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** **

 

** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.20549**

** **

**FORM 10-Q**

 
| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                  |
| ** ** | ** ** | **For  the Quarterly Period Ended December 31, 2008**                                                                                                            |
|       |       |                                                                                                                                                                  |
| ** ** | ** ** | **OR**                                                                                                                                                                |
|       |       |                                                                                                                                                                  |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13****OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                           |
|       |       |                                                                                                                                                                  |
|       | ** ** | **For  the transition period from                       to** |

 

**CommissionFile Number 1-13783**

 

****

 

**Integrated Electrical Services, Inc.**

(Exact name of registrant as specified in itscharter)

 

| **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**

 

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

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-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 x          |
|----------------------------|--------|------------------------------|
| Non-accelerated filer o    |   | Smaller reporting  company o |

 

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

 

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

 

The number of sharesoutstanding as of February 5, 2009 of the issuer’s common stock was14,612,239.

 

 

 

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**INTEGRATED ELECTRICALSERVICES, INC. AND SUBSIDIARIES**

** **

**INDEX**

 
| ** **                          | **Page**   |
|-------------------------------------|------------|
| PART I. FINANCIAL  INFORMATION |       |
|                                | Item 1.    |   | Condensed Consolidated  Financial Statements |   |
|                                |       |   | Condensed  Consolidated Balance Sheets as of December 31, 2008 and  September 30, 2008 | 5 |
|                                |       |   | Condensed  Consolidated Statements of Operations for the Three Months ended  December 31, 2008 and 2007 | 6 |
|                                |       |   | Condensed  Consolidated Statements of Cash Flows for the Three Months Ended  December 31, 2008 and 2007 | 7 |
|                                |       |   | Notes to Condensed Consolidated Financial Statements | 8 |
|                                | Item 2.    |   | Management’s Discussion and  Analysis of Financial Condition and Results of Operations | 22 |
|                                | Item 3.    |   | Quantitative  and Qualitative Disclosures About Market Risk | 30 |
|                                | Item 4.    |   | Controls and  Procedures | 31 |
|                                |       |   |   |   |
| PART II. OTHER  INFORMATION    |       |
|                                | Item 1.    |   | Legal Proceedings | 32 |
|                                | Item 1A.   | Risk Factors | 32 |
|                                | Item 2.    |   | Unregistered  Sales of Equity Securities and Use of Proceeds | 32 |
|                                | Item 3.    |   | Defaults Upon  Senior Securities | 32 |
|                                | Item 4.    |   | Submission of  Matters to a Vote of Security Holders | 32 |
|                                | Item 5.    |   | Other Information | 32 |
|                                | Item 6.    |   | Exhibits | 33 |
|                                | Signatures | 34 |

 

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**DEFINITIONS**

 

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

 

**DISCLOSUREREGARDING FORWARD-LOOKING STATEMENTS**

 

This quarterly report on Form 10-Qincludes certain statements that may be deemed “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934, all of which are based upon variousestimates and assumptions that the Company believes to be reasonable as of thedate hereof. These statements involve risks and uncertainties that could causeour actual future outcomes to differ materially from those set forth in suchstatements. Such risks and uncertainties include, but are not limited to:

 

·                       fluctuations in operating activity due todownturns in levels of construction, seasonality and differing regionaleconomic conditions;

 

·                       competition in the construction industry,both from third parties and former employees, which could result in the loss ofone or more customers or lead to lower margins on new contracts;

 

·                       our ability to successfully manageconstruction projects;

 

·                       possibility of errors when estimatingrevenue and progress to date on percentage-of-completion contracts;

 

·                       inaccurate estimates used when enteringinto fixed-priced contracts;

 

·                       challenges integrating new types of workor new processes into our divisions;

 

·                       the cost and availability of qualifiedlabor, especially electricians and construction supervisors;

 

·                       accidents resulting from the physicalhazards associated with our work and potential for vehicle accidents;

 

·                       success in transferring, renewing andobtaining electrical and construction licenses after the recent consolidationof our divisions;

 

·**                      **the possibility that our restructuringprogram will not be successfully executed;

 

·                       our ability to pass along increases inthe cost of commodities used in our business, in particular, copper, aluminum,steel, fuel and certain plastics;

 

·                       potential supply chain disruptions due tocredit or liquidity problems faced by our suppliers;

 

·                       loss of key personnel and effectivetransition of new management;

 

·        warrantylosses or other latent defect claims in excess of our existing reserves andaccruals;

 

·                       warranty losses or other unexpectedliabilities stemming from former divisions which we have sold or closed;

 

·                       growth in latent defect litigation instates where we provide residential electrical work for home builders nototherwise covered by insurance;

 

·                       limitations on the availability ofsufficient credit or cash flow to fund our working capital needs;

 

·                       difficulty in fulfilling the covenantterms of our credit facilities;

 

·                       increased cost of surety bonds affectingmargins on work and the potential for our surety providers to refuse bonding attheir discretion;

 

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·                       increases in bad debt expense and dayssales outstanding due to liquidity problems faced by our customers;

 

·                       changes in the assumptions made regardingfuture events used to value our stock options and performance-based stockawards;

 

·                       uncertainties inherent in estimatingfuture operating results, including revenues, operating income or cash flow;

 

·                       disagreements with taxing authoritieswith regard to tax positions we have adopted;

 

·                       complications associated with theincorporation of new accounting, control and operating procedures;

 

·                       the financial impact of new or proposedaccounting regulations;

 

·                       our ability to optimize our newoperating, accounting and financial systems;

 

·                       ability of our controlling shareholder totake action not aligned with our other shareholders;

 

·                       the possibility that certain of our netoperating losses may be restricted or reduced in a change of control;

 

·                       our ability to retain our financingagreements and surety arrangements under a change in control;

 

·                       credit and capital market conditions,including changes in interest rates that affect the cost of constructionfinancing and mortgages, and the inability for some of our customers to retainsufficient financing which could lead to project cancellations; and

 

·                       the sale ordisposition of the shares of our common stock held by our majority shareholder,which, under certain circumstances, would trigger change of control provisionsin contracts such as employment agreements, supply agreements, and financingand surety arrangements.

 

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

 

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

** **

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**INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(INTHOUSANDS, EXCEPT SHARE INFORMATION)**

 
| ** **                                                                                                                                                                     | ** ** | **December 31,  2008** | ** ** | **September 30,  2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                                     | ** ** | **(Unaudited)**             | ** ** | ** **                   | ** ** |
| **ASSETS**                                                                                                                                                                     | ** ** | ** **                  | ** ** | ** **                   | ** ** |
| CURRENT ASSETS:                                                                                                                                                                |       |                        |       |                         |       |
| Cash and cash equivalents                                                                                                                                                      |       | $                           | 49,294     |                         | $          | 64,709 |   |
| Accounts receivable:                                                                                                                                                           |       |                        |       |                         |       |
| Trade, net of allowance of $3,134 and $3,556  respectively                                                                                                                     |       | 122,678                     |       | 132,273                      |       |
| Retainage                                                                                                                                                                      |       | 31,244                      |       | 30,833                       |       |
| Inventories                                                                                                                                                                    |       | 12,316                      |       | 12,856                       |       |
| Costs and estimated earnings in excess of billings  on uncompleted contracts                                                                                                   |       | 12,589                      |       | 14,743                       |       |
| Prepaid expenses and other current assets                                                                                                                                      |       | 6,530                       |       | 6,711                        |       |
| Assets from discontinued operations                                                                                                                                            |       | 1,860                       |       | 2,034                        |       |
| Total current assets                                                                                                                                                           |       | 236,511                     |       | 264,159                      |       |
|                                                                                                                                                                           |       |                        |       |                         |       |
| PROPERTY AND EQUIPMENT, net                                                                                                                                                    |       | 24,991                      |       | 25,742                       |       |
| GOODWILL                                                                                                                                                                       |       | 4,383                       |       | 4,395                        |       |
| OTHER NON-CURRENT ASSETS, net                                                                                                                                                  |       | 20,999                      |       | 25,480                       |       |
| Total assets                                                                                                                                                                   |       | $                           | 286,884    |                         | $          | 319,776 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                  |       |                        |       |                         |       |
| CURRENT LIABILITIES:                                                                                                                                                           |       |                        |       |                         |       |
| Current maturities of long-term debt                                                                                                                                           |       | $                           | 2,717      |                         | $          | 2,905 |   |
| Accounts payable and accrued expenses                                                                                                                                          |       | 64,806                      |       | 98,046                       |       |
| Billings in excess of costs and estimated earnings  on uncompleted contracts                                                                                                   |       | 37,483                      |       | 33,711                       |       |
| Liabilities from discontinued operations                                                                                                                                       |       | 372                         |       | 504                          |       |
| Total current liabilities                                                                                                                                                      |       | 105,378                     |       | 135,166                      |       |
| LONG-TERM DEBT, net of current maturities                                                                                                                                      |       | 26,215                      |       | 26,739                       |       |
| OTHER NON-CURRENT LIABILITIES                                                                                                                                                  |       | 11,699                      |       | 10,765                       |       |
| Total liabilities                                                                                                                                                              |       | 143,292                     |       | 172,670                      |       |
|                                                                                                                                                                           |       |                        |       |                         |       |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                  |       |                        |       |                         |       |
|                                                                                                                                                                           |       |                        |       |                         |       |
| STOCKHOLDERS’ EQUITY:                                                                                                                                                     |       |                        |       |                         |       |
| Preferred stock, $0.01 par value,  10,000,000 shares authorized, none issued and outstanding                                                                         |       | —                      |       | —                       |       |
| Common stock, $0.01 par value,  100,000,000 shares authorized; 15,407,802 and 15,407,802 shares  issued and 14,634,180 and 14,753,779 outstanding, respectively |       | 154                         |       | 154                          |       |
| Treasury stock, at cost, 773,622 and  654,023 shares, respectively                                                                                                        |       | (14,035                     | )          | (11,591                      | )          |
| Additional paid-in capital                                                                                                                                                     |       | 169,043                     |       | 170,023                      |       |
| Retained deficit                                                                                                                                                               |       | (11,570                     | )          | (11,480                      | )          |
| Total stockholders’ equity                                                                                                                                                |       | 143,592                     |       | 147,106                      |       |
| Total liabilities and stockholders’ equity                                                                                                                                |       | $                           | 286,884    |                         | $          | 319,776 |   |

 

The accompanyingnotes to condensed consolidated financial statements are an integral part ofthese financial statements.

 

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**INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(INTHOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)**

 
| ** **                                                                  | ** ** | **Three Months Ended  December 31, 2008** | ** ** | **Three Months Ended  December 31, 2007** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **(Unaudited)**                                               | ** ** | **(Unaudited)**                                               | ** ** |
| ** **                                                                  | ** ** | ** **                                                    | ** ** | ** **                                                    | ** ** |
| Revenues                                                                    |       | $                                                             | 173,370    |                                                          | $          | 197,120 |   |
| Cost of services                                                            |       | 143,710                                                       |       | 164,085                                                       |       |
| Gross profit                                                                |       | 29,660                                                        |       | 33,035                                                        |       |
| Selling, general and administrative expenses                                |       | 28,801                                                        |       | 30,404                                                        |       |
| Gain on sale of assets                                                      |       | (103                                                          | )          | (17                                                           | )          |
| Restructuring charges                                                       |       | 392                                                           |       | 1,294                                                         |       |
| Income from operations                                                      |       | 570                                                           |       | 1,354                                                         |       |
| Interest and other (income) expense:                                        |       |                                                          |       |                                                          |       |
| Interest expense                                                            |       | 985                                                           |       | 4,249                                                         |       |
| Interest income                                                             |       | (160                                                          | )          | (1,120                                                        | )          |
| Other (income) expense, net                                                 |       | (151                                                          | )          | (426                                                          | )          |
| Interest and other expense, net                                             |       | 674                                                           |       | 2,703                                                         |       |
| Loss from continuing operations before income taxes                         |       | (104                                                          | )          | (1,349                                                        | )          |
| Benefit for income taxes                                                    |       | (29                                                           | )          | (429                                                          | )          |
| Net loss from continuing operations                                         |       | (75                                                           | )          | (920                                                          | )          |
| Discontinued operations (Note 2)                                       |       |                                                          |       |                                                          |       |
| Income (loss) from discontinued operations                                  |       | (29                                                           | )          | 252                                                           |       |
| Provision (benefit) for income taxes                                        |       | (14                                                           | )          | 129                                                           |       |
| Net loss from discontinued operations                                       |       | (15                                                           | )          | 123                                                           |       |
| Net loss                                                                    |       | $                                                             | (90        | )                                                             | $          | (797 | ) |
|                                                                        |       |                                                          |       |                                                          |       |
| Basic earnings (loss) per share:                                            |       |                                                          |       |                                                          |       |
| Continuing operations                                                       |       | $                                                             | (0.01      | )                                                             | $          | (0.06 | ) |
| Discontinued operations                                                     |       | $                                                             | (0.00      | )                                                             | $          | 0.01 |   |
| Total                                                                       |       | $                                                             | (0.01      | )                                                             | $          | (0.05 | ) |
|                                                                        |       |                                                          |       |                                                          |       |
| Diluted earnings (loss) per share:                                          |       |                                                          |       |                                                          |       |
| Continuing operations                                                       |       | $                                                             | (0.01      | )                                                             | $          | (0.06 | ) |
| Discontinued operations                                                     |       | $                                                             | (0.00      | )                                                             | $          | 0.01 |   |
| Total                                                                       |       | $                                                             | (0.01      | )                                                             | $          | (0.05 | ) |
|                                                                        |       |                                                          |       |                                                          |       |
| Shares used in the computation of earnings (loss)  per share (Note 4): |       |                                                          |       |                                                          |       |
| Basic                                                                       |       | 14,318,776                                                    |       | 15,092,303                                                    |       |
| Diluted                                                                     |       | 14,318,776                                                    |       | 15,092,303                                                    |       |

 

The accompanyingnotes to condensed consolidated financial statements are an integral part ofthese financial statements.

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**INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(INTHOUSANDS)**

 
| ** **                                                                              | ** ** | **Three Months Ended  December 31, 2008** | ** ** | **Three Months Ended  December 31, 2007** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **(Unaudited)**                                               | ** ** | **(Unaudited)**                                               | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                   |       |                                                          |       |                                                          |       |
| Net loss                                                                                |       | $                                                             | (90        | )                                                             | $          | (797 | ) |
| Adjustments to reconcile net loss to net cash provided  by operating activities:        |       |                                                          |       |                                                          |       |
| Net (income) loss from discontinued operations                                          |       | 15                                                            |       | (123                                                          | )          |
| Bad debt expense                                                                        |       | 291                                                           |       | 347                                                           |       |
| Deferred financing cost amortization                                                    |       | 65                                                            |       | 738                                                           |       |
| Depreciation and amortization                                                           |       | 1,986                                                         |       | 2,209                                                         |       |
| Gain on sale of assets                                                                  |       | (103                                                          | )          | (17                                                           | )          |
| Non-cash compensation expense                                                           |       | 608                                                           |       | 883                                                           |       |
| Equity in (gains) losses of investment                                                  |       | 41                                                            |       | (416                                                          | )          |
| Goodwill adjustment under SOP 90-1                                                      |       | 12                                                            |       | —                                                        |       |
| Changes in operating assets and liabilities, net of  effect of discontinued operations: |       |                                                          |       |                                                          |       |
| Accounts receivable                                                                     |       | 9,045                                                         |       | 2,516                                                         |       |
| Inventories                                                                             |       | 540                                                           |       | 293                                                           |       |
| Costs and estimated earnings in excess of billings  on uncompleted contracts            |       | 2,154                                                         |       | 1,095                                                         |       |
| Prepaid expenses and other current assets                                               |       | 667                                                           |       | 1,299                                                         |       |
| Other non-current assets                                                                |       | 5,115                                                         |       | (210                                                          | )          |
| Accounts payable and accrued expenses                                                   |       | (33,244                                                       | )          | (17,880                                                       | )          |
| Billings in excess of costs and estimated earnings  on uncompleted contracts            |       | 3,772                                                         |       | (1,110                                                        | )          |
| Other non-current liabilities                                                           |       | 934                                                           |       | 210                                                           |       |
| Net cash used in continuing operations                                                  |       | (8,192                                                        | )          | (10,963                                                       | )          |
| Net cash provided by discontinued operations                                            |       | 32                                                            |       | 2,124                                                         |       |
| Net cash used in operating activities                                                   |       | (8,160                                                        | )          | (8,839                                                        | )          |
|                                                                                    |       |                                                          |       |                                                          |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                   |       |                                                          |       |                                                          |       |
| Purchases of property and equipment                                                     |       | (648                                                          | )          | (3,065                                                        | )          |
| Proceeds from sales of property and equipment                                           |       | 137                                                           |       | 7                                                             |       |
| Investment in unconsolidated affiliate                                                  |       | (2,000                                                        | )          | —                                                        |       |
| Distribution from unconsolidated affiliate                                              |       | —                                                        |       | 488                                                           |       |
| Net cash used in investing activities of continuing  operations                         |       | (2,511                                                        | )          | (2,570                                                        | )          |
| Net cash provided by investing activities of  discontinued operations                   |       | —                                                        |       | 10                                                            |       |
| Net cash used in investing activities                                                   |       | (2,511                                                        | )          | (2,560                                                        | )          |
|                                                                                    |       |                                                          |       |                                                          |       |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                   |       |                                                          |       |                                                          |       |
| Borrowings of debt                                                                      |       | —                                                        |       | 25,000                                                        |       |
| Repayments of debt                                                                      |       | (712                                                          | )          | (45,615                                                       | )          |
| Payments for debt issuance costs                                                        |       | —                                                        |       | (500                                                          | )          |
| Acquisition of treasury stock                                                           |       | (4,032                                                        | )          | (1,525                                                        | )          |
| Net cash used in financing activities                                                   |       | (4,744                                                        | )          | (22,640                                                       | )          |
|                                                                                    |       | (15,415                                                       | )          | (34,039                                                       | )          |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    |       |                                                          |       |                                                          |       |
| CASH AND CASH EQUIVALENTS, beginning of period                                          |       | 64,709                                                        |       | 69,676                                                        |       |
| CASH AND CASH EQUIVALENTS, end of period                                                |       | $                                                             | 49,294     |                                                          | $          | 35,637 |   |
|                                                                                    |       |                                                          |       |                                                          |       |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                       |       |                                                          |       |                                                          |       |
| Cash paid for interest                                                                  |       | $                                                             | 902        |                                                          | $          | 1,456 |   |
| Cash paid for income taxes                                                              |       | $                                                             | 164        |                                                          | $          | 105 |   |

 

Non-cashinvesting activities:

 

Theaccompanying notes to condensed consolidated finance statements are an integralpart of these financial statements.

 

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**INTEGRATED ELECTRICAL SERVICES, INC.AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2008**

 

**(UNAUDITED)**

 

**1.  BUSINESS**

 

Integrated ElectricalServices, Inc., a Delaware corporation, was founded in June 1997 tocreate a leading national provider of electrical services, focusing primarilyon the commercial, industrial, residential, low voltage and service andmaintenance markets.  The words “IES”, the “Company”, “we”, “our”,and “us” refer to IntegratedElectrical Services, Inc. and, except as otherwise specified herein, to our subsidiaries.

 

**SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

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

 

On October 1, 2008,we adopted the provisions of SFAS No. 157, *“Fair**Value Measurements*”(“SFAS 157”). SFAS 157 enhances the guidance for using fair value to measureassets and liabilities. In addition, SFAS 157 expands information about theextent to which companies measure assets and liabilities at fair value, theinformation used to measure fair value and the effect of fair valuemeasurements on earnings.  This statementapplies whenever other standards require (or permit) assets or liabilities tobe measured at fair value, but it does not expand the use of fair value in anynew circumstances.  On February 12,2008, the Financial Accounting Standards Board (“FASB”) issued FASB StaffPosition No. 157-2, “*Effective Date of FASBStatement No. 157*” (“FSP 157-2”) that amends SFAS 157 to delaythe effective date for all non-financial assets and non-financial liabilities,except those that are recognized or disclosed at fair value in the financial statementson a recurring basis. FSP 157-2 defers the effective date of SFAS 157 to fiscalyears beginning after November 15, 2008. We adopted SFAS 157 on October 1,2008 for financial assets and liabilities measured on a recurring basis. SeeNote 7 for additional information on our adoption of SFAS 157.

 

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

 

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

 

The evaluation of a taxposition under FIN 48 is a two-step process. The first step is the recognitionprocess to determine if it is more likely than not that a tax position will besustained upon examination by the appropriate taxing authority, based on thetechnical merits of the position. The second step is a measurement processwhereby a tax position that meets the more likely than not recognitionthreshold is calculated to determine the amount of benefit/expense to recognizein the financial statements. The tax position is measured at the largest amountof benefit/expense that is more likely than not of being realized upon ultimatesettlement.

 

As the result ofthe adoption of FIN 48 and recognition of the cumulative effect of the adoptionof the new accounting principal, we recorded an $8.2 million decrease incontingent tax liabilities.  Thereduction of the contingent tax liabilities resulted in a $7.8 million decreasein goodwill as prescribed by Statement of Position 90-7, *“Financial Reporting by**Entities in Reorganization Under the Bankruptcy Code”* (“SOP 90-7”) and a $0.4 milliondecrease in retained deficit.  Upon theadoption of FIN 48, the total liability for unrecognized tax benefits was $6.2million, excluding accrued interest and penalties, which are discussedbelow.  The liabilities for unrecognizedtax benefits are a component of “Other non-current liabilities” in ourconsolidated balance sheet.  The reversalof the 

 

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liabilities forunrecognized tax benefits would result in a $6.1 million adjustment that wouldfirst go to reduce goodwill, then intangible assets and then additional paid-incapital as prescribed by SOP 90-7, as these represent amounts accrued prior toour emergence from bankruptcy.  Theremaining $0.1 million would result in a decrease in the provision for incometax expense.

 

We recognizeinterest and penalties related to unrecognized tax benefits as part of theprovision for income taxes.  Upon theadoption of FIN 48, we had approximately $0.4 million in accrued interest andpenalties included in liabilities for unrecognized tax benefits.  The accrued interest and penalties are a componentof “Other non-current liabilities” in our consolidated balance sheet.  The reversal of the accrued interest andpenalties would result in a $0.2 million adjustment that would first go toreduce goodwill, then intangible assets and then additional paid-in capital asprescribed by SOP 90-7, as these represent amounts accrued prior to ouremergence from bankruptcy.  The remaining$0.2 million would result in a decrease in the provision for income taxexpense.

 

As of December 31,2008 we have $6.5 million of unrecognized tax benefit of which $6.1 millionwould first go to reduce goodwill, then intangible assets and then additionalpaid-in capital as prescribed by SOP 90-7, as these represent amounts accruedprior to our emergence from bankruptcy. The remaining $0.4 million would result in a decrease in the provisionfor income tax expense.  We anticipatethat approximately $0.1 million of unrecognized tax benefits, including accruedinterest, may reverse in the next twelve months.  The reversal is predominately due to theexpiration of the statutes of limitation for unrecognized tax benefits and thesettlement of a state audit.

 

We hadapproximately $0.5 million and $0.4 million accrued for the payment of interestand penalties at December 31, 2008 and 2007, respectively.  We recognize interest and penalties relatedto unrecognized tax benefits as part of the provision for income taxes.

 

We are currentlynot under federal audit by the Internal Revenue Service.  The tax years ended September 30, 2005and forward are subject to audit as are tax years prior to September 30,2005, to the extent of unutilized net operating losses generated in thoseyears.  Currently, one of our businessunits is under a state audit for the tax years ended September 30, 2002,2003 and 2005.

 

**USE OF ESTIMATES AND ASSUMPTIONS**

 

The preparation offinancial statements in conformity with United States generally acceptedaccounting principles (“GAAP”) requires the use of estimates and assumptions bymanagement in determining the reported amounts of assets and liabilities,disclosures of contingent liabilities at the date of the financial statements,and the reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates. Estimates are primarily usedin our revenue recognition for construction in progress.  Other estimates consist of allowances fordoubtful accounts receivable, inventory obsolescence reserves, fair valueassumptions in analyzing goodwill and long-lived asset impairments andadjustments from fresh-start accounting, realizability of deferred tax assets,self-insured claims liabilities, and estimated forfeiture rates and projectedearnings used to measure stock-based compensation awards.

 

**SEASONALITYAND QUARTERLY FLUCTUATIONS**

 

Our results of operationsare seasonal, depending on weather trends, with higher revenues typicallygenerated during spring and summer months which coincides with our third andfourth fiscal quarters, and lower revenues typically generated during fall andwinter months, which coincides with our first and second fiscal quarters. Inaddition, the construction industry has historically been highly cyclical. Ourvolume of business may be adversely affected by declines in constructionprojects resulting from adverse regional or national economic conditions.Quarterly results may also be materially affected by the timing of newconstruction projects. Accordingly, operating results for any fiscal period arenot necessarily indicative of results that may be achieved for any subsequentfiscal period.

 

**RECENTLYISSUED ACCOUNTING PRONOUNCEMENTS**

 

In December 2007,the FASB issued Statement No. 141 (revised 2007), “*BusinessCombinations*” (“SFAS 141(R)”), which replaces SFAS No. 141 “*Business Combinations*” (“SFAS 141”). SFAS 141(R) requiresan acquiring entity to recognize all the assets acquired and liabilitiesassumed in a transaction at the acquisition-date fair value with limitedexceptions. SFAS 141(R) eliminates the step acquisition model, changes therecognition of contingent consideration from being recognized when it isprobable to being recognized at the time of acquisition, disallows thecapitalization of transaction costs, and changes when restructuring chargesrelated to acquisitions can be recognized. Under SFAS 141 and SOP 90-7, whichwere in effect at the time of our financial reorganization, reductions to ourincome tax valuation allowance recorded prior to April 30, 2006 wouldreduce goodwill to the extent thereof, then 

 

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reduce otherintangible assets, and then reduce additional paid-in capital. Beginning October 1,2009, under the provisions of SFAS 141(R), reductions in the valuationallowance attributable to all periods, if any should occur, will be recorded asan adjustment to our income tax expense. SFAS 141(R) is effective forfiscal years beginning on or after December 15, 2008.

 

**STOCK-BASEDCOMPENSATION**

 

Stock-based compensation consists of expenses related toemployee stock option awards, restricted stock grants and performance-basedrestricted stock grants (see Note 6).  Werecognize stock-based compensation expense in a pro-rata manner based on the valueof stock-based payment awards that are expected to vest, reduced for estimatedforfeitures. SFAS 123(R), “*Share-BasedPayment”*(“SFAS 123(R)”) requires forfeitures to be estimated at thetime of grant and revised in subsequent periods if actual forfeitures differfrom those estimates.  We used themodified prospective application method at the time SFAS 123(R) wasadopted.

 

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

 

The assumptions used in the binomial pricing modelcalculation for the three months ended December 31, 2008 and 2007 are asfollows:

 
| ** **                                                       | ** ** | **Three Months Ended  December 31,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                       | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| ** **                                                       | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Weighted average value per option granted during the  period (1) |       | $                                                   | 8.56       |   | $ | 9.84 |   |
| Assumptions:                                                     |       |                                                |       |   |   |
| Stock price volatility                                           |       | 86.4                                                | %          | 51.0 | % |
| Risk free rate of return                                         |       | 1.3                                                 | %          | 3.6 | % |
| Future forfeiture rate (2)                                       |       | 0.0                                                 | %          | 0.0 | % |
| Expected term                                                    |       | 6.0 years                                           |       | 6.0 years |   |
|                                                                  |            |                                                     |            |  |  |  |  |

 

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(1) We do notpay dividends on our common stock.

(2) Theforfeiture rate is assumed to be zero based on the limited number of employeeswho have been awarded stock options.

 

**2.STRATEGIC ACTIONS**

 

*The 2007Restructuring Plan*

 

During our 2008 fiscalyear, we completed our restructuring of operations from our previous geographicstructure into three major lines of business. This operational restructuring (the “2007 Restructuring Plan”) was partof our long-term strategic plan to reduce our cost structure, reposition ourbusiness to better serve our customers, strengthen our financial controls and,as a result, position us to implement a market-based growth strategy.  The 2007 Restructuring Plan consolidatedcertain leadership roles, administrative support functions and eliminatedredundant functions that were previously performed at our 27 divisions. Sincewe began the 2007 Restructuring Plan in June 2007, we recorded a total of$5.6 million of restructuring charges.

 

The first component ofthe 2007 Restructuring Plan was initiated in our Industrial segment in June 2007.  Under this portion of the restructuring, 5 ofour divisions were integrated under the IES Industrial segment, and the supportand administrative functions of those businesses were combined at an operatinglocation in Houston, Texas.  The secondcomponent of the 2007 Restructuring Plan was initiated in our Commercialsegment in September 2007.  Underthis portion of the restructuring, 17 of our divisions were integrated underthe IES Commercial segment, and the support and administrative functions ofthose businesses were combined at an operating location in Tempe, Arizona.  The third component of the 2007 RestructuringPlan was initiated in our Residential segment in September 2007.  Under this portion of the restructuring, 5 ofour divisions were integrated under the IES Residential segment during our 2008fiscal year, and the support and administrative functions of those businesseswere combined at an operating location near Houston, Texas.  Since the inception of the 2007 RestructuringPlan, we recognized $0.5 million, $2.2 million and $0.2 million in severanceliabilities for our Industrial, Commercial and Residential segments, respectively.  In addition to the severance costs describedabove, we incurred other charges of approximately $2.6 million predominatelyfor consulting services associated with the 

 

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2007 RestructuringPlan.  We also wrote off $0.1 million ofleasehold improvements at an operating location that we closed.  These charges have been identified within the“Restructuring Charges” caption in the consolidated statement of operations.

 

*The 2009Restructuring Plan*

 

As describedabove, during our 2008 fiscal year, we completed a previously announcedoperational restructuring from our previous geographic structure into threemajor lines of business: Commercial, Industrial and Residential.  In the first quarter of our 2009 fiscal year,we began a new restructuring program (the “2009 Restructuring Plan”) that isdesigned to consolidate operations within our three segments, and is the nextlevel of our business optimization strategy. Our plan is to streamline our local project and support operations,which will be managed through regional operating centers, and to capitalize onthe investments we made over the past year to further leverage ourresources.  Under the 2009 RestructuringPlan, we expect to incur pre-tax restructuring charges, including severancebenefits and facility consolidations and closings, of approximately $2.0million to $3.0 million, which will be implemented over approximately 12months.  During the three months ended December 31,2008, we incurred $0.4 million associated with the 2009 Restructuring Plan, ofwhich $0.2 million, $0.1 million and $0.1 million was charged to ourCommercial, Industrial and Residential segments, respectively.

 

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

 
| ** **                                                                           | ** ** | **Severance  Charges** | ** ** | **Consulting  /  Other Charges** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------------|------------|-----------|------------|
| Restructuring liability at September 30, 2008                                   |       | $                      | 638        |                             | $          | 53        |       | $ | 691 |   |
| Restructuring charges incurred during the three  months ended December 31, 2008 |       | 392                    |       | —                           |       | 392       |       |
| Less - cash payments during the three months ended  December 31, 2008           |       | (456                   | )          | (53                              | )          | (509      | )          |
| Restructuring liability at December 31, 2008                                    |       | $                      | 574        |                             | $          | —    |       | $ | 574 |   |

 

*Exitor Disposal Activities*

 

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

 

The assets, liabilitiesand operating results for each of these shut down entities have beenreclassified to discontinued operations for both current and prior periods**.**  Remaining networking capital related to these subsidiaries was $1.4 million and $1.5 millionat December 31, 2008 and September 30, 2008, respectively. As aresult of inherent uncertainty in the exit plan and the monetization of thesesubsidiaries’ working capital, we could experience additional losses of workingcapital. At December 31, 2008, we believe we have recorded adequatereserves to reflect the net realizable value of the working capital; however,subsequent events may impact our ability to collect.

 

We have included theresults of operations related to these business units in discontinuedoperations for the three months ended December 31, 2008, and all priorperiods presented have been reclassified accordingly.

 

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

 
| ** **            | ** ** | **Three Months Ended  December 31,** | ** ** |
|-----------------------|------------|-----------------------------------------------------|------------|
| ** **            | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| ** **            | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Revenues              |       | $                                                   | 21         |   | $ | 1,748 |   |
| Gross profit          |       | $                                                   | 19         |   | $ | 404 |   |
| Pre-tax income (loss) |       | $                                                   | (29        | ) | $ | 252 |   |

 

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| ** **                                                                   | ** ** | **December 31,  2008** | ** ** | **September 30,  2008** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| Accounts receivable, net                                                     |       | $                           | 1,793      |                         | $          | 1,967 |   |
| Property and equipment, net                                                  |       | 67                          |       | 67                           |       |
| Total assets                                                                 |       | $                           | 1,860      |                         | $          | 2,034 |   |
|                                                                         |       |                        |       |                         |       |
| Accounts payable and accrued liabilities                                     |       | $                           | 372        |                         | $          | 481 |   |
| Billings in excess of costs and estimated earnings  on uncompleted contracts |       | —                      |       | 23                           |       |
| Total liabilities                                                            |       | 372                         |       | 504                          |       |
| Net assets                                                                   |       | $                           | 1,488      |                         | $          | 1,530 |   |

 

**3.DEBT AND LIQUIDITY**

 

Debt consists of thefollowing (in thousands):

 
| ** **                                                                 | ** ** | **December 31,  2008** | ** ** | **September 30,  2008** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| Term Loan, due May 15, 2013, bearing interest  at 11.0%               |       | $                           | 25,000     |                         | $          | 25,000 |   |
| Camden Note Payable, due July 1, 2010, bearing  interest at 4.59%     |       | 3,736                       |       | 4,419                        |       |
| Capital lease and other                                                    |       | 196                         |       | 225                          |       |
| Total debt                                                                 |       | 28,932                      |       | 29,644                       |       |
| Less — Short-term debt and current maturities  of long-term debt |       | (2,717                      | )          | (2,905                       | )          |
| Total long-term debt                                                       |       | $                           | 26,215     |                         | $          | 26,739 |   |

 

Future payments ondebt at December 31, 2008 are as follows (in thousands):

 
| 2009       |   | $      | 2,717  |   |
|------------|--------|--------|--------|--------|
| 2010       |   | 1,207  |   |
| 2011       |   | 8      |   |
| 2012       |   | — |   |
| 2013       |   | 25,000 |   |
| Thereafter |   | — |   |
| Total      |   | $      | 28,932 |   |

 

For the three months ended December 31, 2008 and 2007, we incurredinterest expense of $1.0 million and $4.2 million, respectively.  Interest expense includes amortization ofdeferred financing charges of $0.1 million and $0.7 million for the three monthsended December 31, 2008 and 2007, respectively, and prepayment penaltiesof $2.1 million incurred during December 2007.

 

*The Tontine Capital Partners Term Loan*

 

On December 12,2007, we entered into a $25.0 million senior subordinated loan agreement (the“Tontine Term Loan”) with Tontine Capital Partners, L.P., a related party.  The proceeds of the Tontine Term Loan,together with cash on hand, were used to fund the repayment of the Eton ParkTerm Loan (defined below).

 

The Tontine TermLoan bears interest at 11.0% per annum and is due on May 15, 2013.  Interest is payable quarterly in cash orin-kind at our option. Any interest paid in-kind will bear interest at 11.0% inaddition to the loan principal.  We mayrepay the Tontine Term Loan at any time prior to the maturity date at par, plusaccrued interest without penalty.  TheTontine Term Loan is subordinated to our existing Revolving Credit Facility(defined below) with Bank of America, N.A. The Tontine Term Loan is anunsecured obligation of the Company and its subsidiary borrowers. The TontineTerm Loan contains no financial covenants or restrictions on dividends ordistributions to stockholders.

 

*CamdenNote Payable*

 

On August 1,2008, we financed an insurance policy with a $4.6 million note payable fromCamden Premium Finance, Inc. (the “Camden Note Payable”), bearing interestat 4.59%, through July 1, 2010. Under the terms of the Camden Note Payable, we are to make thirteenequal payments of $243,525 (including principal and interest) beginning September 1,2008 until October 1, 2009, followed by ten equal payments of $167,589(including principal and interest).  TheCamden Note Payable is collateralized by the gross unearned premiums on thepolicy and any payments on account of loss under the policy.  As of December 31, 2008, we have aremaining liability of $3.7 million under the Camden Note Payable whichreflects future principal payments.

 

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* *

*TheRevolving Credit Facility*

 

On May 12, 2006, weentered into an agreement, as amended (the “Loan and Security Agreement”), fora revolving credit facility (the “Revolving Credit Facility”) with Bank ofAmerica, N.A. and certain other lenders. On May 9, 2008, we renegotiated the terms of our Revolving CreditFacility and entered into an amended agreement with the same financialinstitutions.  The Revolving CreditFacility provides access to revolving borrowings in the aggregate amount of upto $60.0 million. At December 31, 2008, we had $34.0 million in letters ofcredit issued against the Revolving Credit Facility and $5.9 million availableunder the Revolving Credit Facility.

 

The RevolvingCredit Facility is guaranteed by our subsidiaries and secured by first priorityliens on substantially all of our and our subsidiaries’ existing and futureacquired assets, exclusive of collateral provided to our surety providers. TheRevolving Credit Facility contains customary affirmative, negative andfinancial covenants that were modified in conjunction with its renewal andamendment on May 9, 2008. The financial covenants are described below inthe section titled “Financial Covenants”. The Revolving Credit Facility alsorestricts us from paying cash dividends and places limitations on our abilityto repurchase our common stock.  Thematurity date of the Revolving Credit Facility is May 12, 2010.

 

Under the renegotiatedterms of our Revolving Credit Facility interest is calculated at LIBOR plus3.0%, or the lender’s prime rate (the “Base Rate”) plus 1.0% through September 30,2008.  Thereafter, interest is based onour total liquidity, which is calculated as cash on hand plus availabilityunder the revolving credit facility, as shown in the following table.

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

 

At December 31, 2008our total liquidity was $55.2 million. For the three months ended December 31, 2008, our weighted averageinterest rate under the Revolving Credit Facility was 5.0%.  The letter of credit fee under the revisedagreement was 3.25% through September 30, 2008, after which the letter ofcredit fee is based on the same factor as loans outstanding.

 

In addition, we arecharged monthly in arrears (1) an unused line fee of either 0.5% or0.375%, depending on the utilization of the credit line, and (2) certainother fees and charges as specified in the revolving credit agreement.  Finally, the Revolving Credit Facility issubject to a prepayment fee of 0.5% until May 2009 and 0.25% until May 2010.  We incurred a $275,000 charge from Bank ofAmerica as a result of the amendment, of which $200,000 is classified as aprepaid expense and is being amortized over 12 months and $75,000 is classifiedas a deferred financing fee and is being amortized over 24 months.

 

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

 

*FinancialCovenants*

 

The financial covenantsfor the Revolving Credit Facility as in effect on December 31, 2008, aredescribed in the table that follows. As of December 31, 2008, we are incompliance with each of the following amended financial covenants under theRevolving Credit Facility:

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

 

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| (1) |   | This covenant  requirement will not be in effect at any time our total liquidity, as defined  in the Loan and Security Agreement, exceeds $50 million. |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

 

As of December 31,2007, we were also in compliance with all of our financial covenants under theRevolving Credit Facility.

 

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*TheEton Park / Flagg Street Term Loan*

 

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

 

**4.EARNINGS PER SHARE**

 

Our restricted shares granted under the 2006 EquityIncentive Plan participate in any dividends declared on our common stock.  Accordingly, the restricted shares areconsidered participating securities under the two-class method as required byEmerging Issues Task Force Issue No. 03-6, “*ParticipatingSecurities and the Two-class method under FASB Statement No. 128*.”  The two-class method is an earningsallocation formula that determines earnings for each class of common stock andparticipating securities according to dividends declared or accumulated andparticipation rights in undistributed earnings. Under the two-class method, netincome is reduced by the amount of dividends declared in the current period foreach class of stock and by the contractual amounts of dividends that must bepaid for the current period. The remaining earnings are then allocated tocommon stock and participating securities to the extent that each security mayshare in earnings as if all of the earnings for the period had beendistributed. Diluted earnings per share is calculated using the treasury stockand “if converted” methods for potential common stock.  Basic earnings per share is calculated asincome (loss) available to common stockholders, divided by the weighted averagenumber of common shares outstanding during the period. If the effect isdilutive, participating securities are included in the computation of basicearnings per share. Our participating securities do not have a contractualobligation to share in the losses in any given period. As a result, theseparticipating securities will not be allocated any losses in the periods of netlosses, but will be allocated income in the periods of net income using thetwo-class method.

 

Thetables that follow reconcile the components of the basic and diluted earningsper share for the three months ended December 31, 2008 and 2007 (inthousands, except per share and per share data):

 
| ** **                                                                          | ** ** | **Three Months Ended  December 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                          | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| Numerator:                                                                          |       |                                                |       |   |   |
| Net loss from continuing operations attributable to  common shareholders            |       | $                                                   | (75        | ) | $ | (920 | ) |
| Net loss from continuing operations attributable to  restricted shareholders        |       | —                                              |       | — |   |
| Net loss from continuing operations                                                 |       | $                                                   | (75        | ) | $ | (920 | ) |
|                                                                                |       |                                                |       |   |   |
| Net income (loss) from discontinued operations  attributable to common shareholders |       | $                                                   | (15        | ) | $ | 121 |   |
| Net income from discontinued operations attributable  to restricted shareholders    |       | —                                              |       | 2 |   |
| Net income (loss) from discontinued operations                                      |       | $                                                   | (15        | ) | $ | 123 |   |
|                                                                                |       |                                                |       |   |   |
| Net loss attributable to common shareholders                                        |       | $                                                   | (90        | ) | $ | (797 | ) |
| Net loss attributable to restricted shareholders                                    |       | —                                              |       | — |   |
| Net loss                                                                            |       | $                                                   | (90        | ) | $ | (797 | ) |
|                                                                                |       |                                                |       |   |   |
| Denominator:                                                                        |       |                                                |       |   |   |
| Weighted average common shares outstanding — basic                             |       | 14,318,776                                          |       | 15,092,303 |   |
| Effect of dilutive stock options and non-vested  restricted stock                   |       | —                                              |       | — |   |
| Weighted average common and common equivalent shares  outstanding — diluted    |       | 14,318,776                                          |       | 15,092,303 |   |
|                                                                                |       |                                                |       |   |   |
| Basic income per share:                                                             |       |                                                |       |   |   |
| Basic earnings (loss) per share from continuing  operations                         |       | $                                                   | (0.01      | ) | $ | (0.06 | ) |
| Basic earnings (loss) per share from discontinued  operations                       |       | $                                                   | (0.00      | ) | $ | 0.01 |   |
| Basic earnings (loss) per share                                                     |       | $                                                   | (0.01      | ) | $ | (0.05 | ) |
|                                                                                |       |                                                |       |   |   |
| Diluted income per share:                                                           |       |                                                |       |   |   |
| Diluted earnings (loss) per share from continuing  operations                       |       | $                                                   | (0.01      | ) | $ | (0.06 | ) |
| Diluted earnings (loss) per share from discontinued  operations                     |       | $                                                   | (0.00      | ) | $ | 0.01 |   |
| Diluted earnings (loss) per share                                                   |       | $                                                   | (0.01      | ) | $ | (0.05 | ) |

 

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**5.OPERATING SEGMENTS**

 

In accordance withSFAS No. 131, *“Disclosures aboutSegments of an Enterprise**andRelated Information”*certain information is disclosed based on theway management organizes financial information for making operating decisionsand assessing performance.

 

We manage and measure performance of ourbusiness in three distinct operating segments: Commercial, Industrial, andResidential.  We also have a Corporatesegment that provides general and administrative services to our threeoperating segments. The Commercial segment provides electrical andcommunications design, installation, renovation, engineering and maintenanceand replacement services in facilities such as office buildings, high-riseapartments and condominiums, theaters, restaurants, hotels, hospitals andcritical-care facilities, school districts, light manufacturing and processingfacilities, military installations, airports, outside plant, network enterprisesand switch network customers. The Industrial segment provides electricaldesign, installation, renovation and engineering and maintenance andreplacement services in facilities such as manufacturing and distributioncenters, water treatment facilities, refineries, petrochemical and powerplants, and alternative energy facilities. In addition to these services, our Industrial segment also designs andassembles modular power distribution centers. The Residential segment consists of electrical installation, replacementand renovation services in single-family, condominium, townhouse and low-risemultifamily housing units. The Corporate segment includes expenses associatedwith our home office, which provides support services to the other segments.

 

The accounting policiesof the segments are the same as those described in the summary of significantaccounting policies, see Note 2 to our Consolidated Financial Statementsincluded in our annual report on Form 10-K for the year ended September 30,2008. We evaluate performance based on income from operations of the respectivebusiness units prior to home office expenses. Management allocates costsbetween segments for selling, general and administrative expenses, goodwillimpairment, depreciation expense, capital expenditures and total assets.

 

Segment information forcontinuing operations for the three months ended December 31, 2008 and2007 is as follows (in thousands):

 
| ** **                            | ** ** | **Three Months Ended December 31, 2008 (Unaudited)** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Commercial**                                                                     | ** ** | **Industrial** | ** ** | **Residential** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues                              |       | $                                                                                  | 101,970    |   | $ | 26,034 |   | $ | 45,366 |   | $ | — |   | $ | 173,370 |   |
| Cost of services                      |       | 86,096                                                                             |       | 22,578 |   | 35,036 |   | — |   | 143,710 |   |
| Gross profit                          |       | 15,874                                                                             |       | 3,456 |   | 10,330 |   | — |   | 29,660 |   |
| Selling, general and administrative   |       | 8,302                                                                              |       | 1,775 |   | 8,573 |   | 10,151 |   | 28,801 |   |
| Loss (gain) on sale of assets         |       | (103                                                                               | )          | (14 | ) | 14 |   | — |   | (103 | ) |
| Restructuring charge                  |       | 248                                                                                |       | 80 |   | 64 |   | — |   | 392 |   |
| Income (loss) from operations         |       | $                                                                                  | 7,427      |   | $ | 1,615 |   | $ | 1,679 |   | $ | (10,151 | ) | $ | 570 |   |
| Other data:                           |       |                                                                               |       |   |   |   |   |   |   |   |   |
| Depreciation and amortization expense |       | $                                                                                  | 340        |   | $ | 195 |   | $ | 708 |   | $ | 743 |   | $ | 1,986 |   |
| Capital expenditures                  |       | $                                                                                  | 42         |   | $ | 44 |   | $ | 16 |   | $ | 546 |   | $ | 648 |   |
| Total assets                          |       | $                                                                                  | 117,720    |   | $ | 23,304 |   | $ | 41,360 |   | $ | 102,640 |   | $ | 285,024 |   |
| ** **                            | ** ** | ** **                                                                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Three Months December 31, 2007 (Unaudited)**            | ** ** |
| ** **                            | ** ** | **Commercial**                                                                     | ** ** | **Industrial** | ** ** | **Residential** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues                              |       | $                                                                                  | 109,681    |   | $ | 32,144 |   | $ | 55,295 |   | $ | — |   | $ | 197,120 |   |
| Cost of services                      |       | 93,423                                                                             |       | 26,270 |   | 44,392 |   | — |   | 164,085 |   |
| Gross profit                          |       | 16,258                                                                             |       | 5,874 |   | 10,903 |   | — |   | 33,035 |   |
| Selling, general and administrative   |       | 10,951                                                                             |       | 2,477 |   | 8,529 |   | 8,447 |   | 30,404 |   |
| Loss (gain) on sale of assets         |       | (17                                                                                | )          | — |   | — |   | — |   | (17 | ) |
| Restructuring charges                 |       | 1,152                                                                              |       | 91 |   | 51 |   | — |   | 1,294 |   |
| Income (loss) from operations         |       | $                                                                                  | 4,172      |   | $ | 3,306 |   | $ | 2,323 |   | $ | (8,447 | ) | $ | 1,354 |   |
| Other data:                           |       |                                                                               |       |   |   |   |   |   |   |   |   |
| Depreciation and amortization expense |       | $                                                                                  | 506        |   | $ | 344 |   | $ | 687 |   | $ | 672 |   | $ | 2,209 |   |
| Capital expenditures                  |       | $                                                                                  | 64         |   | $ | 60 |   | $ | 72 |   | $ | 2,869 |   | $ | 3,065 |   |
| Total assets                          |       | $                                                                                  | 116,328    |   | $ | 24,627 |   | $ | 57,272 |   | $ | 103,436 |   | $ | 301,663 |   |
|                                       |            |                                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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We have nooperations or long-lived assets in countries outside of the United States.

 

Total assets as of December 31,2008 and 2007 exclude assets from discontinued operations of $1.9 million and$4.0 million, respectively.

 

**6. STOCKHOLDERS’ EQUITY**

 

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

 

The 2006 Equity IncentivePlan (as amended, the “2006 Plan”) became effective on May 12, 2006. The2006 Plan provides for grants of both stock options and common stock, includingrestricted stock and performance-based restricted stock. We have approximately1.1 million shares of common stock authorized for issuance under the 2006Plan.

 

*TreasuryStock*

 

On December 12,2007, we entered into an amendment to our Loan and Security Agreement.  The amendment permitted us to pay off asenior secured term loan and enter into a new subordinated note agreement for areduced principal amount.  Further, theamendment allowed us to implement a stock repurchase program for up to onemillion shares of our common stock over the following 24 months. On December 12, 2007, our Board ofDirectors authorized the repurchase of up to one million shares of our commonstock.  This share repurchase plan is authorized through December 2009,and as of December 31, 2008, we have repurchased 886,360 shares at anaverage cost of $16.24 per share.  During the three months ended December 31,2008 we repurchased 301,418 shares of common stock under the share repurchaseprogram, we repurchased 661 shares of common stock from our employees tosatisfy tax withholding requirements upon the vesting of restricted stockissued under the 2006 Plan, we issued 182,600 shares of treasury stock underour share-based compensation programs, and 120 unvested shares of restrictedstock were forfeited by a former employee and returned to treasury stock.

 

*RestrictedStock*

 

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

 

We granted 91,900 sharesof restricted stock to our employees during the first three months of our 2008fiscal year of which 5,300 shares have been forfeited as of December 31,2008. These restricted shares were granted at prices ranging from $18.79 to$19.98 per share with weighted average price of $19.78 per share under variousvesting terms.

 

During the threemonths ended December 31, 2008 and 2007, we recognized $0.4 million and$0.7 million, respectively, in compensation expense related to theseawards.  As of December 31, 2008,the unamortized compensation cost related to outstanding unvested restrictedstock was $2.6 million.  We expect to recognize$1.0 million related to these awards during the remaining nine months of our2009 fiscal year, and $1.6 million thereafter.

 

All the restricted sharesgranted under the 2006 Plan (vested or unvested) participate in dividends, ifany, issued to common shareholders.

 

*Performance-BasedRestricted Stock*

 

During the year ended September 30,2008, we granted 15 members of our senior management team performance-basedphantom stock units (“PSUs”).  Each PSUis convertible into shares of restricted common stock that will cliff vest on September 30,2010, subject to the terms of the award. The aggregate size of the award is based on the Company achievingcumulative fully diluted earnings per share of $2.30 over the course of our2008 and 2009 fiscal years.  At the timethe award was made, the potential aggregate range of the award was between zeroand 188,300 shares of restricted stock, depending on the actual cumulativeearnings per share for this period.  Dueto one PSU forfeiture during fiscal year 2008, the current potential aggregatemaximum award is 177,700 shares.

 

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At the time thePSU awards were granted, we forecasted that we would ultimately issue 94,150restricted shares under the program, based on our achieving cumulative fullydiluted earnings per share of $2.30 over the course of our 2008 and 2009 fiscalyears. Under SFAS 123(R), the estimated fair value of these PSUs on the date ofgrant was $1.5 million.  The awards vestover three years and are to be amortized on a straight-line basis throughoutthat period.  We expensed $0.3 millionthrough the end of the nine month period ended June 30, 2008 based on thisprojection.  During the fourth quarter ofour 2008 fiscal year, we revised our 2009 projected earnings per share inconjunction with our year-end budget analysis, resulting in the reversal of allamounts previously expensed as we did not believe we would achieve the minimumcumulative earnings per share threshold of $1.73 to issue any restricted sharesunder the program. We will not accrue any compensation expense under this awardduring our 2009 or 2010 fiscal years. However, any deviation in the cumulative fully diluted earnings pershare that we achieve through the end of our 2009 fiscal year will result in achange in the actual amount of stock-based compensation that we recognize overthe vesting period.

 

*StockOptions*

 

During the three months ended December 31, 2008, we granted 7,500stock options at an exercise price of $12.31 per share.  These options vest on January 31, 2009and expire ten years from the grant date if they are not exercised.  Wegranted 11,000 stock options at an exercise price of $18.79 per share duringthe three months ended December 31, 2007. These options vest over a three year period at a rate of one-third onthe annual anniversary date of the grant and expire ten years from the grantdate if they are not exercised.

 

During the threemonths ended December 31, 2008 and 2007, we recognized $0.2 million and$0.1 million, respectively, in compensation expense related to theseawards.  As of December 31, 2008,the unamortized compensation cost related to outstanding unvested stock optionswas $0.6 million.  We expect to recognize$0.4 million related to these awards during the remaining nine months of our2009 fiscal year, and $0.2 million thereafter.

 

The following table summarizes activity under our stock option andincentive compensation plans.

 

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

 

The followingtable summarizes all options outstanding and exercisable at December 31,2008:

 
| **Range of Exercise Prices** | ** ** | **Outstanding** | ** ** | **Remaining  Contractual Life  in Years** | ** ** | **Weighted-Average  Exercise Price** | ** ** | **Exercisable** | ** ** | **Weighted-Average  Exercise Price** | ** ** |
|---------------------------------------------|------------|-----------------|------------|-----------------------------------------------------|------------|-------------------------------------------|------------|-----------------|------------|-------------------------------------------|------------|
| $12.31 - $18.79                             |       | 123,500         |       | 7.9                                                 |       | $                                         | 17.02      |            | 70,334     |                                      | $          | 17.43 |   |
| $20.75 - $33.55                             |       | 45,000          |       | 8.5                                                 |       | 26.44                                     |       | 13,334          |       | 27.15                                     |       |
|                                        |       | 168,500         |       | 8.0                                                 |       | $                                         | 19.53      |            | 83,668     |                                      | $          | 18.98 |   |

 

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

 

**7.  FAIR VALUE MEASUREMENTS**

 

*Investmentin EPV Solar*

 

On December 24,2008, we invested $2.0 million in the form of a convertible note receivable andwarrants to purchase common stock from EPV Solar (“EPV”), formerly EnergyPhotovoltaics, a privately-held company in which we continue to hold a minorityinterest.  The EPV convertible note receivable has a $2.7 million facevalue, an 8% interest rate under which interest is payable semi-annually on June 15and December 15, and is due on June 15, 2010.  The stockwarrants allow us to purchase up to 533,333 common shares of EPV at a strikeprice of $1.25 per share.  These warrants expire on December 31,2013.  Under the terms of SFAS 115, “*Accounting*

 

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*forCertain Investment in Debt and Equity Securities*,” weallocated the $2.0 million investment on a pro-rata basis based on the fairvalue of the note receivable and the warrants at the time we completed thepurchase agreement.  Accordingly, we recorded the note receivable at$1,755,551 as of December 24, 2008, and we will accrete its value to $2.0million through the term date.  We recorded the warrants at $244,449 as ofDecember 24, 2008.  Collectively, this investment is included in ourconsolidated balance sheet as an Other Non-Current Asset.

 

*FairValue Measurement Accounting*

 

We adopted SFAS157 on October 1, 2008 for financial assets and liabilities measured on arecurring basis. SFAS 157 applies to all financial assets and financialliabilities that are being measured and reported on a fair value basis. Therewas no impact upon adoption of Statement 157 to our consolidated financialstatements.

 

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

 

SFAS 157establishes a framework for measuring fair value by creating a hierarchy forobservable independent market inputs and unobservable market assumptions andexpands disclosures about fair value measurements. Considerable judgment isrequired to interpret the market data used to develop fair value estimates. Assuch, the estimates presented herein are not necessarily indicative of theamounts that could be realized in a current exchange. The use of differentmarket assumptions and/or estimation methods could have a material effect onthe estimated fair value.

 

Financial assetsand liabilities measured at fair value on a recurring basis as of December 31,2008 are summarized in the following table by the type of inputs applicable tothe fair value measurements (in thousands).

 
| ** **                       | ** ** | **Total  Fair Value** | ** ** | **Quoted Prices  (Level 1)** | ** ** | **Significant  Other Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
|----------------------------------|------------|----------------------------|------------|----------------------------------------|------------|----------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Investments in equity securities |       | $                          | 293        |                                   | $          | 49                                                             |       | $                                                     | —     |   | $ | 244 |   |
| Total                            |       | $                          | 293        |                                   | $          | 49                                                             |       | $                                                     | —     |   | $ | 244 |   |

 

Below is adescription of the inputs used to value the assets summarized in the precedingtable.

 

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

 

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

 

Level 3— Inputs include unobservable inputs used in the measurement of assets.  Management is required to use its ownassumptions regarding unobservable inputs because there is little, if any, marketactivity in the assets or related observable inputs that can be corroborated atthe measurement date.  In order toestimate the fair value of our warrant position, our management utilizes thefinancial information of the company, along with a valuation model we haveprepared which includes the following inputs: Risk-free interest rate, credit risk, volatility, and recent equityofferings of the company.

 

The followingtable sets forth a reconciliation of assets measured at fair value on arecurring basis with the use of significant unobservable inputs (Level 3) from October 1,2008 to December 31, 2008 follows (in thousands).

 
| ** **                        | ** ** | **Investments in  equity securities** | ** ** |
|-----------------------------------|------------|-------------------------------------------------|------------|
| Balance at October 1, 2008   |       | $                                               | —     |   |
| Purchases                         |       | $                                               | 244        |   |
| Balance at December 31, 2008 |       | $                                               | 244        |   |

 

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**8.COMMITMENTS AND CONTINGENCIES**

 

*LegalMatters*

 

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

 

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

 

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

 

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

 

Ward Transformer Site

 

The WardTransformer Site (the “Ward Site”) was a facility to clean, service andrefurbish transformers that operated from approximately 1964 to 2006. During the course of its operation, the Ward Site facility was contaminated byPolychlorinated Biphenyls (“PCBs”), a compound that has been classified as apersistent organic pollutant. These PCBs have been found to have migrated offthe Ward Site.  One of our divisions, Primo Electric Company utilized Wardfor transformer work and has been identified as one of approximately 250potential responsible parties for the clean-up of the site. There is anEmergency Removal Action and remediation ongoing at the Ward Site pursuant to asettlement agreement and Administrative Order on Consent entered into in September 2005. Neither we nor any of our subsidiaries is a party to that settlement agreementor Order on Consent. Significant costs will be incurred on the EmergencyRemoval Action with estimates ranging from $12 million to $72 million. Therewill be additional remediation and costs associated with remediation of theoffsite contamination, and there could be additional contamination andremediation not yet identified.  A preliminary allocation has been proposedby some of the potentially responsible parties based on the records and type ofwork performed at the Ward Site, and under that allocation 1.537% of thepotential liability for the Ward Site has been attributed to us; however, wehave not completed our own investigation to determine if this allocation isaccurate.  We have entered into a tolling agreement through March 16,2009, and we are presently evaluating our exposure and potentialindemnifications owed to us.  As of December 31, 2008 we have notrecorded a reserve for this matter as we are still considering both thelikelihood of our responsibility for damages at the Ward Site and our potentialrange of exposure in the event that we are held liable.

 

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*Self-insurance*

 

We are subject to largedeductibles on our property and casualty insurance policies.  As a result, many of our claims areeffectively self-insured. Many claims against our insurance are in the form oflitigation. At December 31, 2008, we had $10.3 million accrued forself-insurance liabilities, including $2.8 million for general liabilitycoverage losses. We are also subject to construction defect liabilities,primarily within our Residential segment. We believe the likely range of our potential liability for constructiondefects is from $0.5 million to $1.0 million. As of December 31, 2008, we had reserved $0.5 million for theseclaims, in accordance with SFAS 5, “*Accounting forContingencies.”*  Finally, forthose legal proceedings not expected to be covered by insurance, we had accrued$0.1 million at December 31, 2008.

 

*Surety*

 

Many of our customers require us to post performance and payment bondsissued by a surety. Those bonds guarantee the customer that we will performunder the terms of a contract and that we will pay our subcontractors andvendors. In the event that we fail to perform under a contract or paysubcontractors and vendors, the customer may demand the surety to pay orperform under our bond. Our relationship with our sureties is such that we willindemnify the sureties for any expenses they incur in connection with any ofthe bonds they issue on our behalf. We have not incurred any expenses toindemnify our sureties for expenses they incurred on our behalf. As of December 31,2008, our cost to complete on projects covered by surety bonds was $115.9million.  As of December 31, 2008,we utilized a combination of cash and letters of credit totaling $25.6 million,which was comprised of $21.0 million in letters of credit and $4.6 million ofcash and accumulated interest (as is included in Other Non-Current Assets), tocollateralize our bonding programs.

 

On October 27, 2008,we entered into a Co-Surety Arrangement with two of our independent suretyproviders that increased our aggregate bonding capacity to $325.0 million andreduced our bond premium to an average of $11.25 per thousand dollars ofcontract costs for projects less than 24 months in duration.  As is common in the surety industry, there isno commitment from these providers to guarantee our ability to issue bonds forprojects as they are required. We believe that our relationships with theseproviders will allow us to provide surety bonds if and when they are required;however, we cannot guarantee that such bonds will be available. If surety bondsare not provided, there are situations in which claims or damages may result.Those situations occur when surety bonds are required for jobs that have beenawarded, contracts are signed, work has begun or bonds may be required in thefuture by the customer according to terms of the contracts. If our subsidiariesare in one of those situations and not able to obtain a surety bond, then theresult can be a claim for damages by the customer for the costs of replacingthe subsidiary with another contractor. Customers are often reluctant toreplace an existing contractor and may be willing to waive the contractualright or through negotiation be willing to continue the work on differentpayment terms.  We evaluate our bondingrequirements on a regular basis, including the terms and coverage offered byeach provider.  We believe we presentlyhave adequate surety coverage.

 

Surety bond companies mayalso provide surety bonds at a cost including (i) payment of a premium,plus (ii) posting cash or letters of credit as collateral. The cost ofcash collateral or letters of credit in addition to the selling, general andadministrative costs and the industry practice of the customer retaining apercentage of the contract (5% - 10%) amount as retention until the end of thejob, could make certain bonded projects uneconomical to perform.

 

*OtherCommitments and Contingencies*

 

Some of theunderwriters of our casualty insurance program require us to post letters ofcredit as collateral. This is common in the insurance industry. To date, wehave not had a situation where an underwriter has had reasonable cause toeffect payment under a letter of credit. At December 31, 2008, $13.0million of our outstanding letters of credit were utilized to collateralize ourinsurance program.

 

Between October 2004and September 2005, we sold all or substantially all of the assets ofcertain of our wholly owned subsidiaries. These sales were made to facilitatethe business needs and purposes of the organization as a whole. Since we were aconsolidator of electrical contracting businesses, often the best candidate topurchase these assets was a previous owner of the assets who usually wasstill   associated with the subsidiary,often as an officer of that subsidiary, or otherwise. To facilitate the desiredtiming, the sales were made with more than ordinary reliance on therepresentations of the purchaser who is, in those cases, often the person mostfamiliar with the business sold. There is the potential from selling assets netof liabilities, but retaining the entities from which they were sold, that ifthe purchaser is unwilling or unable to perform the transferred liabilities, wemay be forced to fulfill obligations that were 

 

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assigned or sold toothers. If this were to occur, we would seek reimbursement from the purchasers.These potential liabilities will continue to diminish over time. To date, wehave not been required to perform any projects sold under this divestitureprogram.

 

From time to time, we mayenter into firm purchase commitments for materials such as copper wire andaluminum wire among others which we expect to use in the ordinary course ofbusiness. These commitments are typically for terms less than one year andrequire us to buy minimum quantities of materials at specific intervals at afixed price over the term. As of December 31, 2008, we had no openpurchase commitments.

 

We have committedto invest up to $5.0 million in EnerTech Capital Partners II L.P. (“EnerTech”).EnerTech is a private equity firm specializing in investment opportunitiesemerging from the deregulation and resulting convergence of the energy, utilityand telecommunications industries. Through December 31, 2008, we hadinvested $4.9 million under our commitment to EnerTech.

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

You should readthe following discussion of our financial condition and results of operationsin conjunction with our audited consolidated financial statements, the relatedNotes, and management’s discussion and analysis included in our annual reporton Form 10-K for the year ended September 30, 2008. This discussioncontains forward-looking statements and involves numerous risks anduncertainties, including, but not limited to the risk factors discussed in the“Risk Factors” section of our annual report on Form 10-K for the yearended September 30, 2008 and in the “Disclosures Regarding Forward-LookingStatements,” and elsewhere in this quarterly report on Form 10-Q.  Actual results may differ materially fromthose contained in any forward-looking statements.

 

**CRITICAL ACCOUNTINGPOLICIES AND ESTIMATES**

 

Our discussion andanalysis of our financial condition and results of operation are based on ourcondensed consolidated financial statements, which have been prepared inaccordance with GAAP. Preparation of these financial statements requires us tomake estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses.

 

We have identified theaccounting principles that we believe are most critical to our reportedfinancial status by considering accounting policies that involve the mostcomplex or subjective decisions or assessments. We identified our most criticalaccounting policies to be those related to revenue recognition, the assessmentof goodwill impairment, our allowance for doubtful accounts receivable, therecording of our self-insurance liabilities and our estimation of the valuationallowance for deferred tax assets. These accounting policies, as well asothers, are described in Note 2 of “*Notes to ConsolidatedFinancial Statements*” in our annual report on Form 10-K for theyear ended September 30, 2008.

 

During the firstthree months of our 2009 fiscal year, there has been only one change to ourcritical accounting policies and estimates from those described in our annualreport Form 10-K for the year ended September 30, 2008. On October 1,2008, we adopted the provisions of SFAS No. 157, *“Fair**ValueMeasurements*” (“SFAS 157”). SFAS 157 enhances the guidance for usingfair value to measure assets and liabilities. In addition, SFAS 157 expands informationabout the extent to which companies measure assets and liabilities at fairvalue, the information used to measure fair value and the effect of fair valuemeasurements on earnings.  For additionalanalysis of our adoption of SFAS 157, see Item 1*. Condensed Consolidated Financial Statements*— Note 1, *“Business*” of this report.

 

**RECENTLYISSUED ACCOUNTING PRONOUNCEMENTS**

 

We discussrecently adopted and issued accounting standards in Item 1*. Condensed Consolidated Financial Statements*—Note 1, *“Business”*of this report, which is incorporated hereinby reference.

 

**RESTRUCTURING PROGRAMS**

 

***The2007 Restructuring Plan***

 

During our 2008 fiscalyear, we completed our restructuring of operations from our previous geographicstructure into three major lines of business. This operational restructuring (the “2007 Restructuring Plan”) was partof our long-term strategic plan to reduce our cost structure, reposition ourbusiness to better serve our customers, strengthen our financial controls and,as a result, position us to implement a market-based growth strategy.  The 2007 Restructuring Plan consolidatedcertain leadership roles, administrative support functions and eliminatedredundant functions that were previously performed at our 27 divisions. Sincewe began the 2007 Restructuring Plan in June 2007, we recorded a total of$5.6 million of restructuring charges.

 

The first component ofthe 2007 Restructuring Plan was initiated in our Industrial segment in June 2007.  Under this portion of the restructuring, 5 ofour divisions were integrated under the IES Industrial segment, and the supportand administrative functions of those businesses were combined at an operatinglocation in Houston, Texas.  The secondcomponent of the 2007 Restructuring Plan was initiated in our Commercialsegment in September 2007.  Underthis portion of the restructuring, 17 of our divisions were integrated underthe IES Commercial segment, and the support and administrative functions ofthose businesses were combined at an operating location in Tempe, Arizona.  The third component of the 2007 RestructuringPlan was initiated in our Residential segment in September 2007.  Under this portion of the restructuring, 5 ofour divisions were integrated under the IES Residential segment during our 2008fiscal year, and the support and administrative functions of those businesseswere combined at an operating location near 

 

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Houston, Texas.  Since the inception of the 2007 RestructuringPlan, we recognized $0.5 million, $2.2 million and $0.2 million in severanceliabilities for our Industrial, Commercial and Residential segments, respectively.  In addition to the severance costs describedabove, we incurred other charges of approximately $2.6 million predominatelyfor consulting services associated with the 2007 Restructuring Plan.  We also wrote off $0.1 million of leaseholdimprovements at an operating location that we closed.  These charges have been identified within the“Restructuring Charges” caption in the consolidated statement of operations.

 

***The2009 Restructuring Plan***

 

As described above, during our 2008 fiscal year, we completed apreviously announced operational restructuring from our previous geographicstructure into three major lines of business: Commercial, Industrial andResidential.  On October 1, 2008, webegan a new restructuring program (the “2009 Restructuring Plan”) that isdesigned to consolidate operations within our three segments.  The 2009 Restructuring Plan is the next levelof our business optimization strategy. Our plan is to streamline our local project and support operations,which will be managed through regional operating centers, and to capitalize onthe investments we made over the past year to further leverage our resources.Under the 2009 Restructuring Plan, we expect to incur pre-tax restructuringcharges, including severance benefits and facility consolidations and closings,of approximately $2.0 million to $3.0 million, which will be implemented overapproximately 12 months.  During thethree months ended December 31, 2008, we incurred $0.4 million associatedwith the 2009 Restructuring Plan, of which $0.2 million, $0.1 million and $0.1million was charged to our Commercial, Industrial and Residential segments,respectively.

 

**EXIT OR DISPOSAL ACTIVITIES**

 

On March 28, 2006,based on the recommendation of the Board of Directors, we committed to an exitplan with respect to five underperforming subsidiaries in our Commercial andIndustrial segments. The exit plan committed to a shut-down or consolidation ofthe operations of these subsidiaries or, alternatively, the sale or otherdisposition of the subsidiaries, whichever came sooner.  In our assessment of the estimated netrealizable value of the accounts receivable at these subsidiaries, in March 2006,we increased our general allowance for doubtful accounts having consideredvarious factors, including the risk of collection and the age of thereceivables. We believe this approach is reasonable and prudent.  The exit plan is complete for the fivesubsidiaries that we selected to exit in March 2006, and the operations ofthese subsidiaries substantially ceased as of September 30, 2006.

 

In June 2007, weshut down our Mid-States Electric division, located in Jackson, Tennessee.  Mid-States’ operating equipment was eithertransferred to other IES divisions or sold to third parties. All project workwas completed prior to closing Mid-States. Mid-States’ assets, liabilities andoperating results for both the current and prior periods have been reclassifiedto discontinued operations.  Mid-Stateswas part of our Commercial segment prior to being classified as discontinued.

 

In August 2008, weshut down our Haymaker division, located in Birmingham, Alabama. All projectwork was completed prior to closing Haymaker. Haymaker’s assets, liabilitiesand operating results for both the current and prior periods have beenreclassified to discontinued operations. Haymaker was part of our Industrial segment prior to being classified asdiscontinued.

 

Remaining net workingcapital related to these subsidiaries was $1.4 million and $1.5 million at December 31,2008 and September 30, 2008, respectively. As a result of inherent uncertaintyin the exit plan and the monetization of these subsidiaries’ working capital,we could experience additional losses of working capital. At December 31,2008, we believe we have recorded adequate reserves to reflect the netrealizable value of the working capital; however, subsequent events may impactour ability to collect.

 

**FINANCING**

 

*The Tontine Capital Partners Term Loan*

 

On December 12,2007, we entered into a $25.0 million senior subordinated loan agreement (the“Tontine Term Loan”) with Tontine Capital Partners, L.P., a related party.  The Tontine Term Loan bears interest at 11.0% per annum and is due on May 15,2013.  Interest is payable quarterly incash or in-kind at our option. Any interest paid in-kind will bear interest atthe same rate (11.0%) in addition to the loan principal.  We may repay the Tontine Term Loan at anytime prior to the maturity date at par plus accrued interest without penalty.  The Tontine Term Loan is subordinated to ourRevolving Credit Facility (as defined below). The Tontine Term Loan is an unsecured obligation of the Company and itssubsidiary borrowers.  The Tontine TermLoan contains no financial covenants or restrictions on dividends ordistributions to stockholders.

 

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*TheRevolving Credit Facility*

 

On May 12, 2006, we entered into an agreement (the “Loan andSecurity Agreement”) for a revolving credit facility (the “Revolving CreditFacility”) with Bank of America and certain other lenders.  On May 9, 2008, we entered into anamended agreement governing the Revolving Credit Facility with the samefinancial institutions.  The terms of theamended agreement are described in Item 1*. Condensed ConsolidatedFinancial Statements*— Note 3, *“Debt and Liquidity”*ofthis report, which is incorporated herein by reference.

 

The Revolving CreditFacility provides access to revolving borrowings in the aggregate amount of upto $60.0 million. At December 31, 2008, we had $5.9 million availableunder the Revolving Credit Facility and $34.0 million in letters of creditissued against the Revolving Credit Facility. The maturity date of the Revolving Credit Facility is May 12, 2010.

 

**SURETY**

 

On October 27, 2008,we entered into a Co-Surety Arrangement with two of our independent suretyproviders that increased our aggregate bonding capacity to $325.0 million andreduced our bond premium to an average of $11.25 per thousand dollars ofcontract costs for projects less than 24 months in duration.  As is common in the surety industry, there isno commitment from these providers to guarantee our ability to issue bonds forprojects as they are required. We believe that our relationships with theseproviders will allow us to provide surety bonds if and when they are required;however, we cannot guarantee that such bonds will be available. If surety bondsare not provided, there are situations in which claims or damages may result.Those situations occur when surety bonds are required for jobs that have beenawarded, contracts are signed, work has begun or bonds may be required in thefuture by the customer according to terms of the contracts.  If our subsidiaries are in one of thosesituations and not able to obtain a surety bond, then the result can be a claimfor damages by the customer for the costs of replacing the subsidiary withanother contractor. Customers are often reluctant to replace an existingcontractor and may be willing to waive the contractual right or throughnegotiation be willing to continue the work on different payment terms.  We evaluate our bonding requirements on aregular basis, including the terms and coverage offered by each provider.  We believe we presently have adequate suretycoverage.  As of December 31, 2008, our cost tocomplete on projects covered by surety bonds was $115.9 million.

 

**RESULTSOF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 COMPARED TO THETHREE MONTHS ENDED DECEMBER 31, 2007**

 

The followingtables present selected historical results of operations of IES and itssubsidiaries with dollar amounts in millions. Percentages are expressed as a percent of revenues.
|                                                |       |                                                                        |       |                                                          |       |   |       |   |       |   |   |
|-----------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|--------|------------|--------|------------|--------|--------|
| ** **                                          | ** ** | **Three Months Ended  December 31, 2008**               | ** ** | **Three Months Ended  December 31, 2007** | ** ** |
| ** **                                          | ** ** | **$**                                                                       | ** ** | **%**                                                         | ** ** | **$**  | ** ** | **%**  | ** ** |
| ** **                                          | ** ** | **(Dollars in millions. Percentage of revenues.)** | ** ** |
| Revenues                                            |       | $                                                                           | 173.4      |                                                          | 100.0      | %      | $          | 197.1  |       | 100.0  | %      |
| Cost of services (including depreciation)           |       | 143.7                                                                       |       | 82.9                                                          | %          | 164.1  |       | 83.2   | %          |
| Gross profit                                        |       | 29.7                                                                        |       | 17.1                                                          | %          | 33.0   |       | 16.8   | %          |
| Selling, general & administrative expenses |       | 28.8                                                                        |       | 16.6                                                          | %          | 30.4   |       | 15.4   | %          |
| Gain on sale of assets                              |       | (0.1                                                                        | )          | (0.0                                                          | )%         | (0.0   | )          | (0.0   | )%         |
| Restructuring charges                               |       | 0.4                                                                         |       | 0.2                                                           | %          | 1.3    |       | 0.7    | %          |
| Income from operations                              |       | 0.6                                                                         |       | 0.3                                                           | %          | 1.4    |       | 0.7    | %          |
| Interest and other expense, net                     |       | 0.7                                                                         |       | 0.4                                                           | %          | 2.7    |       | 1.4    | %          |
| Loss before income taxes                            |       | (0.1                                                                        | )          | (0.0                                                          | )%         | (1.3   | )          | (0.7   | )%         |
| Provision (benefit) for income taxes                |       | (0.0                                                                        | )          | (0.0                                                          | )%         | (0.4   | )          | (0.2   | )%         |
| Loss from continuing operations                     |       | (0.1                                                                        | )          | (0.0                                                          | )%         | (0.9   | )          | (0.5   | )%         |
| Income (loss) from discontinued operations          |       | (0.0                                                                        | )          | (0.0                                                          | )%         | 0.1    |       | 0.0    | %          |
| Net loss                                            |       | $                                                                           | (0.1       | )                                                             | (0.0       | )%     | $          | (0.8   | )          | (0.4   | )%     |

 

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**Revenues**

 
| ** **         | ** ** | **Three Months Ended  December 31, 2008**               | ** ** | **Three Months Ended  December 31, 2007** | ** ** |
|--------------------|------------|-----------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **         | ** ** | **$**                                                                       | ** ** | **%**                                                         | ** ** | **$** | ** ** | **%** | ** ** |
| ** **         | ** ** | **(Dollars in millions. Percentage of revenues.)** | ** ** |
| Commercial         |       | $                                                                           | 102.0      |                                                          | 58.8       | % | $ | 109.7 |   | 55.6 | % |
| Industrial         |       | 26.0                                                                        |       | 15.0                                                          | %          | 32.1 |   | 16.3 | % |
| Residential        |       | 45.4                                                                        |       | 26.2                                                          | %          | 55.3 |   | 28.1 | % |
| Total Consolidated |       | $                                                                           | 173.4      |                                                          | 100.0      | % | $ | 197.1 |   | 100.0 | % |

 

Consolidatedrevenues for the quarter ended December 31, 2008 were $23.7 million lessthan the quarter ended December 31, 2007, a reduction of 12.0%.  Thisdecrease was the result of declines in volume at each of our three businesssegments, consistent with the national decline in construction activity.

 

Revenues in ourCommercial segment decreased $7.7 million during the quarter ended December 31,2008, a 7.0% reduction compared to the quarter ended December 31,2007.  Nearly all of our Commercial operating locations experiencedrevenue shortfalls, as most industry sectors have begun to scale back, delay orcancel proposed construction projects, including high rise office towers,hotels, condominiums and casinos.  We have also experienced increasedcompetition from residential contractors who have been affected by the housingslowdown for less specialized retail work with lower barriers to entry.

 

Our Industrialsegment posted a decrease in revenues of $6.1 million during the quarter ended December 31,2008, a decline of 19.0% as compared to the quarter ended December 31,2007.  During the quarter ended December 31, 2008, our Industrialsegment has seen growth in transmission and distribution service projects;however, during this period we also experienced decreased construction atelectrical substations, ethanol plants, and pulp and paper mills which was akey factor in our revenue decline, as many projects were deferred, cancelled orwere awaiting financing.  Also, severalof our customers implemented extended holiday shut downs in response to currenteconomic conditions.

 

The ongoingnationwide decline in demand for single-family homes has affected ourResidential line of business, particularly in markets such as SouthernCalifornia, Arizona, Georgia, Nevada and Texas.  Due to the slowdown inhousing construction, Residential revenues decreased $9.9 million during thequarter ended December 31, 2008, down 17.9% as compared to the quarter endedDecember 31, 2007.  We attribute the majority of this decrease toreductions in building activity throughout all the markets we serve, while theremaining portion of the decrease was attributable to the effect of lowerprices in response to the competitive market conditions and falling inputprices which affect the prices that we may pass along to our customers.

 

**Gross Profit**

 
| ** **         | ** ** | **Three Months Ended  December 31, 2008**               | ** ** | **Three Months Ended  December 31, 2007** | ** ** |
|--------------------|------------|-----------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **         | ** ** | **$**                                                                       | ** ** | **%**                                                         | ** ** | ** ** | ** ** | **%** | ** ** |
| ** **         | ** ** | **(Dollars in millions. Percentage of revenues.)** | ** ** |
| Commercial         |       | $                                                                           | 15.9       |                                                          | 15.6       | % | $ | 16.2 |   | 14.8 | % |
| Industrial         |       | 3.5                                                                         |       | 13.3                                                          | %          | $ | 5.9 |   | 18.3 | % |
| Residential        |       | 10.3                                                                        |       | 22.8                                                          | %          | $ | 10.9 |   | 19.7 | % |
| Total Consolidated |       | $                                                                           | 29.7       |                                                          | 17.1       | % | $ | 33.0 |   | 16.8 | % |

 

The $3.3 milliondecrease in our consolidated gross profit for the quarter ended December 31,2008, as compared to thequarter ended December 31, 2007, was the result of lowerconsolidated revenues, as discussed above. However, our overall gross profit percentage increased to 17.1% duringthe quarter ended December 31, 2008 as compared to 16.8% during the quarterended December 31, 2007, reflecting improved project execution, our ability toadjust our labor to meet project demands, and the effect of some reduced inputprices.

 

Our Commercial segment’s gross profit was $15.9 million during thequarter ended December 31, 2008, down $0.3 million from the quarter ended December 31,2007.  Although revenues fell 7.0%, thegross margin percentage improved by 80 basis points as a result of improvedproject execution, and to lower input costs, including copper, steel and fuel.

 

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Gross profit at our Industrial segment declined $2.4 million during thequarter ended December 31, 2008 as compared to the quarter ended December 31,2007.  The reduced gross profit in ourIndustrial sector resulted from the aforementioned lower project volumes and amix of lower margin projects.

 

During the quarter ended December 31, 2008, our Residentialsegment experienced a $0.6 million reduction in gross profit as compared to thequarter ended December 31, 2007. This decline resulted from the aforementioned $9.9 million decrease inrevenues related to the reduction in demand for single-family homes.  However, our gross margin percentage in theResidential segment improved approximately 310 basis points to 22.8% during thequarter ended December 31, 2008 in spite of the revenue declines.  We attribute much of the improvement in ourResidential gross margin to improved execution in our multi-familydivision.  In addition to improvedprofitability at our multi-family housing division, we also benefited from astabilization of material costs and the ability to increase and decrease laborto meet project demands.

 

**Selling, General and AdministrativeExpenses**

 
| ** **         | ** ** | **Three Months Ended  December 31, 2008**               | ** ** | **Three Months Ended  December 31, 2007** | ** ** |
|--------------------|------------|-----------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **         | ** ** | **$**                                                                       | ** ** | ** **                                                    | **%**      | ** ** | **$** | ** ** | **%** | ** ** |
| ** **         | ** ** | **(Dollars in millions. Percentage of revenues.)** | ** ** |
| Commercial         |       | $                                                                           | 8.3        |                                                          | 8.1        | % | $ | 11.0 |   | 10.0 | % |
| Industrial         |       | 1.8                                                                         |       | 6.8                                                           | %          | 2.5 |   | 7.7 | % |
| Residential        |       | 8.6                                                                         |       | 18.9                                                          | %          | 8.5 |   | 15.4 | % |
| Corporate          |       | 10.1                                                                        |       | —                                                        |       | 8.4 |   | — |   |
| Total Consolidated |       | $                                                                           | 28.8       |                                                          | 16.6       | % | $ | 30.4 |   | 15.4 | % |
|                    |            |                                                                             |            |                                                               |            |  |  |  |  |  |  |  |

 

Selling, generaland administrative expenses include costs not directly associated withperforming work for our customers. These costs consist primarily ofcompensation and benefits related to corporate and business unit management,occupancy and utilities, training, professional services, consulting fees, travel,and certain types of depreciation and amortization.

 

During the quarter ended December 31, 2008, our selling, generaland administrative expenses were $28.8 million, a decrease of $1.6 million, or5.2%, as compared to the quarter ended December 31, 2007.  This decrease was due primarily to ourstrategic efforts to restructure our operations and to eliminate redundantpositions and facilities.  Since ourrestructuring program began we have eliminated approximately 160 administrativepositions. In addition, we have also been able to reduce many of ourprofessional fees as we have improved our operating and financial controls andcompleted many of our turnaround efforts. Notable declines in our selling, general and administrative costs duringthe first quarter of our 2009 fiscal year as compared to the first quarter ofour 2008 fiscal year, include: (i) a $0.7 million decrease in employmentexpenses, (ii) a $0.3 million reduction in occupancy costs, and (iii) a$0.2 million reduction in other general business expenses at our divisions.

 

As previouslyindicated, we completed our operational restructuring plan in fiscal 2008,whereby we integrated 27 companies into three business segments.  As aresult, we experienced a $3.3 million reduction in our combined Commercial,Industrial and Residential selling, general and administrative expenses, whileour Corporate selling, general and administrative expenses have increased as aresult of our investments in systems and organizational capabilities which haveyielded savings and productivity throughout the business.  We havecompleted the implementation of new software programs and work processes whichinclude: 1) a comprehensive project management system that is being utilizedacross our divisions to standardize our project management and reportingprocesses and provides our businesses near real-time visibility into projectperformance, 2) an accounting consolidation and reporting system that suppliesmanagement more robust financial data and improved transparency, and 3)outsourced our payroll processing to a leading national provider and employedtechnology to capture labor utilization more real time.  In addition, wehave invested in new sales capabilities which includes hiring and on boardingcosts.

 

**RestructuringCharges**

 

As previously discussed in this report, we have restructuredour operations from our previously decentralized structure into three majorlines of business: Commercial, Industrial and Residential.  Each of these lines of business is nowsupported by its own dedicated administrative shared services center which hasconsolidated many of the back office functions into a centralizedlocation.  This integration has enabledus to eliminate a number of redundant functions.

 

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In conjunction with our restructuring program, we recognizedthe following costs during the three months ended December 31, 2008 and2007 (in thousands):

 
| ** **                   | ** ** | **Three Months Ended  December 31,** | ** ** |
|------------------------------|------------|-----------------------------------------------------|------------|
| ** **                   | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| ** **                   | ** ** | **(Dollars  in thousands)**                         | ** ** |
| ** **                   | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Severance compensation       |       | $                                                   | 392        |   | $ | 629 |   |
| Consulting and other charges |       | —                                              |       | 665 |   |
| Total restructuring charges  |       | $                                                   | 392        |   | 1,294 |   |
|                              |            |                                                     |            |  |  |  |  |

 

**Interest and Other Expense, Net**

 
| ** **                            | ** ** | **Three Months Ended  December 31,** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                            | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| ** **                            | ** ** | **(Dollars in thousands)**                | ** ** |
|                                  |       |                                                |       |   |   |
| Interest expense                      |       | $                                                   | 921        |   | $ | 1,459 |   |
| Deferred financing charges            |       | 64                                                  |       | 738 |   |
| Debt prepayment penalty               |       | —                                              |       | 2,052 |   |
| Total interest expense                |       | 985                                                 |       | 4,249 |   |
| Interest income                       |       | $                                                   | 160        |   | $ | 1,120 |   |
| Other income                          |       | 151                                                 |       | 426 |   |
| Total interest and other expense, net |       | $                                                   | 674        |   | $ | 2,703 |   |

 

During the three months ended December 31, 2008, we incurredinterest expense of $1.0 million on an average debt balance of $25.0 millionfor the Tontine Term Loan, and an average letter of credit balance of $34.0million and an average unused line of credit balance of $26.0 million under theRevolving Credit Facility.  This comparesto interest expense of $1.5 million for the three months ended December 31,2007, on a combined average debt balance of $41.5 million for the Eton ParkTerm Loan and the Tontine Term Loan, an average letter of credit balance of$40.5 million under the Revolving Credit Facility and an average unused line ofcredit balance of $39.5 million.

 

As described in Item 1. *Condensed ConsolidatedFinancial Statements*— Note 3, “*Debt and Liquidity*”of this report, on December 12, 2007, we repaid our Eton Park Term Loanusing cash on hand and the proceeds from the Tontine Term Loan.  We incurred a prepayment penalty of $2.1million on the Eton Park Term Loan, and we recognized previously unamortizeddebt issuance costs of $0.3 million. During the quarter ended December 31, 2008, we recorded $0.1million of deferred financing charges, which reflect the amortization of feesincurred on the Tontine Term Loan. During the quarter ended December 31, 2007, we had deferredfinancing charges of $0.7 million, which reflects the amortization of feesincurred on the Eton Park Term Loan.

 

During the three months ended December 31, 2008, total interestexpense was offset by $0.2 million in interest income on an average cash andcash equivalents balance of $55.2 million, as compared to $1.1 million ininterest income on an average cash and cash equivalents balance of $86.9million during the three months ended December 31, 2007.  In addition to reduced cash balances,interest income was also impacted by interest rates which averaged 1.2% duringthe quarter ended December 31, 2008 and 5.2% during the quarter ended December 31,2007.

 

**Provision for Income Taxes**

 

On May 12, 2006, we had a change in ownership as defined in InternalRevenue Code Section 382. As such, our net operating loss utilizationafter the change date will be subject to Section 382 limitations for federalincome taxes and some state income taxes. We have provided valuation allowanceson all net operating losses where it is determined it is more likely than notthat they will expire without being utilized.

 

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The provision for income taxes from continuing operations increased from abenefit of $0.4 million for the three months ended December 31, 2007 to abenefit of $29 thousand for the three months ended December 31, 2008. Theincrease in the provision for income taxes for the three months ended December 31,2008 is attributable to the reduction in the loss from continuing operationsfor the three months ended December 31, 2008.

 

**Income (Loss) fromDiscontinued Operations**

 

As discussed earlier in this report, since March 2006 we have shutdown seven underperforming subsidiaries. While this exit plan is substantially complete, there are still somerevenues and expenses associated with the wind down of these subsidiaries.  Such income statement amounts are classifiedas discontinued operations.

 

Revenuesat these subsidiaries were $21 thousand and $1.7 million for the three monthsended December 31, 2008 and the three months ended December 31, 2007,respectfully; earnings after tax at these subsidiaries was a net loss of $15thousand during the three months ended December 31, 2008 and net income of$0.1 million during the three months ended December 31, 2007.

 

**Working Capital**

 
| ** **                                                                   | ** ** | **December 31,  2008**         | ** ** | **September 30,  2008** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                                                   | ** ** | **(Dollars in millions)** | ** ** |
| CURRENT ASSETS:                                                              |       |                                |       |                         |       |
| Cash and cash equivalents                                                    |       | $                                   | 49.3       |                         | 64.7       |   |
| Accounts receivable                                                          |       |                                |       |                         |       |
| Trade, net of allowance of $3.1 and $2.6  respectively                       |       | 122.7                               |       | 132.3                        |       |
| Retainage                                                                    |       | 31.2                                |       | 30.8                         |       |
| Inventories                                                                  |       | 12.3                                |       | 12.9                         |       |
| Costs and estimated earnings in excess of billings  on uncompleted contracts |       | 12.6                                |       | 14.8                         |       |
| Prepaid expenses and other current assets                                    |       | 6.5                                 |       | 6.7                          |       |
| Assets from discontinued operations                                          |       | 1.9                                 |       | 2.0                          |       |
| Total current assets                                                         |       | $                                   | 236.5      |                         | $          | 264.2 |   |
|                                                                         |       |                                |       |                         |       |
| CURRENT LIABILITIES:                                                         |       |                                |       |                         |       |
| Current maturities of long-term debt                                         |       | $                                   | 2.7        |                         | $          | 2.9 |   |
| Accounts payable and accrued expenses                                        |       | 64.8                                |       | 98.1                         |       |
| Billings in excess of costs and estimated earnings  on uncompleted contracts |       | 37.5                                |       | 33.7                         |       |
| Liabilities from discontinued operations                                     |       | 0.4                                 |       | 0.5                          |       |
| Total current liabilities                                                    |       | $                                   | 105.4      |                         | $          | 135.2 |   |
| Working capital                                                              |       | $                                   | 131.1      |                         | $          | 129.0 |   |

 

During the quarter ended December 31,2008, working capital increased by $2.1 million, or 1.6%, as compared to September 30,2008, reflecting a $27.7 million decrease in current assets and a $29.8 milliondecrease in current liabilities.

 

During the quarter ended December 31, 2008, our current assets decreased by $27.7 million, or 10.5%, to $236.5 million, as compared to $264.2 million as of September 30,2008.  Cash and cash equivalents decreased by $15.4 millionduring the quarter ended December 31, 2008 as compared to September 30,2008.  Trade accounts receivables, net, decreased by $9.6 million****at December 31, 2008 as compared to September 30, 2008, as days sales outstanding increased to 64days as of December 31, 2008 from 63 days as of September 30, 2008.  Within the current financial environment, wecontinue to monitor the collectability of our receivables closely.  We also experienced a $0.4 million increase in retainage anda $2.2 million decrease in costs in excess of billings during the quarter ended December 31,2008 as compared to September 30, 2008. Inventoriesdecreased by $0.6 million during the quarter ended December 31, 2008****as compared to September 30, 2008, reflecting the continued success of our strategicefforts to better manage our supply chain through utilization of just-in-timesystems and improved material management. Prepaid expenses and other current assets decreased by a total of $0.2million, and assetsfrom discontinued operationsdecreased $0.1 million during the quarter ended December 31,2008****as compared to September 30,2008.

 

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During the quarter ended December 31, 2008, our total currentliabilities decreased by $29.8 million, to $105.4 million, compared to $135.2million as of September 30, 2008. During the quarter ended December 31,2008, accounts payable and accrued expenses decreased $33.3 million as a resultof reduced operating activities and due to the effects of our cash managementefforts at the end of our 2008 fiscal year. Billings in excess of costs increased $3.8 million during the quarterended December 31, 2008 as compared to the year ended September 30,2008, due to our efforts to reduce days-sales-outstanding increase thereduction in operating levels.  Finally,current maturities of long-term debt decreased $0.2 million and liabilities atour discontinued operations decreased by $0.1 million during the quarter ended December 31,2008 as compared to September 30, 2008.

 

**Liquidity and Capital Resources**

 

As of December 31, 2008, we had cashand cash equivalents of $49.3 million, working capital of $131.1 million, $25.0million in outstanding borrowings under our Tontine Term Loan, and $34.0million of letters of credit outstanding and $5.9 million of available capacityunder our Revolving Credit Facility.

 

During the three months ended December 31, 2008, we used $8.2million in cash in our operating activities principally due to the timing ofour account payables and payment of year-end accrued bonuses in December 2008.  We also had combined cash outflow of $7.2million for our investing and financing activities during the three monthsended December 31, 2008.  Thisincluded $0.6 million in capital expenditures primarily for computer equipmentused in our new operating, management and financial reporting systems, a $2.0million investment in debt and warrants of an unconsolidated affiliate, $0.7million of payments on long term debt, and $4.0 million for the acquisition oftreasury stock.

 

*Bonding Capacity*

 

At December 31, 2008, we have adequate surety bonding capacityunder our surety agreements. Our ability to access this bonding capacity is atthe sole discretion of our surety providers. As of December 31, 2008, theexpected cumulative cost to complete for projects covered by our co-suretyproviders was $115.9 million. We also had $19.2 million in aggregate face valueof bonds issued by an individual surety provider. We believe we have adequateremaining available bonding capacity to meet our current needs, subject to thesole discretion of our surety providers. For more information, please refer toItem 2. *“Surety”* of this report.

 

**Off-Balance Sheet Arrangements andContractual Obligations**

 

As is common in ourindustry, we have entered into certain off-balance sheet arrangements thatexpose us to increased risk. Our significant off-balance sheet transactionsinclude commitments associated with non-cancelable operating leases, letter ofcredit obligations, firm commitments for materials and surety guarantees.

 

We enter intonon-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 orequipment, and we pay a monthly lease rental fee. At the end of the lease, wehave no further obligation to the lessor. We may determine to cancel orterminate a lease before the end of its term. Typically, we are liable to thelessor for various lease cancellation or termination costs and the differencebetween the then fair market value of the leased asset and the implied bookvalue of the leased asset as calculated in accordance with the lease agreement.

 

Some of our customers andvendors require us to post letters of credit as a means of guaranteeingperformance under our contracts and ensuring payment by us to subcontractorsand vendors. If our customer has reasonable cause to effect payment under aletter of credit, we would be required to reimburse our creditor for the letterof credit. Depending on the circumstances surrounding a reimbursement to ourcreditor, we may have a charge to earnings in that period. At December 31,2008, $21.0 million of our outstanding letters of credit were tocollateralize our customers and vendors.

 

Some of the underwritersof our casualty insurance program require us to post letters of credit ascollateral, as is common in the insurance industry. To date, we have not had asituation where an underwriter has had reasonable cause to effect payment undera letter of credit. At December 31, 2008, an additional $13.0 millionof our outstanding letters of credit were to collateralize our insuranceprograms.

 

From time to time, we mayenter into firm purchase commitments for materials such as copper wire andaluminum wire, among others, which we expect to use in the ordinary course ofbusiness. These commitments are typically for terms less than one year andrequire us to buy minimum quantities of materials at specified intervals at afixed price over the term. As of December 31, 2008, we  did not have any open purchase commitments.

 

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Many of our customersrequire us to post performance and payment bonds issued by a surety. Thosebonds guarantee the customer that we will perform under the terms of a contractand that we will pay subcontractors and vendors. In the event that we fail toperform under a contract or pay subcontractors and vendors, the customer maydemand the surety to pay or perform under our bond. Our relationship with oursureties is such that we will indemnify the sureties for any expenses theyincur in connection with any of the bonds they issues on our behalf. To date,we have not incurred significant costs to indemnify our sureties for expensesthey incurred on our behalf. As of December 31, 2008, we utilized acombination of cash, accumulated interest thereon and letters of credittotaling $25.6 million to collateralize our bonding programs.

 

In April 2000, wecommitted to invest up to $5.0 million in EnerTech. EnerTech is a privateequity firm specializing in investment opportunities emerging from thederegulation and resulting convergence of the energy, utility andtelecommunications industries. Through December 31, 2008, we had invested$4.9 million under our commitment to EnerTech.

 

As of December 31,2008, our future contractual obligations due by September 30 of each ofthe following fiscal years include (in thousands) (1):

 
| ** **                  | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| Long-term debt obligations  |       | $        | 2,581      |     | $          | 1,155    |       | $        | —     |     | $          | —         |       | $         | 25,000     |   | $ | — |   | $ | 28,736 |   |
| Operating lease obligations |       | $        | 6,251      |     | $          | 6,214    |       | $        | 4,039      |     | $          | 1,900          |       | $         | 249        |   | $ | 117 |   | $ | 18,770 |   |
| Capital lease obligations   |       | $        | 136        |     | $          | 52       |       | $        | 8          |     | $          | —         |       | $         | —     |   | $ | — |   | $ | 196 |   |

 

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(1)          The tabular amounts exclude the interestobligations that will be created if the debt and capital lease obligations areoutstanding for the periods presented. 

 

Our othercommercial commitments expire by September 30 of each of the followingfiscal years (in thousands):

 
|                             |   | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **Thereafter** | ** ** | **Total** |   |
|----------------------------------|--------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|--------|
| Letters of credit                |   | $        | —     |     | $          | —   |       | $        | —     |     | $          | —         |       | $         | — |   | $ | — |   | $ | — |   |
| Other commercial commitments (2) |   | $        | —     |     | $          | 150      |       | $        | —     |     | $          | —         |       | $         | — |   | $ | — |   | $ | 150 |   |

 

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(2)          Balance of investment commitment inEnerTech. 

 

**Outlook**

** **

We anticipate that thecombination of cash on hand, cash flows and available capacity under ourRevolving Credit Facility will provide sufficient cash to enable us to meet ourworking capital needs, debt service requirements, capital expenditures forproperty and equipment, and our share buy back through the next twelve months.We expect capital expenditures to be approximately $5.0 million to $6.0 millionfor the fiscal year ending on September 30, 2009, as we invest in ourinfrastructure to improve management information and project managementsystems. Our ability to generate cash flow is dependent on our successfulcompletion of our restructuring efforts and many other factors, includingdemand for our products and services, the availability of projects at marginsacceptable to us, the ultimate collectability of our receivables, and ourability to borrow on our Revolving Credit Facility.

 

**Inflation**

** **

During the three monthsended December 31, 2008, we experienced decreases in fuel prices andrelated travel costs, as well as reductions in steel and copper prices, whichhave fallen off of the recent historical highs in early 2008. These pricedeclines have contributed to some gross margin improvement; however, due to theslowdown in the overall construction sector, we have also had to reduce ourpricing as our input prices have fallen. Over the long-term, we will adjust ourpricing to incorporate these conditions and other inflationary factors.

 

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

** **

Management is activelyinvolved in monitoring exposure to market risk and continues to develop andutilize appropriate risk management techniques. Our exposure to significantmarket risks includes fluctuations in commodity prices for copper, aluminum,

 

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**steeland fuel. Commodity price risks may have an impact on our results of operationsdue to the fixed nature of many of our contracts. We are also exposed tointerest rate risk with respect to our outstanding debt obligations.**

** **

**ITEM 4. CONTROLS AND PROCEDURES**

** **

**(a)  Disclosurecontrols and procedures**

** **

**Disclosurecontrols and procedures are designed to ensure that information required to bedisclosed by us in reports filed or submitted under the Securities Exchange Actof 1934, as amended (“Exchange Act”) is recorded, processed, summarized andreported within the time periods specified in the Security and ExchangeCommission’s rules and forms. Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed under the Exchange Act is accumulated and communicatedto management, including the principal executive and financial officers, asappropriate to allow timely decisions regarding required disclosure. There areinherent limitations to the effectiveness of any system of disclosure controlsand procedures, including the possibility of human error and the circumventionor overriding of the controls and procedures. Accordingly, even effectivedisclosure controls and procedures can only provide reasonable assurance ofachieving their control objectives.**

** **

**Anevaluation was performed under the supervision and with the participation ofour management, our principal executive officer (CEO) and our principalfinancial officer (CFO), of the effectiveness of the design and operation ofour disclosure controls and procedures as of the end of the period covered bythis report. Based on that evaluation, our management, including our CEO andCFO, concluded that our disclosure controls and procedures are effective as ofDecember 31, 2008.**

** **

**(b)  Changes in Internal Control Over FinancialReporting**

** **

**Priorto the three months ended December 31, 2008, we had completed theimplementation of two separate software programs which have since beenintegrated into our daily work processes and materially impacted our internalcontrols. The first program is a comprehensive project management system thatis being utilized across our divisions and at our shared service centers tostandardize our project management and reporting processes and provides ourbusinesses near real-time visibility into project performance. The secondprogram is an accounting consolidation and reporting system that providesmanagement more robust financial data and improved transparency. In addition tothese new systems, we have also outsourced our payroll processing to a leadingnational provider and employed technology to capture labor utilization morereal time.  Each of these new processes has materially improved ourinternal controls over financial reporting.**

** **

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** **

**PART II.OTHER INFORMATION**

 

**ITEM1. LEGAL PROCEEDINGS**

** **

For additionalinformation, please refer to Part 1, Item 1, Condensed ConsolidatedFinancial Statements - Note 8, “*Commitments andContingencies – Legal Matters*,” which is incorporated herein byreference. We are not aware of any litigation or pending litigation that webelieve will have a material impact on our results of operations or ourfinancial position other than what is already disclosed in Note 8.

 

**ITEM1A. RISK FACTORS**

** **

Except as set forth below, there have been no material changes to therisk factors disclosed under Item 1A “*Risk Factors*”in our annual report on Form 10-K for the year ended September 30,2008.

 

***Due to the recent financial and credit crisis, wemay not be able to obtain funding, or obtain funding on acceptable terms, tomeet our future capital needs, which could negatively affect our business,results of operations and financial condition.***

*** ***

The recent credit crisis and the related turmoil in the globalfinancial system have had an adverse impact on our business and financialcondition, and we may face challenges if conditions in the financial markets donot improve. Due to the financial crisis, financing may not be available to uson acceptable terms or at all, including under our Revolving Credit Facility. Ifadditional funding is not available, or is available only on unfavorable terms,we may be unable to make necessary capital expenditures, withstand a downturnin our business or the economy in general, or take advantage of businessopportunities that may arise. Any curtailment of our operations would have anadverse effect on our revenues and results of operations. In addition, currenteconomic conditions have led to reduced demand for electrical services, and asustained decline in demand would adversely affect our business, results ofoperations and financial condition.

 

**ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

**Purchasesof Equity Securities by the Issuer and Affiliated Purchases**

** **
| **Period**                                      | ** ** | **Total number  of shares  purchased** | ** ** | **Average price  paid per share** | ** ** | **Total number of  shares purchased as  part of publically  announced plans or  programs (1)** | ** ** | **Maximum of  shares that may  yet be purchased  under the plans or**

**programs** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
| October 1, 2008 to October 31, 2008   |       | 301,418                                          |       | $                                                | 13.36      |                                                                                                                                        | 886,360    |                                                                                                                        | 113,640    |   |
| November 1, 2008 to November 1, 2008  |       | —                                           |       | $                                                | —     |                                                                                                                                        | 886,360    |                                                                                                                        | 113,640    |   |
| December 1, 2008 to December 31, 2008 |       | —                                           |       | $                                                | —     |                                                                                                                                        | 886,360    |                                                                                                                        | 113,640    |   |
| Total for period                                |       | 301,418                                          |       | $                                                | 13.36      |                                                                                                                                        |       |                                                                                                                        |       |   |

 

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| (1) |   | On December 12, 2007, we announced that our Board of Directors  authorized the repurchase of up to one million shares of our common stock.  This share repurchase plan is authorized through December 2009. This  share repurchase table does not include 661 shares of common Stock withheld  to satisfy tax withholding requirements related to restricted stock issued  under the Amended and Restated 2006 Equity Incentive Plan. The average cost  of those shares was $8.76 per share. |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

** **

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

** **

None.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

** **

None.

 

**ITEM 5. OTHER INFORMATION**

** **

None.

 

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** **

**ITEM 6. EXHIBITS**

 
|   | 3.1    |                                                                                                | Second Amended and Restated Certificate of Incorporation of  Integrated Electrical Services, Inc. (Incorporated by reference to  Exhibit 4.1 to the Company’s Registration Statement on Form S-8  filed on May 12, 2006)                                                                                                                                                                                                                      |
|--------|--------|-----------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 3.2    |                                                                                                | Bylaws of Integrated Electrical Services, Inc. (Incorporated by  reference to Exhibit 4.2 to the Company’s Registration Statement on  Form S-8, filed on May 12, 2006)                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 4.1    |                                                                                                | Senior Subordinated  Note, dated as of December 12, 2007. (Incorporated by reference to  Exhibit 4.1 to the Company’s Current Report on Form 8-K/A filed  November 12, 2008)                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 4.2    |                                                                                                | First Amendment, dated November 12, 2008, to Note Purchase  Agreement, dated as of December 12, 2007, by and among Tontine Capital  Partners, L.P., Integrated Electrical Services, Inc. and the other  borrowers thereto. (Incorporated by reference to Exhibit 4.1 to the  Company’s Current Report on Form 8-K/A filed November 12, 2008)                                                                                        |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 10.1   |                                                                                                | Rider to Add  Principal/Indemnitor and Fifth Amendment, dated September 29, 2008, to  Restated Underwriting, Continuing Indemnity, and Security Agreement, dated  May 12, 2006, by Integrated Electrical Services, Inc., certain of  its subsidiaries and Federal Insurance Company and certain of its affiliates.  (Incorporated by reference to Exhibit 10.1 to the Company’s Current  Report on Form 8-K filed October 24, 2008) |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 10.2   |                                                                                                | Employment Agreement  between the Company and Thomas E. Vossman dated November 3, 2008.  (Incorporated by reference to Exhibit 10.32 to the Company’s Annual  Report on Form 10-K filed December 15, 2008)                                                                                                                                                                                                                                    |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *      | 10.3   |                                                                                                | Amended and Restated  2009 Deferred Compensation Plan. (Incorporated by reference to  Exhibit 10.33 to the Company’s Annual Report on Form 10-K filed  December 15, 2008)                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *      | 10.4   |                                                                                                | Management Incentive  Plan (for Group Vice Presidents) 2008 Performance Criteria. (Incorporated by  reference to Exhibit 10.34 to the Company’s Annual Report on  Form 10-K filed December 15, 2008)                                                                                                                                                                                                                                               |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *      | 10.5   |                                                                                                | Long Term Incentive  Program Payment Schedule for Fiscal Year 2009 – 2010. (Incorporated by  reference to Exhibit 10.1 to the Company’s Current Report on  Form 8-K filed December 12, 2008)                                                                                                                                                                                                                                                  |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *      | 10.6   |                                                                                                | Management Incentive  Plan 2009 Performance Criteria. (Incorporated by reference to  Exhibit 10.2 to the Company’s Current Report on Form 8-K filed  December 12, 2008)                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 31.1   |   | Rule 13a-14(a)/15d-14(a) Certification  of Michael J. Caliel, Chief Executive Officer (1) |
|   |   |                                                                                                |
| 31.2   |   | Rule 13a-14(a)/15d-14(a) Certification  of Raymond K. Guba, Chief Financial Officer (1)   |
|   |   |                                                                                                |
| 32.1   |   | Section 1350  Certification of Michael J. Caliel, Chief Executive Officer (1)                  |
|   |   |                                                                                                |
| 32.2   |   | Section 1350  Certification of Raymond K. Guba, Chief Financial Officer (1)                    |

 

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(1)                                  Filed herewith.

 

* Theseexhibits relate to management contracts or compensatory plans or arrangements.

 

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** **

**INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES**

** **

**SIGNATURES**

** **

**Pursuant to the requirements of the Securities Exchange Actof 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized, who has signed this report onbehalf of the registrant and as the principal financial officer of theregistrant.**

** **
| ** **                       | **INTEGRATED  ELECTRICAL SERVICES, INC.** |
|----------------------------------|-------------------------------------------|
| ** **                       | ** **                                |
| ** **                       | ** **                                |
| **Date:  February 9, 2009** | **By:**                                   | **/s/RAYMOND  K. GUBA** |
| ** **                       | ** **                                | **Raymond K. Guba** |
| ** **                       | ** **                                | **Executive Vice President and** |
| ** **                       | ** **                                | **Chief Financial and Administrative Officer** |

** **

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**EXHIBITINDEX**

 
|   | 3.1    |                                                                                                | Second Amended and Restated Certificate of Incorporation of Integrated  Electrical Services, Inc. (Incorporated by reference to Exhibit 4.1  to the Company’s Registration Statement on Form S-8 filed on  May 12, 2006)                                                                                                                                                                                                                      |
|--------|--------|-----------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 3.2    |                                                                                                | Bylaws of Integrated Electrical Services, Inc. (Incorporated by  reference to Exhibit 4.2 to the Company’s Registration Statement on  Form S-8, filed on May 12, 2006)                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 4.1    |                                                                                                | Senior  Subordinated Note, dated as of December 12, 2007. (Incorporated by  reference to Exhibit 4.1 to the Company’s Current Report on  Form 8-K/A filed November 12, 2008)                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 4.2    |                                                                                                | First Amendment, dated November 12, 2008, to Note Purchase  Agreement, dated as of December 12, 2007, by and among Tontine Capital  Partners, L.P., Integrated Electrical Services, Inc. and the other  borrowers thereto. (Incorporated by reference to Exhibit 4.1 to the  Company’s Current Report on Form 8-K/A filed November 12, 2008)                                                                                        |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 10.1   |                                                                                                | Rider to Add  Principal/Indemnitor and Fifth Amendment, dated September 29, 2008, to  Restated Underwriting, Continuing Indemnity, and Security Agreement, dated May 12,  2006, by Integrated Electrical Services, Inc., certain of its  subsidiaries and Federal Insurance Company and certain of its affiliates.  (Incorporated by reference to Exhibit 10.1 to the Company’s Current  Report on Form 8-K filed October 24, 2008) |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 10.2   |                                                                                                | Employment Agreement  between the Company and Thomas E. Vossman dated November 3, 2008.  (Incorporated by reference to Exhibit 10.32 to the Company’s Annual  Report on Form 10-K filed December 15, 2008)                                                                                                                                                                                                                                    |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *      | 10.3   |                                                                                                | Amended and Restated  2009 Deferred Compensation Plan. (Incorporated by reference to  Exhibit 10.33 to the Company’s Annual Report on Form 10-K filed  December 15, 2008)                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *      | 10.4   |                                                                                                | Management Incentive  Plan (for Group Vice Presidents) 2008 Performance Criteria. (Incorporated by  reference to Exhibit 10.34 to the Company’s Annual Report on  Form 10-K filed December 15, 2008)                                                                                                                                                                                                                                               |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *      | 10.5   |                                                                                                | Long Term Incentive  Program Payment Schedule for Fiscal Year 2009 – 2010. (Incorporated by  reference to Exhibit 10.1 to the Company’s Current Report on  Form 8-K filed December 12, 2008)                                                                                                                                                                                                                                                  |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *      | 10.6   |                                                                                                | Management Incentive  Plan 2009 Performance Criteria. (Incorporated by reference to  Exhibit 10.2 to the Company’s Current Report on Form 8-K filed  December 12, 2008)                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 31.1   |   | Rule 13a-14(a)/15d-14(a) Certification  of Michael J. Caliel, Chief Executive Officer (1) |
|   |   |                                                                                                |
| 31.2   |   | Rule 13a-14(a)/15d-14(a) Certification  of Raymond K. Guba, Chief Financial Officer (1)   |
|   |   |                                                                                                |
| 32.1   |   | Section 1350  Certification of Michael J. Caliel, Chief Executive Officer (1)                  |
|   |   |                                                                                                |
| 32.2   |   | Section 1350  Certification of Raymond K. Guba, Chief Financial Officer (1)                    |

 

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(1) Filed herewith.

 

* These exhibits relate to management contracts orcompensatory plans or arrangements.

 

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