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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-13783
 
 Integrated Electrical Services, Inc.
  Delaware
    
    76-0542208(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 1800 West Loop South, Suite 500, Houston, Texas 77027
 Registrants telephone number, including area code:
 þ o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ
 Yes þ No o




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##### 



INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2010 and September 30, 2009
    
    
    5Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended March 31, 2010 and 2009
    
    
    6Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2010 and 2009
    
    
    8Notes to Condensed Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    35Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3. Defaults Upon Senior Securities
    
    
    35Item 4. Submission of Matters to a Vote of Security Holders
    
    
    35Item 5. Other Information
    
    
    36Item 6. Exhibits
    
    
    36Signatures
    
    
    37Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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DEFINITIONS
  DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    fluctuations in operating activity due to downturns in levels of construction, seasonality
and differing regional economic conditions;
 
    
    competition in the construction industry, both from third parties and former employees,
which could result in the loss of one or more customers or lead to lower margins on new
contracts;
 
    
    a general reduction in the demand for our services;
 
    
    a change in the mix of our customers, contracts and business;
 
    
    our ability to successfully manage construction projects;
 
    
    possibility of errors when estimating revenue and progress to date on
percentage-of-completion contracts;
 
    
    inaccurate estimates used when entering into fixed-priced contracts;
 
    
    challenges integrating new types of work or new processes into our divisions;
 
    
    the cost and availability of qualified labor, especially electricians and construction
supervisors;
 
    
    accidents resulting from the physical hazards associated with our work and the potential
for vehicle accidents;
 
    
    success in transferring, renewing and obtaining electrical and construction licenses after
the recent consolidation of our divisions;
 
    
    our ability to pass along increases in the cost of commodities used in our business, in
particular, copper, aluminum, steel, fuel and certain plastics;
 
    
    potential supply chain disruptions due to credit or liquidity problems faced by our
suppliers;
 
    
    loss of key personnel and effective transition of new management;
 
    
    warranty losses or other latent defect claims in excess of our existing reserves and
accruals;
 
    
    warranty losses or other unexpected liabilities stemming from former divisions which we
have sold or closed;
 
    
    growth in latent defect litigation in states where we provide residential electrical work
for home builders not otherwise covered by insurance;
 
    
    limitations on the availability of sufficient credit or cash flow to fund our working
capital needs;
 
    
    difficulty in fulfilling the covenant terms of our credit facilities;
 
    
    increased cost of surety bonds affecting margins on work and the potential for our surety
providers to refuse bonding at their discretion;
  3




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
    
    increases in bad debt expense and days sales outstanding due to liquidity problems faced by
our customers;
 
    
    changes in the assumptions made regarding future events used to value our stock options and
performance-based stock awards;
 
    
    the recognition of potential goodwill, fixed asset and other investment impairments;
 
    
    uncertainties inherent in estimating future operating results, including revenues,
operating income or cash flow;
 
    
    disagreements with taxing authorities with regard to tax positions we have adopted;
 
    
    the recognition of tax benefits related to uncertain tax positions;
 
    
    complications associated with the incorporation of new accounting, control and operating
procedures;
 
    
    the financial impact of new or proposed accounting regulations;
 
    
    the ability of our controlling shareholder to take action not aligned with other
shareholders;
 
    
    the possibility that certain of our net operating losses may be restricted or reduced in a
change in ownership;
 
    
    credit and capital market conditions, including changes in interest rates that affect the
cost of construction financing and mortgages, and the inability for some of our customers to
retain sufficient financing which could lead to project cancellations; and
 
    
    the sale or disposition of the shares of our common stock held by our majority shareholder,
which, under certain circumstances, would trigger change of control provisions in contracts
such as employment agreements, supply agreements, and financing and surety arrangements.
  www.ies-co.com
  4




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INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (IN THOUSANDS, EXCEPT SHARE INFORMATION)
 March 31,
    
    
    September 30,2010
    
    
    2009(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    54,182
    
    
    $
    64,174Accounts receivable:Trade, net of allowance of $2,453 and $3,296, respectively
    
    
    86,631
    
    
    
    100,753Retainage
    
    
    17,416
    
    
    
    26,516Inventories
    
    
    9,456
    
    
    
    10,155Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    12,885
    
    
    
    13,554Prepaid expenses and other current assets
    
    
    6,030
    
    
    
    6,118Total current assets
    
    
    186,600
    
    
    
    221,270LONG-TERM RECEIVABLE, net of allowance of $3,992 and $278, respectively
    
    
    
    
    
    
    3,714PROPERTY AND EQUIPMENT, net
    
    
    21,967
    
    
    
    24,367GOODWILL
    
    
    3,981
    
    
    
    3,981OTHER NON-CURRENT ASSETS, net
    
    
    14,056
    
    
    
    15,093Total assets
    
    $
    226,604
    
    
    $
    268,425LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    1,997
    
    
    $
    2,086Accounts payable and accrued expenses
    
    
    56,657
    
    
    
    76,478Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    13,601
    
    
    
    21,142Total current liabilities
    
    
    72,255
    
    
    
    99,706LONG-TERM DEBT, net of current maturities
    
    
    25,985
    
    
    
    26,601LONG-TERM DEFERRED TAX LIABILITY
    
    
    2,291
    
    
    
    2,290OTHER NON-CURRENT LIABILITIES
    
    
    6,706
    
    
    
    7,280Total liabilities
    
    
    107,237
    
    
    
    135,877STOCKHOLDERS 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
shares issued and 14,598,835 and 14,617,741 outstanding, respectively
    
    
    154
    
    
    
    154Treasury stock, at cost, 808,967 and 790,061 shares, respectively
    
    
    (14,226
    )
    
    
    (14,097
    )Additional paid-in capital
    
    
    171,727
    
    
    
    170,732Accumulated other comprehensive income
    
    
    (81
    )
    
    
    (70
    )Retained deficit
    
    
    (38,207
    )
    
    
    (24,171
    )Total stockholders equity
    
    
    119,367
    
    
    
    132,548Total liabilities and stockholders equity
    
    $
    226,604
    
    
    $
    268,425
   5




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INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2010
    
    
    March 31, 2009(Unaudited)Revenues
    
    $
    107,619
    
    
    $
    167,305Cost of services
    
    
    94,031
    
    
    
    137,401Gross profit
    
    
    13,588
    
    
    
    29,904Selling, general and administrative expenses
    
    
    25,709
    
    
    
    27,315Gain on sale of assets
    
    
    13
    
    
    
    (75
    )Restructuring charges
    
    
    65
    
    
    
    2,256Income (loss) from operations
    
    
    (12,199
    )
    
    
    408Interest and other (income) expense:Interest expense
    
    
    1,017
    
    
    
    1,105Interest income
    
    
    (59
    )
    
    
    (113
    )Other (income) expense, net
    
    
    (107
    )
    
    
    (413
    )Interest and other expense, net
    
    
    851
    
    
    
    579Loss from operations before income taxes
    
    
    (13,050
    )
    
    
    (171
    )Provision (benefit) for income taxes
    
    
    180
    
    
    
    (29
    )Net loss
    
    
    (13,230
    )
    
    
    (142
    )Loss per share:Basic
    
    $
    (0.92
    )
    
    $
    (0.01
    )Diluted
    
    $
    (0.92
    )
    
    $
    (0.01
    )Shares used in the computation of loss per share (Note 4):Basic
    
    
    14,390,580
    
    
    
    14,322,439Diluted
    
    
    14,390,580
    
    
    
    14,322,439
   6




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INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
 Six Months Ended
    
    
    Six Months EndedMarch 31, 2010
    
    
    March 31, 2009(Unaudited)Revenues
    
    $
    227,867
    
    
    $
    340,433Cost of services
    
    
    194,347
    
    
    
    282,533Gross profit
    
    
    33,520
    
    
    
    57,900Selling, general and administrative expenses
    
    
    44,976
    
    
    
    55,830Gain on sale of assets
    
    
    (52
    )
    
    
    (178
    )Restructuring charges
    
    
    763
    
    
    
    3,141Loss from operations
    
    
    (12,167
    )
    
    
    (893
    )Interest and other (income) expense:Interest expense
    
    
    2,085
    
    
    
    2,090Interest income
    
    
    (116
    )
    
    
    (273
    )Other (income) expense, net
    
    
    (226
    )
    
    
    (473
    )Interest and other expense, net
    
    
    1,743
    
    
    
    1,344Loss from operations before income taxes
    
    
    (13,910
    )
    
    
    (2,237
    )Provision (benefit) for income taxes
    
    
    126
    
    
    
    (928
    )Net loss
    
    
    (14,036
    )
    
    
    (1,309
    )Loss per shareBasic
    
    $
    (0.98
    )
    
    $
    (0.09
    )Diluted
    
    $
    (0.98
    )
    
    $
    (0.09
    )Shares used in the computation of loss per share (Note 4):Basic
    
    
    14,393,328
    
    
    
    14,320,588Diluted
    
    
    14,393,328
    
    
    
    14,320,588
   7




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INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (IN THOUSANDS)
 Six Months Ended
    
    
    Six Months EndedMarch 31, 2010
    
    
    March 31, 2009(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (14,036
    )
    
    $
    (1,309
    )Adjustments to reconcile net loss to net cash provided by operating activities:Net (income) loss from discontinued operations
    
    
    
    
    
    
    20Bad debt expense
    
    
    4,984
    
    
    
    617Deferred financing cost amortization
    
    
    148
    
    
    
    128Depreciation and amortization
    
    
    2,795
    
    
    
    4,028Gain on sale of assets
    
    
    (52
    )
    
    
    (178
    )Non-cash compensation expense
    
    
    964
    
    
    
    1,128Paid in kind interest
    
    
    
    
    
    
    678Equity in (gains) losses of investment
    
    
    
    
    
    
    37Goodwill adjustment  utilization of deferred tax assets
    
    
    
    
    
    
    22Changes in operating assets and liabilitiesAccounts receivable
    
    
    21,951
    
    
    
    1,708Inventories
    
    
    699
    
    
    
    2,234Costs and estimated earnings in excess of billings
    
    
    669
    
    
    
    (516
    )Prepaid expenses and other current assets
    
    
    641
    
    
    
    (557
    )Other non-current assets
    
    
    229
    
    
    
    4,531Accounts payable and accrued expenses
    
    
    (19,821
    )
    
    
    (22,396
    )Billings in excess of costs and estimated earnings
    
    
    (7,541
    )
    
    
    2,776Other non-current liabilities
    
    
    (574
    )
    
    
    1,311Net cash used by continuing operations
    
    
    (8,944
    )
    
    
    (5,738
    )Net cash (used in) provided by discontinued operations
    
    
    
    
    
    
    1,333Net cash used by operating activities
    
    
    (8,944
    )
    
    
    (4,405
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (502
    )
    
    
    (1,303
    )Proceeds from sales of property and equipment
    
    
    159
    
    
    
    226Investment in unconsolidated affiliate
    
    
    
    
    
    
    (2,000
    )Distribution from unconsolidated affiliate
    
    
    98
    
    
    
    Net cash used in investing activities
    
    
    (245
    )
    
    
    (3,077
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings of debt
    
    
    744
    
    
    
    Repayments of debt
    
    
    (1,449
    )
    
    
    (1,434
    )Purchase of treasury stock
    
    
    (98
    )
    
    
    (4,224
    )Net cash used in financing activities
    
    
    (803
    )
    
    
    (5,658
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (9,992
    )
    
    
    (13,140
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    64,174
    
    
    
    64,709CASH AND CASH EQUIVALENTS, end of period
    
    $
    54,182
    
    
    $
    51,569SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    2,637
    
    
    $
    1,382Cash paid for income taxes
    
    $
    33
    
    
    $
    380
   8




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INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2010
 (UNAUDITED)
 1. BUSINESS
   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Notes to Consolidated Financial Statements
    9




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RECLASSIFICATIONS
 Operating Segments
  LONG-TERM RECEIVABLE
  Commitments
and Contingencies  Legal Matters
 FAIR VALUE OF FINANCIAL INSTRUMENTS
  - The Tontine Capital
Partners Term Loan
 USE OF ESTIMATES AND ASSUMPTIONS
  SEASONALITY AND QUARTERLY FLUCTUATIONS
 
 2. STRATEGIC ACTIONS
   10




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Severance
    
    
    Consulting/Charges
    
    
    Other Charges
    
    
    TotalRestructuring liability at September 30, 2009
    
    $
    2,097
    
    
    $
    81
    
    
    $
    2,178Restructuring charges incurred
    
    
    763
    
    
    
    
    
    
    
    763Cash payments made
    
    
    (1,810
    )
    
    
    (81
    )
    
    
    (1,891
    )Non-cash/other adjustments made
    
    
    (625
    )
    
    
    
    
    
    
    (625
    )Restructuring liability at March 31, 2010
    
    $
    425
    
    
    $
    
    
    
    $
    425
 3. DEBT AND LIQUIDITY
  March 31,
    
    
    September 30,2010
    
    
    2009Tontine Term Loan, due May 15, 2013, bearing interest at 11.00%
    
    $
    25,000
    
    
    $
    25,000Insurance Financing Agreements
    
    
    2,288
    
    
    
    2,912Capital leases and other
    
    
    694
    
    
    
    775Total debt
    
    
    27,982
    
    
    
    28,687Less  Short-term debt and current maturities of long-term debt
    
    
    (1,997
    )
    
    
    (2,086
    )Total long-term debt
    
    $
    25,985
    
    
    $
    26,601
  Capital Leases
    
    
    Term Debt
    
    
    Total2010
    
    $
    184
    
    
    $
    1,228
    
    
    $
    1,4122011
    
    
    306
    
    
    
    1,060
    
    
    
    1,3662012
    
    
    297
    
    
    
    
    
    
    
    2972013
    
    
    287
    
    
    
    25,000
    
    
    
    25,2872014
    
    
    24
    
    
    
    
    
    
    
    24Thereafter
    
    
    
    
    
    
    
    
    
    
    Less: Imputed Interest
    
    
    (404
    )
    
    
    
    
    
    
    (404
    )Total
    
    $
    694
    
    
    $
    27,288
    
    
    $
    27,982
  11




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The Tontine Capital Partners Term Loan
   Insurance Financing Agreements
   March 31,
    
    
    September 30,2010
    
    
    2009Insurance Note Payable, due September 1, 2010, bearing interest at 4.99%
    
    $
    292
    
    
    $
    Insurance Note Payable, due June 1, 2010, bearing interest at 4.59%
    
    
    273
    
    
    
    719Insurance Note Payable, due August 1, 2011, bearing interest at 4.99%
    
    
    1,550
    
    
    
    1,986Insurance Note Payable, due November 1, 2010, bearing interest at 4.99%
    
    
    173
    
    
    
    Insurance Note Payable, due January 1, 2010, bearing interest at 5.99%
    
    
    
    
    
    
    207Total Insurance Financing Agreements
    
    $
    2,288
    
    
    $
    2,912
    The Revolving Credit Facility
   12




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Covenant
    
    Requirement
    
    ActualShutdown Subsidiaries Earnings Before Interest and Taxes
    
    Cumulative loss not to exceed $2.0 million
    
    Loss of $0.9 million
   Annual Interest Rate forTotal Liquidity
    
    Annual Interest Rate for Loans
    
    Letters of CreditGreater than or equal to $60 million
    
    LIBOR plus 2.75% or Base Rate plus 0.75%
    
    2.75% plus 0.25% fronting feeGreater than $40 million and less than $60 million
    
    LIBOR plus 3.00% or Base Rate plus 1.00%
    
    3.00% plus 0.25% fronting feeLess than or equal to $40 million
    
    LIBOR plus 3.25% or Base Rate plus 1.25%
    
    3.25% plus 0.25% fronting fee
   Annual Interest Rate forTotal Liquidity
    
    Annual Interest Rate for Loans
    
    Letters of CreditGreater than or equal to $60 million
    
    LIBOR plus 3.00% or Base Rate plus 1.00%
    
    3.00% plus 0.25% fronting feeGreater than $40 million and less than $60 million
    
    LIBOR plus 3.25% or Base Rate plus 1.25%
    
    3.25% plus 0.25% fronting feeLess than or equal to $40 million
    
    LIBOR plus 3.50% or Base Rate plus 1.50%
    
    3.50% plus 0.25% fronting fee
  13




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Financial Covenants
  
 4. EARNINGS PER SHARE
   Three Months EndedMarch 31,2010
    
    
    2009Numerator:Net loss attributable to common shareholders
    
    $
    (13,230
    )
    
    $
    (142
    )Net income attributable to restricted shareholders
    
    
    
    
    
    
    Net loss
    
    $
    (13,230
    )
    
    $
    (142
    )Denominator:Weighted average common shares outstanding  basic
    
    
    14,390,580
    
    
    
    14,322,439Effect of dilutive stock options and non-vested restricted stock
    
    
    
    
    
    
    Weighted average common and common equivalent shares outstanding  diluted
    
    
    14,390,580
    
    
    
    14,322,439Loss per shareBasic
    
    $
    (0.92
    )
    
    $
    (0.01
    )Diluted
    
    $
    (0.92
    )
    
    $
    (0.01
    )
 Six Months EndedMarch 31,2010
    
    
    2009Numerator:Net loss attributable to common shareholders
    
    $
    (14,036
    )
    
    $
    (1,309
    )Net income attributable to restricted shareholders
    
    
    
    
    
    
    Net loss
    
    $
    (14,036
    )
    
    $
    (1,309
    )Denominator:Weighted average common shares outstanding  basic
    
    
    14,393,328
    
    
    
    14,320,588Effect of dilutive stock options and non-vested restricted stock
    
    
    
    
    
    
    Weighted average common and common equivalent shares outstanding  diluted
    
    
    14,393,328
    
    
    
    14,320,588Loss per shareBasic
    
    $
    (0.98
    )
    
    $
    (0.09
    )Diluted
    
    $
    (0.98
    )
    
    $
    (0.09
    )
  14




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5. OPERATING SEGMENTS
        Three Months Ended March 31, 2010 (Unaudited)Commercial &Industrial
    
    
    Residential
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    79,551
    
    
    $
    28,068
    
    
    $
    
    
    
    $
    107,619Cost of services
    
    
    72,217
    
    
    
    21,814
    
    
    
    
    
    
    
    94,031Gross profit
    
    
    7,334
    
    
    
    6,254
    
    
    
    
    
    
    
    13,588Selling, general and administrative
    
    
    14,682
    
    
    
    6,526
    
    
    
    4,501
    
    
    
    25,709Loss (gain) on sale of assets
    
    
    15
    
    
    
    (2
    )
    
    
    
    
    
    
    13Restructuring charge
    
    
    (2
    )
    
    
    
    
    
    
    67
    
    
    
    65Income (loss) from operations
    
    $
    (7,361
    )
    
    $
    (270
    )
    
    $
    (4,568
    )
    
    $
    (12,199
    )Other data:Depreciation and amortization expense
    
    $
    495
    
    
    $
    255
    
    
    $
    668
    
    
    $
    1,418Capital expenditures
    
    $
    173
    
    
    $
    64
    
    
    $
    189
    
    
    $
    426Total assets
    
    $
    101,312
    
    
    $
    32,886
    
    
    $
    92,406
    
    
    $
    226,604
  15




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##### Table of Contents



Three Months Ended March 31, 2009 (Unaudited)Commercial &Industrial
    
    
    Residential
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    133,424
    
    
    $
    33,881
    
    
    $
    
    
    
    $
    167,305Cost of services
    
    
    111,311
    
    
    
    26,090
    
    
    
    
    
    
    
    137,401Gross profit
    
    
    22,113
    
    
    
    7,791
    
    
    
    
    
    
    
    29,904Selling, general and administrative
    
    
    14,745
    
    
    
    8,385
    
    
    
    4,185
    
    
    
    27,315Loss (gain) on sale of assets
    
    
    (75
    )
    
    
    
    
    
    
    
    
    
    
    (75
    )Restructuring charge
    
    
    265
    
    
    
    1,254
    
    
    
    737
    
    
    
    2,256Income (loss) from operations
    
    $
    7,178
    
    
    $
    (1,848
    )
    
    $
    (4,922
    )
    
    $
    408Other data:Depreciation and amortization expense
    
    $
    325
    
    
    $
    175
    
    
    $
    2,543
    
    
    $
    3,043Capital expenditures
    
    $
    310
    
    
    $
    249
    
    
    $
    1,708
    
    
    $
    2,267Total assets
    
    $
    159,799
    
    
    $
    38,243
    
    
    $
    99,048
    
    
    $
    297,090
 Six Months Ended March 31, 2010 (Unaudited)Commercial &Industrial
    
    
    Residential
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    170,807
    
    
    $
    57,060
    
    
    $
    
    
    
    $
    227,867Cost of services
    
    
    150,390
    
    
    
    43,957
    
    
    
    
    
    
    
    194,347Gross profit
    
    
    20,417
    
    
    
    13,103
    
    
    
    
    
    
    
    33,520Selling, general and administrative
    
    
    24,525
    
    
    
    12,549
    
    
    
    7,902
    
    
    
    44,976Loss (gain) on sale of assets
    
    
    (49
    )
    
    
    (3
    )
    
    
    
    
    
    
    (52
    )Restructuring charge
    
    
    714
    
    
    
    
    
    
    
    49
    
    
    
    763Income (loss) from operations
    
    $
    (4,773
    )
    
    $
    557
    
    
    $
    (7,951
    )
    
    $
    (12,167
    )Other data:Depreciation and amortization expense
    
    $
    854
    
    
    $
    397
    
    
    $
    1,544
    
    
    $
    2,795Capital expenditures
    
    $
    205
    
    
    $
    76
    
    
    $
    221
    
    
    $
    502
 Six Months Ended March 31, 2009 (Unaudited)Commercial &Industrial
    
    
    Residential
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    261,186
    
    
    $
    79,247
    
    
    $
    
    
    
    $
    340,433Cost of services
    
    
    221,296
    
    
    
    61,237
    
    
    
    
    
    
    
    282,533Gross profit
    
    
    39,890
    
    
    
    18,010
    
    
    
    
    
    
    
    57,900Selling, general and administrative
    
    
    29,648
    
    
    
    17,661
    
    
    
    8,521
    
    
    
    55,830Loss (gain) on sale of assets
    
    
    (192
    )
    
    
    14
    
    
    
    
    
    
    
    (178
    )Restructuring charge
    
    
    596
    
    
    
    1,722
    
    
    
    823
    
    
    
    3,141Income (loss) from operations
    
    $
    9,838
    
    
    $
    (1,387
    )
    
    $
    (9,344
    )
    
    $
    (893
    )Other data:Depreciation and amortization expense
    
    $
    841
    
    
    $
    1,453
    
    
    $
    1,734
    
    
    $
    4,028Capital expenditures
    
    $
    396
    
    
    $
    265
    
    
    $
    642
    
    
    $
    1,303
   16




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##### Table of Contents



6. STOCKHOLDERS EQUITY
   Treasury Stock
    Restricted Stock
     Phantom Stock Units
  Stock Options
    17




---



##### Table of Contents



Weighted AverageShares
    
    
    Exercise PriceOutstanding, September 30, 2009
    
    
    158,500
    
    
    $
    18.66Options granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding, March 31, 2010
    
    
    158,500
    
    
    $
    18.66Exercisable, March 31, 2010
    
    
    153,500
    
    
    $
    18.67
  RemainingOutstanding as of
    
    
    Contractual Life
    
    
    Weighted-Average
    
    
    Exercisable as of
    
    
    Weighted-AverageRange of Exercise Prices
    
    March 31, 2010
    
    
    in Years
    
    
    Exercise Price
    
    
    March 31, 2010
    
    
    Exercise Price$12.31  $18.79
    
    
    123,500
    
    
    
    6.62
    
    
    $
    17.02
    
    
    
    121,833
    
    
    $
    17.07$20.75  $33.55
    
    
    35,000
    
    
    
    7.22
    
    
    
    24.46
    
    
    
    31,667
    
    
    
    24.85158,500
    
    
    
    6.75
    
    
    $
    18.66
    
    
    
    153,500
    
    
    $
    18.67
 
 7. SECURITIES AND EQUITY INVESTMENTS
 Investment in EPV Solar
  March 31,
    
    
    September 30,2010
    
    
    2009Common stock (25.2 million shares)
    
    $
    
    
    
    $
    Convertible note receivable
    
    
    150
    
    
    
    150Stock warrants (0.5 million warrants / strike at $1.25)
    
    
    
    
    
    
    Stock warrants (1.2 million warrants / strike at $0.54)
    
    
    
    
    
    
    Total investment, net of impairment
    
    $
    150
    
    
    $
    150
    18




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##### Table of Contents



Investment in EnerTech Capital Partners II L.P.
   March 31,
    
    
    September 30,2010
    
    
    2009Carrying value
    
    $
    2,321
    
    
    $
    2,491Unrealized gains (losses)
    
    
    125
    
    
    
    276Fair value
    
    $
    2,446
    
    
    $
    2,767
  Arbinet Corporation
  8. EMPLOYEE BENEFIT PLANS
 Executive Savings Plan
  
 9. FAIR VALUE MEASUREMENTS
   19




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##### Table of Contents



Significant
    
    
    SignificantOther Observable
    
    
    UnobservableTotal
    
    
    Quoted Prices
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Equity securities
    
    $
    67
    
    
    $
    67
    
    
    $
    
    
    
    $
    Debt securities
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    150Executive Savings Plan assets
    
    
    1,079
    
    
    
    1,079
    
    
    
    
    
    
    
    Executive Savings Plan liabilities
    
    
    (1,079
    )
    
    
    (1,079
    )
    
    
    
    
    
    
    Total
    
    $
    217
    
    
    $
    67
    
    
    $
    
    
    
    $
    150
  Level 1
 Level 2
 Level 3
 
 10. COMMITMENTS AND CONTINGENCIES
 Legal Matters
    20




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##### Table of Contents



Centerpoint Project
      Ward Transformer Site
    Self-Insurance
   21




---



##### Table of Contents



Surety
    Other Commitments and Contingencies
     22




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   SEASONALITY AND QUARTERLY FLUCTUATIONS
  RESTRUCTURING PROGRAM
   Strategic Actions
  23




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##### Table of Contents



FINANCING
 The Tontine Capital Partners Term Loan
   Insurance Financing Agreements
     The Revolving Credit Facility
       24




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##### Table of Contents



SURETY
 Surety
    RELATED PARTY TRANSACTIONS
 Phantom Stock Units
 
 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2010 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2009
  Three Months Ended
    
    
    Three Months EndedMarch 31, 2010
    
    
    March 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Revenues
    
    $
    107.6
    
    
    
    100.0
    %
    
    $
    167.3
    
    
    
    100.0
    %Cost of services
    
    
    94.0
    
    
    
    87.4
    %
    
    
    137.4
    
    
    
    82.1
    %Gross profit
    
    
    13.6
    
    
    
    12.6
    %
    
    
    29.9
    
    
    
    17.9
    %Selling, general and administrative expenses
    
    
    25.7
    
    
    
    23.9
    %
    
    
    27.3
    
    
    
    16.3
    %Gain on sale of assets
    
    
    
    
    
    
    
    %
    
    
    (0.1
    )
    
    
    (0.0
    )%Restructuring charges
    
    
    0.1
    
    
    
    0.1
    %
    
    
    2.3
    
    
    
    1.4
    %Income (loss) from operations
    
    
    (12.2
    )
    
    
    (11.3
    )%
    
    
    0.4
    
    
    
    0.3
    %Interest and other expense, net
    
    
    0.8
    
    
    
    0.7
    %
    
    
    0.6
    
    
    
    0.5
    %Loss before income taxes
    
    
    (13.0
    )
    
    
    (12.1
    )%
    
    
    (0.2
    )
    
    
    (0.2
    )%Provision for income taxes
    
    
    0.2
    
    
    
    0.2
    %
    
    
    (0.1
    )
    
    
    (0.0
    )%Net loss
    
    $
    (13.2
    )
    
    
    (12.3
    )%
    
    $
    (0.1
    )
    
    
    (0.1
    )%
  25




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##### Table of Contents



Revenues
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2010
    
    
    March 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Commercial & Industrial
    
    $
    79.6
    
    
    
    73.9
    %
    
    $
    133.4
    
    
    
    79.7
    %Residential
    
    
    28.0
    
    
    
    26.1
    %
    
    
    33.9
    
    
    
    20.3
    %Total Consolidated
    
    $
    107.6
    
    
    
    100.0
    %
    
    $
    167.3
    
    
    
    100.0
    %
    Gross Profit
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2010
    
    
    March 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Commercial & Industrial
    
    $
    7.3
    
    
    
    9.2
    %
    
    $
    22.1
    
    
    
    16.6
    %Residential
    
    
    6.3
    
    
    
    22.3
    %
    
    
    7.8
    
    
    
    23.0
    %Total Consolidated
    
    $
    13.6
    
    
    
    12.6
    %
    
    $
    29.9
    
    
    
    17.9
    %
   26




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##### Table of Contents



Selling, General and Administrative Expenses
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2010
    
    
    March 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Commercial & Industrial
    
    $
    14.7
    
    
    
    18.5
    %
    
    $
    14.7
    
    
    
    11.1
    %Residential
    
    
    6.5
    
    
    
    23.3
    %
    
    
    8.4
    
    
    
    24.7
    %Corporate
    
    
    4.5
    
    
    
    
    
    
    
    4.2
    
    
    
    Total Consolidated
    
    $
    25.7
    
    
    
    23.9
    %
    
    $
    27.3
    
    
    
    16.3
    %
   Legal Matters
   Restructuring Charges
   27




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##### Table of Contents



Three Months EndedMarch 31,2010
    
    
    2009(Dollars in thousands)Severance compensation
    
    $
    65
    
    
    $
    1,193Consulting and other charges
    
    
    
    
    
    
    661Non-cash asset amortization and write-offs
    
    
    
    
    
    
    402Total restructuring charges
    
    $
    65
    
    
    $
    2,256
 Interest and Other Expense, Net
 Three Months EndedMarch 31,2010
    
    
    2009(Dollars in thousands)Interest expense
    
    $
    944
    
    
    $
    1,041Debt prepayment penalty and deferred cost amortization
    
    
    73
    
    
    
    64Total interest expense
    
    
    1,017
    
    
    
    1,105Interest income
    
    
    (59
    )
    
    
    (113
    )Other income (expense)
    
    
    (107
    )
    
    
    (413
    )Total interest and other expense, net
    
    $
    851
    
    
    $
    579
   Provision for Income Taxes
    28




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##### Table of Contents



RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2010 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 2009
  Six Months Ended
    
    
    Six Months EndedMarch 31, 2010
    
    
    March 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Revenues
    
    $
    227.9
    
    
    
    100.0
    %
    
    $
    340.4
    
    
    
    100.0
    %Cost of services
    
    
    194.4
    
    
    
    85.3
    %
    
    
    282.5
    
    
    
    83.0
    %Gross profit
    
    
    33.5
    
    
    
    14.7
    %
    
    
    57.9
    
    
    
    17.0
    %Selling, general and administrative expenses
    
    
    45.0
    
    
    
    19.7
    %
    
    
    55.8
    
    
    
    16.4
    %Gain on sale of assets
    
    
    (0.1
    )
    
    
    (0.0
    )%
    
    
    (0.2
    )
    
    
    (0.0
    )%Restructuring charges
    
    
    0.8
    
    
    
    0.3
    %
    
    
    3.1
    
    
    
    0.9
    %Loss from operations
    
    
    (12.2
    )
    
    
    (5.3
    )%
    
    
    (0.8
    )
    
    
    (0.2
    )%Interest and other expense, net
    
    
    1.7
    
    
    
    0.8
    %
    
    
    1.4
    
    
    
    0.4
    %Loss before income taxes
    
    
    (13.9
    )
    
    
    (6.1
    )%
    
    
    (2.2
    )
    
    
    (0.6
    )%Benefit (provision) for income taxes
    
    
    0.1
    
    
    
    0.1
    %
    
    
    (0.9
    )
    
    
    (0.2
    )%Net loss
    
    $
    (14.0
    )
    
    
    (6.2
    )%
    
    $
    (1.3
    )
    
    
    (0.3
    )%
 Revenues
 Six Months Ended
    
    
    Six Months EndedMarch 31, 2010
    
    
    March 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Commercial & Industrial
    
    $
    170.8
    
    
    
    75.0
    %
    
    $
    261.2
    
    
    
    76.7
    %Residential
    
    
    57.1
    
    
    
    25.0
    %
    
    
    79.2
    
    
    
    23.3
    %Total Consolidated
    
    $
    227.9
    
    
    
    100.0
    %
    
    $
    340.4
    
    
    
    100.0
    %
    Gross Profit
 Six Months Ended
    
    
    Six Months EndedMarch 31, 2010
    
    
    March 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Commercial & Industrial
    
    $
    20.4
    
    
    
    12.0
    %
    
    $
    39.9
    
    
    
    15.3
    %Residential
    
    
    13.1
    
    
    
    23.0
    %
    
    
    18.0
    
    
    
    22.7
    %Total Consolidated
    
    $
    33.5
    
    
    
    14.7
    %
    
    $
    57.9
    
    
    
    17.0
    %
  29




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Selling, General and Administrative Expenses
 Six Months Ended
    
    
    Six Months EndedMarch 31, 2010
    
    
    March 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Commercial & Industrial
    
    $
    24.5
    
    
    
    14.4
    %
    
    $
    29.6
    
    
    
    11.4
    %Residential
    
    
    12.6
    
    
    
    22.0
    %
    
    
    17.6
    
    
    
    22.3
    %Corporate
    
    
    7.9
    
    
    
    
    
    
    
    8.6
    
    
    
    Total Consolidated
    
    $
    45.0
    
    
    
    19.7
    %
    
    $
    55.8
    
    
    
    16.4
    %
   Legal Matters
   Restructuring Charges
   30




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##### Table of Contents



Six Months EndedMarch 31,2010
    
    
    2009(Dollars in thousands)Severance compensation
    
    $
    763
    
    
    $
    1,676Consulting and other charges
    
    
    
    
    
    
    661Non-cash asset amortization and write-offs
    
    
    
    
    
    
    804Total restructuring charges
    
    $
    763
    
    
    $
    3,141
 Interest and Other Expense, Net
 Six Months EndedMarch 31,2010
    
    
    2009(Dollars in thousands)Interest expense
    
    $
    1,937
    
    
    $
    1,962Debt prepayment penalty and deferred cost amortization
    
    
    148
    
    
    
    128Total interest expense
    
    
    2,085
    
    
    
    2,090Interest income
    
    
    (116
    )
    
    
    (273
    )Other income (expense)
    
    
    (226
    )
    
    
    (473
    )Total interest and other expense, net
    
    $
    1,743
    
    
    $
    1,344
   Provision for Income Taxes
    31




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##### Table of Contents



Working Capital
 March 31,
    
    
    September 30,2010
    
    
    2009(Dollars in millions)CURRENT ASSETS:Cash and cash equivalents
    
    $
    54.2
    
    
    $
    64.2Accounts receivableTrade, net of allowance of $2.5 and $3.6 respectively
    
    
    86.6
    
    
    
    100.8Retainage
    
    
    17.4
    
    
    
    26.5Inventories
    
    
    9.5
    
    
    
    10.1Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    12.9
    
    
    
    13.6Prepaid expenses and other current assets
    
    
    6.0
    
    
    
    6.1Total current assets
    
    $
    186.6
    
    
    $
    221.3CURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    2.0
    
    
    $
    2.1Accounts payable and accrued expenses
    
    
    56.7
    
    
    
    76.5Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    13.6
    
    
    
    21.1Total current liabilities
    
    $
    72.3
    
    
    $
    99.7Working capital
    
    $
    114.3
    
    
    $
    121.6
   
 Liquidity and Capital Resources
   32




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##### Table of Contents



Operating Activities
  Investing Activities
  Financing Activities
  Bonding Capacity
 Surety
 Off-Balance Sheet Arrangements and Contractual Obligations
    33




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##### Table of Contents



2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    Thereafter
    
    
    TotalLong-term debt obligations
    
    $
    1,228
    
    
    $
    1,060
    
    
    $
    
    
    
    $
    25,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    27,288Operating lease obligations
    
    $
    2,824
    
    
    $
    5,929
    
    
    $
    4,269
    
    
    $
    1,743
    
    
    $
    692
    
    
    $
    133
    
    
    $
    21
    
    
    $
    15,611Capital lease obligations
    
    $
    184
    
    
    $
    306
    
    
    $
    297
    
    
    $
    287
    
    
    $
    24
    
    
    $
    
    
    
    $
    
    
    
    $
    1,098Total
    
    $
    4,236
    
    
    $
    7,295
    
    
    $
    4,566
    
    
    $
    27,030
    
    
    $
    716
    
    
    $
    133
    
    
    $
    21
    
    
    $
    43,997
 
 (1)
    
    The tabular amounts exclude the interest obligations that will be created if the debt and capital lease obligations are
outstanding for the periods presented. Outlook
  Inflation
 
  34




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure controls and procedures
  Changes in Internal Control Over Financial Reporting
 
 
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Commitments and Contingencies  Legal Matters
 
 ITEM 1A. RISK FACTORS
 Risk Factors
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   35




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##### Table of Contents



ITEM 5. OTHER INFORMATION
   Nominee
    
    Affirmative 
Votes
    
    
    Votes 
WithheldCharles H. Beynon
    
    
    13,106,905
    
    
    
    25,716Michael J. Caliel
    
    
    13,108,617
    
    
    
    24,004Michael J. Hall
    
    
    13,107,152
    
    
    
    25,469Joseph P. Lash
    
    
    11,147,167
    
    
    
    1,985,454Donald P. Luke
    
    
    13,108,885
    
    
    
    23,736John E. Welsh III
    
    
    13,108,929
    
    
    
    23,692
 
 
 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)10.1
    
    
    Amendment, dated as of April 30, 2010, to Loan and Security Agreement, dated May 12,
2006, by and among Integrated Electrical Services, Inc. and its subsidiaries, Bank of
America, N.A. and Wells Fargo Capital Finance LLC. (Incorporated by reference to
Exhibit 10.1 to the Companys Quarterly Report on Form 8-K filed on May 6, 2010)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 Terry L. Freeman, Chief Financial Officer (1)32.1
    
    
    Section 1350 Certification of Michael J. Caliel, Chief Executive Officer (1)32.2
    
    
    Section 1350 Certification of Terry L. Freeman, Chief Financial Officer (1)
 (1)
    
    Filed herewith.  36




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##### Table of Contents



INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
 
 SIGNATURES
  INTEGRATED ELECTRICAL SERVICES, INC.Date: May 10, 2010
    
    By:
    
    /s/ Terry L. Freeman

Terry L. FreemanSenior Vice President and Chief Financial Officer
  37




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##### Table of Contents



EXHIBIT INDEX
 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)10.1
    
    
    Amendment, dated as of April 30, 2010, to Loan and Security Agreement, dated May 12,
2006, by and among Integrated Electrical Services, Inc. and its subsidiaries, Bank of
America, N.A. and Wells Fargo Capital Finance LLC. (Incorporated by reference to
Exhibit 10.1 to the Companys Quarterly Report on Form 8-K filed on May 6, 2010)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 Terry L. Freeman, Chief Financial Officer (1)32.1
    
    
    Section 1350 Certification of Michael J. Caliel, Chief Executive Officer (1)32.2
    
    
    Section 1350 Certification of Terry L. Freeman, Chief Financial Officer (1)
 (1)
    
    Filed herewith.