MILLER TABAK ROBERTS SECURITIES, LLC __________________________________________________

331 MADISON AVENUE NEW YORK, NEW YORK 10017 (212) 867-7959 FAX (212) 867-6492 (800) 452-4528 (888) HI-YIELD

www.MTRdirect.com Please refer to the last page of this report for important disclosures

HIGH-YIELD/ CONVERTIBLE

RESEARCH REPORT

Integrated Electrical Services, Inc. (IES)

Mdy's/ Common Current BondCoupon Description Maturity CUSIP S&P Amt O/S CV Price CV Prem. Price Yield YTW Price Opinion6.500% Ser. A Sr. Conv. Notes 11/01/14 45811EAF0 NA $ 30MM $ 3.25 20.43% $ 2.70 NA NA NA NA6.500% Ser. B Sr. Conv. Notes 11/01/14 45811EAG8 NA $ 20MM $ 3.25 20.36% $ 2.70 NA NA NA NA

Moody's and S&P's outlook is negative. Coupon Description Maturity CUSIP Mdy's/S&P Amt O/S Curr. Yield YTW Bond Price Opinion9.375% Ser. B Sr. Sub. Notes 02/01/09 45811EAB9 Caa2 / CCC $ 63MM 11.6% 17.3% 80.50 Sell9.375% Ser. C Sr. Sub. Notes 02/01/09 45811EAE3 Caa2 / CCC $ 110MM 11.5% 16.8% 81.50 Sell

Moody's and S&P's outlook is negative. September 21, 2005 Ronald A. Rich (212) 692-5185 rrich@mtrdirect.com OPINION We initiate coverage on Integrated Electrical Services with a SELL recommendation on the Senior Subordinated Notes. We believe that IES faces a challenging turnaround and that a purchase of the Senior Subordinated Notes at these levels does not adequately compensate the investor for the commensurate risk. With liquidity forecasted to further diminish without successful asset sales, we estimate that a bankruptcy filing in the future is more likely than not. In a workout scenario, we project a full recovery for the Senior Convertible Notes, given the small amount outstanding relative to that of the Senior Subordinated Notes. The Senior Subordinated Notes, on the other hand, would be expected to be substantially impaired. Our base case calculations do not incorporate future value drain which would result from an expanded senior credit facility. Given our assessment of current risks, we might find the Senior Subordinated Notes interesting at 64 ½ . We have not issued an opinion on the Senior Convertible Notes because they are very thinly traded, but we believe that they would be fairly valued at 96 ½. SUMMARY • Headquartered in Houston, TX, Integrated Electrical Services, a $1.1 billion revenue roll-up,

is the second largest provider of electrical contracting and maintenance services in the U.S. • IES is in the midst of an operational turnaround, having suffered from inadequate project

bidding controls, project mismanagement, weak markets in its commercial business, and diminished surety bonding capacity needed to source new commercial and industrial projects.

• IES is highly leveraged, with an LTM adjusted net leverage ratio of 21.6x, and an LTM adjusted net interest coverage of 0.36x for the period ending June 30, 2005 (the calculated ratios are estimates due to the lack of comparability among the LTM quarterly data). Specialty contractor and construction-related companies typically carry very low debt levels. The leverage ratios of IES’s public comparables range between 0.0x and 2.6x.

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• Near-term liquidity appears sufficient, providing management with a window to affect a turnaround. Management has proven that it can raise additional liquidity through the sale of business units, thirteen of which have been completed in the past eleven months. We are concerned that future divestitures may prove more difficult to complete and less financially productive. Management is currently behind on the divestiture schedule it provided on the latest conference call. IES may also have the ability to extend its liquidity by expanding its current senior credit facility, though we project default under the Fixed Charge Coverage covenant in the first quarter ending December 31, 2005.

• IES is dealing with reduced surety bonding capacity. Given a shrinking backlog, it is unclear whether the company will be successful in replacing large bonded projects with a sufficient number of smaller ones. As a result, we fear a declining revenue line in its commercial and industrial business units and a further impaired EBITDA margin. We also question whether management-projected improved gross margin will be eroded by increased business development costs associated with a greater number of projects.

• There has been substantial turnover within the senior management ranks over the past fiscal year (ending September 30, 2005). While we do not believe that this is necessarily bad, we are concerned with the possible implications. Additionally, conversations with industry sources have pointed to potentially damaging attrition at IES’s subsidiaries.

• Our view to risk is colored by the potentially low reorganization value of a troubled construction company, particularly one whose main asset is its workforce. Our recovery analysis assumes that IES’s Residential segment is successfully reorganized, while the Company’s commercial units are sold.

• Given our evaluation of the current risks associated with IES’s turnaround, we have based our target pricing on a required return of 9% for the fixed income piece of the Senior Convertible Notes and 15% for the Senior Subordinated Notes.

BACKGROUND Integrated Electrical Services, Inc. (“IES” or the “Company”) was created in June 1997 to serve as a leading national provider of electrical contracting and maintenance services to the commercial, industrial and residential markets. Concurrent with the closing of its January 1998 initial public offering, IES acquired fifteen electrical contracting and maintenance service companies and a related supply company, making it one of the largest competitors in the domestic electrical specialty contracting space. Pro forma revenues for the newly formed entity were $312.7 million, of which 63% was derived from commercial and industrial contracting, 25% from residential contracting, and 12% from electrical maintenance work. IES was one of a number of specialty contractor roll-ups which occurred in the late 1990’s. The roll-ups were driven by market fragmentation, the availability of capital, public versus private market valuation arbitrage, as well as by visions of increased competitive advantage resulting from an augmented market footprint, economies of scale, cross-selling and expertise transference; twelve engineering and construction companies went public between 1997 and 2000. Since its founding, IES has grown primarily through acquisitions, making 71 acquisitions from April 1998 through December 2000. Presently comprised of 36 active business units with estimated annual revenues of $1.1 billion, much of the Company’s current leverage was incurred to finance this growth. IES fundamentals began to decline in fiscal year 2002 as a result of

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increased competition and project mismanagement. Recently, the Company has been negatively impacted by rapidly rising material costs and a difficult surety bonding environment. Losses experienced by the surety industry in recent years have caused insurers to limit surety capacity and increase costs to customers. In response, IES has divested thirteen business units, fiscal year-to-date, that are heavily reliant upon surety bonding. Company management is presently focusing on improving project bidding and execution, sourcing shorter term projects, as well as reducing overhead costs. BUSINESS Headquartered in Houston, TX, Integrated Electrical Services is the second largest provider of electrical contracting and maintenance services in the United States, following Quanta Services. IES’s electrical contracting services include the design of electrical distribution systems, the procurement and installation of wiring and fixtures within structures, as well as the long-term maintenance of these systems. These installations support a variety of purposes, including climate control, security and communications. Within commercial structures, IES electricians will place piping or tubing, referred to as conduit, inside designated partitions and walls; in residential construction, plastic-covered wire is usually used in place of conduit. Insulated wires or cables are then run through the conduit to connect various electrical boxes which house switches and outlets. The wiring is then connected to circuit breakers, transformers, or other components. Upon completion of the installation, the system is tested to ensure proper connectivity and safety. IES also installs low voltage wiring systems, such as voice, data, and video wiring systems typically used for telephones, computers, intercoms, fire alarms and security systems. Success in the electrical contracting business is reliant upon an entrepreneurial spirit which may prove to be unsustainable in a $1.1 billion roll-up which requires that the more profitable business units financially support the less profitable ones. Illustrating this point, one industry executive, in describing the owner of a Houston-based IES competitor, is quoted as saying, “He has a following of top people…The way [he] runs his business, he pays his people more than anybody else, he rewards them more than anybody else, but he expects them to move mountains for him. So they work hard, but they have fun doing it. There’s a lot of loyalty from the people who work for him” (Source: Dallas Business Journal, April 14, 2003). Operating Segments Commercial and Industrial. IES’s commercial work (70% of revenues) consists primarily of electrical installations and renovations in office buildings, high-rise apartments and condominiums, hotels, retail stores and centers, schools, community centers, theaters and stadiums. Within industrial construction, the Company provides services for utilities, including power generation and overhead and underground lines, water facilities, manufacturing and processing facilities, highway and transportation projects, military installations, and airports. IES’s customer base is comprised of general contractors, developers, building owners and managers, engineers, architects and consultants. No customer accounts for more than 10% of revenues. New business is typically sourced through long-standing relationships. After reviewing the engineer’s plans and meeting with the client, the IES business unit will construct cost estimates

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and submit its bid for the project. If the project is awarded, it is scheduled in phases and incrementally billed as it is completed, net of a 5% to 10% retainage based on total project cost. The Commercial and Industrial (“C&I”) segment is characterized by long, complex projects which are executed under fixed-priced or guaranteed maximum price contracts. This contract structure has exposed IES to compromised margins resulting from under-bidding and cost overruns and recently led management to shorten project duration and to shift revenue mix toward its residential operating segment. IES’s average contract is currently between $500,000 and $600,000 and requires between six and nine months to complete. As of the third quarter of 2005, commercial and industrial revenue accounted for 70% of total revenue, down from 77% in the prior year’s quarter. Much of the shift has been accomplished through the divestiture of business units which focus on commercial and industrial contracting. This change in service mix has also been motivated by an increasingly difficult surety bonding environment, a dynamic which will be addressed in detail below in the Recent Trends section. Residential. Anchored by subsidiary Houston-Stafford of Stafford, TX, IES is the largest residential electrical contractor in the country. The Residential segment provides electrical installations for developers of new single family homes and multi-family low-rise apartments, condominiums and town homes. IES’s residential operating segment is considerably more profitable than its commercial and industrial segment, typically executing projects which are shorter in project duration and less complex. Also, the surety bonding requirement for this segment is considerably lower. Demand for residential work is seasonal in nature, with higher revenues generated during the spring and summer quarters (Q3 and Q4). Single-family installations are not entered into the Company’s backlog. Project Financial Structure Revenues. Electrical contracting typically comprises 10% of the total construction costs of a given project. IES recognizes revenue from construction contracts on a percentage-of-completion method, whereby costs incurred and accrued to-date are compared with the estimated total cost for each contract. While this methodology is common, its accuracy is vulnerable to revisions in project costs produced by inaccurate bidding, and poor project management, job performance and job conditions. The Company recently encountered errors at three of its subsidiaries relating to improperly recording revenues associated with change orders, costs charged to certain contracts and the estimates of costs to complete on certain contracts. As a result, reported results for the six months ended March 31, 2004 and the years ended September 30, 2002 and 2003 have been revised, reflecting a decrease in operating profit in the amount of $4.5 million, $1.0 million and $0.8 million, respectively. Costs. IES’s operating costs are comprised mainly of materials, labor and insurance. Materials are ordered for a particular project and are typically utilized within 30 days. They consist of commodity-based products such as conduit, wire, fuses, fixtures and control panels. At the commodity level, IES makes use of steel, copper and gasoline. While the Company does hedge its materials exposure on fixed-priced contracts to a reasonable extent, the contracts do not contain material escalation clauses, leaving IES vulnerable to rapidly rising commodity pricing. Material cost savings are one of the touted benefits of roll-ups such as IES, but such savings are often absorbed by increased overhead and compliance costs. For the years ending September 30, 2002, 2003 and 2004, materials expense as a percentage of cost of services was 42%, 43% and 51%, respectively.

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As a non-union shop, IES benefits from lower employee benefit costs, as well as more flexible work rules. In a tight labor market, though, labor costs can effectively become less variable. In what is considered an ongoing and ever increasing labor shortage of electricians, we believe that IES is currently faced with supporting an underutilized labor force in some of its markets, due to Company anticipation of an up-tick in commercial electrical contracting demand and the commensurate difficulty with staffing up. For the years ending September 30, 2002, 2003 and 2004, labor and related expenses as a percentage of cost of services was 43%, 42% and 48%, respectively. Geographic Markets As of August 6, 2005, IES had 36 active business units and over 100 locations serving the continental U.S. During the formation of IES, management touted the competitive advantage that a national footprint would provide in competing for projects with national or regional customers. Outside of service work, this does not appear to have been the case, given the local nature of construction and contracting. Figure 1 delineates our estimate of IES’s current business unit headquarter locations. While it has a national presence, the Company has derived the majority of its revenue from the Sunbelt states. As shown in Figure 2, nearly 70% of revenue has historically come from the South, with the Mid-Atlantic and Northeast a distant second. It is evident in the following charts (see Figures 3a-3c) that private nonresidential construction put-in-place spending is down from its 2000 to 2001 highs and is essentially running flat in IES’s main markets. On a national basis, year-over-year monthly growth of private nonresidential construction put-in-place spending has leveled off at approximately 5%, as compared with what had been a trend of increases over the second half of 2004 (see Figure 3a). Spending in the Southeast region has grown by approximately 4% in years 2003 and 2004 (see Figure 3b), while in the Southwest region, spending has declined (see Figures 3c). Construction spending forecasts are

addressed below in the Outlook section. According to our market feedback, demand within IES’s commercial markets varies considerably. Florida, for example, is one market in which customers seem desperate for electrical contracting services, while in Texas demand is considered anemic throughout the industry. It is anticipated, though, that a number of Texas markets will rebound on the heels of rising oil and gas prices. As for Hurricane Katrina, management has stated that, though IES does not have a presence in the affected areas, the tragedy may result in additional

work for regionally located business units and/or increased project margins due to reduced contractor capacity in its markets.

Figure 2

Source: Company.

Percentage of Revenue by RegionAs of June 2004

South, 34%

Northwest, 6%Southeast,

25%

Midwest, 5%

Mid-Atlantic, 14%

Northeast, 6%

Southwest, 10%

Figure 1

Business Unit Headquarter Locations As of September 9, 2005

Region State No. UnitsSoutheast AL 1

FL 2 GA 1 KY 1 NC 1 SC 2 TN 2 VA 3

13 West AZ 3

CA 2 CO 1 OR 3 NV 2 WA 1

12 Southwest TX 9 Midwest IA 1

NE 1 OH 1

3 Mid-Atlantic MD 2 Northeast MA 1

SUBTOTAL 40 Less adjustments 4 TOTAL 36 Source: Company and MTR estimates.

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Figure 3a

Source: Department of Commerce.

Figure 3b

Source: Department of Commerce.

Figure 3c

Source: Department of Commerce.

Private Nonresidential Construction Put-In-PlaceSoutheast Region

010,00020,00030,00040,00050,00060,00070,000

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Private Nonresidential Construction Put-In-PlaceSouthwest Region

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Private Nonresidential Construction Put-In-PlaceNational - Seasonally Adjusted Annual Rate

225,000230,000235,000240,000245,000250,000

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RECENT TRENDS Surety Bonding Surety bonding has historically been an important component of new business development for IES. Large projects and government funded projects typically always require the Company to post bid, payment and performance bonds. A surety bond is a three-party instrument among a surety, the contractor and the project owner. The agreement requires the contractor to comply with the terms and conditions of a contract. If the contractor is unable to successfully perform the contract, the surety assumes the contractor’s responsibilities and ensures that the project is completed. Financial losses experienced by surety providers in recent years have led providers to tighten underwriting standards and caused many to leave the business entirely. IES’s faltering fundamentals in its Commercial and Industrial segment have led IES’s surety provider, Chubb, to limit bonding capacity and to secure most of its exposure. As of June 30, 2005, IES had $110 million of cost-to-complete on bonded projects, as compared with $151 million as of March 31, 2005. Of this amount, collateral was comprised of $18.0 million in cash, $11.4 million in letters of credit and $60 million in receivables, summing to 81% of total exposure. These limitations on securing bonding have altered IES’s strategic direction. Through a change in projects bid and a recent divestiture program, the Company has refocused its sourcing efforts on smaller projects, which do not require surety bonding. The Company purports that these smaller projects will carry higher margins, though this is contrary to the feedback we have received from the marketplace, which indicated that there is a greater degree of competition for smaller assignments. Additionally, selling expense should increase given smaller project size and constant selling expense per project. On the other hand, an increase in gross margin may be achieved because IES can more accurately bid on and properly execute smaller scale projects. The Company has also mentioned its intention to obtain a secondary surety provider. We consider success with this endeavor unlikely and believe that Chubb will continue to secure the balance of its unsecured exposure and reduce its outstanding bonds. We also believe that Chubb will continue to work with IES management in a fiscally prudent manner. Abandoning IES’s surety bonding program would limit the Company’s ability to win future business and potentially harm Chubb’s current bonding exposure to IES if deteriorating sales imperiled its ability to complete current projects. Divestitures In October 2004, IES announced a strategic realignment of all its business units. The realignment is aimed at divesting underperforming commercial units and is expected to be completed within fiscal 2005. Management has classified each of IES’s business units as either Core, Under Review or Planned Divestiture. The Core category is comprised of the Company’s residential units and well-performing commercial units. While subject to change, remaining Planned Divestiture units accounted for an estimated $106 million of fiscal 2004 revenues and approximately $55 million of LTM revenues through July 2005, a percentage decrease of 48%. To-date, divested units are comprised of thirteen business units responsible for an estimated $244 million of fiscal 2004 revenues (see Figure 4). The vast majority of these units are headquartered in the Southeast and Southwest regions. As of this writing, only two divestitures

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had been announced in the fourth quarter of 2005, as compared with five that had been scheduled to be completed by quarter-end.

Figure 4 Divestitures Fiscal Year-to-Date (In Millions of Dollars)

Cash 2004 2004 Proceeds/Business Unit State Proceeds Revenue Op. Margin Revenue DateGoss Electrical AL 4.0$ 19.0$ -2.2% 0.21x 11/30/04Delco Electric OKB. Rice Electric TXAce/Putzel GA 3.5 17.3 -2.8% 0.20x 01/07/05DKD Electric NMHoward Brothers Electric NCT&H Electric NC 4.5 16.5 9.1% 0.27x 03/02/05Canova Electrical PA 1.7 8.0 11.3% 0.21x 04/18/05Anderson & Wood IDTech Electric NCErnest P. Breaux Electrical LA 5.6 49.3 4.3% 0.11x 06/30/05Brink Electric Construction SD 4.7 19.3 10.3% 0.24x 08/05/05Florida Industrial Electric * FL 6.0 35.5 -0.8% 0.17x 09/05/05Subtotal 44.9 Adjustment to Subtotal 1.9 Cash True-Up 3.1 TOTAL 49.9$ 244.2$ 0.20xSource: Company Reports and MTR.* Revenue figure reflected is for LTM ending August 2005.

05/04/053.2 13.3 4.5% 0.24x

12/10/04

4.4 27.3 2.2% 0.16x 02/01/05

7.5 38.7 3.9% 0.19x

Cash proceeds for the Company’s current divestiture program total $50 million, and given average cash proceeds of $0.20 per fiscal 2004 revenue dollar (as compared with an estimated $0.75 per revenue dollar paid for IES’s founding companies), the balance of Planned Divestitures could generate an incremental $28 million, assuming that those already divested units were not low-hanging fruit. An additional three units are classified as Under Review ($196 million of 2004 revenues) and could produce estimated cash proceeds of $39 million, though based on comments made on the fiscal third quarter 2005 conference call, we assume that these units will be retained in the medium-term. In what we believe to be every case, each divested unit has been sold to its previous owner/current manager. This implies that 1) the previous owner believes that she can create value once disassociated from IES; 2) the unit’s projects can get bonded when separated from IES (possibly via owner personal guarantees); 3) the buyer of the divested unit perceives that she is buying at a level at which she can make an acceptable return; and 4) there does not exist another buyer for the unit. This also clearly demonstrates that IES has the ability to readily divest its structurally disparate units and to generate incremental liquidity. As for what IES will do with the cash proceeds of its divestiture program, we believe that it will not readily use recent proceeds to repurchase debt, as it is not required under its indentures given the size of asset sales. With backlog declining, uncertainty surrounding future

Figure 5 Divestiture Summary As of September 5, 2005 (In Millions of Dollars)

No. Cash Est LTMStatus Units Proceeds RevenueSold 13 48.0$ 244.2$ Closed 2 - 9.3 Planned 4 28.1 140.7 Under Review 3 39.2 195.8 Source: Company Reports and MTR.

* Cash proceeds for Planned and Under Review are estimated.

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commercial project awards and declining operating margins, we suspect that the Company will likely wait and see if it requires the cash proceeds to support operations. MACRO DRIVERS Demand for commercial and industrial electrical contracting services is driven by construction and renovation activity, which is highly correlated to growth in real gross domestic product and to the rate of unemployment. Electrical contracting will lag a construction trend, as it is put-in-place during the latter part of the project. As shown in the Figure 6, our correlation analysis produced an R2 (statistical measure, 100% signifies perfect correlation) of 99.5%, showing an extremely high correlation among real GDP, the rate of unemployment and fixed investment in nonresidential construction spending.

Demand for residential electrical contracting services is correlated to housing starts and is, in large part, driven by the health of the economy and the level of interest rates. With new housing investment as the dependent variable and an R2 of 95.0%, the regression analysis in Figure 7 clearly shows a very strong relationship among the three. CORPORATE STRUCTURE

Figure 8INTEGRATED ELECTRICAL SERVICES, INC.

(Holding Company)Revolving Credit Facility

6.5% Senior Convertible Notes9.375% Senior Subordinated Notes

Operating SubsidiariesRevolving Credit Facility

Guarantors of:6.5% Senior Convertible Notes

9.375% Senior Subordinated NotesSource: Company reports.

Figure 6

Nonresidential Correlation Analysis (In Billions of Dollars)

NonresidentialUnemploy. Fixed

Year Real GDP Rate Investment1995 8,031.7$ 5.59% 762.5$ 1996 8,328.9 5.41% 833.6 1997 8,703.5 4.94% 934.2 1998 9,066.9 4.51% 1,037.8 1999 9,470.3 4.23% 1,133.3 2000 9,817.0 4.02% 1,232.1 2001 9,890.7 4.79% 1,180.5 2002 10,074.8 5.80% 1,075.6 2003 10,381.3 6.00% 1,110.8 2004 10,841.9 5.50% 1,228.6

VariablesY Real Nonresidential Fixed Investment

X1 Real GDPX2 Unemployment Rate

OutputR2 = 99.5%Y = 0.1668 * X1 - 10610.8 * X2 + 13.46175

Source: Department of Commerce and MTR analysis.

Figure 7

Residential Correlation Analysis (In Billions of Dollars)

Home NewMortgage Housing

Year Real GDP Yields Investment1995 8,031.7$ 7.87% 171.4$ 1996 8,328.9 7.80% 191.1 1997 8,703.5 7.71% 198.1 1998 9,066.9 7.07% 224.0 1999 9,470.3 7.04% 251.3 2000 9,817.0 7.52% 265.0 2001 9,890.7 7.00% 279.4 2002 10,074.8 6.43% 298.8 2003 10,381.3 5.80% 345.7 2004 10,841.9 5.77% 416.1

VariablesY Real New Housing Investment

X1 Real GDPX2 Home Mortgage Yields

OutputR2 = 95.0%Y = 0.05077 * X1 - 3756.68 * X2 + 46.7746

Source: Department of Commerce and MTR analysis.

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CAPITAL STRUCTURE IES is structured as a holding company with substantially all of its assets and operations held by its subsidiaries. Each of the Company’s notes has been issued by the holding company entity, while both the parent and its operating subsidiaries are co-borrowers on the bank facility. Revolving Credit Facility On August 1, 2005, IES obtained a new three-year $80 million revolving credit facility with Bank of America, N.A., replacing its old facility which was scheduled to mature on August 31, 2005. As of August 9, 2005, there were no cash borrowings under the facility. Net of $15 million of reserves and $47 million of outstanding LC’s, revolver availability was $18 million. A Back-Up Letter of Credit in the amount of $42.1 million has been issued to secure the letters of credit that had been issued under the previous facility; in addition, a $5.0 million letter of credit has been issued to Chubb as additional security for its surety obligations. The letters of credit issued collateralize $36 million in casualty insurance and $11.4 million in surety bonding. The Company and each of its operating subsidiaries are co-borrowers of the facility; all other subsidiaries are guarantors of the facility. The obligations of the borrowers and the guarantors are secured by a pledge of substantially all of the assets of the Company and its subsidiaries, excluding any assets pledged to secure surety bonds procured by the Company and its subsidiaries in connection with their operations. The facility also carries a $70 million Letter of Credit sub-facility. Outstanding borrowings are charged an interest rate equal to 1) LIBOR plus an applicable margin ranging from 2.5% to 3.5%, based upon the Fixed Charge Coverage ratio, or 2) a domestic bank rate plus an applicable margin ranging from 0.5% to 1.5%, based upon the Fixed Charge Coverage ratio, at the election of the borrower. Fixed Charges are defined as interest expense, capital expenditures, principal payments of debt, depreciation associated with equipment, and income taxes. The facility’s Borrowing Base is calculated as a percentage of Eligible Accounts Receivable, Inventory and Equipment, less a reserve of $15 million. Borrowings against accounts receivable are determined as an amount equal to the lesser of 85% Eligible Accounts Receivable and 80% of cash collections; against inventory, as an amount equal to the lesser of $10 million and the lesser of (a) 65% of Eligible Inventory and (b) 85% of Eligible Inventory Liquidation Value; and against equipment, as an amount equal to the lower of cost or market. The loan agreement contains a covenant that specifies a Fixed Charge Coverage ratio for each cumulative monthly period (starting at one month and increasing up to a trailing twelve months), commencing in July 2005 at 0.59, scaling in a non-linear fashion to 1.00 in May 2007. We project covenant default during the first quarter of fiscal 2006, ending December 31, 2005, and believe that the bank will issue a waiver; our calculation of this ratio is not certain given current guidance. In addition to customary events of default, the facility is cross-defaulted to the Senior Convertible Notes, the Senior Subordinated Notes and the Company’s agreement with Chubb. 6.5% Senior Convertible Notes On November 24, 2004, IES sold Series A and B Senior Convertible Notes due November 1, 2014 in the amount of $30 million and $6 million, respectively, followed by a $14 million Series B issue on February 24, 2005. The capital raise was conducted in two parts to comply with the $30 million basket provision under the Limitation on Indebtedness covenant in the Subordinated

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Note indenture. The proceeds from the sale were used to repay a portion of the Company’s old credit facility and for corporate purposes. The Convertible Notes bear interest at an annual rate of 6.5%, payable semiannually on May 1 and November 1, and are convertible into common shares at an initial conversion price of $3.25 per share. The Convertible Notes are senior unsecured obligations and are guaranteed on a senior unsecured basis by the Company’s significant domestic subsidiaries. Prior to March 1, 2006, the Series B Convertible Notes are not convertible as long as any Series A Convertible Notes are issued and outstanding. On or after November 1, 2008, the Company has the option to redeem the Convertible Notes if the last reported trading price of the Common Stock is greater than 150% of the then current conversion price for at least 20 trading days in the 30 consecutive trading days ending on the day prior to the date on which the Company delivers notice of redemption. Upon a Change of Control, defined, in part, as the purchase of more than 50% of the Voting Stock, the Company is required to repurchase the Convertible Notes at par plus accrued interest. The holder of Notes who converts her securities during the Fundamental Change Conversion Period is entitled to the Make-Whole Premium upon conversion. As of June 30, 2005, $50 million of Senior Convertible Notes were outstanding. 9.375% Senior Subordinated Notes On January 25, 1999 and May 29, 2001, IES issued $150.0 million and $125.0 million of Series B and C Senior Subordinated Notes due February 1, 2009. Proceeds from the Series B issuance were used to finance acquisitions, while those of the Series C issuance were used to repay amounts outstanding under the credit facility. The notes bear interest at 9.375%, payable semiannually on February 1 and August 1. The Subordinated Notes are unsecured and subordinated to all existing and future senior indebtedness, including the Senior Convertible Notes. They are guaranteed on a senior subordinated basis by all of IES’s subsidiaries. Post-default distributions, including those made at exit from bankruptcy, are to be paid to holders of senior indebtedness until they are made whole (including pre- and post-petition interest). However, the indenture contains a so-called “X Clause.” This X Clause, in theory, entitles holders of the Subordinated Notes to retain distributions consisting of “Permitted Junior Securities,” even if senior creditors haven’t been made whole. Permitted Junior Securities are defined as “capital stock of the Company or debt securities that are subordinated to all Senior Indebtedness to at least the same extent as the Notes are subordinated to all Senior Indebtedness.” X Clauses are not particularly powerful protections for holders of subordinated debt. First, they don’t require debtors to structure bankruptcy distributions to include Permitted Junior Securities, and, second, courts have been very reluctant to actually enforce them, when to do so would permit a substantial recovery to junior bondholders before senior bondholders are made whole. While we are aware of recent efforts to draft X Clauses to compel a more favorable judicial interpretation, the X Clause in question doesn’t have such strengthened language. The Subordinated Notes are callable on or after February 1, 2005 at $103.125, February 1, 2006 at $101.563 and February 1, 2007 at $100. The notes carry a change of control put at 101%. Under the definition of Permitted Indebtedness, the Subordinated Note indenture allows the Company to borrow up to $250 million under a credit facility, as compared with its current facility of $80 million. We calculate that, given its estimated eligible trade accounts receivable balance alone, IES working capital accounts should support at least an additional $50 million in senior credit. This, of course, assumes lender willingness, which

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should not be taken for granted given the potential speed with which receivables become uncollectible on non-performing construction projects and/or the property of the surety provider via its subrogation rights. Otherwise, the Company’s ability to incur indebtedness is limited through a Consolidated Fixed Charge Coverage ratio of at least 2.0, pro forma for the acquired indebtedness, with which it is clearly not in compliance. Fixed Charges are defined as interest expense and dividends paid or accrued on Redeemable Capital Stock or Preferred Stock. Pursuant to the indenture, net cash proceeds from asset sales that are not used to reduce senior indebtedness or to reinvest in assets that are useful in the business within 360 days of the asset sale, and which are equal to or exceed $10 million, are to be used to purchase the Subordinated Notes for cash at 100% of the principal amount plus accrued and unpaid interest to the purchase date. Noncompliance with this provision of the indenture is not an Event of Default. Given the sale price (averaging $3.4 million) of the divestitures completed year-to-date and of those currently planned, it would appear that this provision is not applicable to IES’s current strategic realignment. The Company redeemed two tranches of Subordinated Notes in the amount of $27.1 million and $75.0 million on September 30, 2002 and September 30, 2004, respectively. As of June 30, 2005, $62.9 million of the Series B Notes and $110 million of the Series C Notes were outstanding. Leverage / Liquidity IES had total net debt of $192.4 million as of June 30, 2005. Given an LTM adjusted EBITDA (defined as operating income before depreciation and amortization, net of MTR-determined non-recurring items) of $8.9 million, the Company had a net leverage ratio of 21.6x. LTM adjusted net interest coverage is calculated at 0.36x for the period. As of August 9, 2005, IES had liquidity in the amount of $53 million, comprised of $35 million in cash and $18 million of revolver availability. MANAGEMENT / OWNERSHIP C. Byron Snyder, Founder of IES and Chairman of the Board since the Company’s inception in 1997, replaced H. Roddy Allen as president and CEO effective June 30, 2005. On June 2, 2005, Mr. Allen announced that he had retired as president, CEO and a director of IES. Mr. Allen had been a director since 2001, and CEO and president since October 2002. Throughout his career, Mr. Snyder has held leadership roles at both private equity firms and operating companies. As reported in the Company’s latest proxy statement, Mr. Snyder beneficially owns 6.4% of IES common stock (see Figure 10). Our feedback from the marketplace has been positive regarding Mr. Snyder. Those who purport to know him well consider him an accomplished dealmaker and an astute business person. We view his assumption of the CEO role as positive for IES, but telling of its current state of affairs.

Figure 9Leverage

As of June 30, 2005(In Millions of Dollars)

LeverageAmt. O/S Thru

Revolving Credit Facility -$ 0.0xSenior Convertible Notes 50.0 5.6xSenior Subordinated Notes 172.9 25.1xTotal 222.9 25.1x

LTM Adjusted EBITDA 8.9$ Source: MTR analysis.

Figure 10 Beneficial Ownership of IES Common Stock

As of May 13, 2005 (Shares In Millions)

Owner No. Shares % ClassMarathon Asset 7.7 17.9%Amulet Limited 7.7 16.4%Fidelity 4.7 12.1%Directors and Off., other 3.9 10.1%Jeffrey Gendell 3.7 9.4%Barclays Global Investors 3.5 9.0%Dimensional Fund 3.2 8.1%State Street Research 2.8 7.0%C.Byron Snyder 2.6 6.7%Artisan Partners 2.2 5.6%Ardsley Advisory 2.0 5.1%Source: Company reports.

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Richard Humphrey was named COO of IES on March 31, 2005, replacing Richard China, who left the Company in November 2004. Mr. Humphrey has 35 years of experience in the industry, beginning in 1970 when he founded ARC Electric, Inc., currently a subsidiary of IES. Mr. Humphrey remained as president of ARC until 2001, when he assumed the role of regional operating officer. David Miller was appointed CFO of IES in January 2005. Mr. Miller has been with the Company since January 1998 and was previously chief accounting officer. He replaced William Reynolds, who had been CFO since June 2000. Bob Callahan was promoted to senior vice president of human resources in February 2005, replacing Margery Harris, who had been with IES since October 2000. Mr. Callahan has been with the Company since 2001. COMPETITION Based on data from F.W. Dodge and EC&M Magazine, IES management estimates that the electrical contracting industry generated $90 billion in annual revenues for 2004. The industry is highly fragmented and is comprised of over 70,000 companies, most of which are owner-operated. Within the top 10 companies, as ranked by size, electrical contracting revenues range from approximately $1.5 billion down to $300 million; of these, four companies are public (see Figure 11). Figure 11

Specialty Contractors - Public Comparables As of August 31, 2005 (In Millions of Dollars)

LTM LTM EBITDA Enterprise EV / EV / Net Debt /Company Ticker Specialty Sales EBITDA Margin Net Debt Value EBITDA Sales EBITDAIntegrated Electrical Services IES Electrical 1,169.4$ 8.9$ 0.8% 192.4$ 299.7$ 33.8x 0.26x 21.7xEMCOR Group EME Elec. / Mechanical 4,719.1 83.7 1.8% 1.5 857.8 10.3x 0.18x 0.0xEMCOR Group, US Electrical Division* Electrical 1,233.2 74.9 6.1%Quanta Services PWR Electrical / Utilities 1,694.1 83.3 4.9% 220.2 1,623.8 19.5x 0.96x 2.6xInfraSource Services IFS Utilities / Electrical 775.0 54.5 7.0% 99.3 690.3 12.7x 0.89x 1.8xComfort Systems USA FIX Mechanical / HVAC 869.6 28.4 3.3% (26.2) 299.9 10.5x 0.34x 0.0xDycom Industries DY Utilities / Comm. 996.1 130.6 13.1% (67.6) 797.9 6.1x 0.80x 0.0xSource: Company Reports and MTR analysis.

* Estimated. EMCOR Group (EME). Headquartered in Norwalk, CT, EMCOR Group has an interesting history with predecessor entities that have focused on supplying water for municipalities and on computer systems reselling. Formerly known as JWP, EMCOR emerged from bankruptcy in 1994 to concentrate on its core mechanical and electrical contracting businesses. Since then, it has grown successfully through acquisition. Its installed systems are used for power generation and distribution, lighting, communications, plumbing and HVAC. LTM electrical contracting revenues are $1.2 billion with estimated EBITDA margins of 6.1%. The company had net debt of $1.5 million as of June 30, 2005. Quanta Services (PWR). Quanta Services, which is headquartered out of Houston, TX, is a leading national provider of network infrastructure solutions to the electric power, gas, telecommunications and cable television industries. Quanta recently posted total LTM sales of $1.7 billion with an EBITDA margin of 4.9%. Its net leverage ratio, as of June 30, 2005, was 2.6x.

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InfraSource Services (IFS). InfraSource Services, located in Media, PA, provides transmission and distribution services to electric and gas utilities throughout the U.S. In 2003, the company was sold off by its parent, Exelon (a subsidiary of the utility PECO), to GFI Energy Ventures and Oaktree Capital Management, and it was subsequently taken public in 2004. LTM sales for the period ending June 30, 2005 were $775 million, with an EBITDA margin of 7.0%. The company’s net leverage ratio was 1.8x. Other large, private competitors include Rosendin Electric, Fisk Corp., Xcelecom Inc., Morrow-Meadows Corp., Red Simpson Inc., ANECO Electrical Construction and Miller Electric. The following paragraph recounts the cautionary tale of Encompass Services, a now defunct roll-up, which not too long ago, was the largest electrical contracting business in the United States. Encompass Services. Encompass Services began with the formation of Group Maintenance America Corp. (GroupMAC). Established to consolidate the electrical contracting industry, GroupMAC went public in 1997. Following a number of add-on acquisitions, GroupMAC merged with Building One to create the country’s largest facilities services conglomerate. Crushed by its heavy debt load and the economic recession of the early 2000’s, Encompass filed for bankruptcy protection in 2002. The firm’s decline is recounted well in its Disclosure Statement dated April 11, 2003: following a disappointing second quarter of 2002, “Encompass’s customers increasingly began to demand bid and performance bonds for new and existing construction contracts. In early October, Encompass began experiencing increased difficulty securing new construction contracts and bid and performance bonds for its commercial activity. In addition, Encompass's sureties began notifying Encompass of new and increased collateral requirements, based upon their concern for Encompass's creditworthiness, demanding that Encompass and its Subsidiaries post letters of credit in order to obtain the necessary bonding, which further exacerbated Encompass's liquidity problems…In light of Encompass's announced financial difficulties, customers for existing projects increasingly requested bonds, or requested increased coverage amounts of bonds, on continuing projects, and threatened to terminate Encompass from such projects if such requests were not satisfied. Bonding requirements for new projects significantly increased in frequency, and Encompass was entirely excluded from bidding on a number of projects. Encompass's sureties imposed increasingly stringent requirements to the issuance of bonds, including requiring full cash collateral for the face amount of new bonds issued.” Subsequently, in October 2002, Encompass submitted a prepackaged plan of reorganization, which was later rejected. Ultimately, the company’s business units were sold. One of the more notable sales was Encompass’s Residential Services Group (“RSG”). With annual revenues of approximately $300 million, RSG provided HVAC, plumbing and other contracting services in residential and small commercial buildings. Acquired by Wellspring Capital Management, RSG was purchased for approximately $50 million, or 2.25x estimated EBITDA. Wellspring Capital sold RSG fifteen months later to Direct Energy for $150 million, or 6.25x EBITDA.

Figure 12 Encompass Services Financial Comparison

(In Millions of Dollars)

Encompass IES3Q02 3Q05

Revenues 838.6 284.0 Adjusted EBITDA 15.7 3.4 Adjusted EBITDA Margin 1.9% 1.2%Interest Expense, net 19.6 7.6 Net Debt 1,088.6 192.5 LTM Net Interest Coverage 1.1x 0.36xNet Leverage Ratio 12.7x 21.7xBacklog 1,300.0 383.0 Months Backlog 4.7 5.8 Liquidity 76.8 44.1 Source: Company reports and MTR estimates.

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RECENT FINANCIAL RESULTS Commercial and Industrial Segment Commercial and industrial revenues decreased 13.6% to $197.7 million in the third quarter of fiscal 2005 ending June 30, 2005, down from $228.9 million in the prior year’s quarter. The decrease is a result of decreased awards of bonded projects, the closure of plant and utility work at one subsidiary, and more selective bidding. Adjusted gross margins for the third quarter of 2005 remained relatively flat at 9.9% on a year-over-year basis, improving from 8.3% in the prior quarter; unadjusted gross margin declined due to decreased awards of bonded projects and reduced job profitability at certain subsidiaries. SG&A expense in the third quarter of 2005 continued to rise despite business unit divestitures, increasing to $19.1 million, or 9.6% of segment revenue. As a result, adjusted EBITDA margin for the commercial and industrial segment decreased to 1.1% for the third quarter of 2005 from 3.1% in the prior year’s quarter (see Figure 16). Residential Segment Residential revenues increased 4.8% in the third quarter of 2005 to $86.3 million from $82.3 million in the prior year’s quarter due primarily to the increased demand for new single-family and multi-family housing. Gross margins increased to 22.1% in the quarter versus 21.4% and 17.5% for the second quarter of 2005 and the third quarter of 2004, respectively. SG&A expense in the third quarter of 2005 rose 11.8% year-over-year to $9.8 million, or 11.3% as a percentage of revenues, versus 10.6% in the prior year’s quarter. Adjusted EBITDA margin increased to 11.1% in the third quarter of 2005, as compared with 9.1% in the second quarter of 2005 and 7.2% in the third quarter of 2004. Excluding corporate overhead, IES’s residential segment accounted for 81.4% of total operating segment adjusted EBITDA while comprising just 30.4% of total revenues. Corporate Adjusted SG&A increased 57% in the third quarter of 2005 to $8.8 million, or 3.1% of total revenue, from $5.6 million in the prior quarter. The increase was due to costs associated with an incentive program, consulting fees associated with Sarbanes-Oxley compliance, and increased audit fees. Total adjusted EBITDA was basically flat, sequentially, in the third quarter of 2005 at $3.4 million, but down 53% from $7.2 million in the third quarter of 2004.

Figure 13

Source: Company and MTR estimates.

Commercial and Industrial Segment Cost Structure

80.0%

85.0%

90.0%

95.0%

100.0%

105.0%

Q4 '03 Q1 '04 Q2 '04 Q3 '04 Q4 '04 Q1 '05 Q2 '05 Q3 '05

Perc

enta

ge o

f Rev

enue

s

Adjusted Cost of Services as % Revenue Adjusted SG&A as % Revenue

Figure 14

Source: Company and MTR estimates

Residential Segment Cost Structure

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

Q4 '03 Q1 '04 Q2 '04 Q3 '04 Q4 '04 Q1 '05 Q2 '05 Q3 '05

Perc

enta

ge o

f Rev

enue

s

Adjusted Cost of Services as % Revenue Adjusted SG&A as % Revenue

16

Backlog Backlog for the third quarter of 2005 decreased 32% to $383 million from $566 million in the prior year’s quarter, representing 5.8 months of backlog versus 7.4 months in the prior year (calculated on annualized quarterly commercial and industrial segment revenues). Cash Flow Cash flow from operations before working capital in Q3 2005 was $0.3 million, as compared with -$5.9 million in the prior quarter, due to semiannual cash interest payments. Since the third quarter of 2004, average quarterly trailing twelve-month cash flow from operations has averaged -$1.6 million. Over the past three quarters, asset sales have supplemented cash from operations with $36.2 million of cash flow, some of which was used to reduce debt levels (see Figure 16).

Figure 15 Backlog(In Millions of Dollars)

3Q05 2Q05 ** Q/Q 3Q04 Y/YBacklog 383 435 -12% 566 -32%Months Backlog * 5.8 6.0 -0.2 7.4 -1.6Backlog as % Ann. C&I Rev.* 48.4% 50.3% -190bps 61.8% -1,340bpsSource: Company Reports

* Figures calculated using annualized quarterly C&I revenue.** Revenue figures for 2Q05 used in calculations have not been adjusted for subsequent divestitures.

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Figure 16 INTEGRATED ELECTRICAL SERVICES, INC.

Adjusted Historical Quarterly Segment Operating Statement *(In Millions of Dollars)

COMMERCIAL AND INDUSTRIAL SEGMENT

Q4 Q1 Q2 Q3 Q4 ** Q1 Q2 Q39/30/03 12/31/03 3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05

Revenue Before Divestitures, estimated 309.6$ 289.0$ 266.8$ 284.7$ 275.4$ 253.9$ 240.6$ 218.2$ Revenue from Recently Divested Units - 49.2 49.7 55.8 - 38.0 24.5 20.5 Revenues 309.6 239.7 217.1 228.9 275.4 215.9 216.1 197.7

Cost of Services 271.0 209.9 196.0 206.0 253.6 196.1 198.2 178.0 Gross Margin percentage 12.5% 12.4% 9.7% 10.0% 7.9% 9.2% 8.3% 9.9%SG&A Expense 25.8 18.5 17.7 17.9 24.4 19.5 18.4 19.1 % of Revenues 8.3% 7.7% 8.1% 7.8% 8.9% 9.0% 8.5% 9.6%Income from Operations 12.8 11.3 3.4 5.1 (2.6) 0.3 (0.4) 0.5

Depreciation and Amortization 2.9 2.1 2.1 2.0 2.4 2.0 2.3 1.6

Adjusted EBITDA 15.6$ 13.4$ 5.5$ 7.1$ (0.2)$ 2.3$ 1.9$ 2.2$ Adjusted EBITDA Margin 5.0% 5.6% 2.5% 3.1% -0.1% 1.1% 0.9% 1.1%

RESIDENTIAL SEGMENT

Q4 '03 Q1 '04 Q2 '04 Q3 '04 Q4 '04 Q1 '05 Q2 '05 Q3 '05Revenues 71.1$ 71.2$ 73.2$ 82.3$ 81.5$ 69.7$ 71.4$ 86.3$

Cost of Services 57.1 56.2 58.4 67.9 66.2 55.8 56.1 67.2 Gross Margin percentage 19.7% 21.1% 20.2% 17.5% 18.8% 19.8% 21.4% 22.1%SG&A Expense 8.2 8.3 8.5 8.8 8.3 8.5 9.0 9.8 % of Revenues 11.5% 11.7% 11.6% 10.6% 10.2% 12.2% 12.6% 11.3%Income from Operations 5.9 6.7 6.3 5.6 7.0 5.3 6.3 9.3

Depreciation and Amortization 0.2 0.3 0.3 0.3 0.3 0.2 0.2 0.3

Adjusted EBITDA 6.1$ 7.0$ 6.7$ 5.9$ 7.3$ 5.5$ 6.5$ 9.5$ Adjusted EBITDA Margin 8.5% 9.8% 9.1% 7.2% 9.0% 7.9% 9.1% 11.1%

CONSOLIDATED

Q4 '03 Q1 '04 Q2 '04 Q3 '04 Q4 '04 Q1 '05 Q2 '05 Q3 '05SG&A Expense, corporate 5.4 5.2 5.2 6.4 8.3 5.9 5.6 8.8 % of Total Revenues 1.4% 1.7% 1.8% 2.1% 2.3% 2.1% 1.9% 3.1%Total Income from Operations 13.2 12.8 4.5 4.3 (3.8) (0.3) 0.3 1.0

Total Depreciation and Amortization 5.4 2.9 2.9 2.9 3.3 2.7 3.3 2.4

Total Adjusted EBITDA 18.6$ 15.7$ 7.5$ 7.2$ (0.5)$ 2.4$ 3.5$ 3.4$ Adjusted EBITDA Margin 4.9% 5.0% 2.6% 2.3% -0.1% 0.9% 1.2% 1.2%Source: Company and MTR estimates.

* Quarterly figures exclude non-recurring items.* Quarterly figures are not necessarily comparable due to divestitures and financial restatements.** Q4 2004 figures do not incorporate adjustments for divestitures.

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Figure 17INTEGRATED ELECTRICAL SERVICES, INC.

Historical Quarterly Cash Flow Summary *(In Millions of Dollars)

Q4 Q1 Q2 Q3 Q4 ** Q1 Q2 Q3SOURCES 9/30/03 12/31/03 3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05Adjusted EBITDA 18.6$ 15.7$ 7.5$ 7.2$ (0.5)$ 2.4$ 3.5$ 3.4$ Non-Cash Comp. Expense - 0.1 0.2 0.2 0.2 0.2 0.4 0.4 Total Sources 18.6 15.8 7.7 7.4 (0.3) 2.6 4.0 3.8

USESCash Interest Expense (11.7) (0.2) (13.3) (0.7) (9.2) (1.1) (8.7) (1.4) Cash Income Taxes - (0.4) (0.3) (0.3) 0.1 (0.3) (0.4) (0.1) Capital Expenditures (1.4) (1.6) (1.3) (1.4) (2.3) (1.2) (1.0) (1.3) Working Capital Changes (16.8) 0.4 (1.5) (0.8) 3.9 (5.1) 9.0 4.1 Change in Noncurrents (2.9) 0.3 2.9 (1.3) (1.1) (0.4) 0.2 (0.6) Total Uses (32.9) (1.4) (13.4) (4.6) (8.6) (8.1) (0.9) 0.6

Adjusted Free Cash Flow (14.3)$ 14.3$ (5.7)$ 2.8$ (8.9)$ (5.4)$ 3.1$ 4.4$

Asset Sales - - - - - 11.7 12.4 12.1 Net Changes in Debt (0.1) (0.1) (25.1) (7.1) 15.0 10.3 (15.9) (2.4)

Net Change in Cash (14.3)$ 14.2$ (30.8)$ (4.3)$ 6.1$ 16.6$ (0.5)$ 14.1$

Cash Balance 40.2 44.2 19.0 13.3 22.2 31.7 32.4 31.5 Revolver Availability 97.6 95.0 91.3 99.2 41.3 38.7 33.4 12.6 Total 137.8 139.2 110.3 112.5 63.5 70.4 65.8 44.1 Source: Company and MTR estimates

* Quarterly figures exclude non-recurring items.* Quarterly figures are not necessarily comparable due to divestitures and financial restatements.** Q4 2004 figures do not incorporate adjustments for divestitures.

OUTLOOK We are not bullish on IES’s prospects, but we do not consider its future to be determined at this time. The loss of quality people at many of the Company’s business units and the dependency of future growth on the state of the Company’s current financial health pose significant challenges. Aside from unforeseen factors, it appears that management may have time to affect a turnaround, given the Company’s limited capital requirements and its ability to sell units to generate liquidity. Markets The U.S. commercial construction market has experienced a significant decline since its peak in 2000. Having been revised downward, forecasted commercial construction spending is projected to grow 3% in 2005 by F.W. Dodge, which is a far cry from initial projections upwards of 10%. While this forecast is certainly better than a market contraction, marketplace demand must accelerate to utilize unabsorbed capacity so that incremental utilization drives IES top-line growth and improved project margins. Industry sources have commented that the overall construction industry has improved over the past few months.

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According to the National Association of Home Builders, the U.S residential construction market, as measured by new housing starts, grew by 5.8% in 2004. As of August 10, 2005, the NAHB forecasts the market to peak in 2005 with 2.0 million starts (a record year), or 3.3% annual growth, declining to 1.9 million starts in 2006. These forecasts bode well for IES’s residential operating segment, which should continue to show a strong top line and operating margin. Financial Projections Our projections reflect our concern with the difficulties facing IES management in turning around its Commercial and Industrial operating segment. Specifically, we are concerned about IES’s declining backlog, high leverage, a difficult surety bonding environment, markets which have yet to rebound and the loss of quality people within the organization. The model’s drivers are intended to portray a degrading fundamental picture at the Company’s Commercial and Industrial segment, and a resulting decrease in liquidity. Commercial and Industrial. We project C&I segment revenue will decrease 2.5% sequentially for the quarters ending September 30, 2005 and December 31, 2005, accelerating to 4.0%, thereafter, through the end of fiscal 2007. We have accelerated the decline in revenue to reflect anticipated backlog shrinkage; projected revenues are net of projected divestitures. Gross margin for the segment is forecast at 9.5%, as compared with an adjusted gross margin of 9.9% in Q3 2005 and an LTM adjusted gross margin of 8.8%. Based on some of the positive feedback we have received from the marketplace concerning recent cost-cutting activity, we have assumed that management successfully reduces annual SG&A by $500k each quarter, and thus have projected SG&A to improve $125k quarterly. From a historical perspective, it is surprising that given the recent divestiture of business units that had high SG&A expense relative to their revenue base, segment SG&A as a percentage of segment revenues has only increased on a year-over-year basis in each of the last four quarters. Our resulting projected C&I adjusted EBITDA margin declines sequentially, averaging -0.5% over the next four quarters, or -$850k. Figure 18

INTEGRATED ELECTRICAL SERVICES, INC. Commercial and Industrial Segment

Projected Quarterly Operating Statement (In Millions of Dollars)

4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07Revenues 186.4$ 172.3$ 162.3$ 155.8$ 149.5$ 143.6$ 137.8$ 132.3$ 127.0$ Cost of Services 168.7 155.9 146.8 141.0 135.3 129.9 124.7 119.7 114.9 SG&A Expense 18.9 18.8 18.6 18.5 18.4 18.3 18.1 18.0 17.9 Depreciation and Amortization (1.9) (1.8) (1.7) (1.7) (1.6) (1.6) (1.5) (1.5) (1.4) Adjusted EBITDA 0.7 (0.6) (1.5) (2.0) (2.6) (3.1) (3.5) (4.0) (4.4)

Revenues, Q/Q % Change * -5.7% -7.6% -5.8% -4.0% -4.0% -4.0% -4.0% -4.0% -4.0%As a % Revenues:Cost of Services 90.5% 90.5% 90.5% 90.5% 90.5% 90.5% 90.5% 90.5% 90.5%SG&A Expense 10.1% 10.9% 11.5% 11.9% 12.3% 12.7% 13.2% 13.6% 14.1%Depreciation and Amortization -1.0% -1.0% -1.1% -1.1% -1.1% -1.1% -1.1% -1.1% -1.1%Adjusted EBITDA 0.4% -0.3% -0.9% -1.3% -1.7% -2.1% -2.6% -3.0% -3.5%Source: MTR projections.* Percentage change in 4Q05, 1Q06 and 2Q06 reflects divestitures.

20

Residential. Residential segment revenue, on a year-over-year basis, is projected to increase 4.5% in the fourth quarter of 2005, remain flat through fiscal 2006 and decline by 2.5% in fiscal 2007, in-line with a slowing housing market. Gross margins are expected to remain strong, ranging between 21% and 22% through fiscal 2007. Segment SG&A is projected to be flat at $9.6 million, given our limited visibility. Resulting projected Residential adjusted EBITDA margin varies between 7.2% and 11.5% through fiscal 2007, primarily due to seasonality. Figure 19

INTEGRATED ELECTRICAL SERVICES, INC. Residential Segment

Projected Quarterly Operating Statement (In Millions of Dollars)

4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07Revenues 85.2$ 69.7$ 71.4$ 86.3$ 85.2$ 67.9$ 69.6$ 84.1$ 83.1$ Cost of Services 66.0 55.0 56.4 67.3 66.4 53.7 55.0 65.6 64.8 SG&A Expense 9.6 9.6 9.6 9.6 9.6 9.6 9.6 9.6 9.6 Depreciation and Amortization (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) Adjusted EBITDA 9.8 5.3 5.6 9.6 9.3 4.9 5.2 9.1 8.9

Revenues, Y/Y % Change 4.5% 0.0% 0.0% 0.0% 0.0% -2.5% -2.5% -2.5% -2.5%As a % Revenues:Cost of Services 77.5% 79.0% 79.0% 78.0% 78.0% 79.0% 79.0% 78.0% 78.0%SG&A Expense 11.3% 13.8% 13.4% 11.1% 11.3% 14.1% 13.8% 11.4% 11.6%Depreciation and Amortization -0.3% -0.3% -0.3% -0.2% -0.2% -0.3% -0.3% -0.2% -0.2%Adjusted EBITDA 11.5% 7.5% 7.9% 11.1% 11.0% 7.2% 7.5% 10.8% 10.7%Source: MTR projections. Projected Cash Flow / Liquidity Given our view of cash burn in the foreseeable future, sufficient medium-term liquidity is reliant upon successful asset sales. To-date, the Company has sold two business units in the fourth quarter of 2005, generating $10.7 million in cash proceeds and a $2.0 million three-year promissory note. Based upon information provided in the Company’s second quarter 10-Q, our projections assume that three additional units are sold in the first quarter of 2006, producing $21.1 million in proceeds (0.2x fiscal 2004 revenues) and one unit is sold in the second quarter of 2006, producing $7.0 million in proceeds. On the last Company conference call, management had guided that all asset sales should be completed in the current quarter. Assuming no working capital contributions/requirements or cash income taxes, IES is projected to maintain liquidity through the third quarter of fiscal 2007; without successful asset sales, management is projected to have through fiscal 2006 to affect a turnaround. We have assumed that the remaining revolver availability will be used to issue letters of credit to collateralize additional surety bonding.

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Figure 20INTEGRATED ELECTRICAL SERVICES, INC.

Projected Quarterly Cash Flow Summary (In Millions of Dollars)

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4SOURCES 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07 6/30/07 9/30/07Adjusted EBITDA Commerical and Industrial 0.7$ (0.6)$ (1.5)$ (2.0)$ (2.6)$ (3.1)$ (3.5)$ (4.0)$ (4.4)$ Residential 9.8 5.3 5.6 9.6 9.3 4.9 5.2 9.1 8.9 Corporate SG&A (7.3) (7.3) (7.3) (7.3) (7.3) (7.3) (7.3) (7.3) (7.3) Corporate Depreciation 0.5 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 Total Adjusted EBITDA 3.8 (2.1) (2.6) 0.8 (0.0) (5.0) (5.2) (1.7) (2.4) Non-Cash Comp. Expense 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Total Sources 4.1 (1.7) (2.3) 1.1 0.3 (4.7) (4.8) (1.4) (2.0)

USESCash Interest Expense (2.4) (8.8) (2.8) (9.3) (2.9) (9.3) (2.9) (9.3) (2.9) Cash Income Taxes - - - - - - - - - Capital Expenditures (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) Working Capital Changes - - - - - - - - - Change in Noncurrents - - - - - - - - - Total Uses (3.7) (10.1) (4.0) (10.6) (4.2) (10.6) (4.2) (10.6) (4.2)

Adjusted Free Cash Flow 0.5$ (11.8)$ (6.3)$ (9.4)$ (3.9)$ (15.2)$ (9.0)$ (11.9)$ (6.2)$

Asset Sales, Completed 10.7 - - - 0.7 - - - 0.7 Asset Sales, Projected - 21.1 7.0 - - - - - - Net Changes in Debt - - - - - - - - -

Net Change in Cash 11.1$ 9.3$ 0.7$ (9.4)$ (3.2)$ (15.2)$ (9.0)$ (11.9)$ (5.6)$

Beginning Cash Balance 31.5 42.6 52.0 52.7 43.3 40.0 24.8 15.8 3.9 Ending Cash Balance 42.6 52.0 52.7 43.3 40.0 24.8 15.8 3.9 (1.7)

Without Additional Asset SalesBeginning Cash Balance 31.5 42.6 30.8 24.5 15.1 11.9 (3.4) (12.3) (24.3) Ending Cash Balance 42.6 30.8 24.5 15.1 11.9 (3.4) (12.3) (24.3) (29.9) Source: MTR projections. RATING AGENCIES On May 17, 2005, Moody’s downgraded IES’s Senior Implied rating to B3 from B2 and its senior unsecured issuer rating to Caa2 from Caa1, changing its rating outlook to negative from stable. The downgrade reflects the Company’s current negative cash flow generation, the lower-than-expected reduction in debt balances via asset sales, its weak liquidity, and the difficulty the Company is expected to encounter as it attempts to grow its core operations. Standard and Poor’s, on May 19, 2005, announced that it placed IES’s corporate credit and subordinated debt rating on CreditWatch with negative implications. S&P stated that the CreditWatch placement reflects the Company’s weakened liquidity position following a credit facility covenant violation.

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VALUATION Valuation multiples in the specialty contracting industry are cyclical, paralleling those of the industries serviced, and they are presently at record high levels. As can be clearly seen in Figure 21, between December 1997 and December 2002, the Enterprise Value to LTM EBITDA multiple for companies in the construction industry varied greatly, ranging from 4.6x in June 2000 to 9.2x in December 2001, averaging 6.6x. Among IES’s public comparables delineated in Figure 11 above, EBITDA multiples currently range from 6.1x to 19.5x; excluding outliers, a tighter valuation band is reflected with a range of 10.0x to 13.0x. While we assume that these valuation levels reflect the market’s view of forward earnings, they are difficult to reconcile. Highlighting the difference

between current and historical levels, Figure 22 charts IES’s historical EBITDA multiple against its EBITDA margin. Aside from the fact that they are trending in opposite directions, IES’s EBITDA multiple has averaged 5.7x (excluding the high and low of the range). In valuing IES within today’s market context, we have parsed the Company into its two reporting segments and have assumed that the Commercial and Industrial segment units are sold. As shown in Figure 23, current market multiples, when applied to the Residential segment, result in an IES value of $349 million. Industry sources believe that an EBITDA multiple ranging between 6.0x and 8.0x is more consistent with historical metrics. Applying a valuation multiple of 7.0x to IES’s Residential segment, we arrive at an

enterprise value of $288 million. A $288 million enterprise value, net of IES’s current net debt load, implies an equity value of $95 million, or $2.61 per share.

Figure 21

Source: Houlihan Lokey Howard & Zukin.

Historical Construction Industry EV/EBITDA Multiple

4.5x

5.5x

6.5x

7.5x

8.5x

9.5x

Dec-97

Jun-98

Dec-98

Jun-99

Dec-99

Jun-00

Dec-00

Jun-01

Dec-01

Jun-02

Dec-02

EV / EBITDA Multiple

Figure 22

Source: Company Reports and MTR analysis.* Valuation calculated at two weeks following SEC filing date.

IES Historical EBITDA Multiple vs. EBITDA Margin

0.0x2.0x4.0x6.0x8.0x

10.0x12.0x14.0x16.0x

1999 2000 2001 2002 2003 2004

EB

ITD

A M

ultip

le

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

EB

ITD

A M

argi

n

EBITDA Multiple EBITDA Margin

Figure 23 IES Valuation

(In Millions of Dollars)

Residential Segment Current HistoricalLTM Revenue 308.9$ 308.9$ LTM EBITDA 28.9 28.9 SG&A, corporate allocation 8.7 8.7 Adjusted LTM EBITDA 20.2 20.2 EBITDA Multiple 10.0x 7.0xValuation 202.0$ 141.4$

C&I SegmentLTM Revenue, estimated 837.7 837.7 Revenue Multiple 0.175x 0.175xValuation, Sold-off 146.6$ 146.6$

Total Value 348.6$ 288.0$ Source: MTR analysis.

23

RECOVERY ANALYSIS Distributable Value The value that would be distributed in a workout scenario among IES’s creditors will come from three sources: 1) interest in the reorganized entity, which we have assumed is IES’s Residential segment, 2) proceeds from the sale of the C&I business units, and 3) the cash build that occurs while in bankruptcy. In determining the value of the Residential segment in a reorganization, we based our valuation on a normalized EBITDA figure, as opposed to the figure reflected in the Company’s current run-rate. Current revenue and EBITDA are at record levels, the direct result of an overheated housing market. Implicit in our assumption is that a value determined in bankruptcy will reflect a more sustainable level. Our calculation of enterprise value for the Residential segment uses a normalized revenue figure of $280 million, an EBITDA margin of 8.9% and an EBITDA multiple of 4.0x. This compares with current LTM revenue of $313 million, an EBITDA margin of 10.5% and a current average specialty contractor EBITDA multiple of 11.8x (see Figure 11). Using the bankruptcy sale of Encompass’s RSG as a point of reference (2.25x estimated EBITDA), we applied an EV/EBITDA multiple of 4.0x to reflect the uncertainty associated with reorganizing the Residential segment. The two quoted EBITDA margins are not comparable because our estimate includes an allocation for corporate SG&A, which the latter does not. The resulting enterprise value for the Residential segment is $99.6 million (see Figure 25). The calculation for the amount of proceeds from the sale of the commercial business units is based upon recent IES divestiture values (see Figure 4). We have assumed that the revenue line has further declined to $600 million (current adjusted LTM revenues are estimated at $838 million) and that unit sales are not as productive in bankruptcy, applying a 0.125x multiple to revenues. Sale proceeds for the commercial business units are projected to be $75.0 million. This recovery value is intended to reflect the difficulty associated with selling a negative EBITDA construction business that is heavily reliant on its workforce. Lastly, we project a slight cash build of $2.2 million. This is a result of the payables rebuild being offset by an annual cash burn of $23.8 million in bankruptcy. Thus, total distributable value sums to $176.8 million. Treatment of Surety Bonding In the event of default on a bonded project by a contractor, the surety provider is required to either arrange for the completion of the contract or make payment to the project owner in the amount of the bond. Having exercised its right of subrogation, the surety becomes entitled to all receivables associated with the project, even to the possible detriment of a receivables-secured credit facility provider. The performing surety is not only required to complete the project as specified in the bonded contract, but also to cure all defaults and bear all expenses associated with completing the project. In addition, the surety is often required to satisfy liquidated damages associated with completion delays.

Figure 24Projected Surety Claims

in Bankruptcy(In Millions of Dollars)

Outstanding Surety BondingC&I Segment Revenue 600.0$ MarginsBacklog in Months 4.0 Backlog 200.0 Backlog, cost-to-complete 181.0 90.5%Percentage of Backlog Bonded 50.0%

Surety Bonding, cost-to-complete 90.5$

Surety Provider ClaimPercentage of Projects in Default 25.0%

Surety Loss on Defaulted Projects:Revenues 25.0 Cost of Services, initial 22.6 90.5%Cost Overruns 11.3 50.0%Loss (8.9)

Surety Provider Claim (8.9)$

Source: MTR analysis.

24

In our analysis, we have assumed that 25% of IES’s commercial projects fall into default, resulting in liquidated damages and the like estimated at 50% of project costs (see Figure 24). This produces an $8.9 million loss for the surety, which is claimed in bankruptcy on a secured basis via the letter of credit collateral. The Other unsecured claim line item of $10.0 million addresses possible damages claims filed by the owners of non-bonded projects. Figure 25

Recovery Analysis (In Millions of Dollars)

DISTRIBUTABLE VALUE SUMMARY Enterprise Value of Residential Segment MarginEnterprise Value of Residential segment 99.6$ Normalized Revenue 280.0$ 100.0%Sale Proceeds of Commercial Units 75.0 Cost of Services 218.4 78.0%Cash Build / (DIP Financing) 2.2 SG&A, segment 30.8 11.0%Total Distributable Value 176.8$ SG&A, allocated corporate 8.7 3.1%

Operating Income 22.1 7.9%VALUE ALLOCATION Depreciation and Amortization 2.8 1.0%Senior Credit Facility -$ Letters of Credit, Surety claim 8.9 Normalized EBITDA 24.9 8.9%Value to Unsecureds 167.8 EBITDA Multiple 4.0x

Enterprise Value - Residential Segment 99.6$ Trade Payables 10.5 Sale Proceeds of Commercial Units6.5% Senior Convert. Notes plus Accrued 50.8 Degraded Revenue Base 600.0$ 9.375% Senior Sub. Notes plus Accrued 176.9 Revenue Multiple 0.125xOther 10.0 Sale Proceeds 75.0$ Total Unsecured Claims 248.2

Cost of Services 546.0 91.0%Recovery to Unsecured Claims as % Face 67.6% Cash Build / (DIP Financing)

Beginning Cash Balance 5.0$ Senior Convertible Notes Recovery Working Capital - Upfront 20.9 Initial Value Allocation 34.4$ Ongoing Cash Build / (Burn) (23.8) Value Allocation from Subordinated Notes 19.7 Subtotal 2.1 Total Recovery 54.1 Interest Income / (DIP Interest Expense) 0.0

Total Cash Build / (Burn) 2.2$ FV Recovery to Sr. Conv. Notes as % Face 108.1% Annual Cash Build / (Burn)

Near-Term EBITDA (8.0)$ Senior Subordinated Notes Recovery Post-Petition Interest - Net Value Allocation 99.9$ Professional Fees (10.0)

Capital Expenditures (5.8) FV Recovery to Sr. Sub. Notes as % Face 57.8% Working Capital -

Annual Cash Build / (Burn) (23.8)$ Working Capital - Upfront Breakdown Days

Other Assumptions Beginning Payables 52.4$ 25 Length of Bankruptcy (months) 12 Payables after Paydown (20 days) 10.5 5 Secured Debt at Filing - Payables Rebuild 62.8 30

Change in Cash 20.9$ Source: MTR analysis. Value Allocation Net of secured claims of $8.9 million, distributable value of $167.8 million is available for the unsecured claims, which are comprised of payables, the Senior Convertible Notes plus accrued interest, the Senior Subordinated Notes plus accrued interest and other unsecured claims. As a whole, the unsecured claimants recover 67.6% of claims in our base case scenario. Value is then transferred from the Senior Subordinated Notes to the Senior Convertible Notes, until the Convertible Note holders recover par plus pre- and post-petition interest.

25

In our base case scenario, the Senior Convertible Notes recover 108.1% of face value, while the Senior Subordinated Notes recover 57.8% of face value. Sensitivity Analysis The following sensitivity analyses examine the future value recovery to the Convertible and Subordinated Notes under varying valuation assumptions. With regard to the Senior Convertible Notes, our sensitivity matrix clearly demonstrates the varying degree to which the notes maintain a strong recovery (see Figure 26). This is due to the amount of the issue outstanding relative to that of the Subordinated Notes. Impairment to the Convertible Notes begins at an enterprise value of $68 million, a level which is easily supported by the Residential segment alone ($100 million). Figure 26

Sensitivity AnalysisFV Recovery of Senior Convertible Notes

Residential Segment EBITDA Multiple6.0x 5.5x 5.0x 4.5x 4.0x 3.5x 3.0x 2.5x 2.0x

0.250x 108% 108% 108% 108% 108% 108% 108% 108% 108%Commercial 0.200x 108% 108% 108% 108% 108% 108% 108% 108% 108%

Segment 0.150x 108% 108% 108% 108% 108% 108% 108% 108% 108%Revenue 0.125x 108% 108% 108% 108% 108% 108% 108% 108% 108%Multiple 0.100x 108% 108% 108% 108% 108% 108% 108% 108% 108%

0.075x 108% 108% 108% 108% 108% 108% 108% 108% 108%0.050x 108% 108% 108% 108% 108% 108% 108% 108% 108%

Source: MTR analysis. The future value recovery to the Senior Subordinated Notes, on the other hand, is further impaired with each decrement in valuation multiple (see Figure 27). Figure 27

Sensitivity AnalysisFV Recovery of Senior Subordinated Notes

Residential Segment EBITDA Multiple6.0x 5.5x 5.0x 4.5x 4.0x 3.5x 3.0x 2.5x 2.0x

0.250x 102% 102% 102% 102% 98% 91% 84% 78% 71%Commercial 0.200x 102% 101% 95% 88% 82% 75% 68% 62% 55%

Segment 0.150x 92% 86% 79% 72% 66% 59% 53% 46% 39%Revenue 0.125x 84% 78% 71% 64% 58% 51% 45% 38% 31%Multiple 0.100x 76% 70% 63% 56% 50% 43% 37% 30% 23%

0.075x 68% 62% 55% 48% 42% 35% 29% 22% 15%0.050x 60% 54% 47% 41% 34% 27% 21% 14% 7%

Source: MTR analysis. RECOMMENDATION Given the limited downside protection an investor is afforded in IES, our returns analysis is focused on incorporating the probability associated with a bankruptcy filing. We have applied this probability to arrive at expected cash flows to note holders via coupon payments, recovery in bankruptcy and principal repayment at maturity. As shown in Figure 28, our base case scenario incorporates an estimate of the likelihood of a bankruptcy filing at 60% at the time of the Senior Subordinated Notes maturity. Our choice of this probability is only meant to convey our

26

sentiment and not intended to imply any quantitative foundation. This probability is an increasing function which accelerates in the second half of 2007. Senior Convertible Notes Assuming a required yield of 9.0%, we value the fixed income piece of the Convertible Notes at 90 ¾ (see Figure 29). Using an option-adjusted spread of 500bps, a stock price of $2.61, a stock volatility of 40% and a recovery in bankruptcy of 100, we calculate an equity option premium of 5 ¾ and thus, a Senior Convertible Note value of 96 ½. The equity option premium was calculated using Bloomberg’s bankruptcy model on its convertible bond valuation function. Figure 29

Sensitivity Analysis Internal Rate of Return - Senior Convertible Notes

Purchase Price of Sr. Convertible Notes100.00 95.00 90.00 85.00 80.00 75.00 70.00 65.00

Probability 0% 6.6% 7.4% 8.2% 9.1% 10.1% 11.2% 12.3% 13.6%of 20% 6.6% 7.5% 8.5% 9.5% 10.6% 11.9% 13.3% 14.8%

Chapter 11 40% 6.6% 7.6% 8.8% 10.0% 11.4% 12.9% 14.6% 16.5%Filing 60% 6.6% 7.8% 9.2% 10.7% 12.4% 14.2% 16.3% 18.7%

80% 6.5% 8.1% 9.8% 11.7% 13.8% 16.1% 18.7% 21.7%100% 6.5% 8.6% 10.8% 13.2% 15.9% 18.8% 22.0% 25.6%

Source: MTR analysis.

* Calculated using XIRR Excel function. Senior Subordinated Notes Our returns analysis on the Senior Subordinated Notes, currently priced at 81.50, produces an internal rate of return of 5.6% in our base case scenario (see Figure 30). Given our perceived risk associated with IES and the Senior Subordinated Notes subordination provision, we would target a return of 15%, or a purchase price of 64 ½. We have not incorporated a scenario analysis for the X Clause stated in the indenture due to our view that it will likely not alter the distribution of value between the Senior Convertible Notes and the Senior Subordinated Notes.

Figure 28

Source: MTR estimate.

Probability of Chapter 11 Filing

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

9/6/05 2/1/06 8/1/06 2/1/07 8/1/07 2/1/08 8/1/08 2/1/09

Prob. of Filing

27

Figure 30Sensitivity Analysis

Internal Rate of Return - Senior Subordinated Notes

Purchase Price of Sr. Subordinated Notes85.00 80.00 75.00 70.00 65.00 60.00 55.00 50.00

Probability 0% 15.8% 18.2% 20.8% 23.7% 26.9% 30.6% 34.6% 39.3%of 20% 12.3% 14.6% 17.2% 20.1% 23.3% 26.9% 30.9% 35.5%

Chapter 11 40% 8.4% 10.7% 13.3% 16.1% 19.3% 22.8% 26.8% 31.3%Filing 60% 4.0% 6.3% 8.8% 11.6% 14.7% 18.2% 22.1% 26.6%

80% -1.1% 1.2% 3.7% 6.4% 9.4% 12.9% 16.8% 21.2%100% -7.2% -4.9% -2.5% 0.2% 3.2% 6.5% 10.4% 14.8%

Source: MTR analysis.

* Calculated using XIRR Excel function. RISKS Risks to our sell recommendation are rooted in the successful execution of a turnaround plan. IES has certainly been adept at executing the sale of business units albeit to the units’ former owner, and generating liquidity. The distinct nature of its operational structure, while likely a central part of IES’s core problem, is clearly a benefit to an asset sale program. IES does not have large capital requirements and could operate for some time given no impending debt maturities. Additionally, while Mr. Snyder is known as an astute dealmaker and entrepreneur, he may also prove to be a strong crisis manager. While not necessarily a practical solution, one could envision a scenario in which Mr. Snyder decides to redefine IES as strictly a residential electrical contractor and proceeds to sell all of its commercial subsidiaries to reduce debt, emerging as a much smaller, healthy company. Management has in no way alluded to such measures and we believe that this would be counterintuitive for the man whose vision was the genesis for IES. Looking beyond management, we do not foresee exogenous factors playing a meaningful role in the Company’s turnaround. Ultimately, our opinion is based on a generally bearish view of the difficulties facing IES at this point, and our belief that its current downhill momentum will be challenging, at best, to curtail.

28

Figure 31 INTEGRATED ELECTRICAL SERVICES, INC.

Historical Quarterly Balance Sheet * (In Millions of Dollars)

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q39/30/03 12/31/03 3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05

Cash 40.2$ 44.2$ 19.0$ 13.3$ 22.2$ 31.7$ 32.4$ 31.5$ Restricted Cash - - - - - - - 10.0 Accounts Receivable, Trade 245.6 278.3 248.5 242.4 201.4 209.2 195.4 192.4 Accounts Receivable, Retainage ** 68.8 NA NA 71.2 61.7 65.4 55.6 56.4 Costs and Est. Earnings in Excess of Billings 47.0 44.0 39.1 50.9 31.8 37.1 35.0 25.7 Inventories 20.5 17.4 19.9 26.3 19.6 18.1 19.5 24.3 Prepaid Expenses and Other Current Assets 14.4 14.5 8.1 27.8 12.9 21.6 22.1 22.0 Assets Held for Sale Assoc. with Disc. Ops. - 69.5 97.8 - 90.3 29.1 28.4 13.0 Other Current Assets 0.1 - 18.1 0.0 - 0.0 - - Total Current Assets 436.6 467.7 450.4 432.1 439.9 412.3 388.3 375.4

PP&E, net 52.7 48.3 44.5 46.9 41.1 41.1 37.4 35.1 Goodwill, net 197.9 169.1 167.0 197.9 82.9 90.3 87.2 82.3 Other Non-Current Assets 27.3 25.7 31.2 32.2 17.1 19.4 19.6 16.2

TOTAL ASSETS 714.5$ 710.9$ 693.1$ 709.0$ 580.9$ 563.2$ 532.5$ 509.0$

Current Maturities of Long-Term Debt 0.3 0.2 7.3 35.1 43.0 26.4 2.4 0.0 Accounts Payable and Accrued Expenses 138.1 115.7 109.6 139.8 132.7 119.0 129.8 127.0 Billings in Excess of Costs and Est. Earnings 42.4 39.9 33.4 42.1 31.3 43.2 36.0 35.0 Liabilities Related to Assets Held for Sale - 13.5 18.2 - 24.1 11.9 7.0 4.7 Other Current Liabilities - - 0.6 - - - - - Total Current Liabilities 180.8 169.3 169.1 217.0 231.0 200.5 175.3 166.8

Long-Term Debt, net of current maturities 0.2 0.2 43.0 8.0 15.0 6.0 0.1 0.0 Senior Convertible Notes, net - - - - - 38.7 50.7 50.7 Senior Subordinated Notes, net 247.9 247.9 173.2 173.2 173.2 173.2 173.2 173.2 Other Non-Current Liabilities 20.6 22.6 32.4 34.1 18.5 18.8 19.3 17.9

Stockholders' Equity 264.9 270.8 275.4 276.7 143.2 126.0 113.9 100.3

TOTAL LIABS. AND STOCKHOLDERS' EQUITY 714.5$ 710.9$ 693.1$ 709.0$ 580.9$ 563.2$ 532.5$ 509.0$

* Some figures have been restated. Figures as of 9/30/04 12/31/04 3/31/05 6/30/04 6/30/05 12/31/04 3/31/05 6/30/05** Figures not available for Accounts Receivable, Retainge are included in Accounts Receivable, Trade.

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SRO DisclosuresCompensation Disclosure

Ownership Disclosure

Officer/Director Disclosure

Valuation Methods

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Dissemination of Research

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Suitability and Reliability

Research Ratings and Distribution

Percentage of Securities Covered by the Firm Receiving this Recommendation since 1/1/04:(MTR undertakes no investment banking operations.)

BUY 47.8%HOLD (6.3%)/No Recommendation (29.5%) 35.8%SELL 16.4%

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The firm does no investment banking or investment management business with any person; however, the firm may from time to time act as broker or dealer on the account ofcompanies covered in its research reports. Neither the firm nor the author of this report is aware of any factors or relationships with respect to any personnel of the firm or its affiliateswhich would reasonably be expected to indicate a potential conflict of interest, including, without limitation to matters of compensation, ownership and service as an officer, director oradviser, except as set forth in detail below. Miller Tabak Roberts Securities, LLC research reports and other research materials are made available to institutional customers of ouraffiliated firm Miller Tabak Roberts Securities (UK) LLP only upon such a customer's request. Miller Tabak Roberts Securities, LLC's research activities are regulated by the UnitedStates Securities and Exchange Commission and National Association of Securities Delears and do not necessarily comply with all research rules of the United Kingdom FinancialServices Authority.

or indirect compensation for expressing the specific recommendation(s) in this report.

I, Ronald A. Rich, hereby certify that the views expressed in this report accurately reflect my personal views about the subject company(ies) and its securities. I also certify that I have not been, am not, and will not be receiving direct

SELL describes a security that we expect to provide a total return (price appreciation plus yield and an distributions) below that of securities with a similar risk profile.

The author of this report has not visited material operations of the subject of this report.