on our operating results for any fiscal quarter or year. We believe our exposure to losses on fixed price contracts is limited in the aggregate by the high volume and relatively short duration of the fixed price contracts we undertake.

We complete most of our projects within one year. We frequently provide service and maintenance work under open-ended, unit price master service agreements which are renewable annually. We recognize revenue on service, time and material work when services are performed. Work performed under a construction contract generally provides that the customers accept completion of progress to date and compensate us for services rendered, measured in terms of units installed, hours expended or some other measure of progress. Revenues from construction contracts are recognized on the percentage-of-completion method. The percentage-of-completion method for construction contracts is measured principally by the percentage of costs incurred and accrued to date for each contract to the estimated total costs for each contract at completion. We generally consider contracts substantially complete upon departure from the work site and acceptance by the customer. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Changes in job performance, job conditions, estimated contract costs, profitability and final contract settlements may result in revisions to costs and income, and the effects of such revisions are recognized in the period in which the revisions are determined. Provisions for total estimated losses on uncompleted contracts are made in the period in which such losses are determined.

The current asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed that management believes will be billed and collected within the next twelve months. The current liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized. Costs and estimated earnings in excess of billings on uncompleted contracts are amounts considered recoverable from customers based on different measures of performance, including achievement of specific milestones, completion of specified units or completion of the contract. Also included in this asset, from time to time, are claims and unapproved change orders, which include amounts that we are in the process of collecting from our customers or agencies for changes in contract specifications or design, contract change orders in dispute or unapproved as to scope and price, or other related causes of unanticipated additional contract costs. Claims and unapproved change orders are recorded at estimated realizable value when collection is probable and can be reasonably estimated. We do not recognize profits on construction costs incurred in connection with claims. Claims made by us involve negotiation and, in certain cases, litigation. Such litigation costs are expensed as incurred.

Valuation of Intangibles and Long-Lived Assets. We evaluate goodwill for potential impairment at least annually at year end, however, if impairment indicators exist, we will evaluate as needed. Included in this evaluation are certain assumptions and estimates to determine the fair values of reporting units such as estimates of future cash flows and discount rates, as well as assumptions and estimates related to the valuation of other identified intangible assets. Changes in these assumptions and estimates or significant changes to the market value of our common stock could materially impact our results of operations or financial position. We did not record goodwill impairment during the years ended September 30, 2010, 2009 and 2008.

We assess impairment indicators related to long-lived assets and intangible assets at least annually at year end. If we determine impairment indicators exist, we conduct an evaluation to determine whether any impairment has occurred. This evaluation includes certain assumptions and estimates to determine fair value of asset groups, including estimates about future cash flows and discount rates, among others. Changes in these assumptions and estimates could materially impact our results of operations or financial projections. We did not record long-lived or intangible asset impairment during the years ended September 30, 2010, 2009 and 2008.

Current and Non-Current Accounts and Notes Receivable and Provision for Doubtful Accounts. We provide an allowance for doubtful accounts for unknown collection issues, in addition to reserves for specific accounts receivable where collection is considered doubtful. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, our customers’ access to capital, our customers’ willingness to pay, general economic conditions, and the ongoing relationships with our customers. In addition to these factors, the method of accounting for construction contracts requires the review and analysis of not only the net receivables, but also the amount of billings in excess of costs and costs in excess of billings. The analysis management utilizes to assess collectability of our receivables includes detailed review of older balances, analysis of days sales outstanding where we include in the calculation, in addition to accounts receivable balances net of any allowance for doubtful accounts, the level of costs in excess of billings netted against billings in excess of costs, and the ratio of accounts receivable, net of any allowance for doubtful accounts plus the level of costs in excess of billings, to revenues. These analyses provide an indication of those amounts billed ahead or behind the recognition of revenue on our construction contracts and are important to consider in understanding the operational cash flows related to our revenue cycle.

Risk-Management. We are insured for workers’ compensation, automobile liability, general liability, construction defects, employment practices and employee-related health care claims, subject to deductibles. Our general liability program provides coverage for bodily injury and property damage. Losses up to the deductible amounts are accrued based upon our estimates of the liability for claims incurred and an estimate of claims incurred but not reported. The accruals are derived from actuarial studies, known facts, historical trends and industry averages utilizing the assistance of an actuary to determine the best estimate of the ultimate expected loss. We believe such accruals to be adequate; however, insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents incurred but not reported and the effectiveness of our safety program. Therefore, if actual experience differs from the assumptions used in the actuarial valuation, adjustments to the reserve may be required and would be recorded in the period that the experience becomes known.

Valuation Allowance for Deferred Tax Assets. We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. We perform this evaluation at least annually at the end of each fiscal year. The estimation of required valuation allowances includes estimates of future taxable income. In assessing the realizability of deferred tax assets at September 30, 2010, we considered that it was more likely than not that some or all of the deferred tax assets would not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

Income Taxes

Effective October 1, 2007, a new methodology by which a company must identify, recognize, measure and disclose in its financial statements the effects of any uncertain tax return reporting positions that a company has taken or expects to take was required under GAAP. GAAP requires financial statement reporting of the expected future tax consequences of uncertain tax return reporting positions on the presumption that all relevant tax authorities possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and circumstances, but it prohibits discounting of any of the related tax effects for the time value of money.

The evaluation of a tax position 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.

In December 2007, the Financial Accounting Standards Board, (“FASB”) issued updated standards on business combinations and accounting and reporting of noncontrolling interests in consolidated financial statements. Beginning October 1, 2009, with the adoption of the updates, reductions in the valuation allowance and contingent tax liabilities attributable to all periods, if any should occur, are recorded as an adjustment to 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 the new methodology effective October 1, 2007, 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 Sheet. 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. The remaining $0.2 million would result in a decrease in the provision for income tax expense.

We are currently not under federal audit by the Internal Revenue Service. The tax years ended September 30, 2007 and forward are subject to audit as are tax years prior to September 30, 2007, to the extent of unutilized net operating losses generated in those years.

We anticipate that approximately $0.1 million of liabilities for unrecognized tax benefits, including accrued interest, may be reversed in the next twelve months. This reversal is predominately due to the expiration of the statues of limitation for unrecognized tax benefits and the settlement of a state audit.

New Accounting Pronouncements. Newly adopted accounting policies are described in Note 2 “Summary of Significant Accounting Policies — New Accounting Pronouncements” of our Consolidated Financial Statements, set forth in Item 8 “Financial Statements and Supplementary Data” of this Form 10-K, and at relevant sections in this discussion and analysis.

Strategic Actions

Exit or Disposal Activities

In June 2007, we shut down our Mid-States Electric division, located in Jackson, Tennessee. Mid-States’ operating equipment was either transferred to other IES divisions or sold to third parties. All project work was completed prior to closing Mid-States. Mid-States’ assets, liabilities and operating results for both the current and prior periods have been reclassified to discontinued operations. Mid-States was part of our Commercial & Industrial segment prior to being classified as discontinued.

In August 2008, we shut down our Haymaker division, located in Birmingham, Alabama. All project work was completed prior to closing Haymaker. Haymaker’s assets, liabilities and operating results for both the current and prior periods have been reclassified to discontinued operations. Haymaker was part of our Commercial & Industrial segment prior to being classified as discontinued.

We have completed the wind down of our discontinued operations. All substantive assets have been sold or transferred and liabilities have been retired. There is no longer any operating activity or material outstanding balances. We have classified the remaining balances as continuing operations.

The 2007 Restructuring Plan

During the 2008 fiscal year, we completed the restructuring of our operations from the 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 the business to better serve our customers and strengthen financial controls. The 2007 Restructuring Plan consolidated certain leadership roles and administrative support functions and eliminated redundant functions that were previously performed at 27 division locations. We recorded a total of $5.6 million of restructuring charges for the 2007 Restructuring Plan. As part of the restructuring charges, we recognized $0.0 million, $0.2 million and $2.7 million in severance costs at our Communications, Residential and Commercial & Industrial 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 and wrote off $0.1 million of leasehold improvements at an operating location that we closed.

The 2009 Restructuring Plan

In the first quarter of our 2009 fiscal year, we began a new restructuring program (the “2009 Restructuring Plan”) that was designed to consolidate operations within our three segments. The 2009 Restructuring Plan was the next level of our business optimization strategy. Our plan was to streamline local project and support operations, which were managed through regional operating centers, and to capitalize on the investments we had made over the past year to further leverage our resources. We accelerated our trade name amortization during the 2009 fiscal year recording a charge of $1.6 million that has been identified within the “Restructuring Charges” caption in our Consolidated Statements of Operations.

In addition, as a result of the continuing significant effects of the recession, during the third quarter of fiscal year 2009, we implemented a more expansive cost reduction program, by further reducing administrative personnel, primarily in the corporate office, and consolidating our Commercial and Industrial administrative functions into one service center. As a result of the expanded 2009 Restructuring Plan, we began managing and measuring performance of our business in two distinct operating segments: Commercial & Industrial and Residential.

During the years ended September 30, 2010 and 2009, we incurred pre-tax restructuring charges, including severance benefits and facility consolidations and closings, of $0.8 million and $7.4 million associated, respectively, with the 2009 Restructuring Plan. Costs incurred related to our Communications segment were $0.0 million and $0.1 million for the years ended September 30, 2010 and 2009, respectively. Costs incurred related to our Residential segment were $0.0 million and $2.7 million for the years ended September 30, 2010 and 2009, respectively. Costs incurred related to our Commercial & Industrial segment were $0.7 million and $3.2 million for the years ended September 30, 2010 and 2009, respectively. Costs related to our Corporate office were $0.1 million and $1.4 million for the years ended September 30, 2010 and 2009, respectively.

Results of Operations

We report our operating results across three operating segments: Communications, Residential and Commercial & Industrial. Expenses associated with our Corporate office are classified as a fourth segment. For consistency, we have reclassified our 2009 and 2008 year earnings to reflect our three operating segment approach. This reclassification does not have any effect on our Consolidated Financial Statements.

The following table presents selected historical results of operations of IES and subsidiaries.

		Year Ended								Year Ended								Year Ended
		September 30,								September 30,								September 30,
		2010								2009								2008
		$				%				$				%				$				%
		(Dollars in millions. Percentage of net revenues.)
Revenues		$	460.6				100.0	%		$	666.0				100.0	%		$	818.3				100.0	%
Cost of services			404.1				87.7	%			556.5				83.6	%			686.4				83.9	%
Gross profit			56.5				12.3	%			109.5				16.4	%			131.9				16.1	%
Selling, general and administrative expenses			84.9				18.4	%			108.3				16.3	%			119.1				14.6	%
(Gain) loss on sale of assets			(0.2	)			—	%			(0.5	)			(0.1	)%			(0.1	)			—	%
Restructuring charges			0.8				0.2	%			7.4				1.1	%			4.6				0.6	%
Income (loss) from operations			(29.0	)			(6.3	)%			(5.7	)			(0.9	)%			8.3				0.9	%
Interest and other expense, net			3.1				0.7	%			5.7				0.9	%			5.7				0.7	%
Income (loss) from operations before income taxes			(32.1	)			(7.0	)%			(11.4	)			(1.8	)%			2.6				0.2	%
Provision (benefit) for income taxes			—				—	%			0.5				0.1	%			2.4				0.3	%
Net income (loss) from continuing operations			(32.1	)			(7.0	)%			(11.9	)			(1.9	)%			0.2				(0.1	)%
Net income (loss) from discontinued operations			—				—				0.1				—				(0.4	)			—
Net income (loss)		$	(32.1	)			(7.0	)%		$	(11.8	)			(1.9	)%		$	(0.2	)			(0.1	)%

YEAR ENDED SEPTEMBER 30, 2010 COMPARED TO YEAR ENDED SEPTEMBER 30, 2009

Revenues

		Year Ended								Year Ended
		September 30,								September 30,
		2010								2009
		$				%				$				%
		(Dollars in millions, Percentage of revenues)
Communications		$	79.3				17.2	%		$	78.7				11.8	%
Residential			116.0				25.2	%			157.5				23.7	%
Commercial & Industrial			265.3				57.6	%			429.8				64.5	%
Total Consolidated		$	460.6				100.0	%		$	666.0				100.0	%

Consolidated revenues for the year ended September 30, 2010 were $205.4 million less than the fiscal year ended September 30, 2009, a decline of 30.8%. Each of our business segments experienced declines in construction activity during the period, primarily due to the very challenging economic environment where a nationwide decline in construction activity is continuing.

Our Communications segment revenues increased $0.6 million during the year ended September 30, 2010, a 0.8% increase compared to the year ended September 30, 2009. This increase is due to an increase in data center projects and more business from our national accounts.

Our Residential segment revenues decreased $41.5 million during the year ended September 30, 2010, a decrease of 26.3% as compared to the year ended September 30, 2009. This decrease is primarily attributable to the decline in multi-family housing construction, primarily due to the deferral of certain projects as they await financing or were cancelled altogether. Despite the nationwide decline in demand for single-family homes, particularly in markets such as Southern California, Arizona, Nevada, Texas and Georgia, our single-family revenues increased slightly to partially offset the declines in multi-family revenues.

Revenues in our Commercial & Industrial segment decreased $164.5 million during the year ended September 30, 2010, a 38.3% decline compared to the year ended September 30, 2009. Many of our Commercial & Industrial operating locations experienced revenue shortfalls, as most industry sectors have continued to reduce, delay or cancel proposed construction projects. We also experienced increased competition from residential contractors who have been affected by the housing slowdown for less specialized retail work with lower barriers to entry.

Gross Profit

		Year Ended								Year Ended
		September 30,								September 30,
		2010								2009
		$				%				$				%
		(Dollars in millions, Percentage of revenues)
Communications		$	13.9				17.5	%		$	11.9				15.1	%
Residential			23.5				20.3	%			36.8				23.3	%
Commercial & Industrial			19.1				7.2	%			60.8				14.1	%
Total Consolidated		$	56.5				12.3	%		$	109.5				16.4	%

The $53.0 million decrease in our consolidated gross profit for the fiscal year ended September 30, 2010, as compared to the fiscal year ended September 30, 2009, was primarily the result of lower consolidated revenues, as discussed above. Our overall gross profit percentage decreased to 12.3% during the year ended September 30, 2010 as compared to 16.4% during the year ended September 30, 2009, primarily due to lower margin construction projects and increases in costs of materials and labor.

Our Communications segment’s gross profit during the year ended September 30, 2010 increased $2.0 million, as compared to the year ended September 30, 2009. The increase in gross profit is attributed to better execution on projects, an increase in higher margin service work and a reduction in overhead costs from the consolidation of administrative functions to one location.

During the year ended September 30, 2010, our Residential segment experienced a $13.3 million reduction in gross profit as compared to the year ended September 30, 2009. Gross margin percentage in the Residential segment decreased to 20.3% during the year ended September 30, 2010. We attribute much of the decline in Residential’s gross margin to a decrease in higher margin, multi-family construction projects and increases in costs of materials.

Our Commercial & Industrial segment’s gross profit during the year ended September 30, 2010 decreased $41.7 million, as compared to the year ended September 30, 2009. Commercial & Industrial’s gross margin percentage decreased during the year ended September 30, 2010, primarily due to lower margin construction projects and operating difficulties in the Florida, Iowa and Maryland.

Selling, General and Administrative Expenses

		Year Ended								Year Ended
		September 30,								September 30,
		2010								2009
		$				%				$				%
		(Dollars in millions, Percentage of revenues)
Communications		$	8.0				10.1	%		$	6.6				8.4	%
Residential			23.7				20.4	%			33.5				21.4	%
Commercial & Industrial			39.1				14.7	%			52.0				12.1	%
Corporate			14.1				—				16.2				—
Total Consolidated		$	84.9				18.4	%		$	108.3				16.3	%

Selling, general and administrative expenses include costs not directly associated with performing work for our customers. These costs consist primarily of compensation and benefits related to corporate and division management, occupancy and utilities, training, professional services, information technology costs, consulting fees, travel and certain types of depreciation and amortization.

During the year ended September 30, 2010, our selling, general and administrative expenses were $84.9 million, a decrease of $23.4 million, or 21.6%, as compared to the year ended September 30, 2009. The reduction in 2010 expenses was primarily due to decreases of $20.1 million in employment expenses as a result of our ongoing cost reduction efforts, $4.8 million in accounting, legal and other professional fees and $1.7 million in occupancy costs offset by increases of $3.7 million for the reserve established on our Centerpoint long-term receivable and $1.3 million of bad debt expense.

As of October 1, 2009, we began allocating certain corporate selling, general and administrative costs across our segments as we believe this more accurately reflects the costs associated with operating each segment. We reclassified our year ended September 30, 2009 selling, general and administrative costs using the same methodology.

As a result of our 2009 Restructuring Plan, on October 1, 2009, the Company implemented modifications to its system of reporting, resulting from changes to its internal organization, which included the realignment of our Industrial segment into our Commercial & Industrial segment. Additionally in the year ended September 30, 2010, we began separately monitoring our Communications business as a third operating segment.

Restructuring Charges

During fiscal year 2009, we restructured our operations from a decentralized structure into two major lines of business: Commercial & Industrial and Residential. Additionally in the year ended September 30, 2010, we began separately monitoring our Communications business as a third operating segment. These lines of business are supported by two dedicated administrative shared service centers, which consolidated many of the back office functions into centralized locations. In addition, the next level of our business optimization strategy has been to streamline local projects and support operations, which are managed through regional operating centers and to capitalize on the investments we made over the past three years to further leverage our resources. Further, we implemented a more enhanced cost reduction program during 2009, as a result of the continuing effects of the recession, by reducing additional administrative personnel, primarily at our Corporate Office.

In conjunction with our 2009 Restructuring Program we recognized the following costs during the years ended September 30, 2010 and 2009:

		Year Ended				Year Ended
		September 30,				September 30,
		2010				2009
		(In millions)
Severance compensation		$	0.6			$	4.4
Consulting and other charges			0.2				0.6
Acceleration of trademark amortization			—				1.6
Lease termination costs			—				0.5
Non-cash asset write-offs			—				0.3
Total restructuring charges		$	0.8			$	7.4

Interest and Other Expense, net

		Year Ended				Year Ended
		September 30,				September 30,
		2010				2009
		(In millions)
Interest expense		$	3.1			$	4.2
Deferred financing charges			0.3				0.3
Total interest expense			3.4				4.5
Interest income			(0.2	)			(0.4	)
Other (income) expense, net			(0.1	)			1.6
Total interest and other expense, net		$	3.1			$	5.7

During the year ended September 30, 2010, we incurred interest expense of $3.1 million on an average debt balance of $19.9 million, primarily comprised of the Tontine Term Loan (as defined in “Working Capital” below) and the Insurance Financing Agreements (as defined in “Working Capital” below), an average letter of credit balance of $21.1 million under the Revolving Credit Facility (as defined in “Working Capital” below) and an average unused line of credit balance of $38.9 million. This compares to interest expense of $4.2 million for the year ended September 30, 2009, on an average debt balance of $29.0 million primarily comprised of the Tontine Term Loan and the Insurance Financing Agreements, an average letter of credit balance of $28.9 million under the Revolving Credit Facility and an average unused line of credit balance of $31.1 million.

For the fiscal years ended September 30, 2010 and 2009, we earned interest income of $0.2 million and $0.4 million, respectively, on the average Cash and Cash Equivalents balances of $43.4 million and $60.8 million, respectively.

During the year ended September 30, 2010, other income of $0.1 million included $0.2 million related to income from cash deposits netted against $0.1 million impairment of our investment in EPV Solar, Inc. (“EPV”), formerly Energy Photovoltaics, Inc. During the year ended September 30, 2009, other expense of $1.6 million included a $2.9 million impairment of our investment in EPV. This was partially offset by adjustments to our Executive Savings Plan (as defined in Note 15 “Employee Benefit Plans” of our Consolidated Financial Statements) balance totaling $0.8 million. The remaining $0.3 million primarily relates to other income received throughout the year ended September 30, 2009 in the Commercial & Industrial segment.

Provision for Income Taxes

Our provision for income taxes decreased from an expense of $0.5 million for the year ended September 30, 2009 to a benefit of $31 thousand for the year ended September 30, 2010. The decrease is mainly attributable to an increase in loss from operations, which reduced the state income taxes expense by $0.3 million. In addition we recognized an increase in the reversal of unrecognized tax benefits, resulting in a $0.2 million decrease in the income tax expense. We provided a valuation allowance for the federal tax benefit resulting from the loss from operations for the years ended September 30, 2010 and 2009, respectively. As a result, we did not recognize any net benefit for federal taxes for the years ended September 30, 2010 and 2009.

Income (Loss) from Discontinued Operations

As discussed earlier in this report, since March 2006, we have shut down seven underperforming subsidiaries. Such income statement amounts were classified as discontinued operations.

Revenues at these subsidiaries were $0.0 million and $0.0 million, respectively, for the years ended September 30, 2010 and 2009; net income (loss) at these subsidiaries was $0.0 million and $0.1 million, respectively, during these same periods.

YEAR ENDED SEPTEMBER 30, 2009 COMPARED TO YEAR ENDED SEPTEMBER 30, 2008

Revenues

		Year Ended								Year Ended
		September 30,								September 30,
		2009								2008
		$				%				$				%
		(Dollars in millions, Percentage of revenues)
Communications		$	78.7				11.8	%		$	81.2				9.9	%
Residential			157.5				23.7	%			215.0				26.3	%
Commercial & Industrial			429.8				64.5	%			522.1				63.8	%
Total Consolidated		$	666.0				100.0	%		$	818.3				100.0	%

Consolidated revenues for the year ended September 30, 2009 were $152.3 million less than the fiscal year ended September 30, 2008, a decline of 18.6%. Each of our business segments experienced declines in construction activity during the period, primarily due to the very challenging economic environment where a nationwide decline in construction activity has occurred.

Our Communications segment revenues decreased $2.5 million during the year ended September 30, 2009, a 3.1% decline compared to the year ended September 30, 2008. This decrease is due to delays in large data center projects and pricing pressure from increased competition, primarily in the Baltimore market.

Our Residential segment revenues decreased $57.5 million during the year ended September 30, 2009, a decrease of 26.7% as compared to the year ended September 30, 2008. This decrease is primarily attributable to the nationwide decline in demand for single-family homes, particularly in markets such as Southern California, Arizona, Nevada, Texas and Georgia. We attribute the majority of this decrease directly to reduced building activity, while the remainder is mainly due to pricing pressure from our customers and increased competition. This revenue decline was partially offset by increased revenue from our multi-family housing division due to increased demand for apartments.

Revenues in our Commercial & Industrial segment decreased $92.3 million during the year ended September 30, 2009, a 17.7% decline compared to the year ended September 30, 2008. Many of our Commercial & Industrial operating locations experienced revenue shortfalls, as most industry sectors have begun to reduce, delay or cancel proposed construction projects, including high rise office towers, hotels, condominiums, electrical substations, ethanol plants, pulp and paper mills and casinos, as a result of the recession and tight credit markets. We have also experienced increased competition from residential contractors who have been affected by the housing slowdown for less specialized retail work with lower barriers to entry, such as restaurants, movie theaters and local shopping centers, which could be correlated to the slowdown in the housing sector. The revenue declines have been most notably experienced in our Florida market, due to the strong ties to hospitality and condominium projects. In addition, there were no hurricane disaster recovery services that occurred during 2009, as no major hurricanes impacted the United States as compared to the activity experienced during 2008. Revenues were also negatively impacted by a decrease in electric power distribution services and other electric power infrastructure service revenues, primarily from reduced service work and capital spending by our customers. Despite national trends to the contrary, four of our business units experienced significant revenue increases that partially offset this revenue decline. These business units were located in the northeastern and western regions of the country. We attribute these increases in part to progress in implementing our business development strategy in these regions and mature customer relationships.

Gross Profit

		Year Ended								Year Ended
		September 30,								September 30,
		2009								2008
		$				%				$				%
		(Dollars in millions, Percentage of revenues)
Communications		$	11.9				15.1	%		$	13.1				16.1	%
Residential			36.8				23.3	%			42.9				19.9	%
Commercial & Industrial			60.8				14.1	%			75.9				14.5	%
Total Consolidated		$	109.5				16.4	%		$	131.9				16.1	%

The $22.4 million decrease in our consolidated gross profit for the fiscal year ended September 30, 2009, as compared to the fiscal year ended September 30, 2008, was primarily the result of lower consolidated revenues, as discussed above. Our overall gross profit percentage, however, increased to 16.4% during the year ended September 30, 2009, as compared to 16.1% during the year ended September 30, 2008. The increase was due to improved margins in the Residential segment.

Our Communications segment’s gross profit during the year ended September 30, 2009 decreased $1.2 million, as compared to the year ended September 30, 2008. The decrease in gross profit is primarily due to lower revenues and a reduction in gross profit margin from pricing pressure due to increased competition.

During the year ended September 30, 2009, our Residential segment experienced a $6.1 million reduction in gross profit as compared to the year ended September 30, 2008. This decline is due to the previously mentioned $57.5 million decrease in revenues during the period caused by reduced demand for single-family housing across the United States. However, the gross margin percentage in the Residential segment improved approximately 340 basis points during the 2009 fiscal year. We attribute the improvement in the Residential segment gross margin percentage to improved execution in multi-family and to a greater mix of higher margin multifamily projects when compared to the single family construction activities. In addition to improved profitability at our multifamily housing division, we also benefited from a stabilization of material costs and the ability to increase and decrease labor to meet project demands.

Our Commercial & Industrial segment’s gross profit decreased $15.1 million during the year ended September 30, 2009, as compared to the year ended September 30, 2008, driven primarily by $92.3 million reduction in revenue. The Commercial & Industrial segment’s gross margin percentage of revenues declined to 14.1% during the year ended September 30, 2009, as compared to 14.5% during the prior year. The decrease in gross profit in our Commercial & Industrial segment is primarily a result of the aforementioned reduced revenue of $92.3 million. The project mix in 2008 included several large time and material projects with considerably higher margins. In addition, gross profit was negatively impacted during the year ended September 30, 2009, by the settlement of a legal dispute totaling $2.1 million, which originated from a project in 2005.

Selling, General and Administrative Expenses

		Year Ended								Year Ended
		September 30,								September 30,
		2009								2008
		$				%				$				%
		(Dollars in millions, Percentage of revenues)
Communications		$	6.6				8.4	%		$	7.2				8.9	%
Residential			33.5				21.4	%			35.6				16.6	%
Commercial & Industrial			52.0				12.1	%			48.1				9.2	%
Corporate			16.2				—				28.2				—
Total Consolidated		$	108.3				16.3	%		$	119.1				14.6	%

Selling, general and administrative expenses include costs not directly associated with performing work for our customers. These costs consist primarily of compensation and benefits related to corporate and division management, occupancy and utilities, training, professional services, information technology costs, consulting fees, travel and certain types of depreciation and amortization.

During the year ended September 30, 2009, our selling, general and administrative expenses were $108.3 million, a decrease of $10.8 million, or 9.1%, as compared to the year ended September 30, 2008. This decrease was primarily due to our continued strategic efforts to restructure our operations and to eliminate redundant positions and facilities. The decrease in expenses for the fiscal year ended September 30, 2009 was primarily due to decreases of $12.4 million in employment costs, $1.2 million in occupancy costs and $1.1 million of general business and other expenses. The decrease in selling, general, and administrative expenses for the year ended September 30, 2009 was partially offset by increases of $2.0 million in temporary support labor, in lieu of full time hires, and other increased spending related to providing support for the new software systems and outsourcing of payroll processes implemented during 2008; $1.9 million of ongoing legal costs and the settlement of legal disputes; and $0.4 million in severance costs which were not included in restructuring charges.

During 2009, we began to leverage our new software programs and work processes implemented during late 2008 which include (1) a comprehensive project management operating system now being utilized across our divisions to standardize our project management and reporting processes and provide our businesses up-to-date visibility into project performance, (2) an accounting consolidation and reporting system which supplies management more timely financial data and improved transparency, and (3) an outsourced payroll solution that utilizes more real time workers labor application technologies and employed technology to capture current labor utilization. In addition, we have invested in new sales capabilities to accelerate our target market growth strategy.

Restructuring Charges

During fiscal years 2008 and 2009, we restructured our operations from a decentralized structure into two major lines of business: Commercial & Industrial and Residential. These lines of business are supported by two dedicated administrative shared service centers which consolidated many of the back office functions into centralized locations. In addition, the next level of our business optimization strategy has been to streamline local projects and support operations, which will be managed through regional operating centers, and to capitalize on the investments we made over the past two years to further leverage our resources. Further, we have implemented a more enhanced cost reduction program during 2009, as a result of the continuing effects of the recession, by reducing additional administrative personnel, primarily at our corporate office, and began consolidating our Commercial and Industrial segments into one operational unit.

In conjunction with our 2009 Restructuring Plan and our 2007 Restructuring Plan we recognized the following costs during the years ended September 30, 2009 and 2008, respectively:

		Year Ended				Year Ended
		September 30,				September 30,
		2009				2008
		(In millions)
Severance compensation		$	4.4			$	2.5
Consulting and other charges			0.6				2.0
Acceleration of trademark amortization			1.6				—
Lease termination costs			0.5				—
Non-cash asset write-offs			0.3				0.1
Total restructuring charges		$	7.4			$	4.6

Interest and Other Expense, net

		Year Ended				Year Ended
		September 30,				September 30,
		2009				2008
		(In millions)
Interest expense		$	4.2			$	4.8
Debt prepayment penalty			—				2.1
Deferred financing charges			0.3				1.8
Total interest expense			4.5				8.7
Interest income			(0.4	)			(2.1	)
Other (income) expense, net			1.6				(0.9	)
Total interest and other expense, net		$	5.7			$	5.7

During the year ended September 30, 2009, we incurred interest expense of $4.2 million on an average debt balance of $29.0 million primarily comprised of the Tontine Term Loan and the Camden Notes Payable (as defined in “—Working Capital” below), an average letter of credit balance of $28.9 million under the Revolving Credit Facility and an average unused line of credit balance of $31.1 million. This compares to interest expense of $4.8 million for the year ended September 30, 2008, on an average debt balance of $29.4 million for the Tontine Term Loan and the Eton Park Term Loan (as defined in “—Working Capital” below), an average letter of credit balance of $37.9 million under the Revolving Credit Facility and an average unused line of credit balance of $34.4 million.

We repaid our Eton Park Term Loan on December 12, 2007, using cash on hand and the proceeds from the Tontine Term Loan. We incurred a prepayment penalty of $2.1 million on the Eton Park Term Loan, and we recognized previously unamortized debt issuance costs of $0.3 million. In addition, we also recorded $1.8 million of deferred financing charges during the year ended September 30, 2008. These deferred financing charges reflect the amortization of fees incurred on the Tontine Term Loan and the Eton Park Term Loan before it was repaid.

For the fiscal years ended September 30, 2009 and 2008, we earned interest income of $0.4 million and $2.1 million, respectively, on the average Cash and Cash Equivalents balances of $60.8 million and $70.3 million, respectively.

During the year ended September 30, 2009, other expense of $1.6 million included a $2.9 million impairment of our investment in EPV. This was partially offset by adjustments to our Executive Savings Plan balance totaling $0.8 million. The remaining $0.3 million primarily relates to administrative fee income received throughout the year in a Commercial operating unit. For the year ended September 30, 2008, other income of $0.9 million included a $1.1 million settlement with a group of former employees, out of which $0.4 million was recorded as a reduction against legal fees and the remainder as other income. This settlement was to compensate the Company for damages resulting from these employees’ departure from the Company. We collected this settlement in full in March 2008.

Provision for Income Taxes

Our provision for income taxes was an expense of $0.5 million for the year ended September 30, 2009, as compared to an expense of $2.4 million for the year ended September 30, 2008. The decrease is mainly attributable to the loss from continuing operations for the year ended September 30, 2009, which reduced federal income tax expense by $1.9 million, inclusive of the impact of permanent differences. For the year ended September 30, 2009, we provided a valuation allowance for the federal tax benefit resulting from the loss from operations. As a result, we did not recognize any net benefit for federal taxes for the year ended September 30, 2009.

Income (Loss) from Discontinued Operations

As discussed earlier in this report, since March 2006, we have shut down seven underperforming subsidiaries. Such income statement amounts are classified as discontinued operations.

Revenues at these subsidiaries were $0.0 million and $3.7 million, respectively, for the years ended September 30, 2009 and 2008; net income (loss) at these subsidiaries was $0.1 million and ($0.4) million, respectively, during these same periods.

Cost Drivers

As a service business, our cost structure is highly variable. Our primary costs include labor, materials and insurance. For our 2010 fiscal year, costs derived from labor and related expenses accounted for 44.2% of our total costs. Our labor-related expenses totaled $178.7 million, $230.6 million and $283.9 million for the years ended September 30, 2010, 2009 and 2008, respectively. As of September 30, 2010, we had 2,921 full-time employees, of which 2,212 employees were field electricians. The number of field electricians that we employ fluctuates depending upon the number and size of the projects undertaken by us at any particular time. The remaining 709 employees were project managers, job superintendents and administrative and management personnel, including executive officers, estimators or engineers, office staff and clerical personnel. We provide a health, welfare and benefit plan for all employees subject to eligibility requirements. We have a 401(k) plan pursuant to which eligible employees may contribute through a payroll deduction. We have suspended Company matching cash contributions to employee’s contributions due to the significant impact the recession has had on the Company’s financial performance.

For our 2010 fiscal year, costs incurred for materials installed on projects accounted for 45.5% of our total costs. This component of our expense structure is variable based on the demand for our services and material pricing. We generally incur costs for materials as work progresses on a project. We generally order materials when needed, ship those materials directly to the jobsite, and complete the installation within 30 days. Materials primarily consist of commodity-based items such as conduit, wire and fuses as well as specialty items such as fixtures, switchgear and control panels. Our materials expenses totaled $183.7 million, $258.1 million, and $329.7 million for the years ended September 30, 2010, 2009 and 2008, respectively.

We are insured for workers’ compensation, employer’s liability, auto liability, general liability and health insurance, subject to deductibles. Losses up to the deductible amounts are accrued based upon actuarial studies and our estimates of the ultimate liability for claims incurred and an estimate of claims incurred but not reported. These accruals are based upon known facts and historical trends and management believes such accruals to be adequate.

Discontinued Operations

Exit or Disposal Activities

In June 2007, we shut down our Mid-States Electric division, located in Jackson, Tennessee. Mid-States’ operating equipment was either transferred to other IES divisions or sold to third parties. All project work was completed prior to closing Mid-States. Mid-States was part of our Commercial & Industrial segment prior to being classified as discontinued.

In August 2008, we shut down our Haymaker division, located in Birmingham, Alabama. All project work was completed prior to closing Haymaker. Haymaker was part of our Commercial & Industrial segment prior to being classified as discontinued.

Summary of Discontinued Operations

The discontinued operations disclosures include only those identified subsidiaries qualifying for discontinued operations treatment for the periods presented. Summarized operating results for all discontinued operations are outlined below:

		Year Ended				Year Ended				Year Ended
		September 30,				September 30,				September 30,
		2010				2009				2008
		(In millions)
Revenues		$	—			$	—			$	3.7
Gross profit (loss)		$	—			$	0.1			$	0.2
Pre-tax income (loss)		$	—			$	0.2			$	(0.6	)

Working Capital

		September 30,				September 30,
		2010				2009
		(In millions)
CURRENT ASSETS:
Cash and cash equivalents		$	32.9			$	64.2
Accounts receivable
Trade, net of allowance of $3.4 and $3.3, respectively			88.3				100.8
Retainage			17.1				26.5
Inventories			12.7				10.1
Costs and estimated earnings in excess of billings on uncompleted contracts			12.6				13.6
Prepaid expenses and other current assets			5.4				6.1
Total current assets		$	169.0			$	221.3
CURRENT LIABILITIES:
Current maturities of long-term debt		$	0.8			$	2.1
Accounts payable and accrued expenses			67.8				76.5
Billings in excess of costs and estimated earnings on uncompleted contracts			17.1				21.1
Total current liabilities		$	85.7			$	99.7
Working capital		$	83.3			$	121.6

During the year ended September 30, 2010, working capital decreased by $38.3 million from September 30, 2009, reflecting a $52.3 million decrease in current assets and a $14.0 million decrease in current liabilities during the period.

During the year ended September 30, 2010, our current assets decreased by $52.3 million, or 23.6%, to $169.0 million, as compared to $221.3 million as of September 30, 2009. Cash and cash equivalents decreased by $31.3 million during the year ended September 30, 2010 as compared to September 30, 2009. The decrease in cash is primarily due to $15.0 million prepaid on our original $25.0 million principal outstanding on the Tontine Term Loan and net cash used in operating activities of $13.2 million. Current trade accounts receivables, net, decreased by $12.5 million at September 30, 2010, as compared to September 30, 2009. Days sales outstanding (“DSOs”) increased to 83 days as of September 30, 2010 from 72 days as of September 30, 2009. This increase was driven predominantly by slow-downs in receipt of certain customer payments, which we attribute to distressed financial markets and the challenging economic environment. While collections may be delayed, our secured position, resulting from our ability to secure liens against our customers’ over due receivables, reasonably assures that collection will occur eventually to the extent that our security retains value. In light of the volatility of the current financial markets, we closely monitor the collectability of our receivables. We also experienced a $9.4 million decrease in retainage and a $1.0 million decrease in costs in excess of billings during the year ended September 30, 2010 compared to September 30, 2009, primarily due to the continued reduction in volumes.

During the year ended September 30, 2010, our total current liabilities decreased by $14.0 million to $85.7 million, compared to $99.7 million as of September 30, 2009. During the year ended September 30, 2010 accounts payable and accrued expenses decreased $8.7 million as a result of lower volumes. Billings in excess of costs decreased by $4.0 million during the year ended September 30, 2010 compared to September 30, 2009, due to the overall lower volumes of work performed. Finally, current maturities of long-term debt decreased by $1.3 million during the year ended September 30, 2010 compared to September 30, 2009 primarily due to the payments of Insurance Financing Agreements existing at September 30, 2009 with no new subsequent financing outstanding at September 30, 2010.

Surety

Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a surety. These bonds provide a guarantee to the customer that we will perform under the terms of our contract and that we will pay our subcontractors and vendors. If we fail to perform under the terms of our contract or to pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the sureties for any expenses or outlays they incur on our behalf. To date, we have not been required to make any reimbursements to our sureties for bond-related costs.

As is common in the surety industry, sureties issue bonds on a project-by-project basis and can decline to issue bonds at any time. We believe that our relationships with our sureties will allow us to provide surety bonds as they are required. However, current market conditions, as well as changes in our sureties’ assessment of our operating and financial risk, could cause our sureties to decline to issue bonds for our work. If our sureties decline to issue bonds for our work, our alternatives would include posting other forms of collateral for project performance, such as letters of credit or cash, seeking bonding capacity from other sureties, or engaging in more projects that do not require surety bonds. In addition, if we are awarded a project for which a surety bond is required but we are unable to obtain a surety bond, the result could be a claim for damages by the customer for the costs of replacing us with another contractor.

As of September 30, 2010, we utilized a combination of cash and letters of credit totaling $10.1 million to collateralize our obligations to our sureties, which were comprised of $3.5 million in letters of credit and $6.6 million of cash and accumulated interest (as is included in “Other Non-Current Assets” in our Consolidated Balance Sheet). Posting letters of credit in favor of our sureties reduces the borrowing availability under our Revolving Credit Facility. As of September 30, 2010, the estimated cost to complete our bonded projects was approximately $126.4 million. On May 7, 2010, we entered into a new surety agreement to supplement our available bonding capacity. We believe the bonding capacity presently provided by our sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future.

The Revolving Credit Facility

On May 12, 2006, we entered into a Loan and Security Agreement (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 7, 2008, we renegotiated the terms of our Revolving Credit Facility and entered into an amended agreement with the same financial institutions. In May 2008 we incurred a $0.3 million charge from Bank of America as a result of this amendment, of which $0.2 million was classified as a prepaid expense and amortized over 12 months, and $0.1 million was classified as a deferred financing fee and is being amortized over 24 months.

On April 30, 2010, we renegotiated the terms of, and entered into an amendment to, the Loan and Security Agreement without incurring termination charges. Under the terms of the amended Revolving Credit Facility, the size of the facility remains at $60.0 million, and the maturity date has been extended to May 12, 2012. In connection with the amendment, we incurred an amendment fee of $0.2 million and legal fees of $0.1 million, which are being amortized over 24 months.

The Revolving Credit Facility is guaranteed by our subsidiaries and secured by first priority liens on substantially all of 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. The Revolving Credit Facility also restricts us from paying cash dividends and places limitations on our ability to repurchase our common stock.

Borrowings under the Revolving Credit Facility may not exceed a “borrowing base” that is determined monthly by our lenders based on available collateral, primarily certain accounts receivables and inventories. Under the terms of the Revolving Credit Facility in effect as of September 30, 2010, interest for loans and letter of credit fees is based on our Total Liquidity, which is calculated for any given period as the sum of average daily availability for such period plus average daily unrestricted cash on hand for such period as follows:

				Annual Interest Rate for
Total Liquidity		Annual Interest Rate for Loans		Letters of Credit
Greater than or equal to $60 million		LIBOR plus 3.00% or Base Rate plus 1.00%		3.00% plus 0.25% fronting fee
Greater than $40 million and less than $60 million		LIBOR plus 3.25% or Base Rate plus 1.25%		3.25% plus 0.25% fronting fee
Less than or equal to $40 million		LIBOR plus 3.50% or Base Rate plus 1.50%		3.50% plus 0.25% fronting fee

At September 30, 2010, we had $12.7 million available to us under the Revolving Credit Facility, based on a borrowing base of $28.3 million, $15.7 million in outstanding letters of credit and no outstanding borrowings.

At September 30, 2010, our Total Liquidity was $45.6 million. For the year ended September 30, 2010, we paid no interest for loans under the Revolving Credit Facility and a weighted average interest rate, including fronting fees, of 3.29% for letters of credit. In addition, we are charged monthly in arrears (1) an unused commitment fee of 0.50%, and (2) certain other fees and charges as specified in the Loan and Security Agreement, as amended. Finally, the Revolving Credit Facility is subject to termination charges of 0.25% of the total borrowing capacity if such termination occurs on or before May 31, 2011 and $50 thousand anytime thereafter.

As of September 30, 2010, we were subject to the financial covenant under the Revolving Credit Facility requiring that we maintain a fixed charge coverage ratio of not less than 1.0:1.0 at any time that our aggregate amount of unrestricted cash on hand plus availability is less than $25.0 million and, thereafter, until such time as our aggregate amount of unrestricted cash on hand plus availability has been at least $25.0 million for a period of 60 consecutive days. As of September 30, 2010, our Total Liquidity was in excess of $25.0 million. Had our Total Liquidity been less than $25.0 million at September 30, 2010, we would not have met the 1.0:1.0 fixed charge coverage ratio test, had it been applicable.

As of September 30, 2009, we were subject to and met a financial covenant under the Revolving Credit Facility, requiring that Shutdown Subsidiaries Earnings Before Interest and Taxes not exceed a cumulative loss of $2.0 million. Two additional financial covenants were in effect any time Total Liquidity was less than $50 million, until such time as Total Liquidity had been $50.0 million for a period of 60 consecutive days. The first was a minimum Fixed Charge Coverage ration of 1.25:1.0. The second was a maximum Leverage Ratio of 3.5:1.0. As of September 30, 2009, our Total Liquidity was in excess of $50.0 million. We would not have met either of these financial covenants, had they been applicable.

In the event that we are not able to meet the financial covenant of our amended Revolving Credit Facility in the future and are unsuccessful in obtaining a waiver from our lenders, the Company expects to have adequate cash on hand to fully collateralize our outstanding letters of credit and to provide sufficient cash for ongoing operations.

The Tontine 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 11.0% in addition to the loan principal. On April 30, 2010, we prepaid $15.0 million of principal on the Tontine Term Loan. On May 1, 2010, Tontine assigned the Tontine Term Loan to TCP Overseas Master Fund II, L.P., (“TCP 2”). 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.

Eton Park 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. 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 $25.0 million Tontine Term Loan, as described above.

Capital Lease

The Company leases certain equipment under agreements classified as capital leases and is included in property, plant and equipment. Accumulated amortization of this equipment for the years ended September 30, 2010, 2009 and 2008 was $0.2 million, $0.1 million and $0.0 million, respectively, which is included in depreciation expense in the accompanying statements of operations.

Insurance Financing Agreements

From time to time, we elect to finance our commercial insurance policy premiums over a term equal to or less than the term of the policy (“Insurance Financing Agreements”). The terms of these Insurance Financing Agreements vary from several months to two years at interest rates ranging from 4.59% to 5.99%. The Insurance Financing Agreements are collateralized by the gross unearned premiums on the respective insurance policies plus any payments for losses claimed under the policies. The remaining balances due on the Insurance Financing Agreements at September 30, 2010 and 2009 were $0.7 million and $2.9 million, respectively.

Camden Notes

From August 2008 through December 2009, we financed certain insurance policies through Camden Premium Finance, Inc. (collectively, the “Camden Notes”). The Camden Notes were collateralized by the gross unearned premiums on the respective insurance policies plus any payments for losses claimed under the policies. The last of the Camden Notes matured on January 1, 2010.

Liquidity and Capital Resources

As of September 30, 2010, we had cash and cash equivalents of $32.9 million, working capital of $83.3 million, $15.7 million of letters of credit outstanding and $12.7 million of available capacity under our Revolving Credit Facility. We anticipate that the combination of cash on hand, cash flows and available capacity under our Revolving Credit Facility will provide sufficient cash to enable us to meet our working capital needs, debt service requirements and capital expenditures for property and equipment through the next twelve months. Our ability to generate cash flow is dependent on many factors, including demand for our services, the availability of projects at margins acceptable to us, the ultimate collectability of our receivables, and our ability to borrow on our amended Revolving Credit Facility, if needed. We were not required to test our covenants under our Revolving Credit Facility in the period as our Total Liquidity was greater than the minimum under our Resolving Credit Facility. Had we been required to test our covenants, we would have failed at September 30, 2010.

We continue to closely monitor the financial markets and general national and global economic conditions. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted in the future by adverse conditions in the financial markets.

Operating Activities

Our cash flow from operations is primarily influenced by cyclicality, demand for our services, operating margins and the type of services we provide, but can also be influenced by working capital needs such as the timing of our receivable collections. Working capital needs are generally lower during our fiscal first and second quarters due to the seasonality that we experience in many regions of the country. Operating activities used net cash of $13.2 million during the year ended September 30, 2010, as compared to $11.3 million of net cash provided in the year ended September 30, 2009. The decrease in operating cash flows in the year ended September 30, 2010 was due to the year to date net loss of $32.1 million and the $8.7 million decrease of our accounts payable and accrued expenses related to the overall reduction in revenues along with the associated decrease in purchased materials compared to the year ended September 30, 2009. These decreases were partially offset by increased collections of accounts receivable and retainage of $17.8 million during the fiscal year ended September 30, 2010 and non-cash charges for bad debt expense of $7.4 million, which includes $3.7 million for the reserve established on our Centerpoint receivable and $3.7 million of bad debt expense.

Operating activities provided net cash of $11.3 million during the year ended September 30, 2009, as compared to $14.6 million of net cash provided in the year ended September 30, 2008. The decrease in operating cash flows in the year ended September 30, 2009 was primarily due to the year to date net loss of $11.8 million, decreases of $23.5 million of our accounts payable and accrued expenses and $12.5 million of billings in excess of costs and estimated earnings related to reduced volumes. These decreases were partially offset by increased collections of accounts receivable and retainage of $29.6 million, non-cash charges for an impairment loss in our investment in EPV of $2.9 million and bad debt expense of $2.5 million.

Investing Activities

In the year ended September 30, 2010, we used net cash from investing activities of $0.2 million as compared to $5.9 million of net cash used in investing activities in the year ended September 30, 2009. Investing activities in the year ended September 30, 2010 included $0.9 million used for capital expenditures partially offset by a cash distribution from an investment of $0.4 million and $0.3 million of proceeds from the sale of equipment. Investing activities in the year ended September 30, 2009 included $4.7 million used for capital expenditures, partially offset by $0.9 million of proceeds from the sale of equipment. In addition, investing activities in the year ended September 30, 2009 included $2.2 million used for investments in unconsolidated affiliates.

In the year ended September 30, 2009, we used net cash in investing activities of $5.9 million as compared to $8.2 million of net cash provided in investing activities in the year ended September 30, 2008. Investing activities in the year ended September 30, 2009 included $4.7 million used for capital expenditures, $2.0 million used for an investment in EPV and $0.2 million to satisfy our commitment to invest in EnerTech, partially offset by $0.9 million of proceeds from the sale of equipment. Investing activities in the year ended September 30, 2008 included the release of $20.0 million in restricted cash, $0.5 million for a cash distribution from an investment and $0.4 million of proceeds from the sale of equipment partially offset by $12.9 million used for capital expenditures.

Financing Activities

Financing activities used net cash of $17.9 million in the year ended September 30, 2010 compared to $6.0 million used in the year ended September 30, 2009. Financing activities in the year ended September 30, 2010 included $18.2 million used for payments of debt, of which $15.0 million was used as a prepayment to Tontine, $0.3 million was used for debt issuance costs and $0.2 million was used for the acquisition of treasury stock netted against $0.8 million provided by new insurance financing. Financing activities in the year ended September 30, 2009 included $4.3 million used for the purchase of treasury stock and $2.4 million used for repayments of debt netted against $0.8 million provided by new financing.

In the year ended September 30, 2009, financing activities used net cash of $6.0 million as compared to $27.7 million in net cash used by financing activities in the year ended September 30, 2008. Financings activities in the year ended September 30, 2009 included $4.3 million used for the acquisition of treasury stock and $2.4 million used for payments of long-term debt netted against borrowings of $0.8 million. Financing activities in the year ended September 30, 2008 included $46.1 million used for termination and prepayment of the Eton Park Term loan and $11.0 million used for the acquisition of treasury stock netted against borrowings of approximately $30.0 million due to debt refinancing.

Bonding Capacity

At September 30, 2010, we had adequate surety bonding capacity under our surety agreements. Our ability to access this bonding capacity is at the sole discretion of our surety providers. As of September 30, 2010, the expected cumulative cost to complete for projects covered by our surety providers was $126.4 million. We believe we have adequate remaining available bonding capacity to meet our current needs, subject to the sole discretion of our surety providers. For additional information, please refer to Note 16 “Commitments and Contingencies — Surety” of our Consolidated Financial Statements, set forth in Item 8 “Financial Statements and Supplementary Data” of this Form 10-K.

Controlling Shareholder

On May 13, 2010, Tontine, filed an amended Schedule 13D indicating its ownership level of 58.7%. On April 30, 2010, we prepaid $15.0 million of the original $25.0 million principal outstanding on the Tontine Term Loan, and $10.0 million remains outstanding on the Tontine Term Loan.

Although Tontine has not indicated any plans to alter its ownership level, should Tontine reconsider its investment plans and sell its controlling interest in the Company, a change in ownership would occur. A change in ownership, as defined by Internal Revenue Code Section 382, could reduce the availability of net operating losses for federal and state income tax purposes. Furthermore, a change in control would trigger the change of control provisions in a number of our material agreements, including our $60.0 million Revolving Credit facility, bonding agreements with our sureties and employment contracts with certain officers and employees of the Company.

Off-Balance Sheet Arrangements and Contractual Obligations

As is common in our industry, we have entered into certain off-balance sheet arrangements that expose us to increased risk. Our significant off-balance sheet transactions include commitments associated with non-cancelable operating leases, letter of credit obligations, firm commitments for materials and surety guarantees.

We enter into non-cancelable operating leases for many of our vehicle and equipment needs. These leases allow us to retain our cash when we do not own the vehicles or equipment, and we pay a monthly lease rental fee. At the end of the lease, we have no further obligation to the lessor. We may cancel or terminate a lease before the end of its term. Typically, we would be liable to the lessor for various lease cancellation or termination costs and the difference between the fair market value of the leased asset and the implied book value of the leased asset as calculated in accordance with the lease agreement.

Some of our customers and vendors require us to post letters of credit as a means of guaranteeing performance under our contracts and ensuring payment by us to subcontractors and vendors. If our customer has reasonable cause to effect payment under a letter of credit, we would be required to reimburse our creditor for the letter of credit. At September 30, 2010, $0.4 million of our outstanding letters of credit were to collateralize our customers and vendors.

Some of the underwriters of our casualty insurance program require us to post letters of credit as collateral, as 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 September 30, 2010, $11.8 million of our outstanding letters of credit were to collateralize our insurance programs.

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 specified intervals at a fixed price over the term. As of September 30, 2010, we did not have any open purchase commitments.

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 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. To date, we have not incurred any costs to indemnify our sureties for expenses they incurred on our behalf. As of September 30, 2010, we utilized a combination of cash, accumulated interest thereon and letters of credit totaling $10.1 million to collateralize our bonding programs.