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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 December 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
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 o þ
 þ 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 December 31, 2010 and September 30, 2010
    
    
    5Condensed Consolidated Statements of Operations for the Three Months Ended December
31, 2010 and 2009
    
    
    6Condensed Consolidated Statements of Cash Flows for the Three Months Ended December
31, 2010 and 2009
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults Upon Senior Securities
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    30Signatures
    
    
    31Exhibit 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;
 
    
    our ability to pass along increases in the cost of commodities used in our business, in
particular, copper, aluminum, steel, fuel and certain plastics;
 
    
    potential supply chain disruptions due to credit or liquidity problems faced by our
suppliers;
 
    
    loss of key personnel and effective transition of new management;
 
    
    warranty losses or other latent defect claims in excess of our existing reserves and
accruals;
 
    
    warranty losses or other unexpected liabilities stemming from former divisions which we
have sold or closed;
 
    
    growth in latent defect litigation in states where we provide residential electrical work
for home builders not otherwise covered by insurance;
 
    
    limitations on the availability of sufficient credit or cash flow to fund our working
capital needs;
 
    
    difficulty in fulfilling the covenant terms of our credit facilities;
 
    
    increased cost of surety bonds affecting margins on work and the potential for our surety
providers to refuse bonding or require additional collateral at their discretion;
  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 delays or cancellations; and
 
    
    the sale or disposition of the shares of our common stock held by our majority shareholder,
which, under certain circumstances, would trigger change of control provisions in contracts
such as employment agreements, 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)
 December 31,
    
    
    September 30,2010
    
    
    2010(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    26,946
    
    
    $
    32,924Accounts receivable:Trade, net of allowance of $3,207 and $3,360, respectively
    
    
    82,630
    
    
    
    88,252Retainage
    
    
    17,281
    
    
    
    17,083Inventories
    
    
    13,542
    
    
    
    12,682Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    13,545
    
    
    
    12,566Prepaid expenses and other current assets
    
    
    4,976
    
    
    
    5,449Total current assets
    
    
    158,920
    
    
    
    168,956LONG-TERM RECEIVABLES, net of allowance of $4,082 and $4,069, respectively
    
    
    422
    
    
    
    440PROPERTY AND EQUIPMENT, net
    
    
    12,419
    
    
    
    19,846GOODWILL
    
    
    3,981
    
    
    
    3,981OTHER NON-CURRENT ASSETS, net
    
    
    11,561
    
    
    
    11,882Total assets
    
    $
    187,303
    
    
    $
    205,105LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    609
    
    
    $
    808Accounts payable and accrued expenses
    
    
    55,939
    
    
    
    67,799Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    14,992
    
    
    
    17,109Total current liabilities
    
    
    71,540
    
    
    
    85,716LONG-TERM DEBT, net of current maturities
    
    
    10,405
    
    
    
    10,448LONG-TERM DEFERRED TAX LIABILITY
    
    
    1,045
    
    
    
    1,046OTHER NON-CURRENT LIABILITIES
    
    
    6,190
    
    
    
    6,314Total liabilities
    
    
    89,180
    
    
    
    103,524STOCKHOLDERS 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 14,732,076 and 14,773,904
outstanding, respectively
    
    
    154
    
    
    
    154Treasury stock, at cost, 675,726 and 633,898 shares, respectively
    
    
    (9,770
    )
    
    
    (13,677
    )Additional paid-in capital
    
    
    167,710
    
    
    
    171,510Accumulated other comprehensive income
    
    
    
    
    
    
    (88
    )Retained deficit
    
    
    (59,971
    )
    
    
    (56,318
    )Total stockholders equity
    
    
    98,123
    
    
    
    101,581Total liabilities and stockholders equity
    
    $
    187,303
    
    
    $
    205,105
   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 EndedDecember 31, 2010
    
    
    December 31, 2009(Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    113,649
    
    
    $
    120,248Cost of services
    
    
    102,477
    
    
    
    100,316Gross profit
    
    
    11,172
    
    
    
    19,932Selling, general and administrative expenses
    
    
    18,021
    
    
    
    19,267Gain on sale of assets
    
    
    (6,729
    )
    
    
    (65
    )Asset Impairment
    
    
    3,551
    
    
    
    Restructuring charges
    
    
    
    
    
    
    698Income (loss) from operations
    
    
    (3,671
    )
    
    
    32Interest and other (income) expense:Interest expense
    
    
    599
    
    
    
    1,068Interest income
    
    
    (25
    )
    
    
    (57
    )Other (income) expense, net
    
    
    (15
    )
    
    
    (119
    )Interest and other expense, net
    
    
    559
    
    
    
    892Income (loss) from operations before income taxes
    
    
    (4,230
    )
    
    
    (860
    )Benefit from income taxes
    
    
    (578
    )
    
    
    (55
    )Net income (loss)
    
    $
    (3,652
    )
    
    $
    (805
    )Income (loss) per shareBasic
    
    $
    (0.25
    )
    
    $
    (0.06
    )Diluted
    
    $
    (0.25
    )
    
    $
    (0.06
    )Shares used in the computation of loss per share (Note 5):Basic
    
    
    14,447,357
    
    
    
    14,396,017Diluted
    
    
    14,447,357
    
    
    
    14,396,017
   6




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INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (IN THOUSANDS)
 Three Months Ended
    
    
    Three Months EndedDecember 31, 2010
    
    
    December 31, 2009(Unaudited)
    
    
    (Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (3,652
    )
    
    $
    (805
    )Adjustments to reconcile net loss to net cash provided by operating activities:Bad debt expense
    
    
    (16
    )
    
    
    305Deferred financing cost amortization
    
    
    84
    
    
    
    75Depreciation and amortization
    
    
    1,137
    
    
    
    1,376Gain on sale of assets
    
    
    (6,729
    )
    
    
    (65
    )Asset Impairment
    
    
    3,551
    
    
    
    Non-cash compensation expense
    
    
    170
    
    
    
    318Equity in (gains) losses of investment
    
    
    96
    
    
    
    (5
    )Changes in operating assets and liabilitiesAccounts receivable
    
    
    5,457
    
    
    
    9,869Inventories
    
    
    (860
    )
    
    
    875Costs and estimated earnings in excess of billings
    
    
    (979
    )
    
    
    1,436Prepaid expenses and other current assets
    
    
    473
    
    
    
    (186
    )Other non-current assets
    
    
    (286
    )
    
    
    (4
    )Accounts payable and accrued expenses
    
    
    (11,860
    )
    
    
    (16,339
    )Billings in excess of costs and estimated earnings
    
    
    (2,117
    )
    
    
    (4,723
    )Other non-current liabilities
    
    
    (125
    )
    
    
    (389
    )Net cash provided by (used in) continuing operations
    
    
    (15,084
    )
    
    
    (8,262
    )Net cash provided by (used in) operating activities
    
    
    (15,084
    )
    
    
    (8,262
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (391
    )
    
    
    (76
    )Proceeds from sales of property and equipment
    
    
    9,859
    
    
    
    109Distribution from unconsolidated affiliates
    
    
    (57
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    9,411
    
    
    
    33CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings of debt
    
    
    
    
    
    
    744Repayments of debt
    
    
    (242
    )
    
    
    (796
    )Purchase of treasury stock
    
    
    (63
    )
    
    
    (98
    )Net cash used in financing activities
    
    
    (305
    )
    
    
    (150
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (5,978
    )
    
    
    (8,379
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    32,924
    
    
    
    64,174CASH AND CASH EQUIVALENTS, end of period
    
    $
    26,946
    
    
    $
    55,795SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    513
    
    
    $
    1,676Cash paid for income taxes
    
    $
    30
    
    
    $
    33
   7




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INTEGRATED ELECTRICAL SERVICES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
 (UNAUDITED)
 1. BUSINESS
   CONTROLLING SHAREHOLDER
  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Notes to Consolidated Financial Statements
 RECLASSIFICATIONS
   8




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INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
 SALE OF FACILITY
    LONG-TERM RECEIVABLES
  Legal Matters
 FAIR VALUE OF FINANCIAL INSTRUMENTS
   The Tontine Capital Partners Term Loan
 Investment in
EnerTech Capital Partners II L.P.
 ASSET IMPAIRMENT
   9




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INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
 USE OF ESTIMATES AND ASSUMPTIONS
  SEASONALITY AND QUARTERLY FLUCTUATIONS
  SUBSEQUENT EVENTS
  2. CONTROLLING SHAREHOLDER
   3. STRATEGIC ACTIONS
    10




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INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
 4. DEBT AND LIQUIDITY
  December 31,
    
    
    September 30,2010
    
    
    2010Tontine Term Loan, due May 15, 2013, bearing interest at 11.00%
    
    $
    10,000
    
    
    $
    10,000Insurance Financing Agreements
    
    
    448
    
    
    
    653Capital leases
    
    
    566
    
    
    
    603Total debt
    
    
    11,014
    
    
    
    11,256Less  Short-term debt and current maturities of long-term debt
    
    
    (609
    )
    
    
    (808
    )Total long-term debt
    
    $
    10,405
    
    
    $
    10,448
  Capital Leases
    
    
    Term Debt
    
    
    Total2011
    
    $
    233
    
    
    $
    448
    
    
    $
    6812012
    
    
    297
    
    
    
    
    
    
    
    2972013
    
    
    287
    
    
    
    10,000
    
    
    
    10,2872014
    
    
    24
    
    
    
    
    
    
    
    242015
    
    
    
    
    
    
    
    
    
    
    Thereafter
    
    
    
    
    
    
    
    
    
    
    Less: Imputed Interest
    
    
    (275
    )
    
    
    
    
    
    
    (275
    )Total
    
    $
    566
    
    
    $
    10,448
    
    
    $
    11,014
  The Revolving Credit Facility
     11




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INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
  Annual Interest Rate forTotal Liquidity
    
    Annual Interest Rate for Loans
    
    Letters of CreditGreater than or equal to $60,000
    
    LIBOR plus 3.00% or Base Rate
plus 1.00%
    
    3.00% plus 0.25% fronting feeGreater than $40,000 and less than $60,000
    
    LIBOR plus 3.25% or Base Rate
plus 1.25%
    
    3.25% plus 0.25% fronting feeLess than or equal to $40,000
    
    LIBOR plus 3.50% or Base Rate
plus 1.50%
    
    3.50% plus 0.25% fronting fee
     The Tontine Term Loan
  Insurance Financing Agreements
   12




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INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
 5. EARNINGS PER SHARE
   Three Months EndedDecember 31,2010
    
    
    2009Numerator:Net loss attributable to common shareholders
    
    $
    (3,652
    )
    
    $
    (805
    )Net income attributable to restricted shareholders
    
    
    
    
    
    
    Net loss
    
    $
    (3,652
    )
    
    $
    (805
    )Denominator:Weighted average common shares outstanding  basic
    
    
    14,447,357
    
    
    
    14,396,017Effect of dilutive stock options and non-vested restricted stock
    
    
    
    
    
    
    Weighted average common and common equivalent shares outstanding  diluted
    
    
    14,447,357
    
    
    
    14,396,017Loss per shareBasic
    
    $
    (0.25
    )
    
    $
    (0.06
    )Diluted
    
    $
    (0.25
    )
    
    $
    (0.06
    )
 6. OPERATING SEGMENTS
     13




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INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
     Three Months Ended December 31, 2010Commercial &Communications
    
    
    Residential
    
    
    Industrial
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    19,921
    
    
    $
    26,045
    
    
    $
    67,683
    
    
    $
    
    
    
    $
    113,649Cost of services
    
    
    16,710
    
    
    
    21,460
    
    
    
    64,307
    
    
    
    
    
    
    
    102,477Gross profit
    
    
    3,211
    
    
    
    4,585
    
    
    
    3,376
    
    
    
    
    
    
    
    11,172Selling, general and administrative
    
    
    2,320
    
    
    
    4,779
    
    
    
    7,572
    
    
    
    3,350
    
    
    
    18,021Loss (gain) on sale of assets
    
    
    
    
    
    
    (22
    )
    
    
    (6,805
    )
    
    
    98
    
    
    
    (6,729
    )Asset Impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,551
    
    
    
    3,551Income (loss) from operations
    
    $
    891
    
    
    $
    (172
    )
    
    $
    2,609
    
    
    $
    (6,999
    )
    
    $
    (3,671
    )Other data:Depreciation and
amortization
expense
    
    $
    26
    
    
    $
    99
    
    
    $
    235
    
    
    $
    777
    
    
    $
    1,137Capital expenditures
    
    $
    
    
    
    $
    27
    
    
    $
    226
    
    
    $
    138
    
    
    $
    391Total assets
    
    $
    20,486
    
    
    $
    27,680
    
    
    $
    82,401
    
    
    $
    56,736
    
    
    $
    187,303
 Three Months Ended December 31, 2009Commercial &Communications
    
    
    Residential
    
    
    Industrial
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    18,652
    
    
    $
    28,992
    
    
    $
    72,604
    
    
    $
    
    
    
    $
    120,248Cost of services
    
    
    15,295
    
    
    
    22,148
    
    
    
    62,873
    
    
    
    
    
    
    
    100,316Gross profit
    
    
    3,357
    
    
    
    6,844
    
    
    
    9,731
    
    
    
    
    
    
    
    19,932Selling, general and administrative
    
    
    1,886
    
    
    
    6,023
    
    
    
    7,957
    
    
    
    3,401
    
    
    
    19,267Loss (gain) on sale of assets
    
    
    
    
    
    
    (2
    )
    
    
    (63
    )
    
    
    
    
    
    
    (65
    )Restructuring charge
    
    
    16
    
    
    
    
    
    
    
    700
    
    
    
    (18
    )
    
    
    698Income (loss) from operations
    
    $
    1,455
    
    
    $
    823
    
    
    $
    1,137
    
    
    $
    (3,383
    )
    
    $
    32Other data:Depreciation and
amortization
expense
    
    $
    28
    
    
    $
    142
    
    
    $
    331
    
    
    $
    875
    
    
    $
    1,376Capital expenditures
    
    $
    31
    
    
    $
    12
    
    
    $
    1
    
    
    $
    32
    
    
    $
    76Total assets
    
    $
    19,243
    
    
    $
    32,817
    
    
    $
    98,882
    
    
    $
    95,389
    
    
    $
    246,331
  14




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INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
  7. STOCKHOLDERS EQUITY
  Treasury Stock
    Restricted Stock
    Stock Options
     15




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INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
  Weighted AverageShares
    
    
    Exercise PriceOutstanding, September 30, 2010
    
    
    158,500
    
    
    $
    18.64Options granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding, December 31, 2010
    
    
    158,500
    
    
    $
    18.64Exercisable, December 31, 2010
    
    
    
    
    
    $
    
  RemainingOutstanding as of
    
    
    Contractual Life
    
    
    Weighted-Average
    
    
    Exercisable as of
    
    
    Weighted-AverageRange of Exercise Prices
    
    December 31, 2010
    
    
    in Years
    
    
    Exercise Price
    
    
    December 31, 2010
    
    
    Exercise Price$12.31  $18.79
    
    
    123,500
    
    
    
    5.86
    
    
    $
    17.02
    
    
    
    123,500
    
    
    $
    17.02$20.75  $25.08
    
    
    35,000
    
    
    
    6.47
    
    
    
    24.46
    
    
    
    33,333
    
    
    
    24.65158,500
    
    
    
    6.00
    
    
    $
    18.66
    
    
    
    156,833
    
    
    $
    18.64
  8. SECURITIES AND EQUITY INVESTMENTS
 Investment in EnerTech Capital Partners II L.P.
   December 31,
    
    
    September 30,2010
    
    
    2010Carrying value
    
    $
    1,995
    
    
    $
    2,005Unrealized gains (losses)
    
    
    (157
    )
    
    
    (179
    )Fair value
    
    $
    1,838
    
    
    $
    1,826
  16




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##### Table of Contents



INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
  Arbinet Corporation
    9. EMPLOYEE BENEFIT PLANS
 Executive Savings Plan
   10. FAIR VALUE MEASUREMENTS
    17




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##### Table of Contents



INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
  Significant
    
    
    SignificantOther Observable
    
    
    UnobservableTotal
    
    
    Quoted Prices
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market accounts
    
    $
    17,862
    
    
    $
    17,862
    
    
    $
    
    
    
    $
    Executive Savings Plan assets
    
    
    643
    
    
    
    643
    
    
    
    
    
    
    
    Executive Savings Plan liabilities
    
    
    (731
    )
    
    
    (731
    )
    
    
    
    
    
    
    Total
    
    $
    17,774
    
    
    $
    17,774
    
    
    $
    
    
    
    $
    
  Level 1
 Level 2
 Level 3
 11. COMMITMENTS AND CONTINGENCIES
 Legal Matters
   Centerpoint Project
    18




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##### Table of Contents



INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
    Ward Transformer Site
    Risk Management
    19




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##### Table of Contents



INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
 Surety
    Other Commitments and Contingencies
    20




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
    SALE OF FACILITY
    ASSET IMPAIRMENT
   21




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##### Table of Contents



SEASONALITY AND QUARTERLY FLUCTUATIONS
  RESTRUCTURING PROGRAM
   RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 COMPARED TO THE THREE
MONTHS ENDED DECEMBER 31, 2009
  Three Months Ended
    
    
    Three Months EndedDecember 31, 2010
    
    
    December 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Revenues
    
    $
    113.6
    
    
    
    100.0
    %
    
    $
    120.2
    
    
    
    100.0
    %Cost of services
    
    
    102.5
    
    
    
    90.2
    %
    
    
    100.3
    
    
    
    83.4
    %Gross profit
    
    
    11.1
    
    
    
    9.8
    %
    
    
    19.9
    
    
    
    16.6
    %Selling, general and administrative expenses
    
    
    18.0
    
    
    
    15.9
    %
    
    
    19.3
    
    
    
    16.0
    %Gain on sale of assets
    
    
    (6.7
    )
    
    
    (5.9
    )%
    
    
    (0.1
    )
    
    
    (0.1
    )%Asset Impairment
    
    
    3.5
    
    
    
    3.1
    %
    
    
    
    
    
    
    
    %Restructuring charges
    
    
    
    
    
    
    
    %
    
    
    0.7
    
    
    
    0.6
    %Income (loss) from operations
    
    
    (3.7
    )
    
    
    (3.3
    )%
    
    
    
    
    
    
    
    %Interest and other expense, net
    
    
    0.5
    
    
    
    0.5
    %
    
    
    0.9
    
    
    
    0.7
    %Loss before income taxes
    
    
    (4.2
    )
    
    
    (3.8
    )%
    
    
    (0.9
    )
    
    
    (0.7
    )%Provision for income taxes
    
    
    (0.5
    )
    
    
    (0.5
    )%
    
    
    (0.1
    )
    
    
    
    %Net loss
    
    $
    (3.7
    )
    
    
    (3.3)
    %
    
    $
    (0.8
    )
    
    
    (0.7
    )%
  22




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Revenues
 Three Months Ended
    
    
    Three Months EndedDecember 31, 2010
    
    
    December 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Communications
    
    $
    19.9
    
    
    
    17.5
    %
    
    $
    18.6
    
    
    
    15.5
    %Residential
    
    
    26.0
    
    
    
    22.9
    %
    
    
    29.0
    
    
    
    24.1
    %Commercial & Industrial
    
    
    67.7
    
    
    
    59.6
    %
    
    
    72.6
    
    
    
    60.4
    %Total Consolidated
    
    $
    113.6
    
    
    
    100.0
    %
    
    $
    120.2
    
    
    
    100.0
    %
     Gross Profit
 Three Months Ended
    
    
    Three Months EndedDecember 31, 2010
    
    
    December 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Communications
    
    $
    3.2
    
    
    
    16.1
    %
    
    $
    3.4
    
    
    
    18.3
    %Residential
    
    
    4.6
    
    
    
    17.7
    %
    
    
    6.8
    
    
    
    23.4
    %Commercial & Industrial
    
    
    3.3
    
    
    
    4.9
    %
    
    
    9.7
    
    
    
    13.4
    %Total Consolidated
    
    $
    11.1
    
    
    
    9.8
    %
    
    $
    19.9
    
    
    
    16.6
    %
      23




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Selling, General and Administrative Expenses
 Three Months Ended
    
    
    Three Months EndedDecember 31, 2010
    
    
    December 31, 2009$
    
    
    %
    
    
    $
    
    
    %(Dollars in millions, Percentage of revenues)Communications
    
    $
    2.3
    
    
    
    11.6
    %
    
    $
    1.9
    
    
    
    10.2
    %Residential
    
    
    4.8
    
    
    
    18.5
    %
    
    
    6.0
    
    
    
    20.7
    %Commercial & Industrial
    
    
    7.6
    
    
    
    11.2
    %
    
    
    8.0
    
    
    
    11.0
    %Corporate
    
    
    3.3
    
    
    
    
    
    
    
    3.4
    
    
    
    Total Consolidated
    
    $
    18.0
    
    
    
    15.9
    %
    
    $
    19.3
    
    
    
    16.0
    %
   Restructuring Charges
  Three Months EndedDecember 31,2010
    
    
    2009(Dollars in thousands)Severance compensation
    
    $
    
    
    
    $
    0.6Consulting and other charges
    
    
    
    
    
    
    0.1Total restructuring charges
    
    $
    
    
    
    $
    0.7
 Interest and Other Expense, Net
 Three Months EndedDecember 31,2010
    
    
    2009(Dollars in thousands)Interest expense
    
    $
    0.5
    
    
    $
    1.0Debt prepayment penalty and deferred cost amortization
    
    
    0.1
    
    
    
    0.1Total interest expense
    
    
    0.6
    
    
    
    1.1Interest income
    
    
    
    
    
    
    (0.1
    )Other income (expense)
    
    
    
    
    
    
    (0.1
    )Total interest and other expense, net
    
    $
    0.6
    
    
    $
    0.9
  24




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Provision for Income Taxes
   Working Capital
 December 31,
    
    
    September 30,2010
    
    
    2010(Dollars in millions)CURRENT ASSETS:Cash and cash equivalents
    
    $
    26.9
    
    
    $
    32.9Accounts receivableTrade, net of allowance of $3.5 and $3.4 respectively
    
    
    82.7
    
    
    
    88.3Retainage
    
    
    17.3
    
    
    
    17.1Inventories
    
    
    13.5
    
    
    
    12.7Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    13.5
    
    
    
    12.6Prepaid expenses and other current assets
    
    
    5.0
    
    
    
    5.4Total current assets
    
    $
    158.9
    
    
    $
    169.0CURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    0.6
    
    
    $
    0.8Accounts payable and accrued expenses
    
    
    55.9
    
    
    
    67.8Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    15.0
    
    
    
    17.1Total current liabilities
    
    $
    71.5
    
    
    $
    85.7Working capital
    
    $
    87.4
    
    
    $
    83.3
    25




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Surety
    The Revolving Credit Facility
     The Tontine Term Loan
   26




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##### Table of Contents



Insurance Financing Agreements
  Liquidity and Capital Resources
   Operating Activities
  Investing Activities
  Financing Activities
   27




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##### Table of Contents



Bonding Capacity
 Surety
 Controlling Shareholder
   Off-Balance Sheet Arrangements and Contractual Obligations
        28




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##### Table of Contents



2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    2016
    
    
    Thereafter
    
    
    TotalLong-term debt obligations
    
    $
    0.5
    
    
    $
    
    
    
    $
    10.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10.5Operating lease obligations
    
    $
    4.5
    
    
    $
    5.3
    
    
    $
    3.1
    
    
    $
    1.5
    
    
    $
    0.8
    
    
    $
    0.2
    
    
    $
    0.9
    
    
    $
    16.3Capital lease obligations
    
    $
    0.2
    
    
    $
    0.3
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.8Total
    
    $
    5.2
    
    
    $
    5.6
    
    
    $
    13.4
    
    
    $
    1.5
    
    
    $
    0.8
    
    
    $
    0.2
    
    
    $
    0.9
    
    
    $
    27.6
 
 (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
  
 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
   29




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
 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.
    
    REMOVED AND RESERVED
 
 ITEM 5.
    
    OTHER INFORMATION
  
 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
    
    
    Entry into a Material Definitive Agreement, dated as of November 30, 2010, by and among
Integrated Electrical Services, Inc. and its subsidiaries and Siemens Energy, Inc.
(Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
filed on December 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.  30




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##### Table of Contents



INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
 
 SIGNATURES
  INTEGRATED ELECTRICAL SERVICES, INC.Date: February 9, 2011
    By:
    /s/ Terry L. FreemanTerry L. FreemanSenior Vice President and Chief Financial Officer  31




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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
    
    
    Entry into a Material Definitive Agreement, dated as of November 30, 2010, by and among
Integrated Electrical Services, Inc. and its subsidiaries and Siemens Energy, Inc.
(Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
filed on December 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.