UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

Amendment No. 1

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

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

Commission File Number 1-13783

Integrated Electrical Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		76-0542208 (I.R.S. Employer 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

Title of each class		Name of each exchange on which registered
Common Stock, par value $.01 per share		NASDAQ

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

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

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

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

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

The aggregate market value of the voting stock of the Registrant on March 31, 2008 held by non-affiliates was approximately $101.1 million. On December 10, 2008, there were 14,625,241 shares of common stock outstanding.

Certain information contained in the Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be held on February 4, 2009 is incorporated by reference into Part III of this Amendment No. 1 to our Form 10-K.

 

 

Explanatory Paragraph

The purpose of this Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K of Integrated Electrical Services, Inc. (“we”, “us”, “our”, or the “Company”) is to amend our Annual Report on Form 10-K for the year ended September 30, 2008 filed on December 15, 2008 to correct the accounting treatment previously accorded certain transactions and to restate our consolidated balance sheets as of September 30, 2008 and our consolidated statements of operations, stockholders’ equity, and cash flows for the year ended September 30, 2008.

These corrections primarily included recording of additional charges for certain accruals, medical claims and certain other expenses, and resultant tax effects, that should have been recorded at September 30, 2008.

Additional information on the effect of the correction to our financial statements as a result of this restatement is contained in Note 18 – Restatement of Financial Statements in this report

In addition, the Company has amended Item 9A including Managements’ Annual Report on Internal Control Over Financial Reporting to update the disclosure regarding disclosure controls and procedures and internal control over financial reporting.

As a result of the restatement, the Company has determined it will be necessary to amend the Original Form 10-K. This Amendment No. 1 amends and restates in its entirety Part I, Items 1 and 1A, Part II, Items 6, 7, 8 and 9A and Part IV, Item 15 of the Original Form 10-K. This Amendment No. 1 on Form 10-K/A continues to reflect circumstances as of the date of the filing of the Original Form 10-K and does not reflect events occurring after the filing of the Original Form 10-K, or modify or update those disclosures in any way, except as required to reflect the effects of the restatement as described in Note 18 to the accompanying consolidated financial statements.

This Amendment No. 1 on Form 10-K/A also contains currently dated certifications as Exhibits 31.1, 31.2, 32.1 and 32.2 hereof. The remaining Items in this Amendment No. 1 on Form 10-K/A consists of all other items originally contained in our Form 10-K for the year ended September 30, 2008, as filed on December 15, 2008. This Amendment No. 1 on Form 10-K/A supersedes in its entirety our Annual Report on Form 10-K for the year ended September 30, 2008 filed on December 15, 2008.

FORM 10-K/A

INTEGRATED ELECTRICAL SERVICES, INC.
Table of Contents

		Page
PART I
DEFINITIONS			4
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS			4
Item 1 Business			5
Item 1A Risk Factors			13
Item 1B Unresolved Staff Comments			18
Item 2 Properties			18
Item 3 Legal Proceedings			18
Item 4 Submission of Matters to a Vote of Security Holders			18
PART II
Item 5 Market for Registrant’s Common Equity; Related Stockholder Matters and Issuer Purchases of Equity Securities			19
Item 6 Selected Financial Data			22
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 7A Quantitative and Qualitative Disclosures About Market Risk			43
Item 8 Financial Statements and Supplementary Data			44
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			85
Item 9A Controls and Procedures			86
Item 9B Other Information			90
PART III
Item 10 Directors, Executive Officers and Corporate Governance			90
Item 11 Executive Compensation			92
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			92
Item 13 Certain Relationships and Related Transactions, and Director Independence			93
Item 14 Principal Accountant Fees and Services			93
PART IV
Item 15 Exhibits and Financial Statement Schedules			93
SIGNATURES			96
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I

DEFINITIONS

In this Amendment No. 1 to our Annual Report on Form 10-K, the words “IES”, the “Company”, the “Registrant”, “we”, “our”, “ours” and “us” refer to Integrated Electrical Services, Inc. and, except as otherwise specified herein, to our subsidiaries.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Amendment No. 1 to our Annual Report on Form 10-K includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, all of which are based upon various estimates and assumptions that the Company believes to be reasonable as of the date hereof. These statements involve risks and uncertainties that could cause the Company’s actual future outcomes to differ materially from those set forth in such statements. Such risks and uncertainties include, but are not limited to:

•

credit and capital market conditions, including changes in interest rates that affect the cost of construction financing and mortgages, and the availability of such capital to our customers;

•

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;

•

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

•

limitations on the availability of sufficient credit or cash flow to fund our working capital needs;

•

our ability to retain our financing agreements and surety arrangements under a change in control;

•

fluctuations in operating activity due to downturns in levels of construction, seasonality and differing regional economic conditions;

•

likelihood of project cancellations due to changes in demand or inability of our customers to retain sufficient financing;

•

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

•

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;

•

potential supply chain disruptions due to credit or liquidity problems faced by our suppliers;

•

the cost and availability of qualified labor, especially electricians and construction supervisors;

•

accidents resulting from the physical hazards associated with our work and potential for vehicle accidents;

•

loss of key personnel and effective transition of new management;

•

possibility of errors when estimating revenue and progress to date on percentage-of-completion contracts;

•

inaccurate estimates used when entering into fixed-priced contracts;

•

changes in the assumptions made regarding future events used to value our stock options and performance-based stock awards;

•

uncertainties inherent in estimating future operating results, including revenues, operating income or cash flow;

•

difficulty in fulfilling the covenant terms of our credit facilities;

•

challenges integrating new types of work or new processes into our divisions;

•

increased cost of surety bonds affecting margins on work and the ability to obtain additional bonding;

•

complications associated with the incorporation of new accounting, control and operating procedures;

•

the financial impact of new or proposed accounting regulations;

•

disagreements with taxing authorities with regard to tax positions we have adopted;

•

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

•

the residual effect with customers and vendors from our financial reorganization, resulting in higher costs, less work or less favorable delivery or credit terms;

•

success in transferring, renewing and obtaining electrical and construction licenses after the recent consolidation of our divisions;

•

our ability to integrate new operating, accounting and financial systems;

•

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; and

•

the possibility that our restructuring program will not be successfully executed.

You should understand that the foregoing, as well as other risk factors discussed in this document, including those listed in Part I, Item 1A of this report under the heading “Risk Factors” could cause future outcomes to differ materially from those experienced previously or those expressed in such forward-looking statements. We undertake no obligation to publicly update or revise information concerning our restructuring efforts, borrowing availability, cash position or any forward-looking statements to reflect events or circumstances that may arise after the date of this report. Forward-looking statements are provided in this Amendment No. 1 to our Form 10-K pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of the estimates, assumptions, uncertainties and risks described herein.

Item 1.		Business

Integrated Electrical Services, Inc., a Delaware corporation, was founded in June 1997 to create a leading national provider of electrical services, focusing primarily on the commercial, industrial, residential, low voltage and service and maintenance markets. We provide a broad range of services including designing, building, maintaining and servicing electrical, data communications and utilities systems for commercial, industrial and residential customers. As of September 2008, we provide our services from 112 locations serving the continental 48 states.

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

Competitive Strengths

Our competitive strengths include the following:

•

Safety culture — Performance of our contracting and maintenance services exposes us to unique potential hazards associated specifically with the electrical contracting industry. In view of these risks, we are resolute in our commitment to safety and maintaining a strong safety culture, which is reflected in our safety program and the significant reductions in loss time cases and OSHA recordable incidents over the past eight years. We employ 24 full-time safety managers and three safety directors who report directly to our Vice President of Safety and Productivity. We have also standardized safety policies, programs and procedures throughout all operating locations, including our new employee training program, which is beneficial to employees new to the industry. To further emphasize our commitment to safety, we have also tied certain management incentives to safety performance. Safety is a core value and an integral part of our business strategy. Our proven commitment to safety is often the key differentiator of our services versus our competition within the Commercial, Industrial and Residential marketplaces.

•

Geographic reach and diversity — We have 112 locations serving the continental 48 states. Our national footprint sometimes mitigates region specific economic slowdowns. Despite a national economic slowdown in the second half of 2008, we worked on approximately 850 contracts with gross revenues exceeding $250,000 each and nearly 2,200 contracts with gross revenues exceeding $50,000 each during fiscal year 2008. Since 1997, much of our revenues have been derived from the Sunbelt states, which have had faster population growth rates and higher demand for construction than the overall United States. Our geographic diversity also enables us to serve national customers with multiple locations.

•

Strong and diverse customer relationships — Our customer relationships extend over multiple markets and include general contractors, property developers and managers, facility owners and managers of large retail establishments, manufacturing and processing facilities, utilities, government agencies and homeowners. We have established many long-standing customer relationships as a result of providing high quality service throughout multiple projects. No single customer accounted for more than 10% of our revenues for the year ended September 30, 2008. We believe that customer diversity provides us with many advantages including reducing our dependence on, or exposure to, any single customer.

•

Expertise — We have expertise in high-rise buildings including hotels, condominiums and office buildings, retail centers, hospitals, data centers, transmission and distribution lines, switching centers and utility substations and single-family and multi-family residential homes. We believe our technical expertise provides us with (1) access to higher margin design-and-build projects; (2) access to growth markets including wireless telecommunications, high voltage line work, video and security and fire systems; and (3) the ability to deliver quality service with greater reliability than that of many of our competitors. Our expertise in a variety of industries coupled with our national reach allows us to be flexible and to share our expertise across regions.

•

Licensing — Our master electricians must be licensed in one or more cities or other jurisdictions in order to obtain the permits required in our business. Some employees have also obtained specialized licenses in areas including security systems and fire alarm installation. In some areas, licensing boards have set continuing education requirements for maintenance of licenses. Because of the lengthy and difficult training and licensing process for electricians, we believe that the number, skills and licenses of our employees constitute a competitive strength in the industry.

•

Ability to service national projects — Our nationwide footprint helps us compete for large, national contracts with customers that operate throughout the United States and large government contracts. Additionally, we believe our size and national service offering uniquely positions us as the only single source, open shop electrical contracting service provider able to execute projects on a national basis. This type of work represents a growing market and we have made progress in pursuing these sizable accounts. We are able to undertake very large and complex projects, often with a national scope, that would strain the capabilities and resources of most of our competitors.

•

Access to surety bonding — Losses experienced by the surety industry in recent years have caused surety providers to limit capacity and increase prices to both us and our competitors. However, based on the success of our contracting activities, safety record, financial position and operating results, we have recently entered a new co-surety arrangement that provides a bonding capacity of $325.0 million with our two primary co-surety providers and lowers our bonding costs.

	•		Strong financial profile — Our liquidity position allows us to attract new business opportunities. As of September 30, 2008, we had cash and cash equivalents of $64.7 million, working capital of $127.1 million and long-term debt of $26.7 million. We also have a $60.0 million revolving credit facility of which $24.0 million was available as of September 30, 2008.

•

Proprietary systems and processes — We have proprietary project management systems and processes that assist us to bid on projects, to manage projects once they have been awarded and to maintain and track project information. In addition, we have developed techniques and processes for installation on a variety of different projects that utilize a proprietary project management operating system and best practices. We continue to focus internally on integrating our information technology systems to enhance the operating controls of our organization, as well as integrating a consolidated procurement program to manage vendors on a national basis.

•

Supply chain management — By pooling our buying power, we have negotiated a number of contracts with national providers that have resulted in preferred pricing arrangements and the ability to reduce our working capital investment. In recent years, our Supply Chain group has reduced our capital and operating expenditures through initiatives such as fleet reduction and maintenance, just-in-time inventory systems and inventory reduction, materials management, tool selection and negotiation and coordinated distribution efforts. Additionally, during our 2008 fiscal year, we utilized third parties to maintain and issue inventory directly to our field operations on an as needed basis, enabling us to reduce our inventory balances and related carrying costs.

•

Utilization of prefabrication processes — Our size and 100% merit shop environment has allowed us to implement best prefabrication practices across our divisions. We prefabricate and preassemble or prepackage significant portions of our electrical installations off-site and ship materials to the installation sites in specific sequences to optimize materials management, improve efficiency and minimize our employees’ time on job sites. This is safer, more efficient and more cost effective for both us and our customers.

•

Experienced management — We have developed a strong team of executive officers who have a vast range of experiences and well-known reputations in the markets they serve. This team has been put in place to identify challenges that may arise within their business areas, to seek out opportunities for change and improvement, and to react quickly and efficiently when challenges and opportunities present themselves. Management’s focus is to drive operational improvements, set strategy and build on our capabilities. Our management and employees currently own approximately 3% of our outstanding common stock.

Transformation Program

Throughout the 2008 fiscal year, we have executed a transformation program across our divisions and our corporate office. We are reinvesting in our business by improving our operating and information systems and processes to increase efficiency across our divisions. We are also strengthening the overall capabilities of our workforce and recruiting individuals who have the critical skills necessary to advance the Company. During 2008, we continued our focus on safety, significantly improving on our strong safety performance in 2007. We are resolute that a culture focused on safety is central to excellence in project execution and significantly reduces risks to our employees and, consequently, costs to the business. Collectively, these efforts are part of our ongoing journey to become the premier provider of electrical and communication systems and services.

We remain focused on strengthening the foundation of the Company. In accordance with our transformation program, during fiscal year 2008 we:

•

rebranded our lines of business as IES Commercial, IES Industrial and IES Residential to facilitate our ability to market the Company as a fully-integrated national brand;

•

completed a strategic reorganization within our Commercial, Industrial and Residential operating segments, which aligned businesses along industry lines, created shared services centers within these groups, eliminated redundant positions throughout the Company and improved controls and productivity;

•

reorganized our Commercial line of business into six operating divisions, replacing several division presidents with six general managers;

•

hired several new key management members with leadership responsibility for operations, accounting, corporate finance and budgeting, information technology, employee learning and development and recruiting;

•

implemented a leadership development program to develop a more effective leadership team, create an integrated culture and improve overall business performance;

•

enhanced our internal succession planning efforts through our leadership development, recruiting and training programs;

•

implemented a comprehensive project management software program across our divisions and at our shared service centers to standardize our project management and reporting processes and provide all of our divisions near real-time visibility into project performance;

•

implemented an accounting consolidation and reporting system that will provide management more robust financial data and transparency;

•

closed four office locations in our Residential line of business and three office locations in our Commercial line of business, consolidating them into other IES locations;

•

replaced and partially paid down our term loan under improved terms;

•

renegotiated the terms of our credit facility with Bank of America, eliminating or reducing certain of our covenant requirements and extending its term to May 2010;

•

worked to turn around underperforming divisions; and

•

closed one division in a market we determined was no longer part of our long-term strategy.

Industry Overview

Construction starts in the United States are projected to be over $500 billion in 2009 according to McGraw Hill Construction, and we believe that commercial, industrial, and residential electrical contracting represents approximately $45 billion of that amount. Since the middle of 2007, slowing economic conditions have lead to a sharp decrease in demand for residential housing, and commercial demand began to slow as well in the second half of 2008. Recent turmoil in the financial markets, notably the freezing up of credit markets, poses a significant near-term risk for the construction industry. Steps taken by the government and the Federal Reserve Board to restore liquidity are expected to have a positive impact; however, this impact is expected to be gradual. Looking beyond the current economic downturn, numerous factors could positively affect construction industry growth, including (i) population growth, which will increase the need for commercial, industrial and residential facilities, (ii) aging public infrastructure which must be replaced or repaired, and (iii) increased emphasis on environmental and energy efficiency, which may lead to both increased public and private spending. We believe these factors will continue to drive demand for the electrical contracting services we offer.

Based on data provided by McGraw Hill Construction Analytics (“MHCA”), for the period from 2002 to 2007, the five-year compounded annual growth rate for non-residential construction was 8.4%. For the same period, the five-year compounded annual growth rate for residential construction was 1.2%. Looking forward, third parties project that the housing market should begin to rebound in late 2009 as the overall economy begins to recover and the impact of the economic stimulus package begins to take effect. Based on research provided by MHCA, residential construction is projected to experience a five-year compounded annual growth rate of 14.2% from 2008 to 2013. The projected five-year compounded annual growth rate for non-residential construction is projected to be 3.4% over the same period.

The Markets We Serve

Commercial Market — Our Commercial service offerings consist primarily of electrical, communications, renovation, replacement and service and maintenance work for customers within a variety of markets:

Markets		Customers
•    airports		•    general contractors
•    community centers		•    developers
•    high-rise apartments and condominiums		•    building owners and managers
•    hospitals and health care centers		•    engineers
•    hotels		•    architects
•    casinos		•    consultants
•    manufacturing and processing facilities
•    military installations
•    office buildings
•    retail stores and centers
•    data centers
•    schools
•    theaters, stadiums and arenas

Demand for our Commercial services is driven by construction and renovation activity levels, as well as more stringent local and national electrical codes. From fiscal 2006 through 2008, the compound annual growth rate of our Commercial revenue was approximately 0.3% per year, due in large part to a more selective strategy focused on higher margin projects. Our Commercial segment represented approximately 58%, 52% and 49% of our consolidated revenues for the twelve-month periods ended September 30, 2008, 2007 and 2006, respectively. For additional financial information on the Commercial segment, see Note 11 to the consolidated financial statements, which are incorporated herein by reference.

New Commercial work begins with either a design request or engineer’s plans from the owner or general contractor. Initial meetings with the parties allow us to prepare preliminary, detailed design specifications, engineering drawings and cost estimates. Projects we design and build generally provide us with higher margins. “Design and build” gives the Company full or partial responsibility for the design specifications of the installation. “Design and build” is an alternative to the traditional “plan and spec” model, where the contractor builds to the exact specifications of the architect and engineer. We prefer to perform “design and build” work, because it allows us to use our specialized expertise to install a more value-added system for our customers with lower risk and generally higher profitability. Once a project is awarded, it is conducted in scheduled phases and progress billings are rendered to the customer for payment, less retention of 5% to 10% of the construction cost of the project. We generally provide the materials to be installed as a part of these contracts, which vary significantly in size from a few hundred dollars to up to several million dollars and vary in duration from less than a day to more than a year. Actual fieldwork is coordinated during this time, including:

•

ordering equipment and materials;

•

fabricating or assembling certain components (pre-fabrication);

•

delivering materials and components to the job site; and

•

scheduling work crews, inspection and quality control.

We design and install communications infrastructure systems for the Commercial market as a complement to our primary electrical contracting services. We believe the demand for our communications services is driven by the following factors:

•

pace of technological change;

	•		overall growth in voice and data traffic; and
	•		the increasing market for broadband internet access.

Demand for our low voltage systems is driven by the construction industry growth rate and our ability to cross-sell among our customers.

Service and maintenance revenues, which represent less than 10% of consolidated revenues, are derived from service calls and routine maintenance contracts, which tend to be recurring and less sensitive to economic fluctuations. Service technicians are scheduled for the call or routed to the customer’s place of business by the dispatcher. We will then follow up with the customer to schedule periodic maintenance work. Most service work is warranted for 30 days. Service personnel work out of our service vehicles, which carry an inventory of equipment, tools, parts and supplies needed to complete the typical variety of jobs. The technician assigned to a service call:

•

travels to the place of business;

•

interviews the customer;

•

diagnoses the problem;

•

prepares and discusses a price quotation; and

•

performs the work and often collects payment from the customer immediately.

Industrial Market — Our Industrial work consists of design and build solutions and project delivery services for industrial and manufacturing projects across the country. Our Industrial work is also supported with comprehensive, preventive, and on-site maintenance services. Our Industrial line of business supports a variety of customers and markets, including:

•

transmission and distribution operators;

•

refineries and chemical plants;

•

power generation facilities;

•

wind farms;

•

agricultural operations; and

•

pulp and paper mills.

The Industrial business generally has longer cycle times and is generally not as affected by short-term macroeconomic factors as our Commercial and Residential segments. Demand for our utilities services is driven by industry deregulation, limited maintenance or capital expenditures on existing systems and increased loads and supply and delivery requirements. We believe we have a competitive advantage in the Industrial sector due to our safety record, our significant surety bonding capacity, significant resource base and our access to credit. From fiscal 2006 to 2008 the compound annual growth rate of our Industrial revenue was approximately 10.5% per year, due to our efforts to strategically grow market share. Our Industrial segment represented approximately 16%, 13% and 13% of our consolidated revenues for the twelve-month periods ended September 30, 2008, 2007 and 2006, respectively. For additional financial information on the Industrial segment, see Note 11 to the consolidated financial statements, which are incorporated herein by reference.

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

The Residential business is generally less capital intensive than our Commercial and Industrial businesses; however, market conditions experienced in 2008 have greatly reduced demand for new home construction. Residential contracting also has lower barriers to entry and has a much lower requirement for surety bonding. Our results of operations from Residential construction are seasonal, depending on weather trends, with typically higher revenues generated during spring and summer and lower revenues during fall and winter.

We are one of the largest providers of electrical contracting services to the United States residential construction market and we have a large market share in many of the markets we serve. Over the past two years, however, our results of operations have been adversely impacted by the downturn in the residential housing market. In line with the downturn in single-family housing, we experienced a 30% decline in our Residential revenues in fiscal year 2008 as compared to fiscal year 2007. Our compound annual growth rate from Residential electrical revenue has fallen by approximately 8.1% from fiscal 2006 through 2008. Our Residential segment represented approximately 26%, 35% and 38% of our consolidated revenues for the twelve-month periods ended September 30, 2008, 2007 and 2006, respectively. For additional financial information on the Residential segment, see Note 11 to the consolidated financial statements, which are incorporated herein by reference.

Customers

We have a diverse customer base. During the twelve-month periods ended September 30, 2008, 2007 and 2006, no single customer accounted for more than 10% of our revenues. We will continue our emphasis on developing and maintaining relationships with our customers by providing superior, high-quality service.

Backlog

Backlog is a measure of revenue that we expect to recognize from work that has yet to be performed on uncompleted contracts, and from work that has been contracted but has not started. Backlog is not a guarantee of future revenues, as contractual commitments may change. As of September 30, 2008, our backlog was approximately $337 million compared to $333 million as of September 30, 2007. The overall quality of backlog has improved year-over-year, reflecting the Company’s ongoing selectivity regarding new business. The Residential segment experienced improvement in backlog due to an increase in multi-family housing projects, while backlog in the Commercial segment was relatively flat year-over-year, and the Industrial segment declined due competitive market pressures and ongoing selectivity. We do not include single-family housing or time and material work in backlog.

Employee Development

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

At September 30, 2008, we had 4,938 employees. We are not a party to any collective bargaining agreements with our employees. We believe that our relationship with our employees is strong.

Competition

The electrical contracting industry is highly fragmented and is served by many small, owner-operated private companies. There are also several large private regional companies and a small number of large public companies in our industry. In the future, we may also face competition from new competitors entering these markets because electrical contracting has a relatively low capital requirement for entry.

Regulations

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

•

licensing requirements applicable to electricians;

•

building and electrical codes;

•

regulations relating to worker safety and protection of the environment;

•

regulations relating to consumer protection, including those governing residential service agreements; and

•

qualifications of our business legal structure in the jurisdictions where we do business.

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

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

Risk Management and Insurance

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

Seasonality and Quarterly Fluctuations

Our results of operations from Residential construction segment are seasonal, depending on weather trends, with typically higher revenues generated during spring and summer and lower revenues during fall and winter. The Commercial and Industrial aspect of our business is less subject to seasonal trends, as this work generally is performed inside structures protected from the weather. Our service and maintenance business is generally not affected by seasonality. In addition, the construction industry has historically been highly cyclical. Our volume of business may be adversely affected by declines in construction projects resulting from adverse regional or national economic conditions. Quarterly results may also be materially affected by the timing of new construction projects. Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any subsequent fiscal period.

Voluntary Reorganization Under Chapter 11

On February 14, 2006, we filed voluntary petitions for reorganization under Chapter 11 of the United States Code in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division. The Bankruptcy Court jointly administered these cases as “In re Integrated Electrical Services, Inc. et. al., Case No. 06-30602-BJH-11.” On April 26, 2006, the Bankruptcy Court entered an order approving and confirming the plan of reorganization (the “Plan”). The Plan was filed as Exhibit 2.1 to our current report on Form 8-K, filed on April 28, 2006. We operated our businesses and managed our properties as debtors-in-possession in accordance with the Bankruptcy Code from the commencement date through emergence from Chapter 11 on May 12, 2006, the effective date of the Plan (the “Plan Effective Date”).

In accordance with the Plan:

(i)

The holders of our senior subordinated notes received, on the date we emerged from bankruptcy, in exchange for their total claims (including principal and interest), 82% of our fully diluted new common stock, representing 12,631,421 shares, before giving effect to options to be issued under a new employee and director stock option plan. Up to 10% of the fully diluted shares of new common stock outstanding as of the Plan Effective Date could be issued under the new employee and director stock option plan.

(ii)

The holders of our old common stock received 15% of our fully diluted new common stock, representing 2,310,614 shares, before giving effect to the 2006 Equity Incentive Plan.

(iii)

Certain members of management received up to an aggregate of 384,850 restricted shares of our new common stock, equal to 2.5% of our fully diluted new common stock, with an additional 0.5% reserved for new key employees, before giving effect to the 2006 Equity Incentive Plan. The restricted shares of our new common stock vest over an approximately 31.5 month period.

	(iv)		$50 million in Senior Convertible Notes were refinanced from the proceeds of the $53 million Eton Park Term Loan. For additional information, see Note 7 to our consolidated financial statements set forth in Item 8 to this Amendment No. 1 to our Form 10-K.

(v)

All other allowed claims were either paid in full in cash or reinstated.

Available Information

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

Our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments and exhibits to those reports are available free of charge through our website as soon as it is reasonably practicable after we file them with, or furnish them to, the SEC. You may also contact our Investor Relations department and they will provide you with a copy of these reports. The materials that we file with the SEC are also available free of charge through the SEC website at www.sec.gov. You may also read and copy these materials at the SEC’s Public Reference Room at 100 F Street, NE., Washington, D.C. 20549. Information on the operation of the Public Reference Room is available by calling the SEC at 1–800–SEC–0330.

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

Item 1A.		Risk Factors

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

Existence of a controlling shareholder.

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

Our controlling shareholder has announced its intention to explore alternatives for the disposition of its holdings in our Company.

On November 10, 2008, Tontine, our controlling shareholder, announced that it has begun to explore alternatives for the disposition of its holdings in our Company, including both common stock and a $25.0 million term loan. Our credit agreements contain provisions for default in the event of a change in control. Similarly, certain of our financial arrangements and employment contracts contain provisions that will be triggered or accelerated upon the occurrence of a change of control event. Tontine, together with its affiliates, owns approximately 58% of our outstanding common stock. Should Tontine sell its position in the Company to a single shareholder or an affiliated group of shareholders, a change in control event would occur, causing us to be in default under our credit agreements and triggering the change of control provisions in certain of our employment contracts. Tontine also holds our $25.0 million term loan due on May 12, 2013, which may or may not be negotiated for repayment in connection with Tontine’s exploration process or under the terms of a potential sale of the Company.

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

A change in ownership, as defined by Internal Revenue Code Section 382, could reduce the availability of net operating losses for federal and state income tax purposes. Should Tontine sell its position in IES to a single shareholder or an affiliated group of shareholders, a change in ownership could occur. In addition a change in ownership could occur resulting from the purchase of common stock by an existing or a new 5% shareholder as defined by Internal Revenue Code Section 382.

Downturns in the construction industry could adversely affect our business because our business is dependent on levels of new construction activity.

The majority of our business involves the installation of electrical and communication systems in newly constructed and renovated buildings, plants and residences. The construction industry is cyclical and during calendar year 2008 has experienced a downturn in levels of housing starts, which has affected our business and results of operations. Our ability to maintain or increase revenues from new installation services in fiscal year 2009 will be impacted by the number of new construction starts and renovations during the period, which will likely correlate with the cyclical nature of the construction industry and the overall United States economy. The number of new construction starts and renovations during fiscal year 2009 will be affected by local economic conditions, and other factors, including the following:

•

availability of and access to credit by our customers;

•

interest rates and other factors affecting the availability and cost of financing;

•

employment and income levels;

•

tax implications for homebuyers and companies;

•

consumer confidence;

•

housing demand; and

•

commodity costs such as copper, aluminum, steel, lumber and fuel.

A majority of our business is focused in the southeastern and southwestern portions of the United States, concentrating our exposure to local economic conditions in those regions. The Residential construction portion of our business experienced negative growth and cost pressures throughout our 2008 fiscal year which affected the gross profit of that portion of our business by approximately $14.3 million. Our Commercial and Industrial markets remained stable during fiscal 2008.

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

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

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

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

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

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

Many of our customers require us to post performance and payment bonds issued by a surety. Those bonds guarantee the customer that we will perform under the terms of a contract and that we will pay subcontractors and vendors. We obtain our surety bonds from our two primary surety providers; however, there is no commitment from either of these providers to guarantee our ability to issue bonds for projects as they are required. Our ability to access this bonding capacity is at the sole discretion of our surety providers. We believe that our relationships with these providers will allow us to provide surety bonds if and when they are required; however, we cannot guarantee that such bonds will be available. In prior years, we were subject to limitations on the size of individual bonds from our primary surety provider; however, that provision was removed in an October 2007 amendment to our surety agreement.

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

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

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

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

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

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

There is a shortage of qualified electricians. Since the majority of our work is performed by electricians, this shortage may negatively impact our business, including our ability to grow.

There is a shortage of qualified electricians in the United States. In order to conduct our business, it is necessary to employ electricians and have those electricians qualified in the states where they do business. Our ability to increase productivity and profitability may be limited by our ability to employ, train and retain skilled electricians required to meet our needs. Accordingly, there can be no assurance, among other things, that:

•

we will be able to secure and maintain the skilled labor force necessary to operate efficiently;

•

our labor expenses will not increase as a result of a shortage in the skilled labor supply; and

•

we will be able to secure and maintain the skilled labor force necessary to implement our planned growth.

We may experience difficulties in managing future consolidations.

We have recently completed a strategic reorganization across our business under which we consolidated many of our administrative and operating functions. In the future, we may undergo additional consolidations. In the event we do implement further restructuring programs we cannot guarantee that our systems, procedures and controls will be adequate to support our operations, including the timely receipt of financial information.

We may experience difficulties in managing our billings and collections.

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

We have restrictions and covenants under our credit facility.

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

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

When we acquire a business, we record an asset called “goodwill” if the amount we pay for the business, including liabilities assumed, is in excess of the fair value of the assets of the business we acquire. Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets” establishes accounting and reporting requirements for goodwill and other intangible assets. SFAS No. 142 requires that goodwill attributable to each of our reporting units be tested at least annually. The testing includes comparing the fair value of each reporting unit with its carrying value. Fair value is determined using discounted cash flows, market multiples and market capitalization. Significant estimates used in the methodologies include estimates of future cash flows, future short-term and long-term growth rates, weighted average cost of capital and estimates of market multiples for each of the reportable units. On an ongoing basis, we expect to perform impairment tests at least annually during the last fiscal quarter of each year. Impairment adjustments recognized after adoption, if any, generally are required to be recognized as operating expenses. We cannot assure that we will not have future impairment adjustments to our recorded goodwill.

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

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

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

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

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

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

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

Our management assessed the effectiveness of our internal controls over financial reporting as of September 30, 2008 and concluded that our disclosure controls and procedures were not effective as of September 30, 2008, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. For more information on our internal controls, see Part II, Item 9A. “Management’s Report on Internal Control Over Financial Reporting.”

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

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

Litigation and claims can cause unexpected losses.

In the construction business there are frequently claims and litigation. There are also inherent claims and litigation risk associated with the number of people that work on construction sites and the fleet of vehicles on the road everyday. Claims are sometimes made and lawsuits filed for amounts in excess of their value or in excess of the amounts for which they are eventually resolved. Claims and litigation normally follow a predictable course of time to resolution. However, there may be periods of time in which a disproportionate amount of our claims and litigation are concluded in the same quarter or year. If multiple matters are resolved during a given period, then the cumulative effect of these matters may be higher than the ordinary level in any one reporting period.

Latent defect claims could expand.

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

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

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

The loss of productivity, either at the corporate office or operating level, could adversely affect our business.

Our business is primarily driven by labor. The ability to perform contracts at acceptable margins depends on our ability to deliver substantial labor productivity. We cannot guarantee that our productivity will continue at acceptable levels at our corporate office or at our divisions for a particular period of time. With the increased activity of de-levering our balance sheet and the uncertainty in the market, there is an increased difficulty in maintaining morale and focus of employees. The loss of productivity could adversely affect the margins on existing contracts and our ability to obtain new contracts.

Item 1B.		Unresolved Staff Comments

None.

Item 2.		Properties

Equipment

We operate a fleet of approximately 1,900 owned and leased service trucks, vans and support vehicles. We believe these vehicles are adequate for our current operations.

Facilities

At September 30, 2008, we maintained branch offices, warehouses, sales facilities and administrative offices at 112 locations. Substantially all of our facilities are leased. We lease our corporate office located in Houston, Texas. Our properties are generally adequate for our present needs, and we believe that suitable additional or replacement space will be available as required.

Item 3.		Legal Proceedings

For information regarding legal proceedings, see Note 15 to the consolidated financial statements, which is incorporated herein by reference.

Item 4.		Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of our fiscal year ended September 30, 2008.

PART II

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

Our common stock trades on NASDAQ under the ticker symbol “IESC.” The following table sets forth the daily high and low close price for our common stock as reported on NASDAQ for each of the four quarters of the years ended September 30, 2008 and 2007.

		High				Low
Year Ended September 30, 2007
First Quarter		$	18.08			$	13.96
Second Quarter		$	26.96			$	18.12
Third Quarter		$	34.12			$	23.77
Fourth Quarter		$	36.17			$	19.54
Year Ended September 30, 2008
First Quarter		$	29.80			$	16.56
Second Quarter		$	18.51			$	13.04
Third Quarter		$	19.97			$	15.31
Fourth Quarter		$	22.06			$	14.95

As of December 10, 2008, the closing market price of our common stock was $8.44 per share and there were approximately 392 holders of record.

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

On December 12, 2007, our Board of Directors authorized the repurchase of up to one million shares of our common stock, and the Company has established a Rule 10b5-1 plan to facilitate this repurchase. This stock repurchase was allowed under an amendment to our Loan and Security Agreement (see Note 7) that also allowed us to repay our Eton Park Term Loan and enter into our Tontine Term Loan. This share repurchase program is authorized through December 2009. During the year ended September 30, 2008, we repurchased 584,942 common shares under the share repurchase program at an average price of $17.73 per share.

Five-Year Stock Performance Graph

The following performance graph compares the Company’s cumulative total stockholder return on its common stock with the cumulative total return of (i) the Russell 2000, (ii) a new peer group stock index (the “New Peer Group”) selected in good faith by the Company and comprised of the following publicly traded companies: Comfort Systems USA, Inc., Dycom Industries, Inc., Mastec, Inc., Pike Electric Corp., Black Box Corporation, Layne Christensen Company, Matrix Service Company, Quanta Services, Inc., Tetra Tech, Inc. and Willbros Group, Inc. and (iii) a previously used peer group stock index (the “Old Peer Group”), which was selected in good faith by the Company and comprised of the following publicly traded companies: Comfort Systems USA, Inc., Dycom Industries, Inc., Mastec, Inc. and Pike Electric Corp. To create the New Peer Group, our Old Peer Group was expanded to include six additional companies similar to ours in our industry or related industries in order to achieve a more broadly based benchmark. The cumulative total return computations set forth in the following performance graph assume (i) the investment of $100 in each of the Company’s common stock, the Russell 2000, the New Peer Group and the Old Peer Group on September 30, 2003, and (ii) that all dividends have been reinvested. Shareholder returns over the period indicated should not be considered indicative of future shareholder returns.

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

We emerged from reorganization under Chapter 11 of the United States Code on May 12, 2006. At that time, our common stock underwent a reverse split of one share of our new common stock for each 17.0928 shares of our old common stock then outstanding, which resulted in the restatement of the beginning number of shares on September 30, 2003.

		9/30/2003				9/30/2004				9/30/2005				9/30/2006				9/30/2007				9/30/2008
Integrated Electrical Services, Inc.		$	100.00			$	69.71			$	40.58			$	13.41			$	21.71			$	14.89
Russell 2000		$	100.00			$	118.77			$	140.09			$	154.00			$	173.00			$	147.94
New Peer Group		$	100.00			$	93.32			$	118.92			$	131.38			$	188.96			$	167.50
Old Peer Group		$	100.00			$	117.36			$	115.02			$	117.74			$	155.17			$	112.45

Purchases of Equity Securities by the Issuer and Affiliated Persons

														Maximum number (or
										Total number of shares				approximate dollar value)
										purchased as part of				of shares that may yet be
		Total number of				Average price				publicly announced				purchased under the
Period		shares purchased				paid per share				plans or programs (1)				plans or programs
July 1 to July 31, 2008			160,804			$	17.60				507,398				492,602
August 1 to August 31, 2008			—				—				507,398				492,602
September 1 to September 30, 2008			77,544			$	17.61				584,942				429,854
Total for period			238,348			$	17.61

Item 6.		Selected Financial Data

The following selected consolidated historical financial information for IES should be read in conjunction with the audited historical consolidated financial statements of Integrated Electrical Services, Inc. and subsidiaries, and the notes thereto, set forth in Item 8 to this Form 10-K/A.

		Successor													Predecessor
										Five Months					Seven Months
		Year Ended				Year Ended				Ended					Ended				Year Ended				Year Ended
		September 30,				September 30,				September 30,					April 30,				September 30,				September 30,
		2008				2007				2006					2006				2005				2004
		(Restated)								(Dollars in thousands)
Continuing Operations:
Revenues		$	818,287			$	890,351			$	413,054				$	509,867			$	842,063			$	810,042
Cost of services			686,358				745,429				352,556					431,175				716,609				683,563
Gross profit			131,929				144,922				60,498					78,692				125,454				126,479
Selling, general and administrative expenses			119,160				136,969				53,115					69,409				128,074				118,613
(Gain) loss on sale of assets			(114	)			(46	)			18					107				1,782				(56	)
Restructuring charges			4,598				824				—					—				—				—
Goodwill impairment			—				—				—					—				51,830				63,824
Income (loss) from operations			8,285				7,175				7,365					9,176				(56,232	)			(55,902	)
Reorganization items, net			—				—				1,419					(28,608	)			—				—
Other (income) expense:
Interest expense, net			6,529				5,835				2,570					14,929				28,291				23,184
Other, net			(888	)			(336	)			(4	)				241				2,283				6,067
Interest and other expense, net			5,641				5,499				2,566					15,170				30,574				29,251
Income (loss) from continuing operations			2,644				1,676				3,380					22,614				(86,806	)			(85,153	)
Provision for income taxes			2,436				2,276				425					758				9,689				7,361
Net income (loss) from continuing operations			208				(600	)			2,955					21,856				(96,495	)			(92,514	)
Discontinued Operations:
Loss from discontinued operations			(616	)			(4,977	)			(11,126	)				(14,068	)			(40,992	)			(28,627	)
Benefit for income taxes			(221	)			(1,165	)			—					—				(7,855	)			(3,723	)
Net loss from discontinued operations			(395	)			(3,812	)			(11,126	)				(14,068	)			(33,137	)			(32,350	)
Net income (loss)		$	(187	)		$	(4,412	)		$	(8,171	)			$	7,788			$	(129,632	)		$	(124,864	)
Basic earnings (loss) per share:
Continuing operations		$	0.01			$	(0.04	)		$	0.20				$	1.46			$	(6.45	)		$	(6.18	)
Discontinued operations		$	(0.02	)		$	(0.25	)		$	(0.74	)			$	(0.94	)		$	(2.21	)		$	(2.16	)
Total		$	(0.01	)		$	(0.29	)		$	(0.55	)			$	0.52			$	(8.66	)		$	(8.34	)
Diluted earnings (loss) per share:
Continuing operations		$	0.01			$	(0.04	)		$	0.19				$	1.42			$	(6.45	)		$	(6.18	)
Discontinued operations		$	(0.02	)		$	(0.25	)		$	(0.72	)			$	(0.91	)		$	(2.21	)		$	(2.16	)
Total		$	(0.01	)		$	(0.29	)		$	(0.53	)			$	0.51			$	(8.66	)		$	(8.34	)
Shares used in the computation of earnings (loss) per share:
Basic			14,938,619				15,058,972				14,970,502					14,970,502				14,970,502				14,970,502
Diluted			15,025,023				15,058,972				15,373,969					15,373,969				14,970,502				14,970,502
Balance Sheet Data:
Cash and cash equivalents		$	64,709			$	69,676			$	28,166				$	16,973			$	37,945			$	22,232
Working capital			127,129				157,690				134,279					171,602				(32,231	)			224,383
Total assets			320,538				353,422				375,515					379,322				412,854				580,933
Total debt			29,644				45,776				55,765					53,158				223,884				231,240
Total stockholders’ equity			146,235				153,925				154,643					160,342				15,861				143,168

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

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto, set forth in Item 8, “Financial Statements and Supplementary Data,” of this Amendment No. 1 to our Form 10-K. For additional information, see “Disclosure Regarding Forward-Looking Statements” in Part I of this Amendment No. 1 to our Form 10-K.

The following discussion and analysis of our financial condition and results of operations includes the effects of the restated amounts as disclosed in Note 18 — Restatement of Consolidated Financial Statements included in Item I of this Amendment No. 1 to our Form 10-K. For this reason, the data set forth in this section may not be comparable to discussions and data in our previously filed quarterly reports.

General

Voluntary Reorganization Under Chapter 11

On February 14, 2006, we filed voluntary petitions for reorganization under Chapter 11 of the United States Code in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division. The Bankruptcy Court jointly administered these cases as “In re Integrated Electrical Services, Inc. et. al. Case No. 06-30602-BJH-11.” On April 26, 2006, the Bankruptcy Court entered an order approving and confirming the plan of reorganization (the “Plan”). The Plan was filed as Exhibit 2.1 to our current report on Form 8-K, filed on May 1, 2006. Capitalized terms used in this section but not defined herein shall have the meaning set forth in the Plan. We operated our businesses and managed our properties as debtors-in-possession in accordance with the Bankruptcy Code from February 14, 2006, the commencement date, through emergence from Chapter 11 on May 12, 2006, the effective date of the Plan (the “Plan Effective Date”).

Recent Developments

Consistent with our Transformation Program described in Item 1. “Business,” selected significant actions undertaken subsequent to our year ended September 30, 2008 include the following:

•

hired a new Group Vice President for our Commercial line of business who has over 20 years of experience in the construction industry and has held several senior management positions in his career;

•

established a national business development group, reassigning three of our former business leaders to these development roles, and hired a senior executive to run the program.

•

entered a co-surety arrangement with two independent surety providers that has increased our bonding capacity to $325.0 million; and

•

outsourced our payroll processing and management to a leading national provider and employed technology to capture labor utilization real time.

Basis of Presentation

In accordance with Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”), we applied “fresh-start” accounting as of April 30, 2006. Under the provisions of fresh-start accounting, a new entity has been deemed created for financial reporting purposes. Fresh-start accounting requires us to allocate the reorganization value to our assets and liabilities in a manner similar to that which is required under Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). References to “Successor” in the financial statements are in reference to reporting dates on and after April 28, 2006. References to “Predecessor” in the financial statements are in reference to reporting dates through April 30, 2006, including the impact of Plan provisions and the adoption of fresh-start reporting. As such, our financial information for the Successor is presented on a basis different from, and is therefore not comparable to, our financial information for the Predecessor for the period ended and as of April 30, 2006 or for prior periods. For further information on fresh-start accounting, see Note 16 to our consolidated financial statements set forth in Item 8 to this Amendment No. 1 to our Form 10-K.

In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature.

As used in this Amendment No. 1 to our Form 10-K, the terms “IES”, the “Company”, “we”, “our”, and “us”, when used with respect to the periods prior to our emergence from Chapter 11, are references to the Predecessor, and when used with respect to the period commencing after our emergence, are references to the Successor, unless otherwise indicated or the context otherwise requires.

The Plan of Reorganization

The Plan was approved by the Bankruptcy Court on the confirmation date, April 26, 2006. In accordance with the Plan:

(i)

The holders of our senior subordinated notes received, on the date we emerged from bankruptcy, in exchange for their total claims (including principal and interest), 82% of our fully diluted new common stock, representing 12,631,421 shares, before giving effect to options to be issued under a new employee and director stock option plan. Up to 10% of our fully diluted shares of new common stock outstanding as of the Plan Effective Date could be issued under the new employee and director stock option plan.

(ii)

The holders of our old common stock received 15% of our fully diluted new common stock, representing 2,310,614 shares, before giving effect to the 2006 Equity Incentive Plan.

(iii)

Certain members of management received up to an aggregate of 384,850 restricted shares of our new common stock, equal to 2.5% of our fully diluted new common stock, with an additional 0.5% reserved for new key employees, before giving effect to the 2006 Equity Incentive Plan. The restricted shares of our new common stock vest over an approximately 31.5 month period.

	(iv)		$50 million in Senior Convertible Notes were refinanced from the proceeds of the $53 million Eton Park Term Loan. For additional information, see Note 7 to our consolidated financial statements set forth in Item 8 to this Amendment No. 1 to our Form 10-K.

(v)

All other allowed claims were either paid in full in cash or reinstated.

Reorganization Items

Reorganization items refer to expenses (including professional fees), realized gains, losses and provisions for losses that were realized or incurred as a result of the bankruptcy proceedings. There were no reorganization items recorded during the years ended September 30, 2008 or 2007 (Successor). The following table summarizes the components included in reorganization items in our consolidated statements of operations for the five months ended September 30, 2006 (Successor) and for the seven months ended April 30, 2006 (Predecessor):

		Successor					Predecessor
		Five Months Ended					Seven Months Ended
		September 30, 2006					April 30, 2006
		(Dollars in thousands)
Gain on debt-for-equity exchange (1)		$	—				$	(46,117	)
Fresh-start adjustments (2)			—					(49	)
Professional fees and other costs (3)			1,419					13,598
Unamortized debt discounts and other costs (4)			—					539
Embedded derivative liabilities (5)			—					(1,482	)
Unamortized debt issuance costs (6)			—					4,903
Total reorganization items		$	1,419				$	(28,608	)

Exit or Disposal Activities

In March 2006, as a result of disappointing operating results, our Board of Directors directed us to develop alternatives with respect to five underperforming divisions in our Commercial and Industrial segments. On March 28, 2006, we committed to an exit plan with respect to these five underperforming divisions. The exit plan committed to a shut-down or consolidation of the operations of these divisions or, alternatively, the sale or other disposition of the divisions, whichever came sooner. These divisions’ assets, liabilities and operating results for both the current period and prior periods have been reclassified as discontinued operations. For a summary of our exit plan, see “Discontinued Operations” below.

In our assessment of the estimated net realizable value of the accounts receivable at these divisions, in March 2006, we increased our general allowance for doubtful accounts, having considered various factors, including the risk of collection and the age of the receivables. We believe this approach is reasonable and prudent.

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

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

Remaining net working capital related to these divisions was $1.5 million and $4.0 million as of September 30, 2008 and 2007, respectively. As a result of inherent uncertainty in the exit plan and the monetization of these divisions’ working capital, we could experience additional losses of working capital. We believe we have recorded adequate reserves to reflect the net realizable value of the working capital; however, subsequent events may impact our ability to monetize these assets.

The exit plan is complete for the divisions that we elected to exit in March 2006, and the operations of these subsidiaries ceased as of September 30, 2006. Mid-States’ operations were shut down as of June 30, 2007. Haymaker’s operations where shut down as of August 31, 2008. Revenue for these subsidiaries totaled $3.7 million, $11.5 million, $24.8 million and $81.7 million for the years ended September 30, 2008 and 2007 (Successor), the five-month period ended September 30, 2006 (Successor), and the seven-month period ended April 30, 2006 (Predecessor), respectively.

Restructuring Program

We have restructured our operations from our previous geographic structure into three major lines of business: Commercial, Industrial and Residential. This operational restructuring is part of our long-term strategic plan to reduce our cost structure, reposition our business to better serve our customers, strengthen financial controls and, as a result, position the Company to implement a market-based growth strategy in the future. The restructuring program has consolidated certain leadership roles, administrative support functions and eliminated redundant functions that were previously performed at our 27 divisions. Since we began the program in June 2007, we have recorded a total of $5.6 million of restructuring charges.

The first component of our restructuring program was initiated in our Industrial segment in June 2007. Under this portion of the planned restructuring, 5 of our divisions were integrated under the IES Industrial segment, and the support and administrative functions of those businesses were combined at an operating location in Houston, Texas. In connection with this realignment, we approved a transition and severance benefits program for 28 employees who were separated from the Company through the elimination of redundant positions. During the year ended September 30, 2008 (Successor), we recognized approximately $0.4 million in severance charges for the value of cash compensation and payroll taxes that will be paid out through January 2009 in the form of salary continuation. Since the inception of this program, we have recognized $0.5 million in severance charges for our Industrial segment.

The second component of our restructuring program was initiated in our Commercial segment in September 2007. Under this portion of the restructuring, 17 of our divisions were integrated under the IES Commercial segment, and the support and administrative functions of those businesses were combined at an operating location in Tempe, Arizona. In connection with this realignment, we approved a transition and severance benefits plan for approximately 110 employees who have been or will be separated through the elimination of redundant positions. During the year ended September 30, 2008 (Successor), we recognized approximately $1.9 million in severance charges for cash compensation and payroll taxes that will be paid out through January 2009 in the form of salary continuation. Since the inception of this program, we have recognized $2.2 million in severance charges for our Commercial segment.

The third component of our restructuring program was initiated in our Residential segment in September 2007. Under this portion of the restructuring, 5 of our divisions were integrated under the IES Residential segment during our 2008 fiscal year, and the support and administrative functions of those businesses were combined at an operating location near Houston, Texas. In connection with this realignment, we approved a transition and severance benefits plan for 22 employees who have been separated through the elimination of redundant positions. During the year ended September 30, 2008 (Successor), we recognized approximately $0.2 million in severance liabilities for cash compensation and payroll taxes.

In addition to the severance costs described above, we incurred other charges of approximately $2.0 million predominately for consulting services associated with our restructuring program during the year ended September 30, 2008 (Successor). We also wrote off $0.1 million of leasehold improvements at an operating location that we closed during the same period.

Surety

Co-Surety Arrangement

We are party to that certain Underwriting, Continuing Indemnity and Security Agreement, dated May 12, 2006, as amended (the “Surety Agreement”), with one of our existing surety providers and certain of its affiliates (collectively, the “Initial Surety Provider”), which provides for surety bonds to support our contracts with certain of our customers. As of September 30, 2008, we had $467.9 million in aggregate face value of bonds insured under this bonding facility, and we had $108.4 million in bonded costs to complete under this facility. As of September 30, 2008, we maintained $9.6 million in cash collateral plus accrued interest with the Initial Surety Provider, as well as $21.0 million in letters of credit under the Surety Agreement. In November 2008, the Initial Surety Provider returned $5.0 million of this collateral to us.

Effective October 27, 2008, we entered into an amendment to our Surety Arrangement with the Initial Surety Provider and a second surety provider and certain of its affiliates (collectively, the “Co-Surety Provider”). This co-surety financing arrangement (the “Co-Surety Financing Arrangement”) provides for the Initial Surety Provider and the Co-Surety Provider, at their sole and absolute discretion, to issue up to an aggregate of $325.0 million in new surety bonds. The bond premium is an average of $11.25 per one thousand dollars of contract cost for projects less than 24 months in duration, with additional surcharges for projects extending beyond 24 months. Each surety provider will assume 50% of the risk of each bond written.

We are also party to a General Agreement of Indemnity, dated March 21, 2006, as amended, with an individual surety (the “Individual Surety Provider”), to supplement the bonding capacity. Under this facility, the Individual Surety Provider has agreed to extend aggregate bonding capacity not to exceed $150.0 million in additional bonding capacity, with a limitation on individual bonds of $15.0 million. The bonds from the Individual Surety Provider are not rated (as opposed to those of our other surety providers); however, the issuance of these bonds to an obligee/contractor is backed by an instrument referred to as an irrevocable trust receipt issued by First Mountain Bancorp, as trustee, for investors who pledge assets to support the receipt and thus the bond. The bonds are also reinsured.

The Individual Surety Provider’s obligation to issue new bonds is discretionary, and the aggregate bonding is subject to the Individual Surety Provider’s receipt of $2.0 million in collateral to secure all of our obligations to them. Bank of America, N.A. and the Individual Surety Provider have entered into an inter-creditor agreement. As of September 30, 2008, we had $41.1 million in aggregate face value of bonds issued under this bonding facility, and we had $1.0 million of bonded cost to complete under this facility.

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. (“Tontine”), a related party. The proceeds of the Tontine Term Loan, together with cash on hand, were used to fund the repayment of our Eton Park Term Loan (as defined below).

The Tontine Term Loan bears interest at 11.0% per annum and is due on May 15, 2013. Interest is payable quarterly, beginning on December 31, 2007, in cash or in-kind, at our option. Any interest paid in-kind will bear interest at 11.0% in addition to the loan principal. We may repay the Tontine Term Loan at any time prior to the maturity date at par, plus accrued interest without penalty. The Tontine Term Loan is subordinated to our existing Revolving Credit Facility (as defined below) with Bank of America, N.A. The Tontine Term Loan is an unsecured obligation of the Company and its subsidiary borrowers. The Tontine Term Loan contains no financial covenants or restrictions on dividends or distributions to stockholders.

Camden Note Payable

On August 1, 2008, we financed an insurance policy with a $4.6 million note payable from Camden Premium Finance, Inc. (the “Camden Note Payable”), bearing interest at 4.59% through July 1, 2010. Under the terms of the Camden Note Payable, we are to make thirteen equal payments of $243,525 (including principal and interest) beginning September 1, 2008 until October 1, 2009, followed by ten equal payments of $167,589 (including principal and interest). As of September 30, 2008, we have a remaining liability of $4.4 million under the Camden Note Payable which reflects future principal payments.

The Revolving Credit Facility

On May 12, 2006, we entered into that certain Loan and Security Agreement, as amended (the “Loan and Security Agreement”), for a revolving credit facility (the “Revolving Credit Facility”) with Bank of America, N.A. and certain other lenders.

On December 12, 2007, we entered into an amendment to the Loan and Security Agreement. This amendment allowed for the exclusion from the calculation of fixed charges, in determining the fixed charge coverage ratio, certain capital investments made in September 2007 by the Company as part of its transformation program to implement operational improvements. This amendment also permitted us to repay our Eton Park Term Loan and enter into a new subordinated note agreement for a reduced principal amount. Finally, this amendment allowed us to implement a stock repurchase program for up to one million shares of common stock over the following 24 months.

The Loan and Security Agreement was amended again on May 9, 2008. At that time, we renegotiated the terms of our Revolving Credit Facility, extended the maturity date to May 12, 2010, and reduced the revolving credit facility to a maximum of $60.0 million to better meet our needs.

The Revolving Credit Facility contains customary affirmative, negative and financial covenants, which were modified in conjunction with this amendment of the Loan and Security Agreement. These financial covenants are described in more detail below. For additional information, see Note 7 to our consolidated financial statements set forth in Item 8 to this Amendment No. 1 to our Form 10-K. In connection with this amendment to the Loan and Security Agreement, we incurred a $275,000 charge from Bank of America, N.A., of which $200,000 has been classified as a prepaid expense and is being amortized over 12 months and $75,000 has been classified as a deferred financing fee and is being amortized over 24 months.

Currently, the Revolving Credit Facility provides us with access to revolving borrowings in the aggregate amount of up to $60.0 million. At September 30, 2008, we had $34.0 million in letters of credit issued against the Revolving Credit Facility and $26.0 million available under the Revolving Credit Facility.

The Revolving Credit Facility is guaranteed by our subsidiaries and secured by first priority liens on substantially all of our and our subsidiaries’ existing and future acquired assets, exclusive of collateral provided to our surety providers. In addition to the financial covenants discussed herein, under the Revolving Credit Facility, we are also restricted from paying cash dividends and limited in our ability to repurchase our common stock. The maturity date of the Revolving Credit Facility is May 12, 2010.

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

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

The letter of credit fee under the Loan and Security Agreement is 3.25% through September 30, 2008, after which the letter of credit fee will be based on the same factor as loans outstanding.

In addition, we are charged monthly in arrears (i) an unused commitment fee of either 0.5% or 0.375%, depending on the utilization of the credit line, and (ii) certain other fees and charges as specified in the Loan and Security Agreement. Finally, the Revolving Credit Facility is subject to a prepayment fee of 0.5% until May 2009 and 0.25% until May 2010.

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

The financial covenants for the Revolving Credit Facility in effect on September 30, 2008, are described in the table that follows. As of September 30, 2008, we are in compliance with all of the financial covenants under the Revolving Credit Facility:

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

As of September 30, 2007, we were also in compliance with all of our financial covenants under the Revolving Credit Facility.

The Eton Park / Flagg Street Term Loan

Immediately preceding our emergence from Chapter 11, we had $51.9 million in senior convertible notes (the “Senior Convertible Notes”) outstanding. On the date we emerged from Chapter 11, May 12, 2006, we entered into a $53.0 million senior secured term loan (the “Eton Park Term Loan”) with Eton Park Fund L.P. and certain of its affiliates and Flagg Street Partners L.P. and certain of its affiliates to refinance the Senior Convertible Notes. On December 12, 2007, we terminated the Eton Park Term Loan by prepaying in full all outstanding principal and accrued interest on the loan. On the same day, we entered into a $25 million senior subordinated loan agreement with Tontine Capital Partners, L.P., the Tontine Term Loan (as described above). Along with a prepayment penalty of $2.1 million that was included in interest expense and accrued interest of $1.0 million, the payoff amount under the Eton Park Term Loan was $48.7 million. Finally, we wrote off previously unamortized debt issuance costs of $0.3 million on the Eton Park Term Loan. The Eton Park Term Loan bore interest at 10.75% per annum, subject to adjustment, as set forth in the loan agreement governing the Eton Park Term Loan, and was to mature on May 12, 2013.

Pre-Petition Credit Facility

On August 1, 2005, we entered into a three-year $80.0 million pre-petition asset-based revolving credit facility with Bank of America, N.A., as administrative agent (the “Pre-Petition Credit Facility”). The Pre-Petition Credit Facility allowed us and our subsidiaries to obtain revolving credit loans and provided for the issuance of letters of credit. The amount available at any time under the Pre-Petition Credit Facility for revolving credit loans or the issuance of letters of credit was determined by a borrowing base calculated as a percentage of accounts receivable, inventory and equipment. The borrowings were limited to $80.0 million. The Pre-Petition Credit Facility was replaced by a Debtor-in-Possession Credit Facility (as defined below) on February 14, 2006.

Debtor-in-Possession Financing

On February 14, 2006, in connection with our Chapter 11 case, we entered into that certain Debtor-in-Possession Loan and Security Agreement, with Bank of America, N.A., as collateral and administrative agent (the “Debtor-in-Possession Credit Facility”). The Debtor-in-Possession Credit Facility was approved by the Bankruptcy Court on an interim basis on February 15, 2006, and on a final basis on March 10, 2006. The Debtor-in-Possession Credit Facility provided for an aggregate financing of $80.0 million while we were in bankruptcy, consisting of a revolving credit facility of up to $80.0 million, with a $72.0 million sub-limit for letters of credit. All letters of credit and other obligations outstanding under the Pre-Petition Credit Facility constituted obligations and liabilities under the Debtor-in-Possession Credit Facility. Accordingly, we wrote off approximately $3.8 million in unamortized deferred financing costs related to the Pre-Petition Credit Facility during the seven-month period ended April 30, 2006 (Predecessor).

We utilized the Debtor-in-Possession Credit Facility to issue letters of credit for (i) certain insurance programs; (ii) our surety programs; and (iii) certain projects. On May 12, 2006, upon our emergence from Chapter 11, in accordance with the Plan, the Debtor-in-Possession Credit Facility was replaced by that certain Revolving Credit Facility (as defined above) with Bank of America, N.A.

Critical Accounting Policies

In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” we have identified the accounting principles, which we believe are most critical to our reported financial status by considering accounting policies that involve the most complex or subjective decisions or assessments. We identified our most critical accounting policies to be those related to revenue recognition, the assessment of goodwill impairment, our allowance for doubtful accounts receivable, the recording of our self-insurance liabilities and estimation of the valuation allowance for deferred tax assets. These accounting policies, as well as others, are described in Note 2 of our consolidated financial statements, set forth in Item 8 of this Amendment No. 1 to our Form 10-K, and at relevant sections in this discussion and analysis.

As a result of our Chapter 11 bankruptcy proceedings, we prepared our financial statements in accordance with Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”), from the commencement date through April 30, 2006, the date of adoption of fresh-start reporting. SOP 90-7 requires us to, among other things, (i) identify and disclose separately transactions that are directly associated with the bankruptcy proceedings from those events that occur during the normal course of business, (ii) segregate pre-petition liabilities subject to compromise from those that are not subject to compromise or post-petition liabilities, (iii) assess the applicability of fresh-start accounting upon emergence from bankruptcy and (iv) allocate the reorganization value to our assets and liabilities only if fresh-start is applicable. This allocation requires certain assumptions and estimates to determine the fair value of asset groups including estimates about future cash flows and discount rates, among other things.

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

We complete most projects within one year. We frequently provide service and maintenance work under open-ended, unit price master service agreements which are renewable annually. We recognize revenue on service, time and material work when services are performed. Work performed under a construction contract generally provides that the customers accept completion of progress to date and compensate us for services rendered, measured in terms of units installed, hours expended or some other measure of progress. Revenues from construction contracts are recognized on the percentage-of-completion method in accordance with the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (“SOP 81-1”). Percentage-of-completion for construction contracts is measured principally by the percentage of costs incurred and accrued to date for each contract to the estimated total costs for each contract at completion. We generally consider contracts substantially complete upon departure from the work site and acceptance by the customer. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Changes in job performance, job conditions, estimated contract costs, profitability and final contract settlements may result in revisions to costs and income, and the effects of such revisions are recognized in the period in which the revisions are determined. Provisions for total estimated losses on uncompleted contracts are made in the period in which such losses are determined.

We evaluate goodwill for potential impairment in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” Included in this evaluation are certain assumptions and estimates to determine the fair values of reporting units such as estimates of future cash flows and discount rates, as well as assumptions and estimates related to the valuation of other identified intangible assets. Changes in these assumptions and estimates or significant changes to the market value of our common stock could materially impact our results of operations or financial position. We did not record goodwill impairment during the years ended September 30, 2008 and 2007 (Successor), the five-month period ended September 30, 2006 (Successor), or the seven-month period ended April 30, 2006 (Predecessor).

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets,” we periodically assess whether any impairment indicators exist. If we determine impairment indicators exist, we conduct an evaluation to determine whether any impairment has occurred. This evaluation includes certain assumptions and estimates to determine fair value of asset groups, including estimates about future cash flows and discount rates, among others. Changes in these assumptions and estimates or significant changes to the market value of our common stock could materially impact our results of operations or financial projections. During the year ended September 30, 2007 (Successor), and the seven-month period ended April 30, 2006 (Predecessor), we recorded non-cash impairment charges of $11,000, and $0.4 million, respectively, related to long-lived assets of continuing operations. We did not record non-cash impairment charges during the year ended September 30, 2008 (Successor), or the five-month period ended September 30, 2006 (Successor).

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

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

We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. We perform this evaluation at least annually at the end of each fiscal year. The estimation of required valuation allowances includes estimates of future taxable income. In assessing the realizability of deferred tax assets at September 30, 2008, we considered that it was more likely than not that some or all of the deferred tax assets would not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

Income Taxes

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

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

As the result of the adoption of FIN 48, and recognition of the cumulative effect of the adoption of the new accounting principal, we recorded an $8.2 million decrease in contingent tax liabilities. The reduction of the contingent tax liabilities resulted in a $7.8 million decrease in goodwill as prescribed by SOP 90-7 and a $0.4 million increase in retained earnings. Upon the adoption of FIN 48, the total liability for unrecognized tax benefits was $6.2 million, excluding accrued interest and penalties, which are discussed below. The liabilities for unrecognized tax benefits are a component of “Other Non-Current Liabilities” in our consolidated balance sheet. The reversal of the liabilities for unrecognized tax benefits would result in a $6.1 million adjustment that would first go to reduce goodwill, then intangible assets and then additional paid-in capital as prescribed by SOP 90-7. The remaining $0.1 million would result in a decrease in the provision for income tax expense.

In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS 141. Beginning October 1, 2009, under the provisions of SFAS 141(R), reductions in the valuation allowance and contingent tax liabilities attributable to all periods, if any should occur, will be recorded as an adjustment to income tax expense.

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

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

We anticipate that approximately $0.2 million of liabilities for unrecognized tax benefits, including accrued interest, may be reversed in the next twelve months. This reversal is predominately due to the expiration of the statues of limitation for unrecognized tax benefits and the settlement of a state audit.

New Accounting Pronouncements

In accordance with SOP 90-7, we were required to adopt all new accounting pronouncements upon emergence from bankruptcy, if issued prior to and have effective dates within one year of the date of adoption of fresh-start reporting. We adopted fresh-start reporting on April 30, 2006. These newly adopted accounting policies, as well as others, are described in Note 2 of our consolidated financial statements, set forth in Item 8 of this Amendment No. 1 to our Form 10-K, and at relevant sections in this discussion and analysis.

Results of Operations

Effective April 30, 2006, we implemented fresh-start reporting in accordance with SOP 90-7. As a result of the application of fresh-start reporting, the financial statements for the Predecessor are considered to be presented on a different basis than those of the Successor. Therefore, the financial statements of the Predecessor and Successor are not considered comparable, and we are unable to present financial statements for our fiscal year 2006, which we define as the twelve-month period ended September 30, 2006. To the extent that material basis differences exist between the Predecessor and Successor, we have disclosed such differences.

Reclassification of Historical Operating Results

In conjunction with our transformation program, IES management now analyzes our operating results across three operating segments: Commercial, Industrial and Residential. Expenses associated with our Corporate office are classified as a fourth segment. Presently, each of our 27 former divisions is classified into one of these three segments based on the primary market that division serves, and all of the operating activity of that division is considered part of that segment’s operating results, regardless of the nature of the work. In previous years, we allocated earnings according to the nature of the service provided; therefore, a division that served more than one customer group allocated its earnings according to the volume of services it provided each segment. In order to be consistent with our current three operating segments approach, we have reclassified our prior year earnings. This reclassification does not have any effect on our consolidated financial statements.

The following table presents selected historical results of operations of IES and subsidiaries (in millions).

		Successor																									Predecessor
		Year Ended								Year Ended								Five Months Ended									Seven Months Ended
		September 30, 2008								September 30, 2007								September 30, 2006									April 30, 2006
		$				%				$				%				$				%					$				%
		(Dollars in millions. Percentage of net revenues)
Revenues		$	818.3				100	%		$	890.3				100	%		$	413.1				100	%			$	509.9				100	%
Cost of services			686.4				84	%			745.4				84	%			352.6				85	%				431.2				85	%
Gross profit			131.9				16	%			144.9				16	%			60.5				15	%				78.7				15	%
Selling, general and administrative expenses			119.1				14	%			137.0				15	%			53.1				13	%				69.4				14	%
(Gain) loss on sale of assets			(0.1	)			(0	)%			(0.0	)			(0	)%			0.0				0	%				0.1				0	%
Restructuring charges			4.6				1	%			0.8				0	%			—				—					—				—
Income from operations			8.3				1	%			7.2				1	%			7.4				2	%				9.2				2	%
Reorganization items, net			—				—	%			—				—	%			1.4				0	%				(28.6	)			(6	)%
Interest and other expense, net			5.7				1	%			5.5				1	%			2.6				1	%				15.2				3	%
Income before income taxes			2.6				0	%			1.7				0	%			3.4				1	%				22.6				4	%
Provision for income taxes			2.4				0	%			2.3				0	%			0.4				0	%				0.8				0	%
Net income (loss) from continuing operations			0.2				0	%			(0.6	)			(0	)%			3.0				1	%				21.9				4	%
Net loss from discontinued operations			(0.4	)			(0	)%			(3.8	)			(0	)%			(11.1	)			(3	)%				(14.1	)			(3	)%
Net income (loss)			(0.2	)			0	%		$	(4.4	)			(0	)%		$	(8.2	)			(2	)%			$	7.8				2	%

YEAR ENDED SEPTEMBER 30, 2008 COMPARED TO YEAR ENDED SEPTEMBER 30, 2007

Revenues

		Successor
		Year Ended								Year Ended
		September 30, 2008								September 30, 2007
		$				%				$				%
		(Dollars in millions. Percentage of net revenues.)
Commercial		$	473.6				57.9	%		$	460.2				51.7	%
Industrial			129.7				15.8	%			121.5				13.6	%
Residential			215.0				26.3	%			308.6				34.7	%
Total Consolidated		$	818.3				100.0	%		$	890.3				100.0	%

Consolidated revenues for the year ended September 30, 2008 were $72.0 million less than the year ended September 30, 2007, a decline of 8.1%. This reduction was primarily attributed to the nationwide decline in demand for single-family homes which has affected our Residential line of business, particularly in markets such as Southern California, Arizona, Georgia, Nevada and Texas. Consistent with the slowdown in housing construction, Residential revenues decreased $93.6 million during the year ended September 30, 2008, down 30.3% as compared to the year ended September 30, 2007. We attribute approximately three quarters of this decrease to reductions in building activity throughout many of the markets we serve, while the remaining portion of the decrease was attributable to the effect of lower prices in response to the competitive market conditions and falling input prices, which affect the prices that we may then pass then along to our customers.

Revenues in our Commercial segment increased $13.4 million during the year ended September 30, 2008, a 2.9% improvement compared to the year ended September 30, 2007. Our Commercial segment has benefited from our selectivity and an increased focus on large-scale projects that we have begun for institutional developers, including universities, high-rise office towers, data communication and data centers. Partially offsetting the overall increase in revenues was reduced demand for light construction projects such as restaurants, movie theaters and local shopping centers, which was correlated to the slowdown in the housing sector.

We have also experienced increased competition from residential contractors who have been affected by the housing slowdown for less specialized retail work with lower barriers to entry.

Our Industrial segment posted an increase in revenues of $8.2 million during the year ended September 30, 2008, an increase of 6.7% as compared to the year ended September 30, 2007. The Industrial market generally has longer cycles than the rest of the construction industry due to the nature of the projects, which are often large-scale, multi-year contracts, financed by large corporations or government agencies. As such, many of these customers are better insulated from the market conditions that have affected our overall operating results. During the year ended September 30, 2008, our Industrial segment has seen growth in transmission and distribution service projects, including hurricane disaster recovery, as well as increased construction at electrical substations, ethanol plants and pulp and paper mills.

Gross Profit

		Successor
		Year Ended								Year Ended
		September 30, 2008								September 30, 2007
		$				%				$				%
		(Dollars in millions. Percentage of net revenues.)
Commercial		$	67.0				14.2	%		$	66.3				14.4	%
Industrial			22.0				16.9	%			21.4				17.6	%
Residential			42.9				19.9	%			57.2				18.5	%
Total Consolidated		$	131.9				16.1	%		$	144.9				16.3	%

The $13.0 million decrease in our consolidated gross profit for the year ended September 30, 2008, as compared to the year ended September 30, 2007, was the result of lower consolidated revenues, as discussed above. Our overall gross profit percentage decreased slightly to 16.1% during the year ended September 30, 2008 versus 16.3% during the year ended September 30, 2007.

During the year ended September 30, 2008, our Residential segment experienced a $14.3 million reduction in gross profit as compared to the year ended September 30, 2007. This decline resulted from the aforementioned $93.6 million decrease in revenues related to the reduction in demand for single-family homes. However, the gross margin percentage in the Residential segment improved approximately 140 basis points during the 2008 fiscal year in spite of the revenue declines. We attribute much of the improvement in the Residential gross margin to improved execution in our multi-family division, where our average gross margin is nearly 25% compared to single-family housing where our average gross margin is approximately 18%. In addition to improved profitability at our multi-family housing division, we also benefited from a stabilization of material costs and the ability to increase and decrease labor to meet project demands.

Our Commercial segment’s gross profit increased $0.7 million during the year ended September 30, 2008, as compared to the year ended September 30, 2007, driven primarily by $13.4 million of additional revenue, slightly offset by a 20 basis point decrease in gross margin during the 2008 fiscal year. Although we did have some higher input and fuel costs which reduced our margins, we were able to offset nearly all of the impact of those items through improvements in our overall project execution, which resulted from better project management, increased focus on selectivity, and the winding down of underperforming legacy projects primarily at two of our divisions.

Gross profit at our Industrial segment improved $0.6 million during the year ended September 30, 2008 as compared to the year ended September 30, 2007. The improved gross profit in our Industrial sector was correlated to higher project volumes which resulted in an $8.2 million increase in revenue during the 2008 fiscal year. Although revenues have increased, Industrial’s overall gross margin percentage declined approximately 70 basis points during the same period primarily as a result of an increase in time and material projects that have a lower fixed margin. Also affecting profit margin during the year ended September 30, 2008 was the increase in certain operating costs, notably transportation expenses, and the completion of several older low margin jobs during the year.

Selling, General and Administrative Expenses

		Successor
		Year Ended								Year Ended
		September 30, 2008								September 30, 2007
		$				%				$				%
		(Dollars in millions. Percentage of net revenues.)
Commercial		$	38.7				8.1	%		$	48.3				10.5	%
Industrial			7.5				5.7	%			8.4				6.9	%
Residential			33.3				15.5	%			35.0				11.3	%
Corporate			39.6				—	%			45.3				—	%
Total Consolidated		$	119.1				14.6	%		$	137.0				15.4	%

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

During the year ended September 30, 2008, our selling, general and administrative expenses were $119.1 million, a decrease of $17.9 million, or 13.1%, as compared to the year ended September 30, 2007. This decrease was due primarily to our strategic efforts to restructure our operations and to eliminate redundant positions and facilities. Since our restructuring program began we have eliminated approximately 160 positions. In addition, we have also been able to reduce many of our professional fees as we have improved our operating and financial controls and completed many of our turnaround efforts. Notable declines in our selling, general and administrative costs during the 2008 fiscal year as compared to the 2007 fiscal year, include: (i) a $9.7 million reduction in professional fees, including legal, consulting and accounting fees, (ii) a $6.6 million decrease in target incentives for our division leadership, (iii) a $1.1 million reduction in occupancy costs, and (iv) a $0.7 million reduction in general business and other expenses at our divisions.

Restructuring Charges

As discussed previously in this report, we have restructured our operations from our previously decentralized structure into three major lines of business: Commercial, Industrial and Residential. Each of these lines of business is now supported by its own dedicated administrative shared services center which has consolidated many of the back office functions into a centralized location. This integration has enabled us to eliminate a number of redundant functions.

In conjunction with our restructuring program we recognized the following costs during the years ended September 30, 2008 and 2007 (in thousands)

		Successor
		Year Ended
		September 30,
		2008				2007
Severance compensation		$	2,473			$	212
Consulting and other charges			1,994				612
Non-cash asset write offs			131				—
Total restructuring charges		$	4,598			$	824

Interest and Other Expense, net

		Successor
		Year Ended
		September 30,
		2008				2007
		(Dollars in thousands)
Interest expense		$	4,793			$	8,162
Debt prepayment penalty			2,052				675
Deferred financing charges			1,778				1,295
Total interest expense			8,623				10,132
Interest income			2,094				4,297
Other income, net			888				336
Total interest and other expense, net		$	5,641			$	5,499

During the year ended September 30, 2008, we incurred interest expense of $4.8 million on an average debt balance of $29.4 million for the Tontine Term Loan and the Eton Park Term Loan, an average letter of credit balance of $37.9 million under the Revolving Credit Facility and an average unused line of credit balance of $34.4 million. We also incurred $35,000 interest expense on the $4.6 million Camden Note Payable we entered in August 2008. This compares to interest expense of $8.2 million for the year ended September 30, 2007, on an average debt balance of $52.5 million for the Eton Park Term Loan, an average letter of credit balance of $45.9 million under the Revolving Credit Facility and an average unused line of credit balance of $34.1 million.

As mentioned earlier in this report, on December 12, 2007, we repaid our Eton Park Term Loan using cash on hand and the proceeds from the Tontine Term Loan. We incurred a prepayment penalty of $2.1 million on the Eton Park Term Loan, and we recognized previously unamortized debt issuance costs of $0.3 million. During the year ended September 30, 2008, we also recorded $1.8 million of deferred financing charges, which reflect the amortization of fees incurred on the Tontine Term Loan and the Eton Park Term Loan before it was repaid. During the year ended September 30, 2007, we had deferred financing charges of $1.3 million, which reflect the amortization of fees incurred on the Eton Park Term Loan, and we incurred a debt prepayment penalty of $0.7 million on the Eton Park Term Loan.

During the year ended September 30, 2008, total interest expense was offset by $2.1 million in interest income on an average cash and cash equivalents balance of $70.3 million, as compared to $4.2 million in interest income on an average cash and cash equivalents balance of $91.7 million during the year ended September 30, 2007.

During the year ended September 30, 2008, other income of $0.9 million included a $1.1 million settlement with a group of former employees, out of which $0.4 million was recorded as a reduction against legal fees and the remainder as other income. This settlement was to compensate the Company for damages resulting from these employees’ departure from the Company. We collected this settlement in full in March 2008.

Provision for Income Taxes

Our effective tax rate from continuing operations decreased from 135.8% for year ended September 30, 2007 to 92.1% for the year ended September 30, 2008. The decrease is attributable to an increase in pretax net income resulting in a 39.9% reduction in the rate, a decrease in contingent tax liabilities resulting in a 8.1% decrease in the rate, and an increase in additional valuation allowances against certain state and federal deferred tax assets, resulting in a 17.6% decrease in the rate, and is offset by additional deferred tax assets incurred as a result of the enactment of the Texas Margins Tax, resulting in a 23.5% increase in the rate, and other adjustments, resulting in a 1.6% decrease in the rate.

Income (Loss) from Discontinued Operations

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

Revenues at these subsidiaries were $3.7 million and $11.5 million, respectively, for the years ended September 30, 2008 and 2007; net loss at these subsidiaries was $0.4 million and $3.8 million, respectively, during these same periods.

YEAR ENDED SEPTEMBER 30, 2007 COMPARED TO FIVE-MONTH PERIOD ENDED SEPTEMBER 30, 2006

Revenues

		Successor
		Year Ended								Five Months Period Ended
		September 30, 2007								September 30, 2006
		$				%				$				%
		(Dollars in millions. Percentage of net revenues.)
Commercial		$	460.2				51.7	%		$	196.5				47.6	%
Industrial			121.5				13.6	%			54.1				13.1	%
Residential			308.6				34.7	%			162.5				39.3	%
Total Consolidated		$	890.3				100.0	%		$	413.1				100.0	%

The decline in Residential revenues as a percentage of our total revenues during the year ended September 30, 2007 as compared to the five months ended September 30, 2006 was due mainly to the effects of the nationwide decline in single-family and multi-family housing construction, which began during the 2007 fiscal year, partially offset by our ability to pass along increased material prices, in particular, copper wire. Both Commercial and Industrial revenues rose as a percentage of overall revenue during the year ended September 30, 2007 as compared to the five months ended September 30, 2006; however, we experienced a declining run rate in both business segments during fiscal year 2007 as compared to the five months ended September 30, 2006, reflecting the seasonal effect of a full twelve-month period.

Gross Profit

		Successor
		Year Ended								Five Months Period Ended
		September 30, 2007								September 30, 2006
		$				%				$				%
		(Dollars in millions. Percentage of net revenues.)
Commercial		$	66.3				14.4	%		$	21.8				11.1	%
Industrial			21.4				17.6	%			8.6				15.9	%
Residential			57.2				18.5	%			30.1				18.5	%
Total Consolidated		$	144.9				16.3	%		$	60.5				14.6	%

The 170 basis point improvement in our consolidated gross profit percentage for the year ended September 30, 2007, as compared to the five months ended September 30, 2006, was due to increased margins as a percentage of revenue in both the Commercial and Industrial segments. We attribute this improvement to better execution of new and existing contracts, improved control over our contract bidding process, and increased project oversight based on procedures put in place as a result of our transformation efforts. Gross margins in our Residential segment remained steady in spite of the decline in the number of housing starts in the second half of the 2007 fiscal year. We attribute the stability of the Residential gross margin to an improvement in the pricing environment relative to prior periods for inputs, including copper wire and aluminum, as well as improved project execution. The improved margins enabled us to partially mitigate the effects of revenue declines in the second half of fiscal 2007 associated with the slowdown in the Residential construction industry.

Selling, General and Administrative Expenses

		Successor
		Year Ended								Five-Month Period Ended
		September 30, 2007								September 30, 2006
		$				%				$				%
		(Dollars in millions. Percentage of net revenues.)
Commercial		$	48.3				10.5	%		$	18.4				9.4	%
Industrial			8.4				6.9	%			3.9				7.2	%
Residential			35.0				11.3	%			17.0				10.5	%
Corporate			45.3				—	%			13.8				—	%
Total Consolidated		$	137.0				15.4	%		$	53.1				12.9	%

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

During the year ended September 30, 2007, our selling, general and administrative expenses increased to 15.4% of revenue principally as a result of our strategic efforts to reorganize the Company and to recruit and train new leadership. Notable items included in our total selling, general and administrative costs were $81.0 million in salary and employment-related costs for corporate, regional and local management, $10.5 million in occupancy and utility charges, $7.1 million in consulting charges under a transformation program to implement operational improvements, $13.2 million in other professional fees, including legal, consulting, accounting and auditing, $2.8 million in insurance costs not charged to cost of services, and $4.4 million in depreciation and amortization expense that was not charged to cost of services.

During the five-month period ended September 30, 2006, our selling, general, and administrative expenses were 12.9% of revenue. Notable items included in our total selling, general and administrative costs were $33.2 million in salary and employment-related costs for corporate, regional and local management, $4.4 million in occupancy and utility charges, $4.8 million for professional service fees, $0.8 million in insurance costs not charged to cost of services and $1.7 million in depreciation and amortization expense that was not charged to cost of services.

Restructuring Charges

As discussed previously in this report, we have restructured our operations from our previously decentralized structure into three major lines of business: Commercial, Industrial and Residential. Each of these lines of business is now supported by its own dedicated administrative shared services center which has consolidated many of the back office functions into a centralized location. This integration has enabled us to eliminate a number of redundant functions.

In conjunction with our restructuring program we recognized the following costs during the years ended September 30, 2007 (in thousands):

		Successor
		Year Ended
		September 30,
		2007
Severance compensation		$	212
Consulting and other charges			612
Total restructuring charges		$	824

There were no restructuring charges during the five-month period ended September 30, 2006.

Reorganization Items

During the five months ended September 30, 2006, in connection with our reorganization under Chapter 11, we recorded $1.4 million of reorganization items related to professional services. There were no reorganization items in our 2007 fiscal year.

Interest and Other Expense, net

		Successor
						Five-Month
		Year Ended				Period Ended
		September 30,				September 30,
		2007				2006
Interest expense		$	8,162			$	3,366
Debt prepayment penalty			675				—
Deferred financing charges			1,295				196
Total interest expense			10,132				3,562
Interest income			4,297				992
Other income, net			336				4
Total interest and other expense, net		$	5,499			$	2,566

Interest and other expense (net) includes interest charged on our terms loans, and fees relating to letters of credit and lines of credit availed by the Company for routine operations. Financing costs related to debt amendments on our Eton Park Term Loan are also included in interest expense. Interest income we earn related to cash balances and short-term investments is netted against interest expense in our consolidated statement of operations.

During the year ended September 30, 2007, we incurred interest expense of $8.2 million on an average debt balance of $52.5 million for the Eton Park Term Loan, an average letter of credit balance of $45.9 million under the Revolving Credit Facility and an average unused line of credit balance of $34.1 million. We also recorded $1.3 million of deferred financing charges which reflect the amortization of fees incurred on the Eton Park Term Loan, and we incurred a debt prepayment penalty of $0.7 million on the Eton Park Term Loan.

For the five-month period ended September 30, 2006, we incurred interest expense of $3.4 million on an average debt balance of $54.7 million for the Eton Park Term Loan, an average letter of credit balance of $50.8 million under the Revolving Credit Facility and an average unused line of credit balance of $28.8 million. We also recorded $0.2 million of deferred financing charges which reflect the amortization of fees incurred on the Eton Park Term Loan.

During the year ended September 30, 2007, total interest expense was offset by $4.2 million in interest income on an average cash and cash equivalents balance of $91.7 million, as compared to $1.0 million in interest income on an average cash and cash equivalents balance of $54.7 million during the five-month period ended September 30, 2006.

Provision for Income Taxes

Our effective tax rate from continuing operations increased from 12.6% for the five-month period ended September 30, 2006 to 135.8% for the year ended September 30, 2007. The increase is attributable to a decrease in pretax net income, resulting in a 53.4% increase in the rate, a decrease in state income tax expense, resulting in a 37.8% increase in the rate, and an increase in additional valuation allowance against certain federal and state deferred tax assets, resulting in a 18.1% increase in the rate, and is offset by additional deferred tax assets as a result of the enactment of the Texas Margins Tax, resulting in a 10.0% increase in the rate, and other adjustments, resulting in 3.9% increase in the rate.

Income (Loss) from Discontinued Operations

As discussed earlier in this report, since March 2006, we have shut down seven underperforming subsidiaries. Our exit plan is substantially complete; however, there are still some revenues and expenses associated with the wind down of those operations. Such income statement amounts are classified as discontinued operations.

Revenues at these subsidiaries were $11.5 million and $24.8 million, respectively, for the year ended September 30, 2007 and the five-month period ended September 30, 2006; net loss at these subsidiaries was $3.8 million and $11.1 million, respectively, during these same periods.

Cost Drivers

As a service business, our cost structure is highly variable. Our primary costs include labor, materials and insurance. For our 2008 fiscal year, costs derived from labor and related expenses accounted for 41% of our total costs. Our labor-related expenses totaled $283.9 million, $303.9 million, $136.8 million and $170.8 million for the years ended September 30, 2008 and 2007 (Successor), the five-month period ended September 30, 2006 (Successor), and the seven-month period ended April 30, 2006 (Predecessor), respectively. As of September 30, 2008, we had 4,938 full-time employees, of which 4,035 employees were field electricians, the number of which fluctuates depending upon the number and size of the projects undertaken by us at any particular time. The remaining 903 employees were project managers, job superintendents and administrative and management personnel, including executive officers, estimators or engineers, office staff and clerical personnel. We provide a health, welfare and benefit plan for all employees subject to eligibility requirements. We have a 401(k) plan pursuant to which eligible employees may contribute through a payroll deduction. We make matching cash contributions of 50% of each employee’s contribution up to 6% of that employee’s salary.

For our 2008 fiscal year, costs incurred for materials installed on projects accounted for 48% of our total costs. This component of our expense structure is variable based on the demand for our services. We generally incur costs for materials once we begin work on a project. We generally order materials when needed, ship those materials directly to the jobsite, and complete the installation within 30 days. Materials consist of commodity-based items such as conduit, wire and fuses as well as specialty items such as fixtures, switchgear and control panels. Our materials expenses totaled $329.7 million, $397.7 million, $197.7 million and $216.1 million for the years ended September 30, 2008 and 2007 (Successor), the five-month period ended September 30, 2006 (Successor), and the seven-month period ended April 30, 2006 (Predecessor), respectively.

We are insured for workers’ compensation, employer’s liability, auto liability, general liability and health insurance, subject to large deductibles. Losses up to the deductible amounts are accrued based upon actuarial studies and our estimates of the ultimate liability for claims incurred and an estimate of claims incurred but not reported. The accruals are based upon known facts and historical trends and management believes such accruals to be adequate. Expenses for claims administration, claims funding and reserves funding totaled $18.8 million, $27.2 million, $13.7 million and $17.1 million for the years ended September 30, 2008 and 2007 (Successor), the five-month period ended September 30, 2006 (Successor), and the seven-month period ended April 30, 2006 (Predecessor), respectively.

Impact of Fresh-Start Accounting on Depreciation and Amortization

Upon adopting fresh-start accounting in accordance with SOP 90-7, we recorded adjustments to our balance sheet to adjust the book value of our assets and liabilities to their estimated fair value. As a result, we increased the book value of our property and equipment, including land, by $8.5 million, of which land represented $1.9 million and is not subject to depreciation. Since that time, this adjustment has resulted in $1.6 million, $2.7 million and $1.1 million, respectively, of additional depreciation expense for the years ended September 30, 2008 and 2007 (Successor) and for the five-month period ended September 30, 2006 (Successor). We expect that this adjustment will result in an increase of our depreciation expense by $0.2 million during our 2009 fiscal year, and a total of $0.6 million thereafter. Incremental depreciation associated with our discontinued operations was $0.2 million and $0.1 million during the year ended September 30, 2007 (Successor) and the five-month period ended September 30, 2006 (Successor), respectively. There was no incremental deprecation expense associated with our discontinued operations during the year ended September 30, 2008.

Additionally, upon adopting fresh start accounting, we established a contract loss reserve liability of $4.2 million to record the fair value of expected losses related to existing contracts. This reserve will be amortized as a reduction of cost of services over the remaining terms of the contracts. We recognized income of approximately $1.4 million and $1.8 million, respectively, related to the amortization of this contract loss reserve liability for the year ended September 30, 2007 (Successor) and the five-month period ended September 30, 2006 (Successor). We recognized less than $10,000 of additional income as a result of the contract loss reserve during the year ended September 30, 2008 (Successor). Additional income associated with our discontinued operations was $0.5 million and $0.5 million during the year ended September 30, 2007 (Successor) and the five-month period ended September 30, 2006 (Successor), respectively. There was no additional income as a result of the contract loss reserve during the year ended September 30, 2008 (Successor).

We also identified certain intangible assets of $6.1 million as a result of adopting fresh-start accounting. These assets will be amortized over their expected useful lives. As a result, we have recorded $1.2 million, $1.8 million and $0.9 million of amortization expense for the years ended September 30, 2008 and 2007 (Successor) and the five-month period ended September 30, 2006 (Successor), respectively. We expect that this adjustment will result in an increase of our amortization expense by $0.6 million during fiscal 2009 and a total of $1.6 million thereafter.

For additional information with respect to fresh start accounting, see Note 16, “Fresh-Start Reporting,” set forth in Item 8 to this Amendment No. 1 to our Form 10-K.

Discontinued Operations

Exit or Disposal Activities

As previously described in this report, on March 28, 2006, based on the recommendation of our Board of Directors, we committed to an exit plan with respect to five underperforming subsidiaries in our Commercial and Industrial segments. The exit plan committed to a shut-down or consolidation of the operations of these subsidiaries or, alternatively, the sale or other disposition of the subsidiaries, whichever came sooner. The exit plan is complete for these subsidiaries.

In June 2007, we determined that our Mid-States Electric division, located in Jackson, Tennessee, would also be shut down. Mid-States’ operating equipment was either transferred to other IES companies or sold to third parties, and all project work was completed prior to closing the company.

In August 2008, we determined that our Haymaker division, located in Birmingham, Alabama, would be shut down. Haymaker’s operating equipment was either transferred to other IES companies or sold to third parties, and all project work was completed prior to closing the company.

Summary of Discontinued Operations

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

		Successor													Predecessor
										Five Months					Seven Months
		Year Ended				Year Ended				Ended					Ended
		September 30,				September 30,				September 30,					April 30,
		2008				2007				2006					2006
Revenues		$	3,712			$	11,537			$	24,833				$	81,742
Gross profit (loss)		$	174			$	(1,418	)		$	(6,741	)			$	(3,350	)
Pre-tax loss		$	(549	)		$	(4,977	)		$	(11,126	)			$	(14,068	)

Working Capital

		Successor
		September 30,				September 30,
		2008				2007
		(In thousands)
CURRENT ASSETS:
Cash and cash equivalents		$	64,709			$	69,676
Restricted cash			—				20,000
Accounts receivable:
Trade, net of allowance of $3,566 and $2,600 respectively			132,273				131,792
Retainage			30,833				29,532
Costs and estimated earnings in excess of billings on uncompleted contracts			14,743				16,059
Inventories			12,856				15,260
Prepaid expenses and other current assets			6,728				4,612
Assets held for sale and from discontinued operations			1,967				6,486
Total current assets		$	264,109			$	293,417
CURRENT LIABILITIES:
Current maturities of long-term debt		$	2,905			$	78
Accounts payable and accrued expenses			99,860				98,293
Billings in excess of costs and estimated earnings on uncompleted contracts			33,711				35,130
Liabilities related to assets held for sale and from discontinued operations			504				2,226
Total current liabilities		$	136,980			$	135,727
Working capital		$	127,129			$	157,690