##### Table of Contents



United States Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 COMMISSION FILE NUMBER 001-32582
 PIKE ELECTRIC CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware(State of incorporation)
    
    20-3112047(I.R.S. Employer Identification No.)
 100 Pike Way, PO Box 868, Mount Airy, NC 27030
 (Address of principal executive office)
 (336) 789-2171
 (Registrants telephone number, including area code)
 þ o
  o o þ
 o þ




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##### 



PIKE ELECTRIC CORPORATION
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2007
 INDEX
 Part I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited):Condensed consolidated balance sheets
    
    1Condensed consolidated statements of operations
    
    2Condensed consolidated statements of cash flows
    
    3Notes to condensed consolidated financial statements
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    7Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    16Item 4.
    
    Controls and Procedures
    
    16Part II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    17Item 1A.
    
    Risk Factors
    
    17Item 6.
    
    Exhibits
    
    18Signatures
    
    
    
    19Exhibit 31.1Exhibit 31.2Exhibit 32.1




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PIKE ELECTRIC CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share amounts)
 March 31,
    
    
    June 30,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    696
    
    
    $
    3,391Accounts receivable, net
    
    
    63,426
    
    
    
    66,629Work completed not billed
    
    
    50,131
    
    
    
    56,430Inventories
    
    
    8,813
    
    
    
    8,041Prepaid expenses and other
    
    
    4,915
    
    
    
    5,928Deferred income taxes
    
    
    8,469
    
    
    
    12,460Total current assets
    
    
    136,450
    
    
    
    152,879Property and equipment, net
    
    
    279,145
    
    
    
    284,452Goodwill
    
    
    94,402
    
    
    
    94,402Other intangibles, net
    
    
    43,991
    
    
    
    49,978Deferred loan costs, net
    
    
    5,139
    
    
    
    6,265Other assets
    
    
    1,662
    
    
    
    1,990Total assets
    
    $
    560,789
    
    
    $
    589,966LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    9,053
    
    
    $
    9,706Accrued compensation
    
    
    20,559
    
    
    
    24,954Accrued expenses and other
    
    
    7,953
    
    
    
    5,243Current portion of deferred compensation
    
    
    2,456
    
    
    
    10,614Current portion of insurance and claim accruals
    
    
    26,823
    
    
    
    18,867Revolving credit facility
    
    
    
    
    
    
    4,500Total current liabilities
    
    
    66,844
    
    
    
    73,884Long-term debt, net of current portion
    
    
    214,500
    
    
    
    249,000Insurance and claim accruals, net of current portion
    
    
    12,951
    
    
    
    13,439Deferred compensation, net of current portion
    
    
    10,192
    
    
    
    10,378Deferred income taxes
    
    
    67,461
    
    
    
    72,333Other liabilities
    
    
    
    
    
    
    200Commitments and contingenciesStockholders equity:Preferred stock, par value $0.001 per share; 100,000 authorized shares; no shares
issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.001 per share; 100,000 authorized shares; 32,825 and
32,577 shares issued and outstanding at March 31, 2007 and June 30, 2006,
respectively
    
    
    6,426
    
    
    
    6,426Additional paid-in capital
    
    
    141,264
    
    
    
    135,869Accumulated other comprehensive income (loss)
    
    
    (72
    )
    
    
    Retained earnings
    
    
    41,223
    
    
    
    28,437Total stockholders equity
    
    
    188,841
    
    
    
    170,732Total liabilities and stockholders equity
    
    $
    560,789
    
    
    $
    589,966
  1




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PIKE ELECTRIC CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (In thousands, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    154,272
    
    
    $
    157,202
    
    
    $
    452,496
    
    
    $
    571,358Cost of operations
    
    
    126,751
    
    
    
    139,902
    
    
    
    380,723
    
    
    
    465,969Gross profit
    
    
    27,521
    
    
    
    17,300
    
    
    
    71,773
    
    
    
    105,389General and administrative expenses
    
    
    12,428
    
    
    
    9,836
    
    
    
    34,706
    
    
    
    31,985Loss on sale of property and equipment
    
    
    349
    
    
    
    1,556
    
    
    
    847
    
    
    
    1,905Income from operations
    
    
    14,744
    
    
    
    5,908
    
    
    
    36,220
    
    
    
    71,499Other expense (income):Interest expense
    
    
    5,053
    
    
    
    5,484
    
    
    
    15,275
    
    
    
    19,337Other, net
    
    
    (83
    )
    
    
    (58
    )
    
    
    (199
    )
    
    
    (163
    )Total other expense
    
    
    4,970
    
    
    
    5,426
    
    
    
    15,076
    
    
    
    19,174Income before income taxes
    
    
    9,774
    
    
    
    482
    
    
    
    21,144
    
    
    
    52,325Income tax expense
    
    
    3,810
    
    
    
    194
    
    
    
    8,358
    
    
    
    20,951Net income
    
    $
    5,964
    
    
    $
    288
    
    
    $
    12,786
    
    
    $
    31,374Earnings per share:Basic
    
    $
    0.18
    
    
    $
    0.01
    
    
    $
    0.40
    
    
    $
    1.02Diluted
    
    $
    0.18
    
    
    $
    0.01
    
    
    $
    0.38
    
    
    $
    0.98Shares used in computing earnings per share:Basic
    
    
    32,505
    
    
    
    31,932
    
    
    
    32,359
    
    
    
    30,846Diluted
    
    
    33,377
    
    
    
    33,092
    
    
    
    33,278
    
    
    
    32,016
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PIKE ELECTRIC CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In thousands)
 Nine Months EndedMarch 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    12,786
    
    
    $
    31,374Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    29,521
    
    
    
    28,352Non-compete litigation settlement
    
    
    3,551
    
    
    
    Non-cash interest expense
    
    
    2,373
    
    
    
    4,170Deferred income taxes
    
    
    (881
    )
    
    
    (4,901
    )Loss on sale of property and equipment
    
    
    847
    
    
    
    1,905Equity compensation expense
    
    
    1,700
    
    
    
    2,518Changes in operating assets and liabilities:Accounts receivable and work completed not billed
    
    
    9,502
    
    
    
    (1,573
    )Inventories, prepaid expenses and other
    
    
    1,039
    
    
    
    5,142Insurance and claim accruals
    
    
    7,468
    
    
    
    8,624Accounts payable and other
    
    
    (2,609
    )
    
    
    (7,403
    )Deferred compensation
    
    
    (9,428
    )
    
    
    (8,793
    )Net cash provided by operating activities
    
    
    55,869
    
    
    
    59,415Cash flows from investing activities:Purchases of property and equipment
    
    
    (29,981
    )
    
    
    (39,855
    )Net proceeds from sale of property and equipment
    
    
    6,884
    
    
    
    7,052Net cash used in investing activities
    
    
    (23,097
    )
    
    
    (32,803
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (34,500
    )
    
    
    (147,000
    )Payments on revolving credit facility, net
    
    
    (4,500
    )
    
    
    (11,500
    )Net proceeds from sale of common stock
    
    
    2,695
    
    
    
    128,796Equity compensation tax benefit
    
    
    1,000
    
    
    
    3,673Deferred loan costs
    
    
    (162
    )
    
    
    (656
    )Net cash used in by financing activities
    
    
    (35,467
    )
    
    
    (26,687
    )Net decrease in cash and cash equivalents
    
    
    (2,695
    )
    
    
    (75
    )Cash and cash equivalents beginning of year
    
    
    3,391
    
    
    
    3,106Cash and cash equivalents end of period
    
    $
    696
    
    
    $
    3,031
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PIKE ELECTRIC CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 For the three and nine months ended March 31, 2007 and 2006
 (In thousands, except per share amounts)
 1. Basis of Presentation
  2. Business
    Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Powerline services
    
    $
    135,051
    
    
    
    87.5
    %
    
    $
    148,351
    
    
    
    94.4
    %
    
    $
    406,929
    
    
    
    89.9
    %
    
    $
    396,366
    
    
    
    69.4
    %Storm restoration services
    
    
    19,221
    
    
    
    12.5
    %
    
    
    8,851
    
    
    
    5.6
    %
    
    
    45,567
    
    
    
    10.1
    %
    
    
    174,992
    
    
    
    30.6
    %Total
    
    $
    154,272
    
    
    
    100.0
    %
    
    $
    157,202
    
    
    
    100.0
    %
    
    $
    452,496
    
    
    
    100.0
    %
    
    $
    571,358
    
    
    
    100.0
    %
 3. Stock-Based Compensation
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.
 4. Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (numerator)
    
    $
    5,964
    
    
    $
    288
    
    
    $
    12,786
    
    
    $
    31,374Weighted-average number of common shares
(denominator)
    
    
    32,505
    
    
    
    31,932
    
    
    
    32,359
    
    
    
    30,846Basic earnings per share
    
    $
    0.18
    
    
    $
    0.01
    
    
    $
    0.40
    
    
    $
    1.02Weighted-average number of common shares
    
    
    32,505
    
    
    
    31,932
    
    
    
    32,359
    
    
    
    30,846Potential common shares arising from stock
options and restricted stock
    
    
    872
    
    
    
    1,160
    
    
    
    919
    
    
    
    1,170Total shares-diluted (denominator)
    
    
    33,377
    
    
    
    33,092
    
    
    
    33,278
    
    
    
    32,016Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.01
    
    
    $
    0.38
    
    
    $
    0.98
  Three months ended
    
    Nine months endedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Common stock options
    
    
    405
    
    
    
    983
    
    
    
    1,105
    
    
    
    882Shares of restricted stock
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
 5. Income Taxes
  6. Comprehensive Income
  5




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Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    5,964
    
    
    $
    288
    
    
    $
    12,786
    
    
    $
    31,374Diesel fuel hedge
    
    
    228
    
    
    
    
    
    
    
    (72
    )
    
    
    Comprehensive income
    
    $
    6,192
    
    
    $
    288
    
    
    $
    12,714
    
    
    $
    31,374
 7. Property and Equipment
  8. Commitments and Contingencies
 Litigation
   Performance Bonds
  6




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Introduction
     Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Powerline services
    
    $
    135.1
    
    
    
    87.5
    %
    
    $
    148.3
    
    
    
    94.4
    %
    
    $
    406.9
    
    
    
    89.9
    %
    
    $
    396.4
    
    
    
    69.4
    %Storm restoration services
    
    
    19.2
    
    
    
    12.5
    %
    
    
    8.9
    
    
    
    5.6
    %
    
    
    45.6
    
    
    
    10.1
    %
    
    
    175.0
    
    
    
    30.6
    %Total
    
    $
    154.3
    
    
    
    100.0
    %
    
    $
    157.2
    
    
    
    100.0
    %
    
    $
    452.5
    
    
    
    100.0
    %
    
    $
    571.4
    
    
    
    100.0
    %
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Critical Accounting Policies
  Operational and Other Factors
  
    
    When we add new customers and arrangements, we generally experience an increase in
costs, including the costs of training and outfitting our crews and spending on specialized
tools and supplies. Once the crews and equipment are fully utilized, our margins generally
increase over the life of the arrangement.
    
    The significant storm activity during our two most recently completed fiscal years has
had a significant financial impact on several of our customers. As a result, they may
defer certain powerline maintenance projects, which would affect our powerline revenues.
    
    Industry-wide insurance costs for workers compensation, medical and general liability
have risen in the past several years and are expected to continue to rise at a rate faster
than our revenues. We have implemented several safety initiatives designed to reduce
incident rates and corresponding insurance costs as well as introduced an employee safety
bonus in fiscal 2005.
    
    There are a limited number of skilled workers who can perform our work, and during
historic periods of increased demand, labor costs have tended to increase. We are
currently experiencing shortages of skilled personnel in certain markets. While shortages
have caused our labor costs to increase, we historically have been able to obtain increases
when we renegotiate rates with our customers to offset these cost increases.
    
    Our general and administrative expenses will include additional implementation costs
relating to compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and will range
from $1.5 million to $2.0 million in fiscal 2007 compared to approximately $0.7 million in
fiscal 2006.
    
    Fuel costs have risen and may continue to rise at a rate faster than our revenues. We
have a large fleet of vehicles and equipment that primarily use diesel fuel. We have
implemented bulk purchasing in certain areas to lower our fuel costs. In addition, we have
entered into two diesel fuel swaps that cover, based on current volumes, approximately 30%
of our diesel requirements through February 2008.
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Results of Operations
  Three Months
    
    Nine MonthsEnded March 31,
    
    Ended March 31,2007
    
    2006
    
    2007
    
    2006Revenues:Powerline services
    
    
    87.5
    %
    
    
    94.4
    %
    
    
    89.9
    %
    
    
    69.4
    %Storm restoration services
    
    
    12.5
    
    
    
    5.6
    
    
    
    10.1
    
    
    
    30.6Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of operations
    
    
    82.2
    
    
    
    89.0
    
    
    
    84.1
    
    
    
    81.6Gross profit
    
    
    17.8
    
    
    
    11.0
    
    
    
    15.9
    
    
    
    18.4General and administrative expenses
    
    
    8.1
    
    
    
    6.2
    
    
    
    7.7
    
    
    
    5.6Loss on sale of property and equipment
    
    
    0.2
    
    
    
    1.0
    
    
    
    0.2
    
    
    
    0.3Income from operations
    
    
    9.5
    
    
    
    3.8
    
    
    
    8.0
    
    
    
    12.5Interest expense and other, net
    
    
    3.2
    
    
    
    3.5
    
    
    
    3.3
    
    
    
    3.3Income before income taxes
    
    
    6.3
    
    
    
    0.3
    
    
    
    4.7
    
    
    
    9.2Income tax expense
    
    
    2.4
    
    
    
    0.1
    
    
    
    1.9
    
    
    
    3.7Net income
    
    
    3.9
    %
    
    
    0.2
    %
    
    
    2.8
    %
    
    
    5.5
    %
 Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
 Revenues.
   Gross Profit.
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General and Administrative Expenses.
 Loss on Sale of Property and Equipment .
 Interest Expense and Other, Net.
 Income Tax Expense.
 Net Income.
 Nine Months Ended March 31, 2007 Compared to the Nine Months Ended March 31, 2006
 Revenues.
   Gross Profit.
 General and Administrative Expenses.
 10




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Loss on Sale of Property and Equipment .
 Interest Expense and Other, Net.
 Income Tax Expense.
 Net Income .
 Liquidity and Capital Resources
     11




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Changes in Cash Flows:
 Nine Months EndedMarch 31,2007
    
    2006(in millions)Net cash provided by operating activities
    
    $
    55.9
    
    
    $
    59.4Net cash used in investing activities
    
    $
    (23.1
    )
    
    $
    (32.8
    )Net cash used in financing activities
    
    $
    (35.5
    )
    
    $
    (26.7
    )
    Senior Credit Facility
    Off-Balance Sheet Arrangements
    12




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Seasonality; Fluctuations of Results
  Inflation
  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 Fair Value Measurements
  Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans
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The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB Statement No. 115
 Uncertainty of Forward-Looking Statements and Information
  
    
    our belief that the lawsuits, claims or other proceedings to which we are subject in the
ordinary course of business will not have a material adverse effect on the Companys
results of operation or financial position;
    
    our expectation that our general and administrative expenses will include additional
implementation costs relating to compliance with Section 404 of the Sarbanes-Oxley Act of
2002 and will range from $1.5 million to $2.0 million in fiscal 2007 compared to
approximately $0.7 million in fiscal 2006; and
    
    our belief that our cash flow from operations, available cash and cash equivalents, and
borrowings available under our senior credit facility will be adequate to meet our ordinary
course liquidity needs for the foreseeable future.
  
    
    We derive a significant portion of our revenues from a small group of customers. The
loss of one or more of these customers could negatively impact our business and results of
operations.
    
    Our customers often have no obligation to assign work to us, and many of our
arrangements may be terminated on short notice. As a result, we are at risk of losing
significant business on short notice. This risk may be accentuated for customers we
obtained in the Red Simpson acquisition.
    
    Our storm restoration services are highly volatile and unpredictable, which could result
in substantial variations in, and uncertainties regarding, the levels of our financial
results from period to period.
    
    Our business is subject to numerous hazards that could subject us to substantial
monetary and other liabilities. If accidents occur, they could materially and adversely
affect our business and results of operations.
    
    Our current insurance coverage may not be adequate, and we may not be able to obtain
insurance at acceptable rates, or at all.
    
    Record high fuel costs could materially and adversely affect our operating results.
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
    
    Demand for some of our services is cyclical and vulnerable to industry and economic
downturns, which could materially and adversely affect our business and results of
operations.
    
    The Energy Policy Act may fail to result in increased spending in the electric power
transmission infrastructure, which could slow our expected growth.
    
    Failure to establish and maintain effective internal control over financial reporting
could have a material adverse effect on our business, operating results and stock price.
We may identify significant deficiencies or material weaknesses in our internal controls
during our testing of such in connection with our future compliance obligations under
Section 404 of the Sarbanes-Oxley Act of 2002.
    
    To be successful, we need to attract and retain qualified personnel, and any inability
to do so would adversely affect our business.
    
    We are dependent on our senior management and other key personnel, the loss of which
could have a material adverse effect on our business.
    
    Our industry is highly competitive and we may be unable to compete effectively, retain
our customers or win new customers, which could result in reduced profitability and loss of
market share.
    
    We may be unsuccessful at acquiring companies or at integrating companies that we may
acquire, and as a result, we may not achieve the expected benefits and our profitability
could materially suffer.
    
    We have a substantial amount of indebtedness incurred under a senior credit facility,
which may restrict our business and operations, adversely affect our cash flow, and
restrict our future access to sufficient funding to finance desired growth.
    
    We are in the process of implementing certain financial and accounting applications and
investigating a company-wide ERP system which could temporarily disrupt our day-to-day
operations.
    
    During the ordinary course of our business, we may become subject to lawsuits or
indemnity claims, which could materially and adversely affect our business and results of
operations.
    
    Our failure to comply with, or the imposition of liability under, environmental laws and
regulations could result in significant costs.
    
    The electric infrastructure servicing business is subject to seasonal variations, which
may cause our operating results to vary significantly from period to period and could cause
the market price of our stock to fall.
    
    Weather conditions can adversely affect our operations and revenues.
    
    We have incurred and will continue to incur increased costs as a result of being a public company.
    
    Our results of operations could be adversely affected as a result of the impairment of
goodwill or other intangibles.
    
    The market price of our stock may be influenced by many factors, some of which are
beyond our control.
    
    Shares eligible for future sale may cause the market price of our common stock to drop
significantly, even if our business is doing well.
    
    A significant stockholder controls the direction of our business. The concentrated
ownership of our common stock will prevent other stockholders from influencing significant
corporate decisions.
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
    
    Anti-takeover provisions of our charter and bylaws may reduce the likelihood of any
potential change of control or unsolicited acquisition proposal that stockholders might
consider favorable.
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  17




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Item 6. Exhibits
 Exhibit
    
    Description31.1
    
    Certification of Periodic Report by Chief Executive Officer
pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (filed herewith)31.2
    
    Certification of Periodic Report by Chief Financial Officer
pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (filed herewith)32.1
    
    Certification of Periodic Report by Chief Executive Officer and
Chief Financial Officer pursuant to U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith)
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SIGNATURES
  PIKE ELECTRIC CORPORATION 
(Registrant)Date: May 8, 2007
    By:
    /s/ J. Eric PikeJ. Eric PikeChairman, Chief Executive Officer and President Date: May 8, 2007
    By:
    /s/ Anthony K. SlaterAnthony K. SlaterChief Financial Officer 19