IES Holdings, Inc.
Annual Report 2014

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the fiscal year ended September 30, 2014Commission File Number 1-13783 Integrated Electrical Services, Inc.(Exact name of registrant as specified in its charter) Delaware 76-0542208(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)5433 Westheimer Road, Suite 500, Houston, Texas, 77056(Address of principal executive offices and ZIP code)Registrant’s telephone number, including area code: (713) 860-1500Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, par value $0.01 per share NASDAQSecurities 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 ¨ No xIndicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934. Yes ¨ No xIndicate 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 1934during 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 filingrequirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes x No ¨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 thebest 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 tothis Form 10-K. ¨Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨ Accelerated filer ¨Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company xIndicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xThe aggregate market value of the voting stock of the Registrant on March 31, 2014 held by non-affiliates was approximately $45.3 million. OnDecember 12, 2014, there were 21,754,913 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCECertain information contained in the Proxy Statement for the 2015 Annual Meeting of Stockholders of the Registrant to be held on February 10, 2015 isincorporated by reference into Part III of this Form 10-K. Table of ContentsFORM 10-KINTEGRATED ELECTRICAL SERVICES, INC.Table of Contents Page PART I DEFINITIONS 1 DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS 1 Item 1 BUSINESS 3 Item 1A RISK FACTORS 13 Item 1B UNRESOLVED STAFF COMMENTS 20 Item 2 PROPERTIES 21 Item 3 LEGAL PROCEEDINGS 21 Item 4 MINE SAFETY DISCLOSURES 21 PART II Item 5 MARKET FOR REGISTRANT’S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES 21 Item 6 SELECTED FINANCIAL DATA 23 Item 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 24 Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 42 Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 43 Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 84 Item 9A CONTROLS AND PROCEDURES 84 Item 9B OTHER INFORMATION 84 PART III Item 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 85 Item 11 EXECUTIVE COMPENSATION 85 Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 85 Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 85 Item 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES 86 PART IV Item 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 86 SIGNATURES 90 EX-21.1 EX-23.1 EX-31.1 EX-31.2 EX-32.1 EX-32.2 iTable of ContentsPART IDEFINITIONSIn this Annual Report on Form 10-K, the words “IES”, the “Company”, the “Registrant”, “we”, “our”, “ours” and “us” refer to Integrated Electrical Services,Inc. and, except as otherwise specified herein, to our subsidiaries.DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, all of which are based upon various estimates and assumptions that theCompany believes to be reasonable as of the date hereof. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,”“could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “seek,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,”the negative of such terms or other comparable terminology. These statements involve risks and uncertainties that could cause the Company’s actual futureoutcomes to differ materially from those set forth in such statements. Such risks and uncertainties include, but are not limited to: • the ability of our controlling shareholder to take action not aligned with other shareholders; • the sale or disposition of the shares of our common stock held by our controlling shareholder, which, under certain circumstances, would trigger changeof control provisions in our severance plan or financing and surety arrangements; or any other substantial sale of our common stock, which coulddepress our stock price; • relatively low liquidity levels of our common stock, which could depress our stock price; • the possibility that we issue additional shares of common stock or convertible securities that will dilute the percentage ownership interest of existingstockholders and may dilute the book value per share of our common stock; • the possibility that certain tax benefits of our net operating losses may be restricted or reduced in a change in ownership; • the inability to carry out plans and strategies as expected, including our inability to identify and complete acquisitions that meet our investmentcriteria in furtherance of our corporate strategy; • limitations on the availability of sufficient credit or cash flow to fund our working capital needs and capital expenditures and debt service; • difficulty in fulfilling the covenant terms of our credit facilities; • competition in the industries in which we operate, both from third parties and former employees, which could result in the loss of one or morecustomers or lead to lower margins on new projects; • challenges integrating new businesses into the Company or new types of work, products or processes into our segments; • fluctuations in operating activity due to downturns in levels of construction, seasonality and differing regional economic conditions; • a general reduction in the demand for our services; • a change in the mix of our customers, contracts or business; • our ability to enter into, and the terms of, future contracts; • our ability to successfully manage projects; 1Table of Contents • the possibility of errors when estimating revenue and progress to date on percentage-of-completion contracts; • closures or sales of facilities resulting in significant future charges, including potential warranty losses or other unexpected liabilities, or a significantdisruption of our operations; • inaccurate estimates used when entering into fixed-priced contracts; • the cost and availability of qualified labor; • an increased cost of surety bonds affecting margins on work and the potential for our surety providers to refuse bonding or require additional collateralat their discretion; • increases in bad debt expense and days sales outstanding due to liquidity problems faced by our customers; • the recognition of potential goodwill, long-lived assets and other investment impairments; • credit and capital market conditions, including changes in interest rates that affect the cost of construction financing and mortgages, and the inabilityfor some of our customers to retain sufficient financing which could lead to project delays or cancellations; • accidents resulting from the physical hazards associated with our work and the potential for accidents; • our ability to pass along increases in the cost of commodities used in our business, in particular, copper, aluminum, steel, fuel and certain plastics; • potential supply chain disruptions due to credit or liquidity problems faced by our suppliers; • loss of key personnel and effective transition of new management; • success in transferring, renewing and obtaining electrical and construction licenses; • backlog that may not be realized or may not result in profits; • uncertainties inherent in estimating future operating results, including revenues, operating income or cash flow; • disagreements with taxing authorities with regard to tax positions we have adopted; • the recognition of tax benefits related to uncertain tax positions; • complications associated with the incorporation of new accounting, control and operating procedures; • the possibility that our internal controls over financial reporting and our disclosure controls and procedures may not prevent all possible errors thatcould occur; • the effect of litigation, claims and contingencies, including warranty losses, damages or other latent defect claims in excess of our existing reserves andaccruals; • growth in latent defect litigation in states where we provide residential electrical work for home builders not otherwise covered by insurance; • the possibility that our current insurance coverage may not be adequate or that we may not be able to obtain a policy at acceptable rates; • future capital expenditures and refurbishment, repair and upgrade costs; and delays in and costs of refurbishment, repair and upgrade projects; and • liabilities under laws and regulations protecting the environment.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 underthe heading “Risk Factors,” could cause future outcomes to differ materially from those experienced previously or those expressed in such forward-lookingstatements. We 2Table of Contentsundertake no obligation to publicly update or revise any information, including information concerning our controlling shareholder, net operating losses,borrowing availability or cash position, or any forward-looking statements to reflect events or circumstances that may arise after the date of this report.Forward-looking statements are provided in this Form 10-K pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995and should be evaluated in the context of the estimates, assumptions, uncertainties and risks described herein. Item 1.BusinessOVERVIEW OF OUR SERVICESIntegrated Electrical Services, Inc. is a holding company that owns and manages subsidiaries operating across a variety of end markets. Our operations arecurrently organized into four principal business segments, based upon the nature of our current products and services: • Communications – Nationwide provider of products and services for mission critical infrastructure, such as data centers, of large corporations. • Residential – Regional provider of electrical installation services for single-family housing and multi-family apartment complexes. • Commercial & Industrial – Provider of electrical design, construction, and maintenance services to the commercial and industrial markets invarious regional markets and nationwide in certain areas of expertise, such as the power infrastructure market. • Infrastructure Solutions – Provider of industrial and rail services, and electrical and mechanical solutions to domestic and internationalcustomers.Our businesses are managed in a decentralized manner. While sharing common goals and values, each of the Company’s segments manages its own day-to-day operations. Our corporate office is focused on significant capital allocation decisions, investment activities and selection of segment leadership, as wellas strategic and operational improvement initiatives and the establishment and monitoring of risk management practices within our segments.Integrated Electrical Services, Inc. is a Delaware corporation established in 1997 and headquartered in Houston, Texas, with its executive office inGreenwich, Connecticut.CORPORATE STRATEGYWe seek to create shareholder value through positive returns on capital and generation of free cash flow. In addition, we seek to acquire or invest in similarstand-alone platform companies based in North America or acquire businesses that strategically fit within our existing business segments. In evaluatingpotential acquisition candidates, we seek to invest in businesses with, among other characteristics: • Significant market share in niche industries and low technological and/or product obsolescence risk; • Proven management with a willingness to continue post acquisition; • Established market position and sustainable advantage; • High returns on invested capital; and • Strong cash flow characteristics.We believe that acquisitions provide an opportunity to expand into new end markets and diversify our revenue and profit streams. Further, by acquiringbusinesses with strong cash flow characteristics we expect to maximize 3Table of Contentsthe value of our significant net operating loss carry forwards (“NOLs”). While we may use acquisitions to build our presence in the electrical infrastructureindustry, we will also consider potential acquisitions in other industries, which could result in changes in our operations from those historically conducted byus.A majority of our outstanding common stock is owned by Tontine Capital Partners, L.P. and its affiliates (collectively, “Tontine”). On August 15, 2014,Tontine filed an amended Schedule 13D indicating its ownership level of 61.4%. As a result, Tontine can control most of our affairs, including most actionsrequiring the approval of shareholders, such as the approval of any potential merger or sale of all or substantially all assets, segments, or the Company itself.While Tontine is subject to restrictions under federal securities laws on sales of its shares as an affiliate, Tontine is party to a Registration Rights Agreementwith the Company under which it has the ability, subject to certain restrictions, to demand registration of its shares in order to permit unrestricted sales ofthose shares. On February 20, 2013, pursuant to the Registration Rights Agreement, Tontine delivered a request to the Company for registration of all of itsshares of IES common stock, and on February 21, 2013, the Company filed a shelf registration statement (as amended, the “Shelf Registration Statement”) toregister Tontine’s shares. The Shelf Registration Statement was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on June 18,2013. As long as the Shelf Registration Statement remains effective, Tontine has the ability to resell any or all of its registered shares from time to time in oneor more offerings, as described in the Shelf Registration Statement and in any prospectus supplement filed in connection with an offering pursuant to theShelf Registration Statement. Tontine’s sale of all or any portion of its shares could result in a change of control, which would trigger the change of controlprovisions in a number of our material agreements, including our credit facility, bonding agreements with our sureties and our executive severance plan. Formore information see Note 3, “Controlling Shareholder” in the notes to our Consolidated Financial Statements.Net Operating Loss Carry ForwardThe Company and certain of its subsidiaries have a federal NOL of approximately $459 million at September 30, 2014, including approximately $142million resulting from the additional amortization of personal goodwill. A change in ownership, as defined by Internal Revenue Code Section 382, couldreduce the availability of net operating losses for federal and state income tax purposes. Should Tontine sell or otherwise dispose of all or a portion of itsposition in IES, a change in ownership could occur. In addition a change in ownership could result from the purchase of common stock by an existing or anew 5% shareholder as defined by Internal Revenue Code Section 382. Should a change in ownership occur, all net operating losses incurred prior to thechange in ownership would be subject to limitation imposed by Internal Revenue Code Section 382, which would substantially reduce the amount of NOLcurrently available to offset taxable income. For more information see Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.On January 28, 2013, the Company implemented a tax benefit protection plan (the “NOL Rights Plan”) that was designed to deter an acquisition of theCompany’s stock in excess of a threshold amount that could trigger a change of control within the meaning of Internal Revenue Code Section 382. The NOLRights Plan was filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on January 28, 2013 and any description thereof is qualified in itsentirety by the terms of the NOL Rights Plan. 4Table of ContentsOPERATING SEGMENTSThe Company’s reportable segments consist of the consolidated operating units identified above, which offer different products and services and aremanaged separately. The table below describes the percentage of our total revenues attributable to each of our four segments over each of the last three years: Years Ended September 30, 2014 2013 2012 $ % $ % $ % (Dollars in thousands, Percentage of revenues) Communications $116,073 22.7% $126,348 25.5% $121,492 26.6% Residential 182,514 35.6% 162,611 32.9% 129,974 28.5% Commercial & Industrial 166,249 32.4% 203,481 41.1% 204,649 44.9% Infrastructure Solutions (1) 47,559 9.3% 2,153 0.5% — — Total Consolidated $512,395 100.0% $494,593 100.0% $456,115 100.0% (1)This segment was added through the acquisition of MISCOR on September 13, 2013.For additional financial information by segment, see Note 10, “Operating Segments” in the notes to our Consolidated Financial Statements. The residential,industrial, mission critical infrastructure and commercial industries in which we operate are exposed to many regional and national trends such as the demandfor single and multi-family housing, the need for mission critical facilities as a result of technology-driven advancements, and changes in commercial,industrial, institutional, public infrastructure and electric utility spending. For a further discussion of the industries in which we operate, please see thediscussion below of each of our segments.CommunicationsBusiness DescriptionOriginally established in 1984, our Communications segment is a leading provider of network infrastructure products and services for data centers and othermission critical environments. Services offered include the design, installation and maintenance of network infrastructure for the financial, medical,hospitality, government, high-tech manufacturing, educational and information technology industries. We also provide the design and installation ofaudio/visual, telephone, fire, wireless and intrusion alarm systems as well as design/build, service and maintenance of data network systems. A significantportion of our Communications revenue is generated from long-term, repeat customers, some of whom use IES as a preferred provider for major projects. Weperform services across the United States from our 11 offices, including our Communications headquarters located in Tempe, Arizona, allowing dedicatedonsite maintenance teams at our customers’ sites.Industry OverviewOur Communications segment is driven by demand increases for computing and storage resources as a result of technology advancements and changes indata consumption patterns. While growth of the data center market appears to be moderating, we are continuing to expand our offerings in this market tobroaden our customer base. Additionally, demand has been growing for our audio-visual and security product offerings. Nevertheless, due to economic,technological and other factors, there can be no assurance that demand will continue to increase.Sales and MarketingWe primarily specialize in installations of communication systems, and site and national account support for the mission critical infrastructure of Fortune 500corporations. Our sales strategy relies on a concentrated business development effort, with centralized marketing programs and direct end-customercommunications and 5Table of Contentsrelationships. Due to the mission critical nature of the facilities we service, our end-customers significantly rely upon our past performance record, technicalexpertise and specialized knowledge. Our long-term strategy is to improve our position as a preferred mission critical solutions and services provider to largenational corporations and strategic local companies. Key elements of our long-term strategy include continued investment in our employees’ technicalexpertise and expansion of our onsite maintenance and recurring revenue model.CompetitionOur competition consists of both small, privately owned contractors who have limited access to capital and large public companies. We compete on qualityof service and/or price, and seek to emphasize our long history of delivering high quality solutions to our customers.Seasonality and Quarterly FluctuationsThe effects of seasonality on our Communications business are insignificant, as work generally is performed inside structures protected from the weather. Ourservice and maintenance business is also generally not affected by seasonality. However, the industry has historically been highly cyclical. Our volume ofbusiness may be adversely affected by declines in projects resulting from adverse regional or national economic conditions. Quarterly results may also bematerially affected by the timing of new construction projects. Accordingly, operating results for any fiscal period are not necessarily indicative of resultsthat may be achieved for any subsequent fiscal period.ResidentialBusiness DescriptionResidential provides electrical installation services for single-family housing and multi-family apartment complexes and cable television (“CATV”) cablinginstallations for residential and light commercial applications. In addition to our core electrical construction work, the Residential segment also providesservices for the installation of residential solar power, smart meters, and electric car charging stations, both for new construction and existing residences. TheResidential segment is made up of 23 total locations, which include the headquarters in Houston, Texas. These locations geographically cover Texas, theSun-Belt, and the Western and Mid-Atlantic regions of the United States.Industry OverviewOur Residential business is closely correlated to the single and multi-family housing market, particularly in the Sun-Belt and our installation capabilitieshave the ability to effectively scale according to the housing cycle. Demand for both single-family and multi-family housing has increased with theeconomic recovery. Nevertheless, due to economic, technological or other factors there can be no assurance that construction and demand will continue toincrease in the future.Sales and MarketingDemand for our Residential services is highly dependent on the number of single-family and multi-family home starts in the markets we serve. Although weoperate in multiple states throughout the Sun-Belt, Mid-Atlantic and western regions of the United States, the majority of our segment revenues are derivedfrom services provided in the state of Texas. Our sales efforts include a variety of strategies, including a concentrated focus on national homebuilders andmulti-family developers and a local sales strategy for single and multi-family housing projects. Our cable, solar and electric car charging station revenues aretypically generated through third parties specializing in these industries who select us as a preferred provider of installation services. 6Table of ContentsOur long-term strategy is to continue to be the leading national provider of electrical services to the residential market. Although the key elements of ourlong-term strategy include a continued focus on maintaining a low and variable cost structure and cash generation, during the housing downturn we modifiedour strategy by expanding into markets less exposed to national building cycles, such as solar panel and electric car charging installations.CompetitionOur competition primarily consists of small, privately owned contractors who have limited access to capital. We believe that we have a competitiveadvantage over these smaller competitors due to our key employees’ long-standing customer relationships, our financial capabilities, and our local marketknowledge and competitive pricing. There are few barriers to entry for our electrical contracting services in the residential markets.Seasonality and Quarterly FluctuationsResults of operations from our Residential segment can be seasonal, depending on weather trends, with typically higher revenues generated during springand summer and lower revenues during fall and winter. Our service and maintenance business is generally not affected by seasonality. In addition, theconstruction industry has historically been highly cyclical. Our volume of business may be adversely affected by declines in construction projects resultingfrom 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.Commercial & IndustrialBusiness DescriptionThis segment offers a broad range of electrical design, construction, renovation, engineering and maintenance services to the commercial and industrialmarkets. The Commercial & Industrial segment consists of 19 total locations, which include the segment headquarters in Houston, Texas. These locationsgeographically cover Texas, Nebraska, Colorado, Oregon and the Mid-Atlantic region.Services include the design of electrical systems within a building or complex and procurement and installation of wiring and connection to power sources,end-use equipment and fixtures, as well as contract maintenance. We focus on projects that require special expertise, such as design-and-build projects thatutilize the capabilities of our in-house experts, or projects which require specific market expertise, such as transmission and distribution projects. We alsofocus on service, maintenance and certain renovation and upgrade work, which tends to be either recurring or have lower sensitivity to economic cycles, orboth. We provide services for a variety of projects, including: office buildings, manufacturing facilities, data centers, chemical plants, refineries, wind farms,solar facilities and municipal infrastructure and health care facilities. Our utility services consist of overhead and underground installation and maintenanceof 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 lessaffected by levels of construction activity. Service and maintenance revenues are derived from service calls and routine maintenance contracts, which tend tobe recurring and less sensitive to short-term economic fluctuations.Industry OverviewGiven the diverse end markets of our Commercial & Industrial customers, which include both commercial buildings, such as offices, healthcare facilities andschools, and industrial projects, such as power, chemical, refinery and heavy manufacturing facilities, we are subject to many trends within the constructionindustry. In general, demand for our Commercial & Industrial services is driven by construction and renovation activity levels, economic growth, andavailability of bank lending. Due to economic, technological or other factors there can be no assurance that construction and demand will increase. 7Table of ContentsSales and MarketingDemand for our Commercial & Industrial services is driven by construction and renovation activity levels, economic growth, and availability of banklending. Certain of our projects have longer cycle times than our typical Commercial & Industrial services and may follow the economic trends with a lag.Our sales focus varies by location, but is primarily based upon regional and local relationships and a demonstrated expertise in certain industries, such astransmission and distribution.With a focus on improved project execution, our long-term strategy is to be the preferred provider of electrical services in the markets where we havedemonstrated expertise or are a local market leader. Key elements of our long-term strategy include leveraging our expertise in certain niche markets,expansion of our service and maintenance business and maintaining our focus on our returns on risk adjusted capital.CompetitionThe electrical infrastructure services industry is generally highly competitive and includes a number of regional or small privately-held local firms. There arefew barriers to entry for our electrical contracting services in the commercial and industrial markets, which limits our advantages when competing forprojects. Industry expertise, project size, location and past performance will determine our bidding strategy, the level of involvement from competitors andour level of success in winning awards. Our primary advantages vary by location and market, but mostly are based upon local individual relationships withkey employees or a demonstrated industry expertise. Additionally, due to the size of many of our projects, our financial resources help us compete effectivelyagainst local competitors.Seasonality and Quarterly FluctuationsThe effects of seasonality on our Commercial & Industrial business are insignificant, as work generally is performed inside structures protected from theweather. Our service and maintenance business is also generally not affected by seasonality. However, the construction industry has historically been highlycyclical. Our volume of business may be adversely affected by declines in construction projects resulting from adverse regional or national economicconditions. Quarterly results may also be materially affected by the timing of new construction projects. Accordingly, operating results for any fiscal periodare not necessarily indicative of results that may be achieved for any subsequent fiscal period.Infrastructure SolutionsBusiness DescriptionOur Infrastructure Solutions segment, which was established in 2013 through our acquisition of MISCOR Group. LTD., provides maintenance and repairservices to several industries, including electric motor repair and rebuilding for the steel, railroad, marine, petrochemical, pulp and paper, wind energy,mining, automotive and power generation industries. Infrastructure Solutions repairs and manufactures industrial lifting magnets for the steel and scrapindustries, provides locomotive maintenance, remanufacturing, and repair services to the rail industry, and manufactures and rebuilds power assemblies,engine parts, and other components for large diesel engines. For more information see Note 18, “Business Combination” in the notes to our ConsolidatedFinancial Statements.Industry OverviewGiven the diverse end-markets of Infrastructure Solutions’ customers, we are subject to many economic trends. In general, demand for our products andservices has been driven by in-house maintenance departments continuing to outsource maintenance and repair work, output levels and equipmentutilization at heavy industrial facilities, railroad companies’ capital investment in locomotives, and an overall improvement in the economy. 8Table of ContentsFurther, given our strategic locations in Ohio, Indiana, and West Virginia, we believe that the segment is well-positioned to capture spending onunconventional oil and gas exploration and production.Sales and MarketingDemand for Infrastructure Solutions’ products and services is largely driven by the degree to which industrial and mechanical services are outsourced by ourcustomers, production rates at steel, power generation and other heavy industrial facilities, the need for electrical infrastructure improvements, and spendingon unconventional oil and gas exploration and production. Our sales efforts are largely driven by personnel based at our nine locations and independentsales representatives. Given that the majority of our customers are located within a 200 mile radius of our facilities, we believe that this structure allows us torapidly address and respond to the needs of our customers. Our long term strategy is to be the preferred provider of outsourced electro-mechanical and powerassembly services, repairs, and manufacturing to our select markets.CompetitionOur competition is comprised mainly of small, specialized manufacturing and repair shops, a limited number of other multi-location providers of electricmotor repair, engineering and maintenance services, and various original equipment manufacturers. Participants in this industry compete primarily on thebasis of capabilities, service, quality, timeliness and, to a lesser extent, price. We believe that we have a competitive advantage over most small serviceproviders due to our breadth of capabilities, focus on quality, technical support and customer service.Raw MaterialsThe principal raw materials used in Infrastructure Solutions are copper, raw steel, and various flexible materials. Certain raw materials are obtained from anumber of commercial sources at prevailing prices, and we do not depend on any single supplier for any substantial portion of raw materials. We obtaincopper and raw steel from across the country through multiple sources. The cost to deliver copper and raw steel can limit the geographic areas from which wecan obtain this material. However, we may encounter problems from time to time in obtaining the raw materials necessary to conduct our InfrastructureSolutions business.Seasonality and Quarterly FluctuationsInfrastructure Solutions’ revenues from industrial services may be affected by the timing of scheduled outages at its industrial customers’ facilities and byweather conditions with respect to projects conducted outdoors, but the effects of seasonality on revenues in its industrial services business are insignificant.The effects of seasonality on revenues for rail services are also insignificant. Infrastructure Solutions’ quarterly results may fluctuate and the results of onefiscal quarter may not be representative of the results of any other quarter or of the full fiscal year.RISK MANAGEMENTThe primary risks in our existing operations include project bidding and management, bodily injury, property and environmental damage, and constructiondefects. We monitor project bidding and management practices at various levels within our company. We maintain automobile, general liability andconstruction defect insurance for third party health, bodily injury and property damage, pollution coverage and workers’ compensation coverage, which weconsider appropriate to insure against these risks. Our third-party insurance is subject to deductibles for which we establish reserves. In light of these risks, weare also committed to a strong safety and environmental compliance culture. We employ full-time and part-time regional safety managers, under thesupervision of our full-time Vice President of Safety, and seek to maintain standardized safety and environmental 9Table of Contentspolicies, programs, procedures and personal protection equipment relative to each segment, including programs to train new employees, which apply toemployees new to the industry and those new to the Company. To further emphasize our commitment to safety, we have also tied certain managementincentives to specific safety performance results.In the electrical contracting industry, our ability to post surety bonds provides us with an advantage over competitors that are smaller or have fewer financialresources. We believe that the strength of our balance sheet, as well as a good relationship with our bonding providers, enhances our ability to obtainadequate financing and surety bonds. For a further discussion of our risks, please refer to Item 1A. “Risk Factors” of this Form 10-K.CUSTOMERSWe have a diverse customer base. During the twelve-month periods ended September 30, 2014, 2013 and 2012, no single customer accounted for more than10% of our revenues. We will continue to emphasize developing and maintaining relationships with our customers by providing superior, high-qualityservice. Management at each of our segments is responsible for determining sales strategies and sales activities.BACKLOGBacklog 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 beencontracted but has not started, exclusive of short-term projects. While all of our backlog is supported by documentation from customers authorizing theperformance of future work, backlog is not a guarantee of future revenues, as contractual commitments may change. The table below summarizes our backlogby segment: Years Ended September 30, 2014 2013 (Dollars in millions) Communications $72 $21 Residential 71 57 Commercial & Industrial 138 119 Infrastructure Solutions 5 7 Total $286 $204 REGULATIONSOur 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 licenseheld by a single individual may be sufficient to authorize specified 10Table of Contentsactivities 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 orlicenses that may be material to our operations in a particular geographic area are held by multiple employees within that area.We believe we have all licenses required to conduct our operations and are in compliance with applicable regulatory requirements. Failure to comply withapplicable regulations could result in substantial fines or revocation of our operating licenses or an inability to perform government work.CAPITAL FACILITIESDuring fiscal year 2014, the Company maintained a credit facility, as described in Item 7. “Management’s Discussion and Analysis of Financial Conditionand Results of Operations — The 2012 Revolving Credit Facility” of this Form 10-K. For a discussion of the Company’s capital resources, see Item 7.“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” of this Form 10-K.FINANCIAL INFORMATIONFor information on the Company’s financial information by segment, see Note 10, “Operating Segments” in the notes to our Consolidated FinancialStatements.EMPLOYEESAt September 30, 2014, we had 2,779 employees. We are party to two collective bargaining agreements within our Infrastructure Solutions segment. Webelieve that our relationship with our employees is strong.LOCATIONSWe have 62 domestic locations serving the United States. In addition to our executive and corporate offices, we have 11 locations within ourCommunications business, 23 locations within our Residential business, 19 locations within our Commercial & Industrial business and nine locations withinour Infrastructure Solutions business. This diversity helps to reduce our exposure to unfavorable economic developments in any given region.EXECUTIVE OFFICERS OF THE REGISTRANTCertain information with respect to each executive officer is as follows:James M. Lindstrom, 42, has served as President and Chief Executive Officer of the Company since October 3, 2011. He previously served as InterimPresident and Chief Executive Officer of the Company since June 30, 2011. Mr. Lindstrom was an employee at Tontine Associates, LLC, a private investmentfund and an affiliate of our controlling shareholder from 2006 to October 3, 2011. From 2003 to 2006, Mr. Lindstrom was Chief Financial Officer of CentrueFinancial Corporation, a regional financial services company, and had prior experience in private equity and investment banking. Mr. Lindstrom served as adirector of Broadwind Energy, Inc. from October 2007 to May 2010 and has served as a board observer on multiple public and private boards.Robert W. Lewey, 52, has served as Senior Vice President and Chief Financial Officer since January 20, 2012. From 2001 to 2006 and again since 2007,Mr. Lewey served as Director of Tax, Vice President, Tax and 11Table of ContentsTreasurer for IES. From 2006 to 2007, he served as Vice President, Tax for Sulzer US Holdings, Inc. From 1995 to 2001, Mr. Lewey served as Vice President,Tax for Metamor Worldwide, Inc., a leading provider of information technology solutions. Mr. Lewey began his career with Deloitte & Touche LLP.Gail D. Makode, 39, has served as Senior Vice President, General Counsel and Corporate Secretary since October 15, 2012. Previously, Ms. Makode served invarious legal positions at MBIA Inc. and its subsidiaries from 2006 to 2012, including as General Counsel and a Member of the Board at MBIA InsuranceCorporation and Chief Compliance Officer of MBIA Inc. Prior to MBIA, Ms. Makode served as vice president and counsel for Deutsche Bank AG from 2003to 2006, and before that, was an associate at Cleary, Gottlieb, Steen & Hamilton, where she specialized in public and private securities offerings and mergersand acquisitions.We have adopted a Code of Ethics for Financial Executives that applies to our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer.The Code of Ethics may be found on our website at www.ies-corporate.com. If we make any substantive amendments to the Code of Ethics or grant anywaiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer, wewill disclose the nature of such amendment or waiver on that website or in a report on Form 8-K. Paper copies of these documents are also available free ofcharge upon written request to us.AVAILABLE INFORMATIONGeneral information about us can be found on our website at www.ies-corporate.com under “Investor Relations.” We file our interim and annual financialreports, as well as other reports required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the United States Securities andExchange 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 areavailable 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 contactour 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 ofcharge through the SEC’s 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.In addition to the Code of Ethics for Financial Executives, we have adopted a Code of Business Conduct and Ethics for directors, officers and employees (theLegal 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 thesedocuments are also available free of charge upon written request to us. We have designated an “audit committee financial expert” as that term is defined bythe SEC. Further information about this designee may be found in the Proxy Statement for the 2015 Annual Meeting of Stockholders of the Company. 12Table of ContentsItem 1A. Risk FactorsYou 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 investmentmay decrease due to any of these risks.Existence of a controlling shareholder.A majority of our outstanding common stock is owned by Tontine Capital Partners, L.P. and its affiliates (collectively, “Tontine”). On August 15, 2014,Tontine filed an amended Schedule 13D indicating its ownership level of 61.4%. As a result, Tontine can control most of our affairs, including the election ofour directors, who in turn appoint executive management, and can control most actions requiring the approval of shareholders, including the adoption ofamendments to our corporate charter and approval of any potential merger or sale of all or substantially all assets, segments, or the Company itself. Thiscontrol also gives Tontine the ability to bring matters to a shareholder vote that may not be in the best interest of our other shareholders or stakeholders.Additionally, Tontine is in the business of investing in companies and may, from time to time, acquire and hold interests in businesses that compete directlyor indirectly with us or act as suppliers or customers of the Company. Pursuant to a shelf registration statement that was declared effective by the SEC onJune 18, 2013, Tontine has the ability to resell any or all of its registered shares from time to time in one or more offerings as long as the shelf registrationstatement remains effective, as described further in the shelf registration statement and in any prospectus supplement filed in connection with an offeringpursuant to the shelf registration statement. Tontine’s sale of all or any portion of its shares could result in a change of control, which would trigger thechange of control provisions in a number of our material agreements, including our credit facility, bonding agreements with our sureties and our executiveseverance plan.Although publicly traded, our common stock has less liquidity than many other stocks listed on the NASDAQ Global Market.The trading volume in our common stock on the NASDAQ Global Market has been relatively low when compared with larger companies listed on theNASDAQ Global Market or other stock exchanges. Although we have at times experienced increased liquidity in our stock, we cannot say with any certaintythat a more active and liquid trading market for our common stock will continue to develop. Because of this, it may be more difficult for shareholders to sell asubstantial number of shares for the same price at which shareholders could sell a smaller number of shares.We cannot predict the effect, if any, that future sales of our common stock in the market, or the availability of shares of common stock for sale in the market,will have on the market price of our common stock. We can give no assurance that sales of substantial amounts of common stock in the market, or thepotential for large amounts of sales in the market, would not cause the price of our common stock to decline or impair our future ability to raise capitalthrough sales of our common stock.The market price of our common stock may fluctuate in the future, and this volatility may be unrelated to our performance. General market price declines oroverall market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of futuremarket prices.We may issue additional shares of common stock or convertible securities that will dilute the percentage ownership interest of existing stockholders andmay dilute the book value per share of our common stock.Our authorized capital includes 100,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of September 30, 2014, we had 21,767,700shares of common stock outstanding and no shares of preferred stock outstanding. We have reserved for issuance 170,000 shares of common stock underlyingoptions that are 13Table of Contentsexercisable at a weighted average price of $5.46 per share. In addition, as of September 30, 2014 we had the ability to issue 648,029 shares of common stockpursuant to options and restricted stock that may be granted in the future under our existing equity compensation plans.Although we presently do not have any intention of issuing additional common stock (other than pursuant to our equity compensation plans), we may do soin the future in order to meet our capital needs. Subject to applicable NASDAQ Listing Rules, our board of directors generally has the authority, withoutaction by or vote of the stockholders, to issue all or part of any authorized but unissued shares of common stock for any corporate purpose. We may seekadditional equity capital in the future as we develop our business and expand our operations. Any issuance of additional shares of common stock orconvertible securities will dilute the percentage ownership interest of our stockholders and may dilute the book value per share of our common stock.Substantial sales of our common stock could adversely affect our stock price.Sales of a substantial number of shares of our common stock by holders of our common stock, or the perception that such sales could occur, could adverselyaffect the market price of our common stock by introducing a large number of shares into the market. Such sales, or the perception that such sales could occur,could cause the market price of our common stock to decline. We cannot predict whether future sales of our common stock, or the availability of our commonstock for sale, will adversely affect the market price for our common stock or our ability to raise capital by offering equity securities.Availability of net operating losses may be reduced by a change in ownership.A change in ownership, as defined by Internal Revenue Code Section 382, could reduce the availability of net operating losses, (“NOLs”), for federal andstate income tax purposes. Should Tontine sell or otherwise dispose of all or a portion of its position in IES, a change in ownership could occur. A change inownership could also result from the purchase of common stock by an existing or a new 5% shareholder as defined by Internal Revenue Code Section 382. Asof September 30, 2014, we have approximately $317 million of federal NOLs that are available to use to offset taxable income, exclusive of NOLs from theamortization of additional tax goodwill. Should a change in ownership occur, all NOLs incurred prior to the change in ownership would be subject tolimitation imposed by Internal Revenue Code Section 382, which would substantially reduce the amount of NOL currently available to offset taxableincome.On January 28, 2013, we implemented the NOL Rights Plan, which was designed to deter an acquisition of the Company’s stock in excess of a thresholdamount that could trigger a change of control within the meaning of Internal Revenue Code Section 382. The NOL Rights Plan is designed to effectivelydilute the ownership of such an acquirer through the offering of rights to the Company’s other stockholders that could be exercised upon the acquirer’spurchase of the Company’s stock in excess of the threshold amount. We can make no assurances the NOL Rights Plan will be effective in deterring a changein control or protecting or realizing NOLs.Any decrease in the federal statutory tax rate, or other changes in federal tax statutes, could also cause a reduction in the economic benefit of the NOLcurrently available to us.To service our indebtedness and to fund working capital, we will require a significant amount of cash. Our ability to generate cash depends on manyfactors that are beyond our control.Our ability to make payments on and to refinance our indebtedness and to fund working capital requirements will depend on our ability to generate cash inthe future. This is subject to our operational performance, as well as general economic, financial, competitive, legislative, regulatory and other factors that arebeyond our control.We cannot provide assurance that our business will generate sufficient cash flow from operations or asset sales or that future borrowings will be available tous under our credit facility in an amount sufficient to enable us to pay 14Table of Contentsour 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 cannotprovide 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 oncommercially reasonable terms could have a material adverse effect on our business.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 mayresult in a default under one or more of our material agreements, which could have a material adverse effect on our ability to conduct our operations and ourfinancial condition.The highly competitive nature of our industries could affect our profitability by reducing our profit margins.With respect to electrical contracting services, the industries in which we compete are highly fragmented and are served by many small, owner-operatedprivate companies. There are also several large private regional companies and a small number of large public companies from which we face competition inthese industries. In the future, we could also face competition from new competitors entering these markets because certain segments, such as our electricalcontracting services, have a relatively low barrier for entry while other segments, such as our services for mission critical infrastructure, have attractivedynamics. 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 havelower 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 ourservices at competitive prices or if we have to reduce our prices to remain competitive, our profitability would be impaired.The markets in which Infrastructure Solutions does business are highly competitive, and we do not expect the level of competition that we face to decrease inthe future. An increase in competitive pressures in these markets or our failure to compete effectively may result in pricing reductions, reduced gross margins,and loss of market share. Many of our competitors have longer operating histories, greater name recognition, more customers, and significantly greaterfinancial, marketing, technical, and other competitive resources than we have. These competitors may be able to adapt more quickly to new technologies andchanges in customer needs or devote greater resources to the development, promotion, and sale of their products and services. While we believe InfrastructureSolutions’ overall product and service offerings distinguish it from its competitors, these competitors could develop new products or services that coulddirectly compete with Infrastructure Solutions’ products and services.A failure to secure new contracts may adversely affect our cash flows and financial results.Much of our revenue is derived from projects that are awarded through a competitive bid process. Contract bidding and negotiations are affected by a numberof factors, including our own cost structure and bidding policies. The failure to bid and be awarded projects, cancellations of projects or delays in project startdates could affect our ability to deploy our assets profitably. When we are awarded contracts, we face additional risks that could affect whether, or when, workwill begin. Further, the winding down or completion of work on significant projects that are currently active will reduce our future revenue and earnings if weare unsuccessful in selling new work.Many of our contracts may be canceled upon short notice, and we may be unsuccessful in replacing our contracts as they are completed. We could experiencea decrease in profitability if we are unable to replace canceled, completed or expired contracts with new work. Certain of our customers assign work to us on aproject-by-project basis under master service agreements. Under these agreements, our customers usually have no obligation to assign a specific amount ofwork to us. 15Table of ContentsIn addition, our ability to secure new contracts depends on our ability to maintain all required electrical, construction and business licenses. If we fail tosuccessfully transfer, renew or obtain such licenses where applicable, we may be unable to compete for new business.We may be unsuccessful at integrating other companies that we may acquire, or new types of work, products or processes into our segments.We are actively seeking to engage in acquisitions of operations, assets and investments, or to develop new types of work or processes, and we may seek toengage in dispositions of certain operations, assets or investments from time to time. If we are unable to successfully integrate newly acquired assets oroperations or if we make untimely or unfavorable investments or dispositions, it could negatively impact the market value of our common stock.Additionally, any future acquisition, investment or disposition may result in significant changes in the composition of our assets and liabilities, and as aresult, our financial condition, results of operations and the market value of our common stock following any such acquisition, investment or disposition maybe affected by factors different from those currently affecting our financial condition, results of operations and market value of our common stock.The difficulties of integrating a business, assets or operations potentially will include, among other things: • geographically separated organizations and possible differences in corporate cultures and management philosophies; • significant demands on management resources, which may distract management’s attention from day-to-day business; • differences in the disclosure systems, compliance requirements, accounting systems, and accounting controls and procedures of the twocompanies, which may interfere with our ability to make timely and accurate public disclosure; and • the demands of managing new locations, new personnel and new lines of business acquired.Demand for our services is cyclical and vulnerable to economic downturns affecting the industries we serve.Demand for our services has been, and will likely continue to be, cyclical in nature and vulnerable to downturns in the general economy and in theconstruction industry. Many of our customers depend on the availability of credit to purchase our services or electrical and mechanical products. Continueduncertainties or the return of constrained credit market conditions could have adverse effects on our customers, which would adversely affect our financialcondition and results of operations. This continued uncertainty in economic conditions could have an adverse effect on our revenue and profits.Changes in operating factors that are beyond our control could hurt our operating results.Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond management’s control. Thesefactors include the costs of new technology; the relative speed and success with which Infrastructure Solutions can acquire customers for its products andservices; capital expenditures for equipment; sales, marketing, and promotional activities expenses; changes in its pricing policies, suppliers, andcompetitors; changes in operating expenses; increased competition in the markets we serve; and other general economic and seasonal factors. Adversechanges in one or more of these factors could hurt our operating results. 16Table of ContentsBacklog may not be realized or may not result in profits.Customers often have no obligation under our contracts to assign or release work to us, and many contracts may be terminated on short notice. Reductions inbacklog due to cancellation of one or more contracts by a customer or for other reasons could significantly reduce the revenue and profit we actually receivefrom contracts included in backlog. In the event of a project cancellation, we may be reimbursed for certain costs but typically have no contractual right tothe total revenues reflected in our backlog.Our use of percentage-of-completion accounting could result in a reduction or elimination of previously reported profits.A significant portion of our revenues are recognized using the percentage-of-completion method of accounting, utilizing the cost-to-cost method, whichresults in our recognizing contract revenues and earnings ratably over the contract term in proportion to our incurrence of contract costs. The earnings orlosses recognized on individual contracts are based on estimates of contract revenues, costs and profitability. Contract losses are recognized in full whendetermined to be probable and reasonably estimable and contract profit estimates are adjusted based on ongoing reviews of contract profitability. Further, aportion of our contracts contain various cost and performance incentives. Penalties are recorded when known or finalized, which generally occurs during thelatter stages of the contract. In addition, we record cost recovery claims when we believe recovery is probable and the amounts can be reasonably estimated.Actual collection of claims could differ from estimated amounts and could result in a reduction or elimination of previously recognized earnings. In certaincircumstances, it is possible that such adjustments could be significant.We may incur significant charges or be adversely impacted by the closure or sale of additional facilities.While, historically, we have incurred significant costs associated with the closure or disposition of facilities, we will continue to evaluate the need for facilityclosures or dispositions from time to time in the future. If we were to elect to dispose of a substantial portion of any of our segments, the realized values ofsuch actions could be substantially less than current book values, which would likely result in a material adverse impact on our financial results. In addition,we may have warranty claims or other unexpected liabilities from closed facilities beyond the closing date, which could adversely impact our financialreturns.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 underthe terms of a contract and that we will pay subcontractors and vendors. We obtain surety bonds from two primary surety providers; however, there is nocommitment from these providers to guarantee our ability to issue bonds for projects as they are required. Our ability to access this bonding capacity is at thesole discretion of our surety providers.Due to seasonality and differing regional economic conditions, our results may fluctuate from period to period.Our business is subject to seasonal variations in operations and demand that affect the construction business, particularly in the Residential andCommercial & Industrial segments, as well as seasonal variations in the industrial and rail industries in which Infrastructure Solutions participates. Untimelyweather 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 workof other trades on a construction site. Our quarterly results may also be affected by regional economic conditions that affect the construction market.Infrastructure Solutions’ revenues from industrial services may be affected by the timing of scheduled outages at its industrial customers’ facilities and byweather 17Table of Contentsconditions with respect to projects conducted outdoors. Accordingly, our performance in any particular quarter may not be indicative of the results that canbe expected for any other quarter or for the entire year.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. Theselosses could be material to our business.We currently generate, and expect to continue to generate, a significant portion of our revenues under fixed price contracts. The cost of fuel, labor andmaterials, including copper wire, may vary significantly from the costs we originally estimate. Variations from estimated contract costs along with other risksinherent in performing fixed price contracts, including our ability to successfully manage projects, may result in actual revenue and gross profits for a projectdiffering from those we originally estimated, and could result in losses on projects. Depending upon the size of a particular project, variations from estimatedcontract costs can have a significant impact on our operating results.Commodity and labor costs may fluctuate materially, and we may not be able to pass on all cost increases during the term of a contract, which couldhave an adverse effect on our ability to maintain our profitability.We enter into many contracts at fixed prices, and if the costs associated with labor; and commodities such as copper, aluminum, steel, fuel and certain plasticsincrease, losses may be incurred. Some of these materials have been and may continue to be subject to sudden and significant price increases. Depending oncompetitive pressures and customer resistance, we may not be able to pass on these cost increases to our customers, which would reduce our gross profitmargins and, in turn, make it more difficult for us to maintain our profitability.We may experience difficulties in managing our billings and collections.Our billings under fixed price contracts in our electrical contracting business are generally based upon achieving certain milestones and will be accepted bythe 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 aproject billing, our likelihood of collection could be delayed or impaired, which, if experienced across several large projects, could have a materially adverseeffect on our results of operations. Further, some of our customers may be highly leveraged, or may be subject to their own operating and regulatory risks,which may also limit their ability to pay.Our reported operating results could be adversely affected as a result of goodwill impairment charges.Accounting principles generally accepted in the United States of America (“GAAP”) require that goodwill attributable to each of our reporting units be testedat least annually, or when changes in circumstance indicate the carrying value of our reporting units may not be recoverable. Factors that could lead toimpairment of goodwill include significant adverse changes in the business climate, declines in the financial condition of our business, and actual orprojected operating results affecting our company as a whole or affecting any particular reporting unit. On an ongoing basis, we expect to perform impairmenttests at least annually as of September 30. Impairment adjustments, if any, are required to be recognized as operating expenses. We cannot assure that we willnot 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. Many of our segments aredependent upon a limited number of suppliers, and significant supply disruptions could adversely affect our operations. If market conditions deteriorate, suchas a slowdown in construction activity or a tightening of the credit market, it is possible that one or more of our suppliers will be 18Table of Contentsunable to meet the terms of our operating agreements due to financial hardships, liquidity issues or other reasons related to market conditions.Our operations are subject to numerous physical hazards. 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 transportationaccidents. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment, and may result in suspensionof operations. Our insurance does not cover all types or amounts of liabilities. In addition, if our safety record were to substantially deteriorate over time, ourcustomers could cancel our contracts or not award us future business.Our current insurance coverage may not be adequate, and we may not be able to obtain insurance at acceptable rates, or at all.Our third-party insurance is subject to deductibles for which we establish reserves. No assurance can be given that our insurance or our provisions for incurredclaims and incurred but not reported claims will be adequate to cover all losses or liabilities we may incur in our operations; nor can we provide assurancethat 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 onlyreasonable, 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 theobjectives, design, implementation and effectiveness of the controls and the information generated for use in our periodic reports. In the course of ourcontrols evaluation, we sought (and seek) to identify data errors, control problems and to confirm that appropriate corrective actions, including processimprovements, are being undertaken. This type of evaluation is conducted on a quarterly basis so that the conclusions concerning the effectiveness of ourcontrols can be reported in our periodic reports.A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will besatisfied. Internal controls over financial reporting and disclosure controls and procedures are designed to give reasonable assurance that they are effectiveand achieve their objectives. We cannot provide absolute assurance that all possible future control issues have been detected. These inherent limitationsinclude the possibility that our judgments can be faulty, and that isolated breakdowns can occur because of human error or mistake. The design of our systemof controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeedabsolutely in achieving our stated goals under all potential future or unforeseeable conditions. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error could occur without being detected.We have adopted tax positions that a taxing authority may view differently. If a taxing authority differs with our tax positions, our results may beadversely 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 thepositions we have taken. We have established reserves for tax positions that we have determined to be less likely than not to be sustained by taxingauthorities. However, there can be no assurance that our results of operations will not be adversely affected in the event that disagreement over our taxpositions does arise. 19Table of ContentsLitigation and claims can cause unexpected losses.In the construction business there are frequently claims and litigation. There are also inherent claims and litigation risks associated with the number of peoplethat work on construction sites and the fleet of vehicles on the road every day. In all of our businesses, we are subject to potential claims and litigation.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. Claimsand litigation normally follow a predictable course of time to resolution. However, there may be periods of time in which a disproportionate amount of ourclaims and litigation are concluded in the same quarter or year. If multiple matters are resolved during a given period, then the cumulative effect of thesematters 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 weperform work. Also, in recent years, latent defect litigation has expanded to aspects of the commercial market. Should we experience similar increases in ourlatent defect claims and litigation, additional pressure may be placed on the profitability of the Residential and Commercial & Industrial segments of ourbusiness.We may be required to conduct environmental remediation activities, which could be expensive and inhibit the growth of our business and our ability tomaintain profitability, particularly in our Infrastructure Solutions business.We are subject to a number of environmental laws and regulations, including those concerning the handling, treatment, storage, and disposal of hazardousmaterials. These laws predominantly affect our Infrastructure Solutions business but may impact our other businesses. These environmental laws generallyimpose liability on present and former owners and operators, transporters and generators of hazardous materials for remediation of contaminated properties.We believe that our business is operating in compliance in all material respects with applicable environmental laws, many of which provide for substantialpenalties for violations. There can be no assurance that future changes in such laws, interpretations of existing regulations or the discovery of currentlyunknown problems or conditions will not require substantial additional expenditures. In addition, if we do not comply with these laws and regulations, wecould be subject to material administrative, civil or criminal penalties, or other liabilities. We may also be required to incur substantial costs to comply withcurrent or future environmental and safety laws and regulations. Any such additional expenditures or costs that we may incur could hurt our operating results.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 resultsof operations. Our operations depend on the continued efforts of our executive officers, senior management and management personnel at our segments. Wecannot guarantee that any member of management at the corporate or subsidiary level will continue in their capacity for any particular period of time. Wehave a severance plan in place that covers certain of our senior leaders; however, this plan can neither guarantee that we will not lose key employees, norprevent 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 keyperson at a segment, we may not be able to recruit suitable replacements at comparable salaries or at all, which could adversely affect our operations.Additionally, we do not maintain key man life insurance for members of our management.Item 1B. Unresolved Staff CommentsNone. 20Table of ContentsItem 2. PropertiesFacilitiesAt September 30, 2014, we maintained branch offices, warehouses, sales facilities and administrative offices at 62 locations. Substantially all of our facilitiesare leased. We lease our executive office located in Greenwich, Connecticut and our corporate office located in Houston, Texas. We believe that ourproperties are adequate for our present needs, and that suitable additional or replacement space will be available as required. For a breakdown of our officesby segment, see Item 1. “Business-Operating Segments” of this Form 10-K.Item 3. Legal ProceedingsFor further information regarding legal proceedings, see Note 16, “Commitments and Contingencies — Legal Matters” in the notes to our ConsolidatedFinancial Statements.Item 4. Mine Safety DisclosuresNone.Item 5. Market for Registrant’s Common Equity; Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock trades on the NASDAQ Global Select Market under the ticker symbol “IESC.” The following table sets forth the daily high and low closeprice for our common stock as reported on NASDAQ for each of the four quarters of the fiscal years ended September 30, 2014 and 2013. High Low Year Ended September 30, 2014 First Quarter $5.44 $4.00 Second Quarter $6.59 $5.27 Third Quarter $6.87 $5.85 Fourth Quarter $8.37 $6.14 Year Ended September 30, 2013 First Quarter $5.80 $3.90 Second Quarter $6.50 $4.37 Third Quarter $6.39 $4.22 Fourth Quarter $5.89 $3.91 As of December 11, 2014, the closing market price of our common stock was $7.34 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 willutilize all available earnings generated by our operations and borrowings under the 2012 Credit Facility for the development and operation of our business,to retire existing debt, to repurchase our common stock, or to acquire or invest in other businesses. Any future determination as to the payment of dividendswill be made at the discretion of our Board of Directors and will depend upon our operating results, financial condition, capital requirements, generalbusiness conditions and other factors that the Board of Directors deems relevant. Our debt instruments restrict us from paying cash dividends and also placelimitations on our ability to repurchase our common stock. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Working Capital” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity andCapital Resources” of this Form 10-K. 21Table of ContentsFive-Year Stock Performance GraphThe graph below compares the cumulative 5-Year total return provided shareholders on Integrated Electrical Services, Inc.‘s common stock relative to thecumulative total returns of the Russell 2000 index and a customized peer group of seven companies that includes: Black Box Corp, Comfort Systems USAInc., Furmanite Corp, MYR Group Inc., Pike Corp, Sterling Construction Company Inc. and Team Inc. An investment of $100 (with reinvestment of alldividends) is assumed to have been made in our common stock, in each index, and in the peer group on September 30, 2009 and its relative performance istracked through September 30, 2014. Years ended September 30, 2009 2010 2011 2012 2013 2014 Integrated Electrical Services, Inc. $100.00 46.71 25.16 56.52 50.43 102.48 Russell 2000 $100.00 113.35 109.35 144.24 187.59 194.96 Peer Group $100.00 91.88 84.21 103.49 139.27 122.78 22Table of ContentsItem 6. Selected Financial DataThe following selected consolidated historical financial information for IES should be read in conjunction with the audited historical Consolidated FinancialStatements of Integrated Electrical Services, Inc. and subsidiaries, and the notes thereto, set forth in Item 8, “Financial Statements and Supplementary Data”of this Form 10-K. Years Ended September 30, 2014 2013 2012 2011 2010 (In Thousands, Except Share Information) Continuing Operations: Revenues $512,395 $494,593 $456,115 $406,141 $382,431 Cost of services 429,269 427,633 398,063 361,757 326,939 Gross profit 83,126 66,960 58,052 44,384 55,492 Selling, general and administrative expenses 75,571 66,598 58,609 63,321 74,251 Gain on sale of Assets (86) (64) (168) (6,555) (128) Asset impairment — — — 4,804 — Restructuring charges — — — — 763 Income (loss) from Operations 7,641 426 (389) (17,186) (19,394) Other (income) expense: Interest expense 1,574 1,771 2,324 2,210 3,271 Other expense (income), net (203) 507 (96) (7) (18) Income (loss) from operations before incometaxes 6,270 (1,852) (2,617) (19,389) (22,647) Provision (benefit) for income taxes 748 326 38 172 (36) Net income (loss) from continuing operations $5,522 $(2,178) $(2,655) $(19,561) $(22,611) Discontinued Operations: Loss from discontinued operations (198) (1,395) (9,158) (18,288) (8,539) Provision (benefit) for income taxes — — (11) (26) 5 Net loss discontinued operations (198) (1,395) (9,147) (18,262) (8,544) Net income (loss) $5,324 $(3,573) $(11,802) $(37,823) $(31,155) Basic earnings (loss) per share: Continuing operations $0.30 $(0.14) $(0.18) $(1.30) $(1.52) Discontinued operations $(0.01) $(0.09) $(0.60) $(1.22) $(0.57) Total $0.29 $(0.23) $(0.78) $(2.52) $(2.09) Diluted earnings (loss) per share: Continuing operations $0.30 $(0.14) $(0.18) $(1.30) $(1.52) Discontinued operations $(0.01) $(0.09) $(0.60) $(1.22) $(0.57) Total $0.29 $(0.23) $(0.78) $(2.52) $(2.09) Shares used to calculate loss per share Basic 18,417,564 15,460,424 15,123,052 14,986,534 14,899,288 Diluted 18,473,420 15,460,424 15,123,052 14,986,534 14,899,288 23Table of Contents Years Ended September 30, 2014 2013 2012 2011 2010 (In Thousands, Except Share Information) Balance Sheet Data: Cash and cash equivalents $47,342 $20,757 $18,729 $35,577 $32,924 Working capital 72,073 45,467 43,001 61,721 82,202 Total assets 201,108 179,252 164,713 180,244 207,860 Total debt 10,208 13,772 10,480 10,498 11,256 Total stockholders’ equity 87,972 62,486 53,157 64,301 101,201 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto, set forth in Item 8,“Financial Statements and Supplementary Data” of this Form 10-K. For additional information, see “Disclosure Regarding Forward Looking Statements”in Part I of this Form 10-K.OVERVIEWExecutive OverviewPlease refer to Item 1. “Business” of this Form 10-K for a discussion of the Company’s services and corporate strategy. Integrated Electrical Services, Inc., aDelaware corporation, is a holding company that owns and manages diverse operating subsidiaries, comprised of providers of industrial products andinfrastructure services to a variety of end markets. Our operations are currently organized into four principal business segments: Communications,Residential, Commercial & Industrial, and Infrastructure Solutions.Industry TrendsOur performance is affected by a number of trends that drive the demand for our services. In particular, the markets in which we operate are exposed to manyregional and national trends such as the demand for single and multi-family housing, the need for mission critical facilities as a result of technology-drivenadvancements, the degree to which in-house maintenance departments outsource maintenance and repair work, output levels and equipment utilization atheavy industrial facilities, and by railroad companies, and changes in commercial, institutional, public infrastructure and electric utility spending. Over thelong term, we believe that there are numerous factors that could positively drive demand and affect growth within the industries in which we operate,including (i) population growth, which will increase the need for commercial and residential facilities, (ii) aging public infrastructure, which must be replacedor repaired, (iii) increased emphasis on environmental and energy efficiency, which may lead to both increased public and private spending, and (iv) the lowprice of natural gas which is expected to spur the construction of and modifications to heavy industrial facilities. However, there can be no assurance that wewill not experience a decrease in demand for our services due to economic, technological or other factors. For a further discussion of the industries in whichwe operate, please see Item 1. “Business—Operating Segments” of this Form 10-K.Business OutlookWhile differences exist among the Company’s segments, on an overall basis, demand for the Company’s services increased in fiscal 2014 as compared tofiscal 2013 resulting in aggregate year-over-year revenue growth. In addition, the Company’s previous investment in growth initiatives and other business-specific factors discussed below contributed to year-over-year revenue growth. Among our segments, year-over-year revenue growth rates during fiscal 2014were led primarily by growth in our Residential segment and the addition of our Infrastructure 24Table of ContentsSolutions segment. The combination of increasing revenue, increasing project bid margins, effective project execution, and efficient scaling of operations asthe economy improves have resulted in a return to profitability. Provided that no significant deterioration in general economic conditions occurs, theCompany expects total revenues from existing businesses to increase on a year-over-year basis during fiscal 2015 due to an increase in overall demand for theservices we provide. Despite this expectation of growth within certain segments, we remain focused on controlled growth within certain markets whichcontinue to experience highly competitive margins and increasing costs.To continue to grow our business, including through acquisitions, and to fund working capital, we may require a significant amount of cash. Our ability togenerate cash depends on many factors that are beyond our control, including demand for our products and services, the availability of projects at marginsacceptable to us, the ultimate collectability of our receivables, our ability to borrow on our 2012 Credit Facility, and our ability to raise funds in the capitalmarkets as we did through a rights offering in fiscal year 2014, among many other factors. We anticipate that the combination of cash on hand, cash flows andavailable capacity under our 2012 Credit Facility will provide sufficient cash to enable us to meet our working capital needs, debt service requirements andcapital expenditures for property and equipment through the next twelve months. We expect that our fixed asset requirements will range from $3.0 to$4.0 million for the fiscal year ending on September 30, 2015, and we may acquire these assets either through capital expenditures or through leaseagreements.RESULTS OF OPERATIONSWe report our operating results across our four operating segments: Communications, Residential, Commercial & Industrial and Infrastructure Solutions.Expenses associated with our Corporate office are classified as a fifth segment. The following table presents selected historical results of operations of IES.The Infrastructure Solutions segment was added in connection with the acquisition of MISCOR in September 2013. Years Ended September 30, 2014 2013 2012 $ % $ % $ % (Dollars in thousands, Percentage of revenues) Revenues $512,395 100.0% $494,593 100.0% $456,115 100.0% Cost of services 429,269 83.8% 427,633 86.5% 398,063 87.3% Gross profit 83,126 16.2% 66,960 13.5% 58,052 12.7% Selling, general and administrative expenses 75,571 14.7% 66,598 13.5% 58,609 12.8% Gain on sale of assets (86) 0% (64) 0% (168) 0% Income (loss) from operations 7,641 1.5% 426 0.0% (389) (0.1)% Interest and other expense, net 1,371 0.3% 2,278 0.5% 2,228 0.5% Income (loss) from operations before income taxes 6,270 1.2% (1,852) (0.5)% (2,617) (0.6)% Provision for income taxes 748 0.1% 326 0.1% 38 0.0% Net income (loss) from continuing operations 5,522 1.1% (2,178) (0.6)% (2,655) (0.6)% Net loss from discontinued operations (198) 0.0% (1,395) (0.3)% (9,158) (2.0)% Benefit for income taxes — 0.0% — 0.0% (11) 0.0% Net loss from discontinued operations (198) 0.0% (1,395) (0.3)% (9,147) (2.0)% Net income (loss) $5,324 1.1% $(3,573) (0.9)% $(11,802) (2.6)% Consolidated revenues for the year ended September 30, 2014 were $17.8 million greater than for the year ended September 30, 2013, an increase of 3.6%.Revenues increased primarily due to the inclusion of a full year of results for our Infrastructure Solutions segment, which contributed $47.6 million ofrevenues for the year ended 25Table of ContentsSeptember 30, 2014, compared with $2.2 million in 2013. Additionally, our Residential segment continued to grow. These increases in revenue were partlyoffset by declines in our Communications and Commercial & Industrial segments.Our overall gross profit percentage increased to 16.2% during the year ended September 30, 2014 as compared to 13.5% during the year ended September 30,2013. Excluding the impact of the Infrastructure Solutions business acquired in September 2013, gross profit percentage would have increased from 13.5% to15.7%. Gross profit as a percentage of revenue increased at both our Residential and Commercial & Industrial segments, partly offset by a slight decrease atour Communications segment. Infrastructure Solutions contributed $10.0 million to our consolidated gross profit at a margin of 20.9%, which included animpact of $0.5 million of additional costs associated with the sale of inventory that was written up to fair value in purchase accounting upon the acquisitionof MISCOR in September of 2013.Selling, general and administrative expenses include costs not directly associated with performing work for our customers. These costs consist primarily ofcompensation and benefits related to corporate, segment and branch management (including incentive-based compensation), occupancy and utilities,training, professional services, information technology costs, consulting fees, travel and certain types of depreciation and amortization. We allocate certaincorporate selling, general and administrative costs across our segments as we believe this more accurately reflects the costs associated with operating eachsegment.During the year ended September 30, 2014, our selling, general and administrative expenses were $75.6 million, an increase of $9.0 million, or 13.5%, ascompared to the year ended September 30, 2013. The addition of our Infrastructure Solutions business contributed $9.3 million of additional costs. Further,we experienced higher personnel costs in connection with increased profitability in our Residential segment and $0.3 million of additional costs due toleadership changes in our Infrastructure Solutions segment. These increases were slightly offset by a reduction in acquisition related costs, as our 2013 resultsincluded $3.0 million of such costs.Communications2014 Compared to 2013 Years Ended September 30, 2014 2013 $ % $ % (Dollars in thousands, Percentage of revenues) Revenue $116,073 100.0% $126,348 100.0% Gross Profit 21,169 18.2% 23,784 18.8% Selling, general and administrative expenses 13,481 11.6% 13,610 10.8% Revenue. Revenues decreased by $10.3 million during the year ended September 30, 2014, an 8.1% decrease compared to the year ended September 30,2013. The decrease is primarily the result of the completion of certain high-tech manufacturing projects performed in 2013, which did not recur in 2014.Revenues from high-tech manufacturing projects were $7.5 million during the year ended September 30, 2014, compared to $30.6 million during the yearended September 30, 2013. However, revenues attributable to data centers increased to $43.8 million for the year ended September 30, 2014 compared to$38.7 million for the year ended September 30, 2013. Data center revenue increased due to an expansion of our customer base in this market; partly offset bythe decision of a large customer to procure its own materials to be used in our work, rather than sourcing those materials through us. Additionally, increasedrevenues from audio-visual and security work, as well as large distribution center projects, helped offset the decline in high-tech manufacturing revenue.Gross Profit. Gross profit during the year ended September 30, 2014 decreased $2.6 million, or 11.0%, as compared to the year ended September 30, 2013.Gross profit as a percentage of revenue decreased 0.6% to 26Table of Contents18.2% for the year ended September 30, 2014, due primarily to the relatively high margins on certain high-tech manufacturing projects which were ongoingin the year ended September 30, 2013, but did not recur in 2014.Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.1 million, or 1.0%, during the year endedSeptember 30, 2014 compared to the year ended September 30, 2013. Selling, general and administrative expenses as a percentage of revenues in theCommunication segment increased 0.8% to 11.6% of segment revenue during the year ended September 30, 2014 compared to the year ended September 30,2013. Although costs were reduced, cost as a percentage of revenue still increased, as revenue declined, but certain of our costs were not reduced in light ofan anticipated increase in activity for 2015. Additionally, we incurred $0.5 million of costs in connection with establishing new branches in NorthernCalifornia and Texas in the year ended September 30, 2014.2013 Compared to 2012 Years Ended September 30, 2013 2012 $ % $ % (Dollars in thousands, Percentage of revenues) Revenue $126,348 100.0% $121,492 100.0% Gross Profit 23,784 18.8% 18,204 15.0% Selling, general and administrative expenses 13,610 10.8% 13,431 11.1% Revenue. Revenues increased by $4.9 million during the year ended September 30, 2013, a 4.0% increase compared to the year ended September 30, 2012.Revenues attributable to service and time and material projects increased $1.2 million. Revenues from high tech manufacturing projects were $30.3 millionduring the year ended September 30, 2013, compared to $27.0 million during the year ended September 30, 2012. Revenues attributable to data centers were$38.7 million for the year ended September 30, 2013 compared to $38.0 million for the year ended September 30, 2012.Gross Profit. Gross profit during the year ended September 30, 2013 increased $5.6 million, or 30.6%, as compared to the year ended September 30, 2012.Gross profit as a percentage of revenue increased 3.8% to 18.8% for the year ended September 30, 2013, due primarily to the increased productivity throughthe completion of data center and high-tech manufacturing projects and, to a lesser extent, improved performance of our San Diego branch during the yearended September 30, 2013.Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $0.2 million, or 1.3%, during the year endedSeptember 30, 2013 compared to the year ended September 30, 2012. Selling, general and administrative expenses as a percentage of revenues in theCommunication segment decreased 0.3% to 10.8% of segment revenue during the year ended September 30, 2013 compared to the year ended September 30,2012. During the year ended September 30, 2012, we experienced higher selling, general and administrative costs in our San Diego operations, due primarilyto a legal settlement and associated fees of $1.7 million. These legal costs were not duplicated in the year ended September 30, 2013. Offsetting the decreasein legal costs was an increase in training and personnel costs, which include the addition of five sales people, and higher personnel and incentive costsdirectly attributable to increased activity and profitability for the year ended September 30, 2013. 27Table of ContentsResidential2014 Compared to 2013 Years Ended September 30, 2014 2013 $ % $ % (Dollars in thousands, Percentage of revenues) Revenue $182,514 100.0% $162,611 100.0% Gross Profit 33,829 18.5% 27,227 16.7% Selling, general and administrative expenses 27,947 15.3% 25,447 15.6% Revenue. Revenues increased $19.9 million during the year ended September 30, 2014, an increase of 12.2% as compared to the year ended September 30,2013. Single-family construction revenues increased by $16.3 million, primarily in Texas, where the economy has experienced continued growth andpopulation expansion. Revenues for our multi-family construction increased by $2.9 million during the year ended September 30, 2014, as overall marketconditions have continued to improve. Multi-family construction projects were primarily driven by increased demand for rental housing, student housing,and senior living facilities throughout the regions in which we operate. Revenue was impacted to a lesser degree by decreases in solar installations andincreases in cable and service activity.Gross Profit. During the year ended September 30, 2014, our Residential segment experienced a $6.6 million, or 24.3%, increase in gross profit as comparedto the year ended September 30, 2013. Gross profit increased due to higher volume of both single-family and multi-family projects, offset by lower volumeand reduced gross margin percentage in solar projects. Total Residential gross margin increased to 18.5% for the year ended September 30, 2014, comparedwith 16.7% for 2013. Gross margin percentage increased by 2.9%, within single-family, and 2.2% within multi-family, offset to a lesser degree by a reductionin gross margin on cable and services activity. As demand has increased within the single-family business and copper prices have become more stable,profitability has increased.Selling, General and Administrative Expenses. Our Residential segment experienced a $2.5 million, or 9.8%, increase in selling, general and administrativeexpenses during the year ended September 30, 2014 compared to the year ended September 30, 2013. However, selling, general and administrative expensesas a percentage of revenues in the Residential segment decreased 0.3% to 15.3% of segment revenue during the year ended September 30, 2014. The primarydriver of the increase was the cost of incentive compensation for our operations managers, which grew from $6.0 million for the year ended September 30,2013 to $10.0 million for the year ended September 30, 2014. We believe this incentive compensation structure, which is based on a profit-sharing model, istypical in the industry. While incentive and compensation cost increased as a result of increased activity and profitability, these increases were partly offsetby a reduction in legal fees and bad debt expense for the year ended September 30, 2014 compared to the year ended September 30, 2013.2013 Compared to 2012 Years Ended September 30, 2013 2012 $ % $ % (Dollars in thousands, Percentage of revenues) Revenue $162,611 100.0% $129,974 100.0% Gross Profit 27,227 16.7% 20,700 15.9% Selling, general and administrative expenses 25,447 15.6% 19,703 15.2% Revenue. Revenues increased $32.6 million during the year ended September 30, 2013, an increase of 25.1% as compared to the year ended September 30,2012. Revenues for our multi-family construction increased by $21.0 28Table of Contentsmillion during the year ended September 30, 2013, as overall market conditions have continued to improve. Multi-family construction projects wereprimarily driven by increased demand for rental housing, student housing, and senior living facilities throughout the regions in which we operate. Single-family construction revenues increased by $16.7 million, primarily in Texas, where the economy has experienced continued growth and populationexpansion. Revenue was impacted to a lesser degree by decreases in solar installations and increases in cable and service activity.Gross Profit. During the year ended September 30, 2013, our Residential segment experienced a $6.5 million, or 31.5%, increase in gross profit as comparedto the year ended September 30, 2012. Gross profit increased due to higher volume of both single-family and multi-family projects, offset by lower volumeand reduced gross margin percentage in solar projects. Gross margin percentage increased by 0.9%, within single-family, and 1.6% within multi-family, offsetto a lesser degree by a reduction in gross margin within our solar division.Selling, General and Administrative Expenses. Our Residential segment experienced a $5.7 million, or 29.2%, increase in selling, general and administrativeexpenses during the year ended September 30, 2013 compared to the year ended September 30, 2012. Selling, general and administrative expenses as apercentage of revenues in the Residential segment increased 0.4% to 15.6% of segment revenue during the year ended September 30, 2013. This increase isattributable primarily to the scaling of operations, including increased incentives in both single-family and multi-family divisions during the year endedSeptember 30, 2013, and impacted to a lesser degree by increased legal fees related to construction defects claims.Commercial & Industrial2014 Compared to 2013 Years Ended September 30, 2014 2013 $ % $ % (Dollars in thousands, Percentage of revenues) Revenue $166,249 100.0% $203,481 100.0% Gross Profit 18,168 10.9% 15,524 7.6% Selling, general and administrative expenses 14,479 8.7% 14,362 7.1% Revenue. Revenues decreased $37.2 million during the year ended September 30, 2014, a decrease of 18.3% compared to the year ended September 30, 2013.Our Commercial & Industrial segment is impacted not only by construction industry trends, but also specific industry and local economic trends. Impactsfrom these trends on our revenues may be delayed due to the long lead time of our projects. During the year ended September 30, 2014, our revenue decreasewas the result of large commercial projects for which we recognized substantial revenue in the year ended September 30, 2013, but are now complete ornearing completion.Gross Profit. Gross profit during the year ended September 30, 2014 increased by $2.6 million, or 17.0%, as compared to the year ended September 30, 2013.Commercial & Industrial’s gross margin percentage increased 3.3% to 10.9% during the year ended September 30, 2014. The increase in margin wasprimarily the result of improved productivity, as well as a more selective bidding strategy. In particular, we recognized improved margins in the year endedSeptember 30, 2014 as compared to 2013 on our ongoing major project related to the construction of an infectious disease facility which has been underwaysince 2009. However, gross margin on this project is still below average for our commercial projects in both 2013 and 2014. Project bid margins havecontinued to improve in 2014; however, the market remains competitive, and we expect continued pressure on our ability to increase project bid margins inmost of the markets we serve.Selling, General and Administrative Expenses. Selling, general and administrative expenses during the year ended September 30, 2014 increased by $0.1million, or 0.8%, compared to the year ended September 30, 2013. 29Table of ContentsSelling, general and administrative expense as a percentage of revenues in the Commercial & Industrial segment increased by 1.6% during the year endedSeptember 30, 2014, reflective of higher incentive compensation costs in connection with increased profitability.2013 Compared to 2012 Years Ended September 30, 2013 2012 $ % $ % (Dollars in thousands, Percentage of revenues) Revenue $203,481 100.0% $204,649 100.0% Gross Profit 15,524 7.6% 19,148 9.4% Selling, general and administrative expenses 14,362 7.1% 17,166 8.4% Revenue. Revenues decreased $1.2 million during the year ended September 30, 2013, a decrease of 0.6% compared to the year ended September 30, 2012.Our Commercial & Industrial segment is impacted not only by industry construction trends, but also specific industry and local economic trends. Impactsfrom these trends on our revenues may be delayed due to the long lead time of our projects. During the year ended September 30, 2013, our revenue decreasewas the result of the completion of large commercial projects early in the fiscal year, offset by a lesser degree by increased utility and industrial projects.Gross Profit. Gross profit during the year ended September 30, 2013 decreased by $3.6 million, or 18.9%, as compared to the year ended September 30, 2012.Commercial & Industrial’s gross margin percentage decreased 1.8% to 7.6% during the year ended September 30, 2013. The decrease in margin was primarilydue to a total of $2.1 million of job underperformance on four projects in one of our commercial branches, and $3.0 million due to the recognition of higherprojected costs on a significant commercial project involving the construction of an infectious disease facility that commenced in 2009. The higher costsrelated to this significant commercial project are due to various delays and other impacts resulting in lower productivity rates than originally estimated andwhich are anticipated to continue for the remainder of the project. These projected costs resulted in a lower anticipated gross profit percentage on the projectand a reduction in gross profit recognized to date. While we expect the project to be completed profitably, the project is outside of the maximum size andduration criteria within our risk management parameters that were implemented in mid-2011. This decrease in margin was offset by improvements in grossprofits in multiple projects. While we have experienced some reprieve in project bid margins, particularly in our industrial branches, the competitive marketthat has existed during the prolonged recession has continued to constrain significant increases in project bid margins in most commercial markets.Selling, General and Administrative Expenses. Selling, general and administrative expenses during the year ended September 30, 2013 decreased by $2.8million, or 16.3%, compared to the year ended September 30, 2012. Selling, general and administrative expenses as a percentage of revenues in theCommercial & Industrial segment decreased by 1.3% during the year ended September 30, 2013, reflective of lower personnel costs and, to a lesser extent, areduction in other costs as the segment continues to scale to a level necessary to return to profitability.Infrastructure Solutions2014 Compared to 2013 Years Ended September 30, 2014 2013 $ % $ % (Dollars in thousands, Percentage of revenues) Revenue $47,559 100.0% $2,153 100.0% Gross Profit 9,960 20.9% 425 19.7% Selling, general and administrative expenses 9,346 19.7% 337 15.7% 30Table of ContentsOur Infrastructure Solutions business was acquired on September 13, 2013. Therefore, amounts shown above include the results of operations beginningSeptember 13, 2013 only. Revenues for our Infrastructure Solutions segment were $47.6 million for the year ended September 30, 2014, and include $34.4million from industrial services and $13.2 million from engine components services. Our gross profit from industrial services was $7.2 million at a 20.2%margin, reflecting both revenue growth and an improvement in gross margins subsequent to our acquisition. This gross profit included an impact of $0.5million of additional costs associated with the sale of inventory that was written up to fair value in purchase accounting upon the acquisition of the businessin 2013. The business climate for engine components services has been more challenging during the second half of the year ended September 30, 2014, as wehave experienced a decrease in demand for our engine repair services from certain large customers. However, demand has begun to increase subsequent toSeptember 30, 2014. The engine components service line reported gross profit of $2.8 million at a margin of 21.3% for the year ended September 30,2014. The Infrastructure Solutions segment reported $9.3 million of general and administrative expense for the year ended September 30, 2014.Interest and Other Expense, net Years Ended September 30, 2014 2013 2012 (In thousands) Interest expense $1,189 $1,249 $1,755 Deferred financing charges 385 522 569 Total interest expense 1,574 1,771 2,324 Other (income) expense, net (203) 507 (96) Total interest and other expense, net $1,371 $2,278 $2,228 Interest ExpenseDuring the year ended September 30, 2014, we incurred interest expense of $1.6 million primarily comprised of interest expense from the Wells Fargo TermLoan, an average letter of credit balance of $6.8 million under the 2012 Credit Facility and an average unused line of credit balance of $23.8 million. Thiscompares to interest expense of $1.8 million for the year ended September 30, 2013, on a debt balance primarily comprised of the Wells Fargo Term Loan, anaverage letter of credit balance of $7.4 million under the 2012 Credit Facility and an average unused line of credit balance of $22.6 million.For the year ended September 30, 2012, we incurred interest expense of $2.3 million on a debt balance primarily comprised of the Tontine Term Loan,Insurance Financing Agreements, an average letter of credit balance of $8.8 million under the 2006 Credit Facility and an average unused line of creditbalance of $29.7 million.Other (Income) ExpenseDuring the year ended September 30, 2013, we recorded a net charge of $1.2 million to fully reserve for an outstanding receivable arising from a settlementagreement with a former surety. The reserve, which was comprised of the write-off of the entire balance of $1.7 million, partly offset by a subsequent recoveryof $0.5 million, was recorded as other expense within our Consolidated Statements of Comprehensive Income. During the year ended September 30, 2014, werecovered an additional $0.1 million of this receivable, which we also recorded as Other (income) expense within our Consolidated Statements ofComprehensive Income. Please refer to Note 16, “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements set forth in Part I,Item 8 of this Quarterly Report on Form 10-K for additional information.During the year ended September 30, 2013, we recorded a liability of $0.7 million for contingent purchase consideration in conjunction with the AssetPurchase Agreement with the Acro Group. As a result of a change in 31Table of Contentsthe fair value of the liability resulting from a decrease in the likelihood of the contingent consideration being paid, we reduced the liability to $0.1 millionduring the year ended September 30, 2013, resulting in other income of $0.6 million. During the year ended September 30, 2014, the liability was settledwithout any contingent consideration being paid. Accordingly, we have reduced the liability to zero and recorded an additional $0.1 million as other incomewithin our Consolidated Statements of Comprehensive Income.PROVISION FOR INCOME TAXESOur provision for income taxes increased from $0.3 million for the year ended September 30, 2013 to $0.7 million for the year ended September 30, 2014.The increase is mainly attributable to a $0.3 million increase related to federal income tax provision and a $0.1 million increase in state income taxprovision. We provided a valuation allowance for the federal income tax benefit resulting from the loss from operations for the year ended September 30,2013. As a result, we did not recognize any net benefit for federal income taxes for the year ended September 30, 2013.Our provision for income taxes increased from $38 thousand for the year ended September 30, 2012 to $0.3 million for the year ended September 30, 2013.The increase is mainly attributable to a decrease in the reversal of unrecognized tax benefits, resulting in a $0.2 million increase in the income tax expenseand a $0.1 million increase in state income tax provision. We provided a valuation allowance for the federal income tax benefit resulting from the loss fromoperations for the years ended September 30, 2014 and 2013, respectively. As a result, we did not recognize any net benefit for federal income taxes for theyears ended September 30, 2013 and 2012.WORKING CAPITALDuring the year ended September 30, 2014, working capital increased by $26.6 million from September 30, 2013, reflecting a $23.9 million increase incurrent assets and a $2.7 million decrease in current liabilities during the period.During the year ended September 30, 2014, our current assets increased by $23.9 million, or 16.6%, to $168.0 million, as compared to $144.0 million as ofSeptember 30, 2013. Cash and cash equivalents increased by $26.6 million during the year ended September 30, 2014 as compared to September 30, 2013,primarily due to proceeds we received from our common stock rights offering in August, 2014, which raised net proceeds of approximately $19.6 million, aswell as cash generated by our operating activities. The current trade accounts receivables, net, increased by $3.9 million at September 30, 2014, as comparedto September 30, 2013. Days sales outstanding (“DSOs”) decreased to 54 as of September 30, 2014 from 59 as of September 30, 2013. The improvement wasdriven predominantly by increased collection efforts. While the rate of collections may vary, our secured position, resulting from our ability to secure liensagainst our customers’ overdue receivables, reasonably assures that collection will occur eventually to the extent that our security retains value. Inventorydecreased $4.1 million during the year ended September 30, 2014 compared to September 30, 2013, due primarily to the timing of materials usage on certainof our Commercial & Industrial jobs, as well as a decrease in solar inventory at our Residential segment. We also experienced a $2.0 million decrease inretainage during the year ended September 30, 2014 compared to September 30, 2013.During the year ended September 30, 2014, our total current liabilities decreased by $2.7 million to $95.9 million, compared to $98.6 million as ofSeptember 30, 2013. Current maturities of long-term debt decreased by $3.6 million during the year ended September 30, 2014 compared to September 30,2013 primarily due to the amendment of our 2012 Credit Facility in September, 2014. This amendment eliminated our term loan, and borrowings outstandingunder that term loan are now outstanding under the revolving credit facility, which matures in August 2018. This decrease was partly offset by additionalbillings in excess of costs, which increased by $1.2 million during the year ended September 30, 2014 compared to September 30, 2013. 32Table of ContentsSuretyMany customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a surety. These bondsprovide a guarantee to the customer that we will perform under the terms of our contract and that we will pay our subcontractors and vendors. If we fail toperform under the terms of our contract or to pay subcontractors and vendors, the customer may demand that the surety make payments or provide servicesunder the bond. We must reimburse the sureties for any expenses or outlays they incur on our behalf. To date, we have not been required to make anyreimbursements to our sureties for bond-related costs.As is common in the surety industry, sureties issue bonds on a project-by-project basis and can decline to issue bonds at any time. We believe that ourrelationships with our sureties will allow us to provide surety bonds as they are required. However, current market conditions, as well as changes in oursureties’ assessment of our operating and financial risk, could cause our sureties to decline to issue bonds for our work. If our sureties decline to issue bondsfor our work, our alternatives would include posting other forms of collateral for project performance, such as letters of credit or cash, seeking bondingcapacity from other sureties, or engaging in more projects that do not require surety bonds. In addition, if we are awarded a project for which a surety bond isrequired but we are unable to obtain a surety bond, the result could be a claim for damages by the customer for the costs of replacing us with anothercontractor.As of September 30, 2014, the estimated cost to complete our bonded projects was approximately $55.4 million. We believe the bonding capacity presentlyprovided by our sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future. As of September 30, 2014,we utilized $0.3 million of cash (as is included in “Other Non-Current Assets” in our Consolidated Balance Sheet) as collateral for certain of our previousbonding programs.LIQUIDITY AND CAPITAL RESOURCESAs of September 30, 2014, we had cash and cash equivalents of $47.3 million, working capital of $72.1 million, and $6.9 million of letters of creditoutstanding under our 2012 Credit Facility. We anticipate that the combination of cash on hand, cash flows and available capacity under our 2012 CreditFacility will provide sufficient cash to enable us to meet our working capital needs, debt service requirements and capital expenditures for property andequipment through the next twelve months. Our ability to generate cash flow is dependent on many factors, including demand for our services, theavailability of projects at margins acceptable to us, the ultimate collectability of our receivables, and our ability to borrow on our 2012 Credit Facility orraise funds in the capital markets, if needed.We continue to closely monitor the financial markets and general national and global economic conditions. To date, we have experienced no loss or lack ofaccess to our invested cash or cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not beimpacted in the future by adverse conditions in the financial markets.The 2012 Revolving Credit FacilityOn August 9, 2012, we entered into a Credit and Security Agreement (the “Credit Agreement”), for a credit facility (as amended, the “2012 Credit Facility”)with Wells Fargo Bank, National Association (“Wells Fargo”). We have subsequently entered into four amendments to the 2012 Credit Facility and enteredinto an Amended and Restated Credit and Security Agreement (the “Amended Credit Agreement”) as of September 24, 2014, which increased the maximumrevolver amount under the 2012 Credit Facility from $30 million to $60 million, and extended the maturity date by one year to August 9, 2018. In addition,under the Amended Credit Agreement, the Company eliminated its term loan facility so that borrowings that would previously have been made under theterm loan facility, including borrowings for acquisitions, will now be made under the revolving 33Table of Contentscredit facility with terms more favorable than the term loan facility, including a lower interest rate, as described below.The 2012 Credit Facility is guaranteed by our subsidiaries and secured by first priority liens on substantially all of our subsidiaries’ existing and futureacquired assets, exclusive of collateral provided to our surety providers. The 2012 Credit Facility also restricts us from paying cash dividends and placeslimitations on our ability to repurchase our common stock.The 2012 Credit Facility contains customary affirmative, negative and financial covenants. At September 30, 2014, we were subject to the financial covenantunder the 2012 Credit Facility requiring, at any time that our Liquidity (the aggregate amount of unrestricted cash and cash equivalents on hand plus ExcessAvailability, as defined in the Amended Credit Agreement) is less than $20 million or our Excess Availability is less than $5 million, that we maintain aFixed Charge Coverage Ratio of not less than 1.0:1.0. At September 30, 2014, our Liquidity was $64.7 million and our Excess Availability was $17.3million, and as such, we were not required to maintain a Fixed Charge Coverage Ratio of 1.0:1.0 as of such date. Nonetheless, at September 30, 2014, ourFixed Charge Coverage Ratio was 1.7:1.0. Compliance with our Fixed Charge Coverage Ratio, while not required at September 30, 2014, provides us withthe ability to use cash on hand or to draw on our 2012 Credit Facility such that we can fall below the Excess Availability and Liquidity minimum thresholdsdescribed above without violating our financial covenant.Our Fixed Charge Coverage Ratio is calculated as (i) our trailing twelve month EBITDA (as defined in the 2012 Credit Facility), less non-financed capitalexpenditures (other than capital expenditures financed by means of an advance under the 2012 Credit Facility) cash taxes and certain pass-through taxliabilities, divided by (ii) the sum of our cash interest and principal debt payments (other than repayment of principal on advances under the 2012 CreditFacility) and all Restricted Junior Payments (as defined in the 2012 Credit Facility) (other than pass-through tax liabilities) and other cash distributions. Asdefined in the 2012 Credit Facility, EBITDA is calculated as consolidated net income (or loss), less extraordinary gains, interest income, non-operatingincome and income tax benefits and decreases in any change in LIFO reserves, plus stock compensation expense, non-cash extraordinary losses, interestexpense, income taxes, depreciation and amortization and increases in any change in LIFO reserves.If in the future our Liquidity or Excess Availability fall below $20 million or $5 million, respectively, and at that time our Fixed Charge Coverage Ratio isless than 1.0:1.0, or if we otherwise fail to perform or otherwise comply with certain of our covenants or other agreements under our 2012 Credit Facility, itwould result in an event of default under our 2012 Credit Facility, which could result in some or all of our indebtedness becoming immediately due andpayable. 34Table of ContentsBorrowings under the 2012 Credit Facility may not exceed a “borrowing base” that is determined monthly by our lenders based on available collateral,primarily certain accounts receivables, inventories and personal property and equipment. Under the terms of the 2012 Credit Facility, amounts outstandingbear interest at a per annum rate equal to a Daily Three Month LIBOR (as defined in the Amended Credit Agreement), plus an interest rate margin, which isdetermined quarterly, based on the following thresholds: Level Thresholds Interest Rate MarginI Liquidity £ $20,000 at any time during the period; orExcess Availability £ $7,500 at any time during the period; orFixed charge coverage ratio < 1.0:1.0 3.00 percentage pointsII Liquidity > $20,000 at all times during the period; andLiquidity £ $30,000 at any time during the period; andExcess Availability $7,500; andFixed charge coverage ratio 1.0:1.0 2.50 percentage pointsIII Liquidity > $30,000 at all times during the period; andExcess Availability > $7,500; andFixed charge coverage ratio 1.0:1.0 2.00 percentage pointsIn addition, we are charged monthly in arrears for (1) an unused commitment fee of 0.50% per annum, (2) a collateral monitoring fee ranging from $1thousand to $2 thousand, based on the then-applicable interest rate margin, (3) a letter of credit fee based on the then-applicable interest rate margin and(4) certain other fees and charges as specified in the Amended Credit Agreement.At September 30, 2014, we had $17.3 million under the 2012 Credit Facility that was available to us without triggering or violating our financial covenant,$6.9 million in outstanding letters of credit with Wells Fargo and outstanding borrowings of $10.2 millionThe Tontine Term LoanOn December 12, 2007, we entered into the Tontine Term Loan, a $25 million senior subordinated loan agreement, with Tontine, which the Companyterminated and prepaid in full through a final payment of $10 million in February, 2013.Rights OfferingOn August 7, 2014, we completed a $20 million rights offering (the “Rights Offering”). In the Rights Offering, the Company distributed, at no charge, to theholders of shares of its common stock one non-transferable subscription right for each share of common stock owned as of the record date. Each right entitledthe holder thereof to purchase from the Company 0.214578135 shares of common stock at a subscription price of $5.20 per share, which represented adiscount to the market price of the common stock at the closing of the offering. In addition, holders who purchased all of the shares of common stockavailable to them pursuant to their Basic Subscription Rights were entitled to subscribe, at the same subscription price of $5.20 per share, for a portion of anyshares of common stock that other holders did not purchase through the exercise of their Basic Subscription Rights, subject to certain limitations (the “Over-Subscription Privilege”). The Rights Offering was fully subscribed, after giving effect to the exercise of Over-Subscription Privileges, and we received netproceeds of approximately $19.6 million, after deducting estimated offering expenses, for the issuance of 3,846,150 shares of common stock in the RightsOffering.Immediately after giving effect to the Rights Offering, we had 21,768,642 shares of common stock issued and outstanding. Tontine beneficially ownedapproximately 60% of the shares of common stock outstanding immediately prior to launch of the Rights Offering, and immediately after giving effect to theRights Offering, Tontine beneficially owned approximately 61% of the Company’s outstanding shares. 35Table of ContentsInvestmentsFrom time to time, the company may invest in non-controlling positions in the debt or equity securities of other businesses. In October 2014, our Boardapproved an investment policy that permits the Company to invest our cash in liquid and marketable securities that include equities and fixed incomesecurities, subject to Board approval of any such investment over $500,000. Equity securities may include unrestricted, publicly traded stock that is listed ona major exchange or a national, over-the-counter market and that is appropriate for our portfolio objectives, asset class, and/or investment style, and fixedincome securities are required to have an investment grade credit quality at the time of purchase.Operating ActivitiesOur cash flow from operations is not only influenced by cyclicality, demand for our services, operating margins and the type of services we provide, but canalso be influenced by working capital needs such as the timing of our receivable collections. Working capital needs are generally lower during our fiscal firstand second quarters due to the seasonality that we experience in many regions of the country.Operating activities provided net cash of $12.6 million during the year ended September 30, 2014, as compared to $2.0 million of net cash provided in theyear ended September 30, 2013. In addition to higher net income in the year ended September 30, 2014 as compared to the year ended September 30, 2013,we ended fiscal 2014 with lower levels of working capital in connection with decreased inventory and other current asset balances.Operating activities provided net cash of $2.0 million during the year ended September 30, 2013, as compared to $7.4 million of net cash used in the yearended September 30, 2012. We used substantially less cash to reduce our accounts payable and accrued expenses in 2013. We utilized inventory on handduring 2013 in the completion of large projects within our Communications segment. Our billings in excess of cost in fiscal 2013 decreased by $4.6 millionas compared to the prior year.Investing ActivitiesIn the year ended September 30, 2014, net cash used in investing activities was $2.0 million as compared to $4.8 million of net cash used by investingactivities in the year ended September 30, 2013. Investing activities for the year ended September 30, 2014 relate to capital expenditures. Investing activitiesin the year ended September 30, 2013 were comprised of $5.2 million used in conjunction with the acquisition of MISCOR and the acquisition of certainassets from the Acro Group, and $0.4 million used for capital expenditures, offset by $0.8 million in proceeds from the sale of a building. Investing activitiesin the year ended September 30, 2012 included $1.9 million used for capital expenditures.Financing ActivitiesFinancing activities provided net cash of $16.0 million in the year ended September 30, 2014 compared to $4.8 million in the year ended September 30,2013. For the year ended September 30, 2014, we raised $19.6 million through a rights offering. This was partly offset by $3.5 million used for repayments onour 2012 Credit Facility and $0.2 used for the repurchase of common stock to satisfy employee payroll tax withholding obligations. For the year endedSeptember 30, 2013, we entered into the Wells Fargo Term Loan in fiscal 2013, repaid the Tontine Term Loan, and repaid $5.6 million in debt acquiredimmediately subsequent to the MISCOR acquisition. Financing activities in the year ended September 30, 2013 also included the release of $7.1 million inrestricted cash, as the requirement to cash collateralize borrowings on our 2012 Credit Facility was removed.Financing activities in the year ended September 30, 2012 included an increase of $7.1 million in restricted cash to satisfy the requirement of our 2012 CreditFacility. Additionally, $0.3 million and $0.2 million were used for the repayment of debt and the repurchase of common stock to satisfy payroll taxwithholding obligations, respectively. 36Table of ContentsCONTROLLING SHAREHOLDEROn August 15, 2014, Tontine filed an amended Schedule 13D indicating its ownership level of 61.4% of the Company’s outstanding common stock. As aresult, Tontine can control most of our affairs, including most actions requiring the approval of shareholders, such as the approval of any potential merger orsale of all or substantially all assets, segments, or the Company itself. While Tontine is subject to restrictions under federal securities laws on sales of itsshares as an affiliate, on February 20, 2013, pursuant to a Registration Rights Agreement, Tontine delivered a request to the Company for registration of all ofthe shares of IES common stock that it held at that time, and on February 21, 2013, the Company filed a shelf registration statement (as amended, the “ShelfRegistration Statement”) to register those of Tontine’s shares. The Shelf Registration Statement was declared effective by the SEC on June 18, 2013. As longas the Shelf Registration Statement remains effective, Tontine will have the ability to resell any or all of its registered shares from time to time in one or moreofferings, as described in the Shelf Registration Statement and in any prospectus supplement filed in connection with an offering pursuant to the ShelfRegistration Statement.Should Tontine sell, exchange, or otherwise dispose of all or a portion of its position in IES, a change in ownership could occur. A change in ownership, asdefined by Internal Revenue Code Section 382, could reduce the availability of net operating losses for federal and state income tax purposes. As ofSeptember 30, 2014 we had approximately $459 million of federal NOLs that are available to use to offset taxable income, inclusive of NOLs from theamortization of additional tax goodwill. As of September 30, 2014 we had approximately $317 million of federal NOLs that are available to use to offsettaxable income, exclusive of NOLs from the amortization of additional tax goodwill. On January 28, 2013, the Company implemented a tax benefitprotection plan (the “NOL Rights Plan”) that was designed to deter an acquisition of the Company’s stock in excess of a threshold amount that could triggera change of control within the meaning of Internal Revenue Code Section 382. The NOL Rights Plan was filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on January 28, 2013 and any description thereof is qualified in its entirety by the terms of the NOL Rights Plan. There can be noassurance that the NOL Rights Plan will be effective in deterring a change of control or protecting or realizing the NOLs. Furthermore, a change in controlwould trigger the change of control provisions in a number of our material agreements, including our 2012 Credit Facility, bonding agreements with oursureties and our executive severance plan.On February 13, 2013, we repaid the remaining $10.0 million of principal and accrued interest we had outstanding on a term loan we had outstanding withTontine.On March 13, 2013, the Company announced the entry into the Agreement and Plan of Merger with MISCOR, which was amended by the First Amendmentto Agreement and Plan of Merger, dated as of July 10, 2013 (as amended, the “Merger Agreement”). As of July 24, 2013, Tontine beneficially owned 49.9%of the issued and outstanding shares of MISCOR common stock. Given Tontine’s significant holdings in both the Company and MISCOR, only thedisinterested members of the IES Board of Directors voted on, and unanimously approved, the Merger Agreement. In addition, MISCOR established a specialcommittee of independent directors that voted on and approved the Merger Agreement and recommended approval of the Merger Agreement by the MISCORfull board of directors. After receiving approval from the special committee, the disinterested members of the MISCOR board of directors unanimouslyapproved the Merger Agreement. The merger was finalized on September 13, 2013. In connection with the merger, Tontine elected to receive stockconsideration in exchange for 100% of its shares of MISCOR common stock tendered pursuant to the merger, such that, according to its amended Schedule13D filed on September 13, 2013, its ownership of IES common stock increased from approximately 56.7% immediately prior to the merger to approximately58.0% immediately following the merger.On March 29, 2012, we entered into a sublease agreement with Tontine Associates, LLC, an affiliate of our controlling shareholder, for corporate office spacein Greenwich, Connecticut. The lease originally extended from April 1, 2012 through March 31, 2014, with monthly payments due in the amount of $6thousand, and was 37Table of Contentsrenewed in March 2014 for a subsequent two-year term at the same monthly rate. The lease has terms at market rates and payments by the Company are at arate consistent with that paid by Tontine Associates, LLC to its landlord.James M. Lindstrom has served as Chief Executive Officer and President of the Company since October 3, 2011. Mr. Lindstrom previously served in suchcapacities on an interim basis beginning in June 2011 and has served as Chairman of the Company’s Board of Directors since February 2011. Mr. Lindstromwas an employee of Tontine from 2006 until October 2011.David B. Gendell has served as a member of the Company’s Board of Directors since February 2012. Mr. Gendell, who is the brother of Jeffrey Gendell, thefounder and managing member of Tontine, is also an employee of Tontine.OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONSAs is common in our industry, we have entered into certain off-balance sheet arrangements that expose us to increased risk. Our significant off-balance sheettransactions include commitments associated with non-cancelable operating leases, letter of credit obligations, firm commitments for materials and suretyguarantees.We enter into non-cancelable operating leases for many of our vehicle and equipment needs. These leases allow us to retain our cash when we do not own thevehicles or equipment, and we pay a monthly lease rental fee. At the end of the lease, we have no further obligation to the lessor. We may cancel or terminatea lease before the end of its term. Typically, we would be liable to the lessor for various lease cancellation or termination costs and the difference between thefair market value of the leased asset and the implied book value of the leased asset as calculated in accordance with the lease agreement.Some of our customers and vendors require us to post letters of credit as a means of guaranteeing performance under our contracts and ensuring payment byus to subcontractors and vendors. If our customer has reasonable cause to effect payment under a letter of credit, we would be required to reimburse ourcreditor for the letter of credit. At September 30, 2014, $0.6 million of our outstanding letters of credit were to collateralize our customers and vendors.Some of the underwriters of our casualty insurance program require us to post letters of credit as collateral, as is common in the insurance industry. To date,we have not had a situation where an underwriter has had reasonable cause to effect payment under a letter of credit. At September 30, 2014, $6.3 million ofour outstanding letters of credit were to collateralize our insurance programs.From time to time, we may enter into firm purchase commitments for materials such as copper wire and aluminum wire, among others, which we expect to usein the ordinary course of business. These commitments are typically for terms less than one year and require us to buy minimum quantities of materials atspecified intervals at a fixed price over the term. As of September 30, 2014, we did not have any open purchase commitments.Many of our customers require us to post performance and payment bonds issued by a surety. Those bonds guarantee the customer that we will perform underthe terms of a contract and that we will pay subcontractors and vendors. In the event that we fail to perform under a contract or pay subcontractors andvendors, the customer may demand the surety to pay or perform under our bond. Our relationship with our sureties is such that we will indemnify the suretiesfor any expenses they incur in connection with any of the bonds they issue on our behalf. To date, we have not incurred any costs to indemnify our suretiesfor expenses they incurred on our behalf. 38Table of ContentsAs of September 30, 2014, our future contractual obligations due by September 30 of each of the following fiscal years include (in thousands) (1): Less than1 Year 1 to 3Years 3 to 5Years More than5 Years Total Long-term debt obligations $— $— $10,208 $— $10,208 Operating lease obligations 5,204 9,645 1,516 278 16,643 Total $5,204 $9,645 $11,724 $278 $26,851 (1)The tabular amounts exclude the interest obligations that will be created if the debt obligations are outstanding for the periods presented.Our other commitments expire by September 30 of each of the following fiscal years (in thousands): 2015 2016 2017 Thereafter Total Standby letters of credit $6,918 $— $— $— $6,918 Other commitments — — — — — Total $6,918 $— $— $— $6,918 CRITICAL ACCOUNTING POLICIESThe discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have beenprepared in accordance with GAAP. The preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect thereported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist as of the date the Consolidated Financial Statements,and the reported amounts of revenues and expenses recognized during the periods presented. We review all significant estimates affecting our ConsolidatedFinancial Statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Judgments and estimates are based onour beliefs and assumptions derived from information available at the time such judgments and estimates are made. Uncertainties with respect to suchestimates and assumptions are inherent in the preparation of financial statements. There can be no assurance that actual results will not differ from thoseestimates.Accordingly, we have identified the accounting principles which we believe are most critical to our reported financial status by considering accountingpolicies that involve the most complex or subjective decisions or assessments. We identified our most critical accounting policies to be those related torevenue recognition, the assessment of goodwill and asset impairment, our allowance for doubtful accounts receivable, the recording of our insuranceliabilities and estimation of the valuation allowance for deferred tax assets, and unrecognized tax benefits. These accounting policies, as well as others, aredescribed in Note 2, “Summary of Significant Accounting Policies” in the notes to our Consolidated Financial Statements, and at relevant sections in thisdiscussion and analysis.Revenue Recognition. We enter into contracts principally on the basis of competitive bids. We frequently negotiate the final terms and prices of thosecontracts with the customer. Although the terms of our contracts vary considerably, over 90% of our revenues are based on either a fixed price or unit pricebasis 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). Approximately 6% ofour revenues are earned from contracts where we are paid on a time and materials basis, and from time to time, we may enter into contracts on a cost plus basis.Our most significant cost drivers are the cost of labor, the cost of materials and the cost of casualty and health insurance. These costs may vary from the costswe originally estimated. Variations from estimated contract costs along with other risks inherent in performing fixed price and unit price contracts may resultin actual revenue and gross profits or interim projected 39Table of Contentsrevenue 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 particularproject, variations from estimated project costs could have a significant impact on our operating results for any fiscal quarter or year.We complete most of our projects within one year. We frequently provide service and maintenance work under open-ended, unit price master serviceagreements which are renewable annually. We recognize revenue on service, time and material work when services are performed. Work performed under aconstruction contract generally provides that the customers accept completion of progress to date and compensate us for services rendered, measured in termsof units installed, hours expended or some other measure of progress. Revenues from construction contracts are recognized on the percentage-of-completionmethod. Revenues recognized on a percentage-of-completion basis, all of which are fixed price arrangements, comprised approximately 60% of our totalrevenue for the year ended December 31, 2014. The percentage-of-completion method for construction contracts is measured principally by the percentage ofcosts incurred and accrued to date for each contract to the estimated total costs for each contract at completion. We generally consider contracts substantiallycomplete upon departure from the work site and acceptance by the customer. Contract costs include all direct material and labor costs and those indirect costsrelated to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Changes in job performance, job conditions, estimatedcontract costs, profitability and final contract settlements may result in revisions to costs and income, and the effects of such revisions are recognized in theperiod in which the revisions are determined. Provisions for total estimated losses on uncompleted contracts are made in the period in which such losses aredetermined.The current asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billedthat management believes will be billed and collected within the next twelve months. The current liability “Billings in excess of costs and estimated earningson uncompleted contracts” represents billings in excess of revenues recognized. Costs and estimated earnings in excess of billings on uncompleted contractsare amounts considered recoverable from customers based on different measures of performance, including achievement of specific milestones, completion ofspecified units or completion of the contract. Also included in this asset, from time to time, are claims and unapproved change orders, which include amountsthat we are in the process of collecting from our customers or agencies for changes in contract specifications or design, contract change orders in dispute orunapproved as to scope and price, or other related causes of unanticipated additional contract costs. Claims and unapproved change orders are recorded atestimated realizable value when collection is probable and can be reasonably estimated. We do not recognize profits on construction costs incurred inconnection with claims. Claims made by us involve negotiation and, in certain cases, litigation. Such litigation costs are expensed as incurred.Valuation of Intangibles and Long-Lived Assets. We evaluate goodwill for potential impairment at least annually at year end, however, if impairmentindicators exist, we will evaluate as needed. In evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whetherit is more likely than not that the fair value of a reporting unit is greater than its carrying value. If we determine that it is more likely than not that the carryingvalue of a reporting unit is greater than its fair value, then we perform an impairment test by calculating the fair value of the reporting unit and comparing thiscalculated fair value with the carrying value of the reporting unit. Included in this evaluation are certain assumptions and estimates to determine the fairvalues of reporting units such as estimates of future cash flows and discount rates, as well as assumptions and estimates related to the valuation of otheridentified intangible assets. Changes in these assumptions and estimates or significant changes to the market value of our common stock could materiallyimpact our results of operations or financial position. We did not record goodwill impairment during the years ended September 30, 2014, 2013 or 2012.Each reporting period, we assess impairment indicators related to long-lived assets and intangible assets. If we determine impairment indicators exist, weconduct an evaluation to determine whether any impairment has occurred. This evaluation includes certain assumptions and estimates to determine fair valueof asset groups, including estimates about future cash flows and discount rates, among others. Changes in these assumptions and 40Table of Contentsestimates could materially impact our results of operations or financial projections. We recorded long-lived or intangible asset impairment during the yearsended September 30, 2013 and 2012 of $0.2 million and $0.7 million, respectively, which was primarily attributable to real estate we sold at September 30,2013. The impairment charges were recorded to reduce the carrying value of the property to its current expected fair value. No impairment charges wererecorded in the year ended September 30, 2014.Current and Non-Current Accounts and Notes Receivable and Provision for Doubtful Accounts. We provide an allowance for doubtful accounts forunknown collection issues, in addition to reserves for specific accounts receivable where collection is considered doubtful. Inherent in the assessment of theallowance for doubtful accounts are certain judgments and estimates including, among others, our customers’ access to capital, our customers’ willingness topay, general economic conditions, and the ongoing relationships with our customers. In addition to these factors, the method of accounting for constructioncontracts 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. Theanalysis management utilizes to assess collectability of our receivables includes detailed review of older balances, analysis of days sales outstanding wherewe include in the calculation, in addition to accounts receivable balances net of any allowance for doubtful accounts, the level of costs in excess of billingsnetted 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 ofbillings, to revenues. These analyses provide an indication of those amounts billed ahead or behind the recognition of revenue on our construction contractsand are important to consider in understanding the operational cash flows related to our revenue cycle.Risk-Management. We are insured for workers’ compensation, automobile liability, general liability, construction defects, pollution, employment practicesand employee-related health care claims, subject to deductibles. Our general liability program provides coverage for bodily injury and property damage.Losses up to the deductible amounts are accrued based upon our estimates of the liability for claims incurred and an estimate of claims incurred but notreported. The accruals are derived from actuarial studies, known facts, historical trends and industry averages utilizing the assistance of an actuary todetermine the best estimate of the ultimate expected loss. We believe such accruals to be adequate; however, insurance liabilities are difficult to assess andestimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidentsincurred but not reported and the effectiveness of our safety program. Therefore, if actual experience differs from the assumptions used in the actuarialvaluation, adjustments to the reserve may be required and would be recorded in the period that the experience becomes known.Valuation Allowance for Deferred Tax Assets. We regularly evaluate valuation allowances established for deferred tax assets for which future realization isuncertain. We perform this evaluation quarterly. The estimation of required valuation allowances includes estimates of future taxable income. In assessing therealizability of deferred tax assets at September 30, 2014, we considered that it was more likely than not that some or all of the deferred tax assets would notbe realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which thosetemporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planningstrategies in making this assessment.Income Taxes. GAAP specifies the methodology by which a company must identify, recognize, measure and disclose in its financial statements the effects ofany uncertain tax return reporting positions that it has taken or expects to take. GAAP requires financial statement reporting of the expected future taxconsequences of uncertain tax return reporting positions on the presumption that all relevant tax authorities possess full knowledge of those tax reportingpositions, as well as all of the pertinent facts and circumstances, but it prohibits discounting of any of the related tax effects for the time value of money.The evaluation of a tax position is a two-step process. The first step is the recognition process to determine if it is more likely than not that a tax position willbe sustained upon examination by the appropriate taxing authority, based on the technical merits of the position. The second step is a measurement processwhereby a tax position 41Table of Contentsthat 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.The Financial Accounting Standards Board, (“FASB”) has issued standards on business combinations and accounting and reporting of non-controllinginterests in consolidated financial statements. Beginning October 1, 2009, with the adoption of the updates, reductions in the valuation allowance andcontingent tax liabilities attributable to all periods, if any should occur, are recorded as an adjustment to income tax expense.We are currently not under federal audit by the Internal Revenue Service. The tax years ended September 30, 2011 and forward are subject to audit as areprior tax years, to the extent of unutilized net operating losses generated in those years.We anticipate that approximately $6 thousand in liabilities for unrecognized tax benefits, including accrued interest, may be reversed in the next twelvemonths. This reversal is predominantly due to the expiration of the statutes of limitation for unrecognized tax benefits.New Accounting Pronouncements. Recent accounting pronouncements are described in Note 2, “Summary of Significant Accounting Policies — NewAccounting Pronouncements” in the notes to our Consolidated Financial Statements, and at relevant sections in this discussion and analysis.Item 7A. Quantitative and Qualitative Disclosures About Market RiskManagement is actively involved in monitoring exposure to market risk and continues to develop and utilize appropriate risk management techniques. Ourexposure to significant market risks includes fluctuations in labor costs, commodity prices for copper, aluminum, steel and fuel. Commodity price risks mayhave an impact on our results of operations due to the fixed price nature of many of our contracts. We are also exposed to interest rate risk with respect to ouroutstanding debt obligations on the 2012 Credit Facility. For additional information see “Risk Factors” in Item 1A of this Form 10-K.Commodity RiskOur exposure to significant market risks includes fluctuations in commodity prices for copper, aluminum, steel and fuel. Commodity price risks may have animpact on our results of operations due to fixed nature of many of our contracts. Over the long-term, we expect to be able to pass along a portion of thesecosts to our customers, as market conditions in the construction industry will allow.Interest Rate RiskWe are subject to interest rate risk on our floating interest rate borrowings. Floating rate debt, where the interest rate fluctuates periodically, exposes us toshort-term changes in market interest rates.While all of the long-term debt outstanding under our 2012 Credit Facility is structured on floating interest rate terms, approximately 90% of our long-termdebt outstanding as of September 30, 2014 was effectively subject to fully floating interest rate terms after giving effect to our interest rate hedgingarrangement. A one percentage point increase in the interest rates on our long-term debt outstanding under our 2012 Credit Facility as of September 30, 2014would cause a $0.1 million pre-tax annual increase in interest expense. 42Table of ContentsItem 8. Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 44 Consolidated Balance Sheets 45 Consolidated Statements of Comprehensive Income 46 Consolidated Statements of Stockholders’ Equity 47 Consolidated Statements of Cash Flows 48 Notes to Consolidated Financial Statements 49 43Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholders ofIntegrated Electrical Services, Inc.We have audited the accompanying consolidated balance sheets of Integrated Electrical Services, Inc. and subsidiaries (“the Company”) as of September 30,2014 and 2013, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in theperiod ended September 30, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engagedto perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Integrated ElectricalServices, Inc. and subsidiaries at September 30, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three yearsin the period ended September 30, 2014, in conformity with U.S. generally accepted accounting principles./s/ ERNST & YOUNG LLPHouston, TexasDecember 12, 2014 44Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIESConsolidated Balance Sheets(In Thousands, Except Share Information) September 30,2014 September 30,2013 ASSETS CURRENT ASSETS: Cash and cash equivalents $47,342 $20,757 Accounts receivable: Trade, net of allowance of $780 and $980, respectively 77,459 73,540 Retainage 15,442 17,473 Inventories 16,048 20,147 Costs and estimated earnings in excess of billings on uncompleted contracts 8,591 8,336 Prepaid expenses and other current assets 3,075 3,772 Total current assets 167,957 144,025 PROPERTY AND EQUIPMENT, net 10,188 10,414 GOODWILL 14,993 13,924 INTANGIBLE ASSETS 3,503 4,138 OTHER NON-CURRENT ASSETS 4,467 6,751 Total assets $201,108 $179,252 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Current maturities of long-term debt — 3,562 Accounts payable and accrued expenses 74,032 74,320 Billings in excess of costs and estimated earnings on uncompleted contracts 21,852 20,676 Total current liabilities 95,884 98,558 LONG-TERM DEBT, net of current maturities 10,208 10,210 OTHER NON-CURRENT LIABILITIES 7,044 7,998 Total liabilities 113,136 116,766 STOCKHOLDERS’ EQUITY: Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued and outstanding — — Common stock, $0.01 par value, 100,000,000 shares authorized; 22,049,529 and 18,203,379 shares issuedand 21,767,700 and 17,944,322 outstanding, respectively 220 182 Treasury stock, at cost, 281,829 and 259,057 shares, respectively (2,394) (2,332) Additional paid-in capital 194,719 174,514 Accumulated other comprehensive income (2) 17 Retained deficit (104,571) (109,895) Total stockholders’ equity 87,972 62,486 Total liabilities and stockholders’ equity $201,108 $179,252 The accompanying notes are an integral part of these Consolidated Financial Statements. 45Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIESConsolidated Statements of Comprehensive Income(In Thousands, Except Share Information) Years Ended September 30, 2014 2013 2012 Revenues $512,395 $494,593 $456,115 Cost of services 429,269 427,633 398,063 Gross profit 83,126 66,960 58,052 Selling, general and administrative expenses 75,571 66,598 58,609 Gain on sale of assets (86) (64) (168) Income (loss) from operations 7,641 426 (389) Interest and other (income) expense: Interest expense 1,574 1,771 2,324 Other (income) expense, net (203) 507 (96) Income (loss) from continuing operations before income taxes 6,270 (1,852) (2,617) Provision for income taxes 748 326 38 Net income (loss) from continuing operations $5,522 $(2,178) $(2,655) Discontinued operations (Note 19) Loss from discontinued operations (198) (1,395) (9,158) Benefit for income taxes — — (11) Net loss from discontinued operations (198) (1,395) (9,147) Net income (loss) $5,324 $(3,573) $(11,802) Unrealized gain (loss) on interest hedge, net of tax (19) 17 — Comprehensive income (loss) $5,305 $(3,556) $(11,802) Income (loss) per share: Continuing operations $0.30 $(0.14) $(0.18) Discontinued operations $(0.01) $(0.09) $(0.60) Basic $0.29 $(0.23) $(0.78) Diluted income (loss) per share: Continuing operations $0.30 $(0.14) $(0.18) Discontinued operations $(0.01) $(0.09) $(0.60) Diluted $0.29 $(0.23) $(0.78) Shares used in the computation of income (loss) per share Basic 18,417,564 15,460,424 15,123,052 Diluted 18,473,420 15,460,424 15,123,052 The accompanying notes are an integral part of these Consolidated Financial Statements. 46Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIESConsolidated Statements of Stockholders’ Equity(In Thousands, Except Share Information) Common Stock Treasury Stock APIC Accumulated OtherComprehensiveIncome (Loss) RetainedDeficit TotalStockholders’Equity Shares Amount Shares Amount BALANCE, September 30, 2011 15,407,802 $154 (451,329) $(5,595) $164,263 $— $(94,520) $64,302 Restricted stock grant — — 107,500 1,322 (1,322) — — — Forfeiture of restricted stock — — (32,277) (92) 92 — — — Acquisition of treasury stock — — (54,296) (181) — — — (181) Non-cash compensation — — — — 838 — — 838 Net loss — — — — — — (11,802) (11,802) BALANCE, September 30, 2012 15,407,802 $154 (430,402) $(4,546) $163,871 $— $(106,322) $53,157 Restricted stock grant — — 266,814 2,649 (2,649) — — — Acquisition of treasury stock — — (95,469) (435) — — — (435) Non-cash compensation — — — — 1,430 — — 1,430 Interest rate swap — — — — 17 — 17 Issuance of stock related to acquisition 2,795,577 28 — — 11,862 — — 11,890 Net loss — — — — — — (3,573) (3,573) BALANCE, September 30, 2013 18,203,379 $182 (259,057) $(2,332) $174,514 $17 $(109,895) $62,486 Restricted stock grant — — 13,500 117 (117) — — — Acquisition of treasury stock — — (36,272) (179) — — — (179) Non-cash compensation — — — — 711 — — 711 Interest rate swap — — — — — (19) — (19) Shares issued in rights offering 3,846,150 38 — — 19,611 — — 19,649 Net income (loss) — — — — — — 5,324 5,324 BALANCE, September 30, 2014 22,049,529 $220 (281,829) $(2,394) $194,719 $(2) $(104,571) $87,972 The accompanying notes are an integral part of these Consolidated Financial Statements. 47Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows(In Thousands) Years Ended September 30, 2014 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $5,324 $(3,573) $(11,802) Adjustments to reconcile net loss to net cash provided by operating activities: Bad debt expense 170 4 (858) Deferred financing cost amortization 385 286 209 Depreciation and amortization 2,526 2,552 2,146 Loss on sale of assets 218 119 44 Non-cash compensation expense 711 1,430 838 Impairment — 1,475 688 Deferred income taxes — — (39) Changes in operating assets and liabilities Accounts receivable (4,137) 3,987 11,130 Inventories 3,788 2,523 (6,698) Costs and estimated earnings in excess of billings on uncompleted contracts (256) (155) 1,782 Prepaid expenses and other current assets 2,295 670 (273) Other non-current assets 592 (625) 211 Accounts payable and accrued expenses 39 (1,201) (10,114) Billings in excess of costs and estimated earnings on uncompleted contracts 1,176 (4,579) 5,670 Other non-current liabilities (233) (959) (305) Net cash provided by (used in) operating activities 12,598 1,954 (7,371) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,982) (444) (1,877) Proceeds from sales of property and equipment — 829 — Cash paid in conjunction with business combination — (5,155) — Net cash used in investing activities (1,982) (4,770) (1,877) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of debt — 15,167 — Repayments of debt (3,502) (17,042) (264) Purchase of treasury stock (179) (436) (181) Change in restricted cash — 7,155 (7,155) Issuance of shares through rights offering 19,650 — — Net cash provided by (used in) financing activities 15,969 4,844 (7,600) NET INCREASE (DECREASE) IN CASH EQUIVALENTS 26,585 2,028 (16,848) CASH AND CASH EQUIVALENTS, beginning of period 20,757 18,729 35,577 CASH AND CASH EQUIVALENTS, end of period $47,342 $20,757 $18,729 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 2014 2013 2012 Cash paid for interest $1,149 $1,115 $1,646 Cash paid for income taxes $732 $496 $436 The accompanying notes are an integral part of these Consolidated Financial Statements. 48Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts)1. BUSINESSDescription of the BusinessIntegrated Electrical Services, Inc. is a holding company that owns and manages operating subsidiaries in business activities across a variety of end markets.Our operations are currently organized into four principal business segments, based upon the nature of our current products and services: • Communications – Nationwide provider of products and services for mission critical infrastructure, such as data centers, of large corporations. • Residential – Regional provider of electrical installation services for single-family housing and multi-family apartment complexes. • Commercial & Industrial – Provider of electrical design, construction, and maintenance services to the commercial and industrial markets invarious regional markets and nationwide in certain areas of expertise, such as the power infrastructure market. • Infrastructure Solutions – Provider of industrial and rail services, and electrical and mechanical solutions to domestic and internationalcustomers. This segment was created in connection with the September 2013 acquisition of MISCOR.The words “IES”, the “Company”, “we”, “our”, and “us” refer to Integrated Electrical Services, Inc. and, except as otherwise specified herein, to our wholly-owned subsidiaries.Our Communications segment is a leading provider of network infrastructure products and services for data centers and other mission critical environments.Services offered include the design, installation and maintenance of network infrastructure for the financial, medical, hospitality, government, high-techmanufacturing, educational and information technology industries. We also provide the design and installation of audio/visual, telephone, fire, wireless andintrusion alarm systems as well as design/build, service and maintenance of data network systems. We perform services across the United States from our 11offices, which include our Communications headquarters located in Tempe, Arizona, allowing for dedicated onsite maintenance teams at our customers’ sites.Our Residential segment provides electrical installation services for single-family housing and multi-family apartment complexes and CATV cablinginstallations for residential and light commercial applications. In addition to our core electrical construction work, the Residential segment has expanded itsofferings by providing services for the installation of residential solar power, smart meters, electric car charging stations and stand-by generators, both for newconstruction and existing residences. The Residential segment is made up of 23 locations, which include our Residential headquarters in Houston. Thesesegment locations geographically cover Texas, the Sun-Belt, and the Western and Mid-Atlantic regions of the United States, including Hawaii.Our Commercial & Industrial segment is one of the largest providers of electrical contracting services in the United States. The segment offers a broad rangeof electrical design, construction, renovation, engineering and maintenance services to the commercial and industrial markets. The Commercial & Industrialsegment consists of 19 locations, which include our Commercial & Industrial headquarters in Houston, Texas. These locations geographically cover Texas,Nebraska, Colorado, Oregon and the Mid-Atlantic region. Services include the design of electrical systems within a building or complex, procurement andinstallation of wiring and connection to power sources, end-use equipment and fixtures, as well as contract maintenance. We focus on projects that requirespecial 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 transmission and distribution and power generation 49Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) facilities. We also focus on service, maintenance and certain renovation and upgrade work, which tends to be either recurring or have lower sensitivity toeconomic cycles, or both. We provide services for a variety of commercial and industrial projects, and maintenance services which generally providerecurring revenues that are typically less affected by levels of construction activity.Our Infrastructure Solutions segment provides maintenance and repair services, including electric motor repair and rebuilding for the steel, railroad, marine,petrochemical, pulp and paper, wind energy, mining, automotive and power generation industries. Infrastructure Solutions repairs and services industriallifting magnets for the steel and scrap industries, provides locomotive maintenance, remanufacturing, and repair services to the rail industry, andmanufactures and rebuilds power assemblies, engine parts, and other components for large diesel engines. Infrastructure Solutions is comprised of ninelocations, headquartered in Ohio. These segment locations geographically cover Alabama, Indiana, Ohio, West Virginia, Maryland and California.Controlling ShareholderAt September 30, 2014, Tontine Capital Partners, L.P. and its affiliates (collectively, “Tontine”), was the controlling shareholder of the Company’s commonstock. Accordingly, Tontine has the ability to exercise significant control over our affairs, including the election of directors and most actions requiring theapproval of shareholders, including the approval of any potential merger or sale of all or substantially all assets or segments of the Company, or the Companyitself. For a more complete discussion on our relationship with Tontine, please refer to Note 3, “Controlling Shareholder” in the notes to our ConsolidatedFinancial Statements.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of ConsolidationThe accompanying consolidated financial statements include the accounts of IES and its wholly-owned subsidiaries. All significant intercompany accountsand transactions have been eliminated in consolidation.Asset ImpairmentDuring the fiscal year ended September 30, 2014, the Company incurred no asset impairment charges.During the fiscal years ended September 30, 2013 and 2012, the Company recorded pretax non-cash asset impairment charges of $200 and $688,respectively, related to real estate held by our Commercial & Industrial segment. The real estate was held within a location selected for closure during 2011.This impairment was to adjust the carrying value of real estate held for sale to the estimated market value less expected selling expenses. The real estate wassold on September 30, 2013. The impairment charges are included in our net loss from discontinued operations within our Consolidated Statements ofComprehensive Income.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires theuse of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the dateof the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.Estimates are primarily used in our revenue recognition of construction in progress, fair value assumptions in analyzing goodwill, investments, intangibleassets and long-lived asset impairments 50Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) and adjustments, allowance for doubtful accounts receivable, stock-based compensation, reserves for legal matters, realizability of deferred tax assets,unrecognized tax benefits and self-insured claims liabilities and related reserves.Cash and Cash EquivalentsWe consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.InventoriesInventories generally consist of raw materials, work in process, finished goods, and parts and supplies held for use in the ordinary course of business.Inventory is valued at the lower of cost or market generally using the historical average cost or first-in, first-out (FIFO) method. When circumstances dictate,we write down inventory to its estimated realizable value based on assumptions about future demand, market conditions, plans for disposal, and physicalcondition of the product. Where shipping and handling costs on inventory purchases are borne by us, these charges are included in inventory and charged tocost of services upon use in our projects or the providing of services.Securities and Equity InvestmentsOur investments in entities where we do not have the ability to exercise significant influence are accounted for using the cost method of accounting. Eachperiod, we evaluate whether an event or change in circumstances has occurred that may indicate an investment has been impaired. If, upon furtherinvestigation of such events, we determine the investment has suffered a decline in value that is other than temporary, we write down the investment to itsestimated fair value.Long-Term ReceivablesFrom time to time, we enter into payment plans with certain customers over periods in excess of one year. We classify these receivables as long-termreceivables. Additionally, we provide an allowance for doubtful accounts for specific long-term receivables where collection is considered doubtful.Property and EquipmentAdditions of property and equipment are recorded at cost, and depreciation is computed using the straight-line method over the estimated useful life of therelated asset. Leasehold improvements are capitalized and depreciated over the lesser of the life of the lease or the estimated useful life of the asset.Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the usefullives of existing property and equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the capitalized cost andrelated accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statements of comprehensive income inthe caption (gain) loss on sale of assets. 51Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) GoodwillGoodwill attributable to each reporting unit is tested for impairment by comparing the fair value of each reporting unit with its carrying value. Theseimpairment tests are required to be performed at least annually. On an ongoing basis (absent any impairment indicators), we perform an impairment testannually using a measurement date of September 30. In evaluating goodwill for impairment, we have the option to first assess qualitative factors to determinewhether it is more likely than not that the fair value of a reporting unit is greater than its carrying value. If we determine that it is more likely than not that thecarrying value of a reporting unit is greater than its fair value, then we perform an impairment test by calculating the fair value of the reporting unit andcomparing this calculated fair value with the carrying value of the reporting unit.We estimate the fair value of the reporting unit based on both a market approach and an income approach, using discounted estimated future cash flows. Themarket approach uses market multiples of enterprise value to earnings before interest, taxes, depreciation and amortization for comparable publicly tradedcompanies. The income approach relies on significant estimates for future cash flows, projected long-term growth rates, and the weighted average cost ofcapital.Intangible AssetsIntangible assets with definite lives are amortized over their estimated useful lives based on expected economic benefit with no residual value. Customerrelationships are amortized assuming gradual attrition. Intangible assets with indefinite lives are not subject to amortization. We perform a test for impairmentannually, or more frequently when indicators of impairment are present.Debt Issuance CostsDebt issuance costs are included in other noncurrent assets and are amortized to interest expense over the scheduled maturity of the debt. Amortizationexpense of debt issuance costs was $385, $522 and $568, respectively, for the years ended 2014, 2013 and 2012. Remaining unamortized capitalized debtissuance costs were $1,158 and $1,449 at September 30, 2014, and September 30, 2013, respectively.Revenue RecognitionRevenue is generally recognized once the following four criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery of the product hasoccurred or services have been rendered, (iii) the price of the product or service is fixed and determinable, and (iv) collectability is reasonably assured. Costsassociated with these products and services are recognized within the period they are incurred.We recognize revenue on project contracts using the percentage of completion method. Project contracts generally provide that customers accept completionof progress to date and compensate us for services rendered measured in terms of units installed, hours expended or some other measure of progress. Werecognize revenue on both signed contracts and change orders. A discussion of our treatment of claims and unapproved change orders is described later inthis section. Percentage of completion for construction contracts is measured principally by the percentage of costs incurred and accrued to date for eachcontract to the estimated total cost for each contract at completion. We generally consider contracts to be substantially complete upon departure from thework site and acceptance by the customer. Contract costs include all direct material, labor and insurance costs and those indirect costs related to contractperformance, such as indirect labor, supplies, tools, repairs and depreciation costs. Changes in job performance, job conditions, estimated contract costs andprofitability and 52Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) final contract settlements may result in revisions to costs and income and the effects of these revisions are recognized in the period in which the revisions aredetermined. Provisions for total estimated losses on uncompleted contracts are made in the period in which such losses are determined. The balances billedbut not paid by customers pursuant to retainage provisions in project contracts will be due upon completion of the contracts and acceptance by the customer.Based on our experience, the retention balance at each balance sheet date will be collected within the subsequent fiscal year.Certain divisions in the Residential segment use the completed contract method of accounting because the duration of their contracts is short in nature. Werecognize revenue on completed contracts when the project is complete and billable to the customer. Provisions for estimated losses on these contracts arerecorded in the period such losses are determined.The current asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billedwhich management believes will generally be billed and collected within the next twelve months. Also included in this asset, from time to time, are claimsand unapproved change orders which are amounts we are in the process of collecting from our customers or agencies for changes in contract specifications ordesign, contract change orders in dispute or unapproved as to scope and price, or other related causes of unanticipated additional contract costs. Claims arelimited to costs incurred and are recorded at estimated realizable value when collection is probable and can be reasonably estimated. We do not recognizeprofits on project costs incurred in connection with claims. Claims made by us involve negotiation and, in certain cases, litigation. Such litigation costs areexpensed as incurred. As of September 30, 2014, 2013 and 2012, there were no material revenues recorded associated with any outstanding claims. Thecurrent liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized. Costsand estimated earnings in excess of billings on uncompleted contracts are amounts considered recoverable from customers based on different measures ofperformance, including achievement of specific milestones, completion of specified units or at the completion of the contract.Accounts Receivable and Allowance for Doubtful AccountsWe record accounts receivable for all amounts billed and not collected. Generally, we do not charge interest on outstanding accounts receivable; however,from time to time we may believe it necessary to charge interest on a case by case basis. Additionally, we provide an allowance for doubtful accounts forspecific accounts receivable where collection is considered doubtful as well as for general unknown collection issues based on historical trends. Accountsreceivable not determined to be collectible are written off as deemed necessary in the period such determination is made. As is common in our industry, someof these receivables are in litigation or require us to exercise our contractual lien rights in order to collect. These receivables are primarily associated with afew divisions within our Commercial & Industrial segment. Certain other receivables are slow-pay in nature and require us to exercise our contractual or lienrights. We believe that our allowance for doubtful accounts is sufficient to cover uncollectible receivables as of September 30, 2014.Comprehensive IncomeComprehensive income includes all changes in equity during a period except those resulting from investments by and distributions to stockholders. 53Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) Income TaxesWe follow the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recorded for thefuture income tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities, and are measuredusing enacted tax rates and laws.We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. We perform this evaluation on aquarterly basis. The estimation of required valuation allowances includes estimates of future taxable income. In assessing the realizability of deferred taxassets at September 30, 2014, we considered whether it was more likely than not that some portion or all of the deferred tax assets would not be realized. Theultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differencesbecome deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making thisassessment. If actual future taxable income is different from the estimates, our results could be affected. We have determined to fully reserve against such anoccurrence.On May 12, 2006, we had a change in ownership as defined in Internal Revenue Code Section 382. Internal Revenue Code Section 382 limits the utilizationof net operating losses that existed as of the change in ownership in tax periods subsequent to the change in ownership. As such, our utilization after thechange date of net operating losses in existence as of the change in ownership is subject to Internal Revenue Code Section 382 limitations for federal incometaxes and some state income taxes. We have provided valuation allowances on all net operating losses where it is determined it is more likely than not thatthey will expire without being utilized.Risk-ManagementWe retain the risk for workers’ compensation, employer’s liability, automobile liability, construction defects, general liability and employee group healthclaims, as well as pollution coverage, resulting from uninsured deductibles per accident or occurrence which are subject to annual aggregate limits. Ourgeneral liability program provides coverage for bodily injury and property damage. Losses up to the deductible amounts are accrued based upon our knownclaims incurred and an estimate of claims incurred but not reported. Each year, we compile our historical data pertaining to the insurance experiences andactuarially developed the ultimate loss associated with our insurance programs other than pollution coverage, which was obtained in connection with theMISCOR acquisition. We believe that the actuarial valuation provides the best estimate of the ultimate losses to be expected under these programs.The undiscounted ultimate losses of all insurance reserves at September 30, 2014 and 2013, was $4,489 and $5,306, respectively. Based on historicalpayment patterns, we expect payments of undiscounted ultimate losses to be made as follows: Year Ended September 30: 2015 $1,322 2016 906 2017 609 2018 402 2019 210 Thereafter 1,040 Total $4,489 54Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) We elect to discount the ultimate losses above to present value using an approximate risk-free rate over the average life of our insurance claims. For the yearsended September 30, 2014 and 2013, the discount rate used was 1.8 percent and 1.4 percent, respectively. The present value of all insurance reserves for theemployee group health claims, workers’ compensation, auto and general liability recorded at September 30, 2014 and 2013 was $4,560 and $4,963,respectively. Our employee group health claims are anticipated to be resolved within the year ended September 30, 2015.We had letters of credit totaling $6,347 outstanding at September 30, 2014 to collateralize our high deductible insurance obligations.Realization of Long-Lived AssetsWe evaluate the recoverability of property and equipment and other long-lived assets as facts and circumstances indicate that any of those assets might beimpaired. If an evaluation is required for our assets we plan to hold and use, the estimated future undiscounted cash flows associated with the asset arecompared to the asset’s carrying amount to determine if an impairment of such property has occurred. The effect of any impairment would be to expense thedifference between the fair value of such property and its carrying value. Estimated fair values are determined based on expected future cash flows discountedat a rate we believe incorporates the time value of money, the expectations about future cash flows and an appropriate risk premium.During the years ended September 30, 2013 and 2012, we evaluated certain of our long-lived assets for impairments. These evaluations resulted inimpairment charges as described above under “Asset Impairment”. For the year ended September 30, 2014, no indicators of impairment were identified.Risk ConcentrationFinancial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash deposits and accounts receivable. We grantcredit, usually without collateral, to our customers, who are generally large public companies, contractors and homebuilders throughout the United States.Consequently, we are subject to potential credit risk related to changes in business and economic factors throughout the United States, specifically, withinthe construction, homebuilding and mission critical facility markets. However, we are entitled to payment for work performed and generally have certain lienrights in that work. Further, management believes that its contract acceptance, billing and collection policies are adequate to manage potential credit risk. Weroutinely maintain cash balances in financial institutions in excess of federally insured limits. We periodically assess the financial condition of theseinstitutions where these funds are held and believe the credit risk is minimal. We maintain the majority of our cash and cash equivalents in money marketmutual funds.No single customer accounted for more than 10% of our revenues for the years ended September 30, 2014, 2013 and 2012.Fair Value of Financial InstrumentsOur financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, investments, accounts payable, a loan agreement, andan interest rate swap agreement. We believe that the carrying value of financial instruments, with the exception of our cost method investment in EnerTechCapital Partners II L.P. (“Enertech”), a private investment fund, in the accompanying Consolidated Balance Sheets, 55Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) approximates their fair value due to their short-term nature. The carrying value of our debt approximates fair value, as debt incurs interest at a variable rate.We estimate the fair value of our investment in EnerTech (Level 3) using quoted market prices for underlying publicly traded securities, and estimatedenterprise values determined using cash flow projections and market multiples of the underlying non-public companies. For additional information, pleaserefer to Note 6, “Detail of Certain Balance Sheet Accounts – Securities and Equity Investments – Investment in EnerTech.”Stock-Based CompensationWe measure and record compensation expense for all share-based payment awards based on the fair value of the awards granted, net of estimated forfeitures,at the date of grant. We calculate the fair value of stock options using a binomial option pricing model. The fair value of restricted stock awards and phantomstock unit awards is determined based on the number of shares granted and the closing price of IES’s common stock on the date of grant. Forfeitures areestimated at the time of grant and revised as deemed necessary. The resulting compensation expense from discretionary awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period. The cash flows resulting from the tax deductions in excess of thecompensation expense recognized for options and restricted stock (excess tax benefit) are classified as financing cash flows.Deferred Compensation PlansThe Company maintains a rabbi trust to fund certain deferred compensation plans. The securities held by the trust are classified as trading securities. Theinvestments are recorded at fair value and are classified as other non-current assets in the accompanying Consolidated Balance Sheets as of September 30,2014 and 2013. The changes in fair values are recorded as unrealized gains (losses) as a component of other income (expense) in the Consolidated Statementsof Comprehensive Income.The corresponding deferred compensation liability is included in other non-current liabilities on the Consolidated Balance Sheets and changes in thisobligation are recognized as adjustments to compensation expense in the period in which they are determined.New Accounting PronouncementsIn May 2014, the FASB issued a comprehensive new revenue recognition standard which will supersede previous existing revenue recognition guidance. Thestandard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant factsand circumstances. The standard also requires expanded disclosures surrounding revenue recognition. The effective date will be the first quarter of our fiscalyear ended September 30, 2018. The standard allows for either full retrospective or modified retrospective adoption. We are currently evaluating the impactof the adoption of this standard on our consolidated financial statements.In August 2014, the FASB issued guidance that requires management to evaluate whether there are conditions or events that raise substantial doubt about anentity’s ability to continue as a going concern. If such conditions or events exist, disclosures are required that enable users of the financial statements tounderstand the nature of the conditions or events, management’s evaluation of the circumstances and management’s plans to mitigate the conditions orevents that raise substantial doubt about the entity’s ability to continue as a going concern. We will be required to perform an annual assessment of ourability to continue as a going concern when this standard 56Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) becomes effective for us in the first quarter of our fiscal year ended September 30, 2018; however, the adoption of this guidance is not expected to impact ourfinancial position, results of operations or cash flows.3. CONTROLLING SHAREHOLDERAt September 30, 2014, Tontine was the controlling shareholder of the Company’s common stock. Accordingly, Tontine has the ability to exercisesignificant control over our affairs, including the election of directors and most actions requiring the approval of shareholders.While Tontine is subject to restrictions under federal securities laws on sales of its shares as an affiliate, in 2013 Tontine delivered a request to the Companypursuant to a Registration Rights Agreement for registration of all of its shares of IES common stock held at that time, and on February 21, 2013, theCompany filed a shelf registration statement to register those of Tontine’s shares. The shelf registration statement was declared effective by the SEC onJune 18, 2013. As long as the shelf registration statement remains effective, Tontine has the ability to resell any or all of its registered shares from time to timein one or more offerings, as described in the shelf registration statement and in any prospectus supplement filed in connection with an offering pursuant to theshelf registration statement.Should Tontine sell or otherwise dispose of all or a portion of its position in IES, a change in ownership could occur. A change in ownership, as defined byInternal Revenue Code Section 382, could reduce the availability of net operating losses (“NOLs”) for federal and state income tax purposes. On January 28,2013, the Company implemented a tax benefit protection plan (the “NOL Rights Plan”) that is designed to deter an acquisition of the Company’s stock inexcess of a threshold amount that could trigger a change of control within the meaning of Internal Revenue Code Section 382. For additional information onthe NOL Rights Plan please see our Current Report on Form 8-K, filed with the SEC on January 28, 2013. There can be no assurance that the NOL Rights Planwill be effective in deterring a change of control or protecting the NOLs. Furthermore, a change in control would trigger the change of control provisions in anumber of our material agreements, including our 2012 Credit Facility, bonding agreements with our sureties and our severance arrangements.4. PROPERTY AND EQUIPMENTProperty and equipment consists of the following: EstimatedUsefulLives inYears Years EndedSeptember 30,2014 2013 Land N/A $889 $689 Buildings 5-20 3,582 3,762 Transportation equipment 3-5 1,263 1,688 Machinery and equipment 3-10 7,362 7,251 Leasehold improvements 5-10 2,312 2,313 Information systems 2-8 15,624 15,408 Furniture and fixtures 5-7 689 776 $31,721 $31,887 Less — Accumulated depreciation and amortization (21,739) (21,570) Construction in Progress 206 97 Property and equipment, net $10,188 $10,414 57Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) Depreciation and amortization expense from continuing operations was $2,526, $2,552 and $2,075, respectively, for the years ended September 30, 2014,2013 and 2012.5. PER SHARE INFORMATIONBasic earnings per share is calculated as income (loss) available to common stockholders, divided by the weighted average number of common sharesoutstanding during the period. If the effect is dilutive, participating securities are included in the computation of basic earnings per share. Our participatingsecurities do not have a contractual obligation to share in the losses in any given period. As a result, these participating securities will not be allocated anylosses in the periods of net losses, but will be allocated income in the periods of net income using the two-class method. 58Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) The following table reconciles the components of the basic and diluted loss per share for the years ended September 30, 2014, 2013 and 2012: Years Ended September 30, 2014 2013 2012 Numerator: Net income (loss) from continuing operationsattributable to common shareholders $5,500 $(2,178) $(2,655) Net income (loss) from continuing operationsattributable to restricted shareholders 22 — — Net income (loss) from continuing operations $5,522 $(2,178) $(2,655) Net loss from discontinued operations attributable tocommon shareholders $(198) $(1,395) $(9,147) Net loss from discontinued operations $(198) $(1,395) $(9,147) Net income (loss) attributable to common shareholders $5,302 $(3,573) $(11,802) Net income attributable to restricted shareholders 22 — — Net income (loss) $5,324 $(3,573) $(11,802) Denominator: Weighted average common shares outstanding — basic 18,417,564 15,460,424 15,123,052 Effect of dilutive stock options and non-vested restrictedstock 55,856 — — Weighted average common and common equivalentsharesoutstanding — diluted 18,473,420 15,460,424 15,123,052 Basic income (loss) per share: Basic income (loss) per share from continuing operations $0.30 $(0.14) $(0.18) Basic loss per share from discontinued operations $(0.01) $(0.09) $(0.60) Basic income (loss) per share $0.29 $(0.23) $(0.78) Diluted income (loss) per share: Diluted income (loss) per share from continuingoperations $0.30 $(0.14) $(0.18) Diluted loss per share from discontinued operations $(0.01) $(0.09) $(0.60) Diluted income (loss) per share $0.29 $(0.23) $(0.78) On August 7, 2014, we completed a rights offering of common stock to our stockholders at a subscription price that was lower than the market price of ourcommon stock at closing of the offering. For information on the 59Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) rights offering, please see “Note 11 – Stockholders’ Equity.” The rights offering was deemed to contain a bonus element that is similar to a stock dividendrequiring us to adjust the weighted average number of common shares used to calculate basic and diluted earnings per share in prior periods retrospectivelyby a factor of 1.0340. Weighted average shares for the years ended September 30, 2013 and 2012 prior to giving effect to the rights offering were 14,952,054and 14,625,776 , respectively.6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTSActivity in our allowance for doubtful accounts on accounts and long-term receivables consists of the following: Years Ended September 30, 2014 2013 Balance at beginning of period $980 $1,788 Additions to costs and expenses 170 133 Deductions for uncollectible receivables written off, net of recoveries (370) (941) Balance at end of period $780 $980 Accounts payable and accrued expenses consist of the following: Years Ended September 30, 2014 2013 Accounts payable, trade $38,639 $40,659 Accrued compensation and benefits 22,076 18,057 Accrued insurance liabilities 4,560 4,963 Other accrued expenses 8,757 10,641 $74,032 $74,320 Contracts in progress are as follows: Years Ended September 30, 2014 2013 Costs incurred on contracts in progress $281,764 $362,822 Estimated earnings 32,088 42,464 313,852 405,286 Less — Billings to date (327,113) (417,626) Net contracts in progress $(13,261) $(12,340) Costs and estimated earnings in excess of billings on uncompleted contracts 8,591 8,336 Less — Billings in excess of costs and estimated earnings on uncompletedcontracts (21,852) (20,676) Net contracts in progress $(13,261) $(12,340) 60Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) Other non-current assets are comprised of the following: Years Ended September 30, 2014 2013 Deposits $250 $999 Deferred tax assets 298 1,631 Executive Savings Plan assets 625 591 Securities and equity investments 919 919 Other 2,375 2,611 Total $4,467 $6,751 Securities and Equity InvestmentsInvestment in EnerTechAt September 30, 2014 and 2013, we held an investment in EnerTech Capital Partners II L.P. (“EnerTech), a private investment fund. As our investment was2.21 % of the overall ownership in EnerTech at September 30, 2014 and 2013, we account for this investment using the cost method of accounting.EnerTech’s investment portfolio from time to time results in unrealized losses reflecting a possible, other-than-temporary, impairment of our investment. Thecarrying value of our investment in EnerTech at September 30, 2014 and 2013 was $919.The following table presents the reconciliation of the carrying value and unrealized gains (losses) to the fair value of the investment in EnerTech as ofSeptember 30, 2014 and 2013: Years Ended September 30, 2014 2013 Carrying value $919 $919 Unrealized gains 94 138 Fair value $1,013 $1,057 At each reporting date, the Company performs an evaluation of impairment for securities to determine if any unrealized losses are other-than-temporary. Forequity securities, this evaluation considers a number of factors including, but not limited to, the length of time and extent to which the fair value has beenless than cost, the financial condition and near term prospects of the issuer and management’s ability and intent to hold the securities until fair valuerecovers. The assessment of the ability and intent to hold these securities to recovery focuses on liquidity needs, asset and liability management objectivesand securities portfolio objectives. Based on the results of this evaluation, we believe the unrealized gain at September 30, 2014 indicated our investmentwas not impaired.In December 31, 2013, EnerTech’s general partner, with the consent of the fund’s investors, extended the fund through December 31, 2014. The fund isexpected to terminate on this date unless extended by the fund’s valuation committee. The fund may be extended for another one-year period throughDecember 31, 2015 with the consent of the fund’s valuation committee. 61Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) 7. DEBTDebt consists of the following: September 30,2014 September 30,2013 Term Loan $— $13,708 Revolving Loan 10,208 — Capital leases and other — 64 Total debt 10,208 13,772 Less — Current maturities of long-term debt — 3,562 Total long-term debt $10,208 $10,210 At September 30, 2014, we had $17,334 available to us under the 2012 Credit Facility (as defined below), $6,918 in outstanding letters of credit with WellsFargo and $10,208 outstanding borrowings on our Revolving Loan (as defined below). All amounts outstanding under our Revolving Loan are due andpayable in 2018, upon expiration of the 2012 Credit Facility, and all amounts described as available are available without triggering our financial covenantunder the 2012 Credit Facility.For the years ended September 30, 2014, 2013 and 2012, we incurred interest expense of $1,574, $1,771 and $2,324, respectively.The 2012 Revolving Credit FacilityOn August 9, 2012, we entered into a Credit and Security Agreement (the “Credit Agreement”), for a credit facility (as amended, the “2012 Credit Facility”)with Wells Fargo Bank, National Association (“Wells Fargo”). We have subsequently entered into three amendments to the 2012 Credit Facility and enteredinto an Amended and Restated Credit and Security Agreement (the “Amended Credit Agreement”) as of September 24, 2014, which increased the maximumrevolver under the 2012 Credit Facility amount from $30 million to $60 million, and extended the maturity date by one year to August 9, 2018. In addition,under the Amended Credit Agreement, the Company eliminated its term loan facility so that borrowings that would previously have been made under theterm loan facility, including borrowings for acquisitions, will now be made under the revolving credit facility with terms more favorable than the term loanfacility, including a lower interest rate (as described below).The 2012 Credit Facility is guaranteed by our subsidiaries and secured by first priority liens on substantially all of our subsidiaries’ existing and futureacquired assets, exclusive of collateral provided to our surety providers. The 2012 Credit Facility also restricts us from paying cash dividends and placeslimitations on our ability to repurchase our common stock.The 2012 Credit Facility contains customary affirmative, negative and financial covenants. At September 30, 2014, we were subject to the financial covenantunder the 2012 Credit Facility requiring, at any time that our Liquidity (the aggregate amount of unrestricted cash and cash equivalents on hand plus ExcessAvailability, as defined in the Amended Credit Agreement) is less than $20 million or our Excess Availability is less than $5 million, that we maintain aFixed Charge Coverage Ratio of not less than 1.0:1.0. At September 30, 2014, our Liquidity was $64,676 and our Excess Availability was $17,334, and assuch, we were not required to maintain a 62Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) Fixed Charge Coverage Ratio of 1.0:1.0 as of such date. Nonetheless, at September 30, 2014, our Fixed Charge Coverage Ratio was 1.7:1.0. Compliance withour Fixed Charge Coverage Ratio, while not required at September 30, 2014, provides us with the ability to use cash on hand or to draw on our 2012 CreditFacility such that we can fall below the Excess Availability and Liquidity minimum thresholds described above without violating our financial covenant.Our Fixed Charge Coverage Ratio is calculated as (i) our trailing twelve month EBITDA (as defined in the 2012 Credit Facility), less non-financed capitalexpenditures (other than capital expenditures financed by means of an advance under the 2012 Credit Facility), cash taxes and certain pass-through taxliabilities, divided by (ii) the sum of our cash interest and principal debt payments (other than repayment of principal on advances under the 2012 CreditFacility) and all Restricted Junior Payments (as defined in the 2012 Credit Facility) (other than pass-through tax liabilities) and other cash distributions. Asdefined in the 2012 Credit Facility, EBITDA is calculated as consolidated net income (or loss), less extraordinary gains, interest income, non-operatingincome and income tax benefits and decreases in any change in LIFO reserves, plus stock compensation expense, non-cash extraordinary losses, interestexpense, income taxes, depreciation and amortization and increases in any change in LIFO reserves.If in the future our Liquidity or Excess Availability fall below $20 million or $5 million, respectively, and at that time our Fixed Charge Coverage Ratio isless than 1.0:1.0, or if we otherwise fail to perform or otherwise comply with certain of our covenants or other agreements under our 2012 Credit Facility, itwould result in an event of default under our 2012 Credit Facility, which could result in some or all of our indebtedness becoming immediately due andpayable.Borrowings under the 2012 Credit Facility may not exceed a “borrowing base” that is determined monthly by our lenders based on available collateral,primarily certain accounts receivables, inventories and personal property and equipment. Under the terms of the 2012 Credit Facility, amounts outstandingbear interest at a per annum rate equal to a Daily Three Month LIBOR (as defined in the Credit Agreement), plus an interest rate margin, which is determinedquarterly, based on the following thresholds: Level Thresholds Interest Rate MarginI Liquidity £ $20,000 at any time during the period; orExcess Availability £ $7,500 at any time during the period; orFixed charge coverage ratio < 1.0:1.0 3.00 percentage pointsII Liquidity > $20,000 at all times during the period; andLiquidity £ $30,000 at any time during the period; andExcess Availability $7,500; andFixed charge coverage ratio 1.0:1.0 2.50 percentage pointsIII Liquidity > $30,000 at all times during the period; andExcess Availability > $7,500; andFixed charge coverage ratio 1.0:1.0 2.00 percentage pointsIn addition, we are charged monthly in arrears for (1) an unused commitment fee of 0.50% per annum, (2) a collateral monitoring fee ranging from $1thousand to $2 thousand, based on the then-applicable interest rate margin, (3) a letter of credit fee based on the then-applicable interest rate margin and(4) certain other fees and charges as specified in the Amended Credit Agreement. 63Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) At September 30, 2014, the carrying value of amounts outstanding on our Revolving Loan approximated fair value, as debt incurs interest at a variable rate.The fair value of the debt is classified as a level 2 measurement.8. LEASESWe enter into operating leases for many of our facilities, vehicle and equipment needs. These leases allow us to retain cash, and we pay a monthly lease rentalfee. At the end of the lease, we have no further obligation to the lessor. We may cancel or terminate a lease before the end of its term. Typically, we would beliable to the lessor for various lease cancellation or termination costs and the difference between the fair market value of the leased asset and the impliedbook value of the leased asset as calculated in accordance with the lease agreement.For a discussion of leases with certain related parties which are included below, see Note 12, “Related-Party Transactions.”Rent expense was $5,300, $3,764 and $3,461 for the years ended September 30, 2014, 2013 and 2012, respectively, and included within the selling, generaland administrative expenses in the Consolidated Statements of Comprehensive Income.Future minimum lease payments under these non-cancelable operating leases with terms in excess of one year are as follows: Year Ended September 30: 2015 $5,204 2016 6,735 2017 2,910 2018 1,177 2019 339 Thereafter 278 Total $16,643 9. INCOME TAXESFederal and state income tax provisions for continuing operations are as follows: Years Ended September 30, 2014 2013 2012 Federal: Current $183 $— $— Deferred 182 — — State: Current 554 363 253 Deferred (171) (37) (215) $748 $326 $38 64Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate rate of 35 percent to income (loss)before income taxes is as follows: Years Ended September 30, 2014 2013 2012 Provision (benefit) at the statutory rate $2,195 $(648) $(918) Increase resulting from: Non-deductible expenses 563 1,269 490 State income taxes, net of federal deduction 544 377 106 Change in valuation allowance — — 581 Other — 29 — Decrease resulting from: Change in valuation allowance (2,547) (651) — Contingent tax liabilities (1) (50) (206) Other (6) — (15) $748 $326 $38 Deferred income tax provisions result from temporary differences in the recognition of income and expenses for financial reporting purposes and for incometax purposes. The income tax effects of these temporary differences, representing deferred income tax assets and liabilities, result principally from thefollowing: Years Ended September 30, 2014 2013 Deferred income tax assets: Allowance for doubtful accounts $295 $370 Accrued expenses 8,171 7,023 Net operating loss carryforward 107,072 110,259 Various reserves 1,363 1,022 Equity losses in affiliate 200 235 Share-based compensation 419 2,732 Capital loss carryforward 3,976 4,100 Intangible assets 1,071 683 Other 1,268 1,651 Subtotal 123,835 128,075 Less valuation allowance 121,878 126,500 Total deferred income tax assets $1,957 $1,575 Deferred income tax liabilities: Property and equipment $608 $570 Intangible assets 827 — Other 219 123 Total deferred income tax liabilities 1,654 693 Net deferred income tax assets $303 $882 In 2002, we adopted a tax accounting method change that allowed us to deduct goodwill for income tax purposes that had previously been classified as non-deductible. The accounting method change resulted in additional 65Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) amortizable tax basis in goodwill. We believe the realization of the additional tax basis in goodwill is not more likely than not and have not recorded adeferred tax asset. Although a deferred tax asset has not been recorded through September 30, 2014, we have derived a cumulative cash tax reduction of$11,485 from the change in tax accounting method and the subsequent amortization of the additional tax goodwill. In addition, the amortization of theadditional tax goodwill has resulted in additional federal net operating loss carry forwards of $142,014 and state net operating loss carry forwards of $15,058.We believe the realization of the additional net operating loss carry forwards is not more likely than not and have not recorded a deferred tax asset. We have$38 of tax basis in the additional tax goodwill that will be amortized during the year ended September 30, 2015.As of September 30, 2014, we had available approximately $459,426 of federal net tax operating loss carry forward for federal income tax purposes,including $142,014 resulting from the additional amortization of tax goodwill. This carry forward, which may provide future tax benefits, will begin toexpire in 2022. On May 12, 2006, we had a change in ownership as defined in Internal Revenue Code Section 382. As such, our utilization after the changedate of our net operating loss in existence as of the change of control date was subject to Section 382 limitations for federal income taxes and some stateincome taxes. The annual limitation under Section 382 on the utilization of federal net operating losses was approximately $20,000 for the first five tax yearssubsequent to the change in ownership and $16,000 thereafter. Approximately $295,318 of federal net operating losses will not be subject to this limitation.Also, after applying the Section 382 limitation to available state net operating loss carry forwards, we had available approximately $153,375 state net taxoperating loss carry forwards, including $15,058 resulting from the additional amortization of tax goodwill which begins to expire as of September 30, 2015 .We have provided valuation allowances on all net operating losses where it is determined it is more likely than not that they will expire without beingutilized.In assessing the realizability of deferred tax assets at September 30, 2014, we considered whether it was more likely than not that some portion or all of thedeferred tax assets will not be realized. Our realization of deferred tax assets is dependent upon the generation of future taxable income during the periods inwhich these temporary differences become deductible. However, GAAP guidelines place considerably more weight on historical results and less weight onfuture projections when there is negative evidence such as cumulative pretax losses in recent years. We incurred a cumulative pretax loss for the three yearsended September 30, 2014. In the absence of specific favorable evidence of sufficient weight to offset the negative evidence of the cumulative pretax loss, wehave provided valuation allowances of $117,059 for all federal deferred tax assets and $4,819 for certain state deferred tax assets. We believe that $859 and$114 of federal and state deferred tax assets, respectively, will be realized by offsetting reversing deferred tax liabilities. In addition, we have $955 of netstate deferred tax assets that we expect will be realized, and therefore valuation allowances were not provided for these assets. We also have certain deferredtax liabilities that may not be offset by deferred tax assets, and for which we have recorded a deferred tax liability of $652. As a result, we have recorded a netdeferred tax asset of $303 on our consolidated balance sheets. We will evaluate the appropriateness of our remaining deferred tax assets and valuationallowances on a quarterly basis.As a result of the reorganization and related adjustment to the book basis in goodwill, we have tax basis in excess of book basis in amortizable goodwill ofapproximately $24,190. The tax basis in amortizable goodwill in excess of book basis is not reflected as a deferred tax asset. To the extent the amortization ofthe excess tax basis results in a cash tax benefit, the benefit will first go to reduce goodwill, then other long-term intangible assets, and then tax expense.GAAP requires financial statement reporting of the expected future tax consequences of uncertain tax return reporting positions on the presumption that allrelevant tax authorities possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and circumstances, but it prohibitsdiscounting of any of 66Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) the related tax effects for the time value of money. The evaluation of a tax position is a two-step process. The first step is the recognition process to determineif 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 theposition. The second step is a measurement process whereby a tax position that meets the more likely than not recognition threshold is calculated todetermine the amount of benefit/expense to recognize in the financial statements. The tax position is measured at the largest amount of benefit/expense thatis more likely than not of being realized upon ultimate settlement.A reconciliation of the beginning and ending balances of unrecognized tax benefit is as follows: Years Ended September 30, 2014 2013 Balance at October 1, $55,612 $54,920 Additions for position related to current year 468 747 Additions for positions of prior years 2 8 Reduction resulting from the lapse of the applicable statutes of limitations 3 63 Reduction resulting from settlement of positions of prior years — — Balance at September 30, $56,079 $55,612 As of September 30, 2014 and 2013, $56,079 and $55,612, respectively, of unrecognized tax benefits would result in a decrease in the provision for incometax expense, of which $50,759 and $50,311 for each of those years, respectively, relates to net operating loss from additional goodwill resulting from the taxaccounting method change discussed above. We believe the realization of the net operating losses resulting from the tax accounting method change is notmore likely than not and have not recorded a deferred tax asset. However, if we are partially or fully successful in defending our tax accounting methodchange we may realize a portion or all of the deferred tax asset related to this net operating loss, offset by an increase in the valuation allowance. Weanticipate that approximately $6 of unrecognized tax benefits, including accrued interest, may reverse in the next twelve months. The reversal ispredominately due to the expiration of the statutes of limitation for unrecognized tax benefits.We had approximately $7 and $6 accrued for the payment of interest and penalties at September 30, 2014 and 2013, respectively. We recognize interest andpenalties related to unrecognized tax benefits as part of the provision for income taxes.We are currently not under federal audit by the Internal Revenue Service. The tax years ended September 30, 2011 and forward are subject to federal audit asare tax years prior to September 30, 2011, to the extent of unutilized net operating losses generated in those years. The tax years ended September 30, 2010and forward are subject to state audits as are tax years prior to September 30, 2010, to the extent of unutilized net operating losses generated in those years. 67Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) The net deferred income tax assets and liabilities are comprised of the following: Years Ended September 30, 2014 2013 Current deferred income taxes: Assets $201 $442 Liabilities 196 286 Net deferred tax asset, current $5 $156 Noncurrent deferred income taxes: Assets $1,961 $1,631 Liabilities 1,663 905 Net deferred tax asset, non-current 298 726 Net deferred income tax assets $303 $882 10. OPERATING SEGMENTSWe manage and measure performance of our business in four distinct operating segments: Communications, Residential, Commercial & Industrial, andInfrastructure Solutions. These segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for thepurposes of allocating resources and assessing performance. The Company’s CODM is its Chief Executive Officer.The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance basedon income from operations of the respective business units prior to the allocation of Corporate office expenses. Transactions between segments are eliminatedin consolidation. Our Corporate office provides general and administrative as well as support services to our four operating segments. Management allocatescosts between segments for selling, general and administrative expenses and depreciation expense. 68Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) Segment information for the years ended September 30, 2014, 2013 and 2012 is as follows: Years Ended September 30, 2014 Communications Residential Commercial &Industrial InfrastructureSolutions Corporate Total Revenues $116,073 $182,514 $166,249 $47,559 $— $512,395 Cost of services 94,904 148,685 148,081 37,599 — 429,269 Gross profit 21,169 33,829 18,168 9,960 — 83,126 Selling, general and administrative 13,481 27,947 14,479 9,346 10,318 75,571 Gain on sale of assets 6 4 (46) (50) — (86) Income (loss) from operations $7,682 $5,878 $3,735 $664 $(10,318) $7,641 Other data: Depreciation and amortization expense $414 $491 $270 $980 $371 $2,526 Capital expenditures 331 420 266 828 137 1,982 Total assets $30,415 $40,555 $43,937 $27,272 $58,929 $201,108 Years Ended September 30, 2013 Communications Residential Commercial &Industrial InfrastructureSolutions Corporate Total Revenues $126,348 $162,611 $203,481 $2,153 $— $494,593 Cost of services 102,564 135,384 187,957 1,728 — 427,633 Gross profit 23,784 27,227 15,524 425 — 66,960 Selling, general and administrative 13,610 25,447 14,362 337 12,842 66,598 Loss (gain) on sale of assets — (17) (46) — (1) (64) Income (loss) from operations $10,174 $1,797 $1,208 $88 $(12,841) $426 Other data: Depreciation and amortization expense $372 $807 $247 $38 $1,088 $2,552 Capital expenditures 269 209 270 5 — 753 Total assets $24,858 $36,838 $55,342 $27,889 $34,325 $179,252 Years Ended September 30, 2012 Communications Residential Commercial &Industrial InfrastructureSolutions Corporate Total Revenues $121,492 $129,974 $204,649 $— $— $456,115 Cost of services 103,288 109,274 185,501 — — 398,063 Gross profit 18,204 20,700 19,148 — — 58,052 Selling, general and administrative 13,431 19,703 17,166 — 8,309 58,609 Loss (gain) on sale of assets (60) 24 (132) — — (168) Income (loss) from operations $4,833 $973 $2,114 $— $(8,309) $(389) Other data: Depreciation and amortization expense $260 $375 $244 $— $1,196 $2,075 Capital expenditures 569 666 341 — 301 1,877 Total assets $29,603 $33,927 $65,929 $— $35,254 $164,713 69Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) 11. STOCKHOLDERS’ EQUITYCommon Stock Rights OfferingOn August 7, 2014, we completed a $20,000 rights offering (the “Rights Offering”). In the Rights Offering, the Company distributed, at no charge, to theholders of shares of its common stock on July 7, 2014, one non-transferable subscription right for each share of common stock owned. Each right entitled theholder thereof to purchase from the Company 0.214578135 shares of common stock at a subscription price of $5.20 per share, which represented a discountto the market price of the common stock at the closing of the offering. In addition, holders who purchased all of the shares of common stock available to themwere entitled to subscribe, at the same subscription price of $5.20 per share, for a portion of any shares of common stock that other holders did not purchase,subject to certain limitations (the “Over-Subscription Privilege”). The Rights Offering was fully subscribed, after giving effect to the exercise of Over-Subscription Privileges, and we received net proceeds of approximately $19,649, after deducting estimated offering expenses, for the issuance of 3,846,150shares of common stock.Immediately after giving effect to the Rights Offering, we had 21,768,642 shares of common stock issued and outstanding. Tontine beneficially ownedapproximately 60% of the shares of common stock outstanding immediately prior to launch of the Rights Offering, and immediately after giving effect to theRights Offering, Tontine beneficially owned approximately 61% of the Company’s outstanding shares.Equity Incentive PlanThe 2006 Equity Incentive Plan became effective on May 12, 2006 (as amended, the “2006 Equity Incentive Plan”). The 2006 Equity Incentive Planprovides for grants of stock options as well as grants of stock, including restricted stock. This plan provided for approximately 2.0 million shares of commonstock authorized for issuance under the 2006 Equity Incentive Plan, of which approximately 648,029 shares are available for issuance at September 30, 2014.Treasury StockDuring the year ended September 30, 2014, we repurchased 36,272 common shares from our employees to satisfy minimum tax withholding requirementsupon the vesting of restricted stock issued under the 2006 Equity Incentive Plan. We issued 13,500 shares out of treasury stock under our share-basedcompensation programs for restricted shares granted.Restricted StockRestricted Stock Awards: FiscalYear SharesGranted WeightedAverage FairValue at Dateof Grant Shares Vested SharesOutstanding Expense recognizedthrough September 30,2014 2012 107,500 2.07 71,667 35,833 216 2013 12,500 5.00 4,167 8,333 40 2014 13,500 5.42 — 13,500 15 During the years ended September 30, 2014, 2013 and 2012, we recognized $201, $374, and $536, respectively, in compensation expense related to theserestricted stock awards. At September 30, 2014, the unamortized 70Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) compensation cost related to outstanding unvested restricted stock was $88. We expect to recognize $52 and $26 of this unamortized compensation expenseduring the years ended September 30, 2015 and 2016, respectively and $10 thereafter. A summary of restricted stock awards for the years endedSeptember 30, 2014, 2013 and 2012 is provided in the table below: Years Ended September 30, 2014 2013 2012 Unvested at beginning of year 159,246 257,826 376,200 Granted 13,500 12,500 107,500 Vested (115,080) (111,080) (192,973) Forfeited — — (32,901) Unvested at end of year 57,666 159,246 257,826 The fair value of shares vesting during the years ended September 30, 2014, 2013 and 2012 was $571, $528 and $661, respectively. Fair value was calculatedas the number of shares vested times the market price of shares on the date of vesting. The weighted average grant date fair value of unvested restricted stockat September 30, 2014 was $3.28.All the restricted shares granted under the 2006 Equity Incentive Plan (vested or unvested) participate in dividends issued to common shareholders, if any.Phantom Stock UnitsPhantom stock units (“PSUs”) are primarily granted to the members of the Board of Directors as part of their overall compensation. These PSUs are paid viaunrestricted stock grants to each director upon their departure from the Board of Directors. We record compensation expense for the full value of the grant onthe date of grant. For the years ended September 30, 2014, 2013 and 2012, we recognized $243, $295, and $159 in compensation expense related to thesegrants.From time to time, PSUs are granted to employees. These PSUs are paid via unrestricted stock grants to each employee upon the satisfaction of the grantterms. We record compensation expense for the PSUs granted to employees over the grant vesting period. For the years ended September 30, 2014, 2013 and2012, we recognized zero, $651, and $129 in compensation expense related to these grants. 71Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) Stock OptionsWe utilized a binomial option pricing model to measure the fair value of stock options granted. Our determination of fair value of share-based paymentawards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex andsubjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, the risk-free rate of return,and actual and projected employee stock option exercise behaviors. The expected life of stock options is not considered under the binomial option pricingmodel that we utilize. We did not issue stock options during the years ended September 30, 2014 and 2012. The assumptions used in the fair value methodcalculation for the year ended September 30, 2013 are disclosed in the following table: Year EndedSeptember 30,2013 Weighted average value per option granted during the period $3.43 Dividends (1) $— Stock price volatility (2) 66.6% Risk-free rate of return 0.9% Option term 10.0 years Expected life 6.0 years Forfeiture rate (3) 10.0% (1)We do not currently pay dividends on our common stock.(2)Based upon the Company’s historical volatility.(3)Based upon the Company’s historical data.Stock-based compensation expense recognized during the period is based on the value of the portion of the share-based payment awards that is ultimatelyexpected to vest during the period. Stock-based compensation expense recognized in the Consolidated Statements of Comprehensive Income is based onawards ultimately expected to vest. We estimate our forfeitures at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures differfrom those estimates.The following table summarizes activity under our stock option plans. Shares Weighted AverageExercise Price Outstanding, September 30, 2011 20,000 $3.24 Options granted — — Exercised — — Forfeited and Cancelled — — Outstanding, September 30, 2012 20,000 $3.24 Options granted 150,000 5.76 Exercised — — Forfeited and Cancelled — — Outstanding, September 30, 2013 170,000 $5.46 Options granted — — Exercised — — Forfeited and Cancelled — — Outstanding, September 30, 2014 170,000 $5.46 72Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) The following table summarizes options outstanding and exercisable at September 30, 2014: Exercise Prices Outstanding as ofSeptember 30,2014 RemainingContractual Lifein Years Weighted-AverageExercise Price Exercisable as ofSeptember 30,2014 Weighted-AverageExercise Price $3.24 20,000 6.80 $3.24 20,000 $3.24 $5.76 150,000 8.58 $5.76 — $— 170,000 $5.46 20,000 $3.24 Our 2011 options vested over a three year period at a rate of one-third per year upon the annual anniversary date of the grant. Our 2013 options cliff vest atthe end of a two year period ending at the anniversary date of the grant. All options expire ten years from the grant date if they are not exercised. Uponexercise of stock options, it is our policy to first issue shares from treasury stock, then to issue new shares. Unexercised stock options expire July 2021 andMay 2023.During the years ended September 30, 2014, 2013 and 2012, we recognized $267, $110 and $14, respectively, in compensation expense related to our stockoption awards. At September 30, 2014, the unamortized compensation cost related to outstanding unvested stock options was $145. We expect to recognizeall $145 of this unamortized compensation expense during the year ended September 30, 2015.The intrinsic value of stock options outstanding and exercisable was $57 and $36 at September 30, 2014 and 2013, respectively. The intrinsic value iscalculated as the difference between the fair value as of the end of the period and the exercise price of the stock options.12. RELATED-PARTY TRANSACTIONSOn September 13, 2013, we completed the acquisition of 100% of the voting equity interests of MISCOR Group, Ltd. (“MISCOR”). Prior to the transaction,our controlling shareholder Tontine owned approximately 49.9% of MISCOR. See Note 18, “Business Combination”, for further information.In December 2007, we entered into a $25,000 term loan with Tontine, a related party. On April 30, 2010, the Company issued a $15,000 payment towards theTontine Term Loan, resulting in a reduction in interest expenses related to the Tontine Term Loan. On February 13, 2013, we repaid the remaining $10,000 ofprincipal with cash on hand and proceeds from our $5,000 term loan with Wells Fargo. During the years ended September 30, 2014, 2013 and 2012 weincurred interest expense of zero, $410 and $1,103, respectively, related to the Tontine Term Loan.On March 29, 2012, we entered into a sublease agreement with Tontine Associates, LLC, an affiliate of Tontine, for corporate office space in Greenwich,Connecticut. The lease originally extended from April 1, 2012 through March 31, 2016, with monthly payments due in the amount of $6, and was renewed inMarch 2014 for a subsequent two-year term at the same monthly rate. The lease has terms at market rates and payments by the Company are at a rateconsistent with that paid by Tontine Associates, LLC to its landlord.13. EMPLOYEE BENEFIT PLANS401(k) PlanIn November 1998, we established the Integrated Electrical Services, Inc. 401(k) Retirement Savings Plan (the “401(k) Plan”). All full-time IES employees areeligible to participate on the first day of the month subsequent to 73Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) completing sixty days of service and attaining age twenty-one. Participants become vested in our matching contributions following three years of service.After suspending Company matching under the 401(k) Plan in February 2009, we reinstated the employee match in March of 2013. We recognized $276,$177, and $0, respectively in matching expenses in 2014, 2013 and 2012.Infrastructure Solutions has two 401(k) plans. The first provides for employees covered by collective bargaining agreements and has no provision foremployer contributions. The second provides for employees outside collective bargaining agreements and has a provision for employer contributions. Werecognized $74 and $4 in matching expense in 2014 and 2013.Executive Savings PlanUnder the Executive Deferred Compensation Plan adopted on July 1, 2004 (the “Executive Savings Plan”), certain employees are permitted to defer a portion(up to 75%) of their base salary and/or bonus for a Plan Year. The Human Resources and Compensation Committee of the Board of Directors may, in its solediscretion, credit one or more participants with an employer deferral (contribution) in such amount as the Committee may choose (“Employer Contribution”).The Employer Contribution, if any, may be a fixed dollar amount, a fixed percentage of the participant’s compensation, base salary, or bonus, or a“matching” amount with respect to all or part of the participant’s elective deferrals for such plan year, and/or any combination of the foregoing as theCommittee may choose. No compensation was deferred under this plan for the years ended September 30, 2014 or 2013.Post Retirement Benefit PlansCertain individuals at one of the Company’s locations are entitled to receive fixed annual payments that reach a maximum amount, as specified in the relatedagreements, for a ten year period following retirement or, in some cases, the attainment of 62 years of age. We recognize the unfunded status of the plan as anon-current liability in our Consolidated Balance Sheet. Benefits vest 50% after ten years of service, which increases by 10% per annum until benefits arefully vested after 15 years of service. We had an unfunded benefit liability of $853 and $828 recorded as of September 30, 2014 and 2013, respectively.Multiemployer Pension PlanInfrastructure Solutions participates in a multiemployer direct benefit pension plan for employees covered under our collective bargaining agreement. We donot administer the plan. We do not significantly participate in this plan. As of December 31, 2013, this plan was funded at 85.3%.14. FAIR VALUE MEASUREMENTSFair Value Measurement AccountingFair value is considered the price to sell an asset, or transfer a liability, between market participants on the measurement date. Fair value measurementsassume that the asset or liability is (1) exchanged in an orderly manner, (2) the exchange is in the principal market for that asset or liability, and (3) the marketparticipants are independent, knowledgeable, able and willing to transact an exchange. Fair value accounting and reporting establishes a framework formeasuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and expands disclosures aboutfair value measurements. Considerable judgment is required to interpret the market data used to develop fair value estimates. As such, the estimates presentedherein are not necessarily indicative of the amounts that could be realized in a current 74Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value.Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2014, are summarized in the following table by the type ofinputs applicable to the fair value measurements: TotalFair Value Quoted Prices(Level 1) SignificantOtherObservableInputs(Level 2) Executive savings plan assets $625 $625 $— Executive savings plan liabilities (512) (512) — Interest rate swap agreement (2) — (2) Total $111 $113 $(2) Below is a description of the inputs used to value the assets summarized in the preceding table:Level 1 — Inputs represent unadjusted quoted prices for identical assets exchanged in active markets.Level 2 — Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets exchanged in active orinactive markets; quoted prices for identical assets exchanged in inactive markets; and other inputs that are considered in fair value determinations of theassets.Level 3 — Inputs include unobservable inputs used in the measurement of assets. Management is required to use its own assumptions regarding unobservableinputs because there is little, if any, market activity in the assets or related observable inputs that can be corroborated at the measurement date.At September 30, 2013, we estimated the fair value of a contingent consideration liability related to the acquisition of certain assets from the Acro Group at$95. Please see Note 18, “Business Combinations – Acquisition of Certain Assets from the Acro Group” for additional information. The contingency hassubsequently been resolved, and no additional consideration will be payable. The table below presents a reconciliation of the fair value of this obligation,which used significant unobservable inputs (level 3). ContingentConsiderationAgreement Fair Value at September 30, 2013 $95 Issuances — Settlements — Adjustments to Fair Value (95) Fair Value at September 30, 2014 $— 75Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) 15. INVENTORYInventories consists of the following components: September 30,2014 September 30,2013 Raw materials $1,978 $2,389 Work in process 2,618 3,519 Finished goods 1,819 1,545 Parts and supplies 9,633 12,694 Total inventories $16,048 $20,147 16. COMMITMENTS AND CONTINGENCIESLegal MattersFrom time to time we are a party to various claims, lawsuits and other legal proceedings that arise in the ordinary course of business. We maintain variousinsurance coverages to minimize financial risk associated with these proceedings. None of these proceedings, separately or in the aggregate, are expected tohave a material adverse effect on our financial position, results of operations or cash flows. With respect to all such proceedings, we record reserves when it isprobable that a liability has been incurred and the amount of loss can be reasonably estimated. We expense routine legal costs related to these proceedings asthey are incurred.The following is a discussion of our significant legal matters:Ward Transformer SiteOne of our subsidiaries has been identified as one of more than 200 potentially responsible parties (“PRPs”) with respect to the clean-up of an electrictransformer resale and reconditioning facility, known as the Ward Transformer Site, located in Raleigh, North Carolina, due to Polychlorinated Biphenyls(“PCBs”) contamination on and off the site. The subsidiary, which we acquired in January 1999, is believed to have sent transformers to the facility duringthe 1990s. Based on our investigation to date, there is evidence to support our defense that our subsidiary contributed no PCB contamination to the site.In April 2009, two PRPs, Carolina Power and Light Company and Consolidation Coal Company, filed suit against us and most of the other PRPs in the U.S.District Court for the Eastern District of North Carolina (Western Division) to contribute to the cost of the clean-up. The plaintiffs were two of four PRPs thathave commenced clean-up of on-site contaminated soils under an Emergency Removal Action pursuant to a settlement agreement and Administrative Orderon Consent entered into between the four PRPs and the U.S. Environmental Protection Agency (“EPA”) in September 2005. We are not a party to thatsettlement agreement or Order on Consent.In addition to the on-site clean-up, the EPA has selected approximately 50 PRPs to which it sent a Special Notice Letter in late 2008 to organize the clean-upof soils off-site and address contamination of groundwater and other miscellaneous off-site issues. We were not a recipient of that letter. On January 8, 2013,the EPA held a meeting with those PRPs as well as others that were not recipients of the letter to discuss potential settlement of its costs associated with thesite. The Company was invited to attend this meeting and asked to confirm whether it would participate in settlement discussions, which the Companyconfirmed. The Company intends to present to the EPA 76Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) the evidence developed in litigation to support the argument that the Company did not contribute PCB contamination to the site. The Company has tendereda demand for indemnification to the former owner of the acquired corporation that may have transacted business with the facility. As of September 30, 2014,we have not recorded a reserve for this matter, as we believe the likelihood of our responsibility for damages is not probable and a potential range of exposureis not estimable.Hamilton Wage and HourThe Company is a defendant in three wage-and-hour suits seeking class action certification that were filed between August 29, 2012 and June 24, 2013, inthe U.S. District Court for the Eastern District of Texas. The claims are based on alleged failure to compensate for time spent bussing to and from the plant,donning safety wear and other activities. Management does not expect the Company will face significant exposure for any unpaid wages. In a separate earliercase based on the same allegations, a federal district court ruled that the time spent traveling on the busses is not compensable. On January 11, 2013, the U.S.Court of Appeals for the Fifth Circuit upheld the district court’s ruling finding no liability for wages for time spent bussing into the facility, and on October 8,2013, the U.S. Supreme Court declined to review plaintiffs’ appeal of the Fifth Circuit dismissal of their claims for compensation for time spent bussing to thefacility, effectively reducing the Company’s risk of liability on this issue in its cases. Our investigation indicates that all claims for time spent on otheractivities either were inapplicable to the Company’s employees or took place during times for which the Company’s employees were compensated. We havefiled responsive pleadings and, following initial discovery, are positioning the cases to obtain a dismissal of all claims. As of September 30, 2014, we havenot recorded a reserve for this matter, as we believe the likelihood of our responsibility for damages is not probable and we are currently unable to estimate apotential range of exposure.Risk-ManagementWe retain the risk for workers’ compensation, employer’s liability, automobile liability, constructions defects, general liability and employee group healthclaims, as well as pollution coverage, resulting from uninsured deductibles per accident or occurrence which are generally subject to annual aggregate limits.Our general liability program provides coverage for bodily injury and property damage. In many cases, we insure third parties, including general contractors,as additional insureds under our insurance policies. Losses up to the deductible amounts, or losses that are not covered under our policies, are accrued basedupon our known claims incurred and an estimate of claims incurred but not reported. As a result, many of our claims are effectively self-insured. Many claimsagainst our insurance are in the form of litigation. At September 30, 2014, we had $4,560 accrued for insurance liabilities. We are also subject to constructiondefect liabilities, primarily within our Residential segment. As of September 30, 2014, we had $569 reserved for these claims. Because the reserves are basedon judgment and estimates, and involve variables that are inherently uncertain, such as the outcome of litigation and an assessment of insurance coverage,there can be no assurance that the ultimate liability will not be higher or lower than such estimates or that the timing of payments will not create liquidityissues for the Company.Some of the underwriters of our casualty insurance program require us to post letters of credit as collateral. This is common in the insurance industry. To date,we have not had a situation where an underwriter has had reasonable cause to effect payment under a letter of credit. At September 30, 2014, $6,347 of ouroutstanding letters of credit was utilized to collateralize our insurance program. 77Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) SuretyAs of September 30, 2014, the estimated cost to complete our bonded projects was approximately $55,405. We evaluate our bonding requirements on aregular basis, including the terms offered by our sureties. We believe the bonding capacity presently provided by our current sureties is adequate for ourcurrent operations and will be adequate for our operations for the foreseeable future. As of September 30, 2014, we had posted cash totaling $250 tocollateralize our obligations to certain of our previous sureties (as is included in Other Non-Current Assets in our Consolidated Balance Sheet). Posting lettersof credit in favor of our sureties reduces the borrowing availability under our 2012 Credit Facility.Receivable from SuretyOn January 9, 2012, we entered into a settlement agreement with regard to $2,000 of collateral held by a surety who previously issued construction paymentand performance bonds for us. The agreement called for a total settlement of $2,200 to be paid in monthly installments through February 2013, and based onsubsequent payment defaults, was amended to provide for additional collateral and a total settlement amount of $2,025 ($2,200 less the $175 alreadyreceived) to be paid in monthly installments beginning September 30, 2012 through July 2014 with an interest rate of 12%. Following a subsequentamendment to postpone or modify payment dates, on January 2, 2013, the Company tendered a notice of default to the surety and its coal mining operations,which had been pledged as additional collateral. Given the surety’s failure to make the payments due on December 31, 2012, and January 31, 2013, and itscontinued attempts to restructure the underlying settlement agreement, the Company concluded the collection of the receivable was not probable as ofDecember 31, 2012, and recorded a reserve in the amount $1,725 for the first quarter of fiscal 2013, bringing the receivable’s net carrying value to zero. Thecharge was recorded as other expense within our Consolidated Statements of Comprehensive Income and the reserve was recorded within our current assetswithin the Consolidated Balance Sheet.On March 8, 2013, the Company issued a notice of acceleration of the promissory notes signed by the two mining companies, and subsequently filed suit toenforce the acceleration and to domesticate the agreed judgment against the surety and its owner in Virginia. Following these actions, the surety entered intoan amended agreement with the Company which provided for payment of $300, which was received on June 24, 2013, and additional monthly installmentswith final payment due June 30, 2014. As of the filing of this Annual Report on Form 10-K, the Company had received installment payments totaling $550.The defendants defaulted on payments due beginning in November 2013 through June 2014 and were unable to reach a financing agreement they had beenpursuing. On June 27, 2014, the two mining companies filed for Chapter 11 bankruptcy protection, and the surety’s owner filed for personal bankruptcyshortly thereafter. The surety defendant has not yet filed bankruptcy, but we understand its assets are held by the parties who have filed for bankruptcyprotection. The Company has filed pleadings in the bankruptcy proceedings to continue pursuit of the balance of the debt; however, the extent of recovery ofthe remaining balance, if any, cannot be determined. We received $450 during the fiscal year ended September 30, 2013and $100 during the first quarter ofthe 2014 fiscal year. These amounts are classified as other income within our Consolidated Statements of Comprehensive Income. Any potential subsequentrecovery from the bankruptcy proceedings will be included in other income.Other Commitments and ContingenciesSome of our customers and vendors require us to post letters of credit as a means of guaranteeing performance under our contracts and ensuring payment byus to subcontractors and vendors. If our customer has reasonable cause to effect payment under a letter of credit, we would be required to reimburse ourcreditor for the letter of credit. At September 30, 2014, $571 of our outstanding letters of credit were to collateralize our vendors. 78Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) From time to time, we may enter into firm purchase commitments for materials such as copper or aluminum wire which we expect to use in the ordinary courseof business. These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specific intervals at afixed price over the term. As of September 30, 2014, we had no such commitments.17. GOODWILL AND INTANGIBLE ASSETSThe following is a progression of goodwill by segment for the years ended September 30, 2014, 2013 and 2012: Residential Infrastructure Solutions Total Balance at September 30, 2012 $4,446 $— $4,446 Acquisitions 4,185 5,293 9,478 Balance at September 30, 2013 8,631 5,293 13,924 Purchase Accounting Adjustments — 1,069 1,069 Balance at September 30, 2014 $8,631 $6,362 $14,993 GoodwillDuring 2014, we adjusted our purchase price allocation related to the acquisition of MISCOR, resulting in net additional goodwill of $1,069 for ourInfrastructure Solutions segment, which increased the segment’s goodwill to $6,362, with offsetting adjustments to certain assets and liabilities of theacquired entity. This additional goodwill of $1,069 is the result of the completion of our analysis of the tax basis of the acquired property, plant andequipment, which resulted in the recording of an additional deferred tax liability of $560. Additionally, we completed our valuation of the acquiredinventory, resulting in a $311 reduction in the estimated value previously attributed to work in process inventory. We also identified additional currentliabilities of $198, resulting in a further increase to goodwill.Based upon the results of our annual impairment analysis, the fair value of our Infrastructure Solutions segment significantly exceeded the book value, andwarranted no impairment. We evaluated goodwill attributable to our Residential segment qualitatively, and have concluded no impairment is indicated.Intangible assets consist of the following: Year Ended September 30, 2014 EstimatedUseful Lives(in Years) Gross CarryingAmount AccumulatedAmortization Net Trademarks/trade names Indefinite $1,200 $— $1,200 Technical Library 20 400 21 379 Customer Relationships 12.0 2,100 484 1,616 Covenants not to compete 3.0 140 74 66 Developed Technology 4.0 400 158 242 Total $4,240 $737 $3,503 79Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) Year Ended September 30, 2013 EstimatedUseful Lives(in Years) Gross CarryingAmount AccumulatedAmortization Net Trademarks/trade names Indefinite $1,200 $— $1,200 Technical Library 20 400 1 399 Customer Relationships 12.0 2,100 16 2,084 Covenants not to compete 3.0 140 27 113 Developed Technology 4.0 400 58 342 Total $4,240 $102 $4,138 For the years ended September 30, 2014 and 2013, amortization expense of intangible assets was $635 and $452, respectively. Our future amortizationexpense for years ended September 30, is as follows: Year Ended September 30, 2015 $403 2016 351 2017 256 2018 172 2019 163 Thereafter 958 Total $2,303 18. BUSINESS COMBINATIONAcquisition of Assets from the Acro GroupIn February 2013, the Company acquired certain assets of a group of entities operating under the name of the Acro Group. These assets are related to the sale,installation, and third-party financing of residential solar equipment. The acquisition date fair value of consideration transferred was $4,798, of which $4,185was allocated to goodwill. At the acquisition date, $665 of the total consideration transferred related to contingent consideration. The contingency periodhas elapsed, and none of the contingent consideration was ultimately paid. During the years ended September 30, 2014 and 2013, gains of $95 and $570,respectively, were recognized in Other income (expense), net, related to fair value adjustments for this contingent consideration.Acquisition of MISCOROn September 13, 2013 we completed the acquisition of MISCOR Group, Ltd. (“MISCOR”), a provider of maintenance and repair services including engineparts and components to the industrial and rail service industries. Prior to the consummation of the transaction, our controlling shareholder Tontine ownedapproximately 49.9% of MISCOR.Total consideration received by MISCOR shareholders consisted of 2,795,577 shares of IES common stock valued at $11,853, and cash totaling $4,364.During 2014, we adjusted our purchase price allocation related to the acquisition of MISCOR, resulting in net additional goodwill of $1,069 for ourInfrastructure Solutions segment, which increased the segment’s goodwill 80Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) to $6,362, with offsetting adjustments to certain assets and liabilities of the acquired entity. This additional goodwill of $1,069 is the result of the completionof our analysis of the tax basis of the acquired property, plant and equipment, which resulted in the recording of an additional deferred tax liability of$560. Additionally, we completed our valuation of the acquired inventory, resulting in a $311 reduction in the estimated value previously attributed to workin process inventory. We also identified additional current liabilities of $198, resulting in a further increase to goodwill.Unaudited Pro Forma Information – 2013 AcquisitionsThe supplemental pro forma results of operations for the years ended September 30, 2013 and 2012, as if the assets of the Acro Group had been acquired andthe acquisition of MISCOR had been completed on October 1, 2011, are as follows: Unaudited Year Ended Year Ended September 30,2013 September 30,2012 Revenues $542,027 $520,016 Net loss from continuing operations $(3,081) $(6,642) 19. DISCONTINUED OPERATIONSIn 2011, we initiated the closure of all or portions of our Commercial & Industrial and Communications facilities in Arizona, Florida, Iowa, Louisiana,Maryland, Massachusetts, Nevada and Texas. Since designating these facilities for closure we have sub-leased or terminated our lease contracts for thesefacilities. We have satisfied substantially all of our contracts through either subcontracting or self-performance. We have completed the wind down of thesefacilities as of September 30, 2013. Results from operations of these facilities for the years ended September 30, 2014, 2013, and 2012 are presented in ourConsolidated Statements of Comprehensive Income as discontinued operations.The components of the results of discontinued operations for these facilities are as follows: Years Ended September 30, 2014 2013 2012 Revenues $49 $1,559 $16,279 Cost of services 125 2,032 20,941 Gross loss (76) (473) (4,662) Selling, general and administrative 122 601 2,557 Loss on sale of assets — 258 769 Restructuring charge — 63 1,170 Loss from discontinued operations (198) (1,395) (9,158) (Benefit) provision for income taxes — — (11) Net loss from discontinued operations $(198) $(1,395) $(9,147) 81Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) Included in the Consolidated Balance Sheets at September 30, 2014 and 2013 are the following major classes of assets and liabilities associated withdiscontinued operations: Years EndedSeptember 30, 2014 2013 Assets of discontinued operations: Current $154 $1,123 Liabilities of discontinued operations: Current $479 $889 20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)Quarterly financial information for the years ended September 30, 2014 and 2013, are summarized as follows: Fiscal Year Ended September 30, 2014 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Revenues $120,079 $120,266 $136,192 $135,858 Gross profit $18,116 $20,026 $22,666 $22,318 Net income from continuing operations $265 $446 $2,795 $2,016 Net income (loss) from discontinued operations $(141) $(49) $(122) $114 Net income $124 $397 $2,673 $2,130 Income per share from continuing operations: Basic $0.01 $0.02 $0.15 $0.09 Diluted $0.01 $0.02 $0.15 $0.09 Income (loss) per share from discontinued operations: Basic $0.00 $0.00 $(0.01) $0.01 Diluted $0.00 $0.00 $(0.01) $0.01 Earnings per share: Basic $0.01 $0.02 $0.14 $0.10 Diluted $0.01 $0.02 $0.14 $0.10 82Table of ContentsINTEGRATED ELECTRICAL SERVICES, INC.Notes to Consolidated Financial Statements(All Amounts in Thousands Except Share Amounts) The sum of the individual quarterly earnings per share amounts may not agree with year-to-date earnings per share as each period’s computation is based onthe weighted average number of shares outstanding during the period. Fiscal Year Ended September 30, 2013 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Revenues $127,264 $121,995 $121,552 $123,782 Gross profit $17,980 $15,996 $15,653 $17,331 Net income (loss) from continuing operations $633 $(940) $(725) $(1,146) Net loss from discontinued operations $(123) $(161) $(413) $(698) Net loss $510 $(1,101) $(1,138) $(1,844) Loss per share from continuing operations: Basic $0.04 $(0.06) $(0.05) $(0.07) Diluted $0.04 $(0.06) $(0.05) $(0.07) Loss per share from discontinued operations: Basic $(0.01) $(0.01) $(0.02) $(0.05) Diluted $(0.01) $(0.01) $(0.02) $(0.05) Earnings loss per share: Basic $0.03 $(0.07) $(0.07) $(0.12) Diluted $0.03 $(0.07) $(0.07) $(0.12) The sum of the individual quarterly earnings per share amounts may not agree with year-to-date earnings per share as each period’s computation is based onthe weighted average number of shares outstanding during the period. 83Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresChanges in Internal Control Over Financial ReportingThere have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2014 that have materiallyaffected, or are reasonably likely to materially affect, our internal controls over financial reporting.Disclosure Controls and ProceduresIn accordance with Exchange Act Rule 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management,including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of theperiod covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of September 30, 2014 to provide reasonable assurance that information required to be disclosed in our reports filed or submittedunder the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’srules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed inreports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding required disclosure.Management’s Report on Internal Control over Financial ReportingManagement, including the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequateinternal control over financial reporting for the Company. The Company’s internal control system was designed to provide reasonable assurance to theCompany’s Management and Directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations,internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods aresubject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or proceduresmay deteriorate.Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the Internal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that IntegratedElectrical Services’ internal control over financial reporting was effective as of September 30, 2014.Item 9B. Other InformationNone. 84Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe information required to be included Item 10 of Part III of this Form 10-K is incorporated by reference from the sections entitled “Security Ownership ofCertain Beneficial Owners and Management;” “Section 16(a) Beneficial Ownership Reporting Compliance;” “Report of the Audit Committee” and “Electionof Directors” in the Company’s definitive Proxy Statement for its 2015 Annual Meeting of Stockholders (the “Proxy Statement”) to be filed with the SEC nolater than December 31, 2014.Item 11. Executive CompensationThe information required to be included in Item 11 of Part III of this Form 10-K is incorporated by reference from the section entitled “ExecutiveCompensation” in the Proxy Statement.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersCertain information required to be included in Item 12 of Part III of this Form 10-K is incorporated by reference from the section entitled “Security Ownershipof Certain Beneficial Owners and Management” in the Proxy Statement.SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANSEquity Compensation Plan InformationThe following table provides information as of September 30, 2014 with respect to shares of our common stock that may be issued upon the exercise ofoptions, warrants and rights granted to employees or members of the Board of Directors under the Company’s existing equity compensation plans. Foradditional information about our equity compensation plans, see Note 11, “Stockholders’ Equity” in the notes to our Consolidated Financial Statements setforth in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K. Plan Category (a) Number of Securitiesto be Issued UponExercise of OutstandingOptions, Warrants andRights (b) Weighted-AverageExercise Price ofOutstanding Options,Warrants and Rights (c) Number of SecuritiesRemaining Available forFuture Issuance UnderEquity CompensationPlans (ExcludingSecurities Reflectedin Column (a)) Equity compensation plans approved by securityholders — — — Equity compensation plans not approved bysecurity holders 170,000(1) $3.24 648,029(2) (1)Represents shares issuable upon exercise of outstanding options granted under the Integrated Electrical Services, Inc. 2006 Equity Incentive Plan, asamended. This plan was authorized pursuant to the Company’s plan of reorganization and provides for the granting or awarding of stock options, stockand restricted stock to employees (including officers), consultants and directors of the Company. All stock options granted under this plan weregranted at fair market value on the date of grant. 57,666 shares of restricted stock are outstanding under this plan.(2)Represents shares remaining available for issuance under the Integrated Electrical Services, Inc. 2006 Equity Incentive Plan, as amendedItem 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required to be included in Item 13 of Part III of this Form 10-K is incorporated by reference from the section entitled “Certain Relationshipsand Related Person Transactions” in the Proxy Statement. 85Table of ContentsItem 14. Principal Accountant Fees and ServicesThe information required to be included in Item 14 of Part III of this Form 10-K is incorporated by reference from the section entitled “Audit Fees” in theProxy Statement.PART IVItem 15. Exhibits and Financial Statement Schedules(a) Financial Statements and Supplementary Data, Financial Statement Schedules and ExhibitsSee Index to Financial Statements under Item 8, “ Financial Statements and Supplementary Data” of this From 10-K.(b) Exhibits ExhibitNo. Description 2.1 — Agreement and Plan of Merger effective as of March 13, 2013, by and among Integrated Electrical Services, Inc., IES Subsidiary Holdings,Inc. and MISCOR Group, Ltd. (Attached as part of Annex A to the joint proxy statement/prospectus that is part of this Registration Statement)(the schedules and annexes have been omitted pursuant to Item 601(b)(2) of Regulation S-K) 2.2 — First Amendment to Agreement and Plan of Merger, dated as of July 10, 2013, by and among Integrated Electrical Services, Inc., IESSubsidiary Holdings, Inc. and MISCOR Group, Ltd. (Attached as part of Annex A to the joint proxy statement/prospectus that is part of thisRegistration Statement) 2.3 — Asset Purchase Agreement, dated February 8, 2013, by and among IES Renewable Energy, LLC, Residential Renewable EnergyTechnologies, Inc., Energy Efficiency Solar, Inc., and Lonestar Renewable Technologies Acquisition Corp. (Incorporated by reference toExhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed on February 14, 2013) (the schedules and annexes have been omittedpursuant to Item 601(b)(2) of Regulation S-K) 3.1 — Second Amended and Restated Certificate of Incorporation of Integrated Electrical Services, Inc. (Incorporated by reference to Exhibit 4.1 tothe Company’s registration statement on Form S-8 filed on May 12, 2006) 3.2 — Certificate of Designations of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Company’sCurrent Report on From 8-K filed on January 28, 2013) 3.3 — Bylaws of Integrated Electrical Services, Inc. (Incorporated by reference to Exhibit 4.2 to the Company’s registration statement on Form S-8,filed on May 12, 2006) 4.1 — Specimen common stock certificate. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 18,2008) 4.2 — Tax Benefit Protection Plan Agreement by and between Integrated Electrical Services, Inc. and American Stock Transfer & Trust Company,LLC, as Rights Agent, dated as of January 28, 2013, including the forms of Certificate of Designation and of Rights Certificate and Summaryof Stockholder Rights Plan attached thereto as Exhibits A, B and C, respectively (Incorporated by reference to Exhibit 4.1 to the Company’sCurrent Report on Form 8-K filed on January 28, 2013) 86Table of ContentsExhibitNo. Description 4.3 — Registration Rights Agreement, dated May 12, 2006, by and among Integrated Electrical Services, Inc., Tontine Capital Partners, L.P. andcertain of its affiliates and Southpoint Master Fund, L.P. (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report onForm 8-K filed on May 17, 2006) 4.4 — First Amendment to Registration Rights Agreement, dated September 11, 2007, by and among Integrated Electrical Services, Inc., TontineCapital Partners, L.P. and certain of its affiliates. (Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K filed on December 14, 2012) 10.1 — Restated Underwriting, Continuing Indemnity and Security Agreement, dated May 12, 2006, by Integrated Electrical Services, Inc. andcertain of its subsidiaries and affiliates in favor of Federal Insurance Company. (Incorporated by reference to Exhibit 10.4 to theCompany’s Current Report on Form 8-K filed May 17, 2006) 10.2 — First Amendment, dated as of October 30, 2006, to the Restated Underwriting, Continuing Indemnity, and Security Agreement, dated May12, 2006, by Integrated Electrical Services, Inc., certain of its subsidiaries and Federal Insurance Company and certain of its affiliates.(Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 6, 2006) 10.3 — Third Amendment, dated May 1, 2007, to the Restated Underwriting, Continuing Indemnity and Security Agreement, dated May 12, 2006,by Integrated Electrical Services, Inc., certain of its subsidiaries and Federal Insurance Company and certain of its affiliates. (Incorporatedby reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 12, 2007) 10.4 — Fourth Amendment to the Restated Underwriting, Continuing Indemnity and Security Agreement, dated May 12, 2006, by IntegratedElectrical Services, Inc., certain of its subsidiaries and Federal Insurance Company and certain of its affiliates.(Incorporated by reference toExhibit 10.2 to the Company’s Current Report on Form 8-K filed October 12, 2007) 10.5 — Rider to Add Principal/Indemnitor and Fifth Amendment, dated September 29, 2008, to Restated Underwriting, Continuing Indemnity,and Security Agreement, dated May 12, 2006, by Integrated Electrical Services, Inc., certain of its subsidiaries and Federal InsuranceCompany and certain of its affiliates. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filedOctober 24, 2008) 10.6 — Agreement of Indemnity, dated May 7, 2010, by Integrated Electrical Services, Inc. and certain of its present and future subsidiaries andaffiliates and Chartis Property Casualty Company, Chartis Insurance Company of Canada, American Home Assurance Company,Commerce and Industry Insurance Company, Granite State Insurance Company, Lexington Insurance Company, National Union FireInsurance Company of Pittsburgh, Pa., New Hampshire Insurance Company and The Insurance Company of the State of Pennsylvania andany and all of their affiliates, subsidiaries, successors and assigns. (Incorporated by reference to Exhibit 10.1 to the Company’s CurrentReport on Form 8-K filed May 13, 2010) 10.7 — Amendment No. 1 to Agreement of Indemnity, dated August 16, 2012, between Integrated Electrical Services, Inc. and certain of itspresent and future subsidiaries and affiliates and Chartis Property Casualty Company, Chartis Insurance Company of Canada, AmericanHome Assurance Company, Commerce and Industry Insurance Company, Granite State Insurance Company, Lexington InsuranceCompany, National Union Fire Insurance Company of Pittsburgh, Pa., New Hampshire Insurance Company and The Insurance Company ofthe State of Pennsylvania, and any and all of their affiliates, subsidiaries, successors and assigns (Incorporated by reference to Exhibit 10.1to the Company’s Current Report on Form 8-K filed August 17, 2012) 87Table of ContentsExhibitNo. Description 10.8 — Credit and Security Agreement, dated August 9, 2012, by and among Integrated Electrical Services, Inc. and its subsidiaries and WellsFargo Bank, National Association. (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filedAugust 13, 2012) 10.9 — Joinder and First Amendment to Credit and Security Agreement, dated February 12, 2013, by and among Integrated Electrical Services,Inc. and its subsidiaries and Wells Fargo Bank, National Association. (Incorporated by reference to Exhibit 10.1 to the Company’sQuarterly Report on Form 10-Q filed February 14, 2013) 10.10 — Joinder and Second Amendment to Credit and Security Agreement, dated September 13, 2013, by and among Integrated ElectricalServices, Inc. and its subsidiaries and Wells Fargo Bank, National Association. (Incorporated by reference to Exhibit 10.1 to theCompany’s Current Report on Form 8-K filed September 13, 2013) 10.11 — Third Amendment to Credit and Security Agreement, dated February 21, 2014, by and among the Company, each of the other Borrowersand Guarantors named therein and Wells Fargo Bank, National Association. (Incorporated by reference to Exhibit 10.1 to the Company’sCurrent Report on Form 8-K filed February 25, 2014) 10.12 — Amended and Restated Credit and Security Agreement, dated September 24, 2014, by and among Integrated Electrical Services, Inc.,each of the other Borrowers and Guarantors named therein and Wells Fargo Bank, National Association. (Incorporated by reference toExhibit 10.1 to the Company’s Current Report on Form 8-K filed September 24, 2014) 10.13 — Subcontract, dated June 17, 2009, by and between IES Commercial, Inc. and Manhattan Torcon A Joint Venture.(Incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 24, 2009) 10.14 — Letter Agreement, dated November 4, 2009, by and between Integrated Electrical Services, Inc., IES Commercial, Inc. and ManhattanTorcon A Joint Venture. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed November 24,2009)*10.15 — Term Life Insurance Plan. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed October 17,2007)*10.16 — Amended and Restated 2006 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed October 17, 2007)*10.17 — Form of Phantom Share Award under the 2006 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.1 to the Company’sCurrent Report on Form 8-K filed November 19, 2007)*10.18 — Form of Stock Option Award Agreement under the 2006 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.7 to theCompany’s Current Report on Form 8-K filed on May 17, 2006)*10.19 — Amended and Restated Form of Restricted Stock Award Agreement under the 2006 Equity Incentive Plan. (Incorporated by reference toExhibit 10.1 to the Company’s Current Report on Form 8-K filed September 24, 2010)*10.20 — Annual Management Incentive Plan. (Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed November 19,2007)*10.21 — Amended and Restated 2009 Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.34 to the Company’s Annual Reporton Form 10-K filed December 15, 2008)*10.22 — Integrated Electrical Services, Inc. Long Term Incentive Plan, as amended and restated. (Incorporated by reference to Exhibit 10.2 to theCompany’s Current Report on Form 8-K filed September 23, 2009) 88Table of ContentsExhibitNo. Description *10.23 — Integrated Electrical Services, Inc. Executive Severance Benefit Plan. (Incorporated by reference to Exhibit 10.1 to theCompany’s Current Report on Form 8-K filed January 27, 2012) 21.1 — Subsidiaries of the Registrant(1) 23.1 — Consent of Ernst & Young LLP(1) 31.1 — Rule 13a-14(a)/15d-14(a) Certification of James M. Lindstrom, Chief Executive Officer(1) 31.2 — Rule 13a-14(a)/15d-14(a) Certification of Robert W. Lewey, Chief Financial Officer(1) 32.1 — Section 1350 Certification of James M. Lindstrom, Chief Executive Officer(1) 32.2 — Section 1350 Certification of Robert W. Lewey, Chief Financial Officer(1)(1)101.INS XBRL Instance Document(1)101.SCH XBRL Schema Document(1)101.LAB XBRL Label Linkbase Document(1)101.PRE XBRL Presentation Linkbase Document(1)101.DEF XBRL Definition Linkbase Document(1)101.CAL XBRL Calculation Linkbase Document *Management contracts or compensatory plans or arrangements required to be filed herewith pursuant to Item 15(a)(3) of this Annual Report on Form10-K. (1)Filed herewith. 89Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on December 12, 2014.INTEGRATED ELECTRICAL SERVICES, INC. By: /s/ James M. Lindstrom James M. LindstromChief Executive Officer and PresidentPOWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of INTEGRATED ELECTRICAL SERVICES, INC. herebyconstitutes and appoints James M. Lindstrom and Gail D. Makode, and each of them individually, as his true and lawful attorneys-in-fact and agents, with fullpower of substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file any or all amendments tothis report, with any and all exhibits thereto, and all other documents required to be filed therewith, with the Securities and Exchange Commission or anyregulatory authority, granting unto each such attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisiteand necessary to be done in and about the premises in order to effectuate the same, as fully to all intents and purposes as he himself might or could do, ifpersonally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitutes or substitute, maylawfully do or cause to be done by virtue hereof.SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrantand in the capacities and on the dates indicated. Signature Title Date/s/ James M. Lindstrom James M. Lindstrom Chief Executive Officer, President and Chairman ofthe Board (Principal Executive Officer) December 12, 2014/s/ Robert W. Lewey Robert W. Lewey Senior Vice President and Chief Financial Officer(Principal Financial Officer) December 12, 2014/s/ Tracy A. McLauchlin Tracy A. McLauchlin Vice President and Chief Accounting Officer(Principal Accounting Officer) December 12, 2014/s/ Joseph L. Dowling III Joseph L. Dowling III Director December 12, 2014/s/ David B. Gendell David B. Gendell Director December 12, 2014/s/ Joe D. Koshkin Joe D. Koshkin Director December 12, 2014/s/ Donald L. Luke Donald L. Luke Director December 12, 2014 90Exhibit 21.1SUBSIDIARIES OF THE REGISTRANTAs of September 30, 2014 Subsidiary Jurisdiction of IncorporationHK Engine Components, LLC IndianaICS Holdings LLC ArizonaIES Commercial, Inc. DelawareIES Commercial & Industrial, LLC DelawareIES Consolidation, LLC DelawareIES Management, LP TexasIES Management ROO, LP TexasIES Operations Group, Inc. DelawareIES Properties, Inc. DelawareIES Purchasing & Materials, Inc. DelawareIES Renewable Energy, LLC DelawareIES Residential, Inc. DelawareIES Shared Services, Inc. DelawareIES Subsidiary Holdings, Inc DelawareIES Tangible Properties, Inc. DelawareIntegrated Electrical Finance, Inc. DelawareKey Electrical Supply, Inc. TexasMagnetech Industrial Services, Inc. IndianaThomas Popp & Company OhioExhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements: (1)Registration Statement (Form S-8 Nos. 333-134100) pertaining to the 2006 Equity Incentive Plan; (2)Registration Statement (Form S-1 Nos. 333-196551) pertaining to Amendment No. 1 to Form S-1 Registration Statement; and (3)Registration Statement (Form S-3 Nos. 333-186786) pertaining to Amendment No. 2 to Form S-1 Registration on Form S-3;of our report dated December 12, 2014, with respect to the consolidated financial statements of Integrated Electrical Services, Inc. included in this AnnualReport (Form 10-K) for the year ended September 30, 2014./s/ ERNST & YOUNG LLPHouston, TexasDecember 12, 2014Exhibit 31.1CERTIFICATIONI, James M. Lindstrom, certify that:1. I have reviewed this Annual Report on Form 10-K of Integrated Electrical Services, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theRegistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with accounting principles generally accepted in the United States of America;(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recentfiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theRegistrant’s internal control over financial reporting; and5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theRegistrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controlover financial reporting.Date: December 12, 2014 /s/ JAMES M. LINDSTROM James M. LindstromPresident and Chief Executive OfficerExhibit 31.2CERTIFICATIONI, Robert W. Lewey, certify that:1. I have reviewed this Annual Report on Form 10-K of Integrated Electrical Services, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theRegistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with accounting principles generally accepted in the United States of America;(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recentfiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theRegistrant’s internal control over financial reporting; and5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theRegistrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controlover financial reporting.Date: December 12, 2014 /s/ ROBERT W. LEWEY Robert W. LeweySenior Vice President and Chief Financial OfficerExhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with this Annual Report of Integrated Electrical Services, Inc. (the “Company”) on Form 10-K for the period ending September 30, 2014 (the“Report”), I, James M. Lindstrom, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: December 12, 2014 By: /s/ JAMES M. LINDSTROM James M. Lindstrom President and Chief Executive OfficerExhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with this Annual Report of Integrated Electrical Services, Inc. (the “Company”) on Form 10-K for the period ending September 30, 2014 (the“Report”), I, Robert W. Lewey, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuantto § 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: December 12, 2014 By: /s/ ROBERT W. LEWEY Robert W. Lewey Senior Vice President and Chief Financial Officer

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