##### 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 SEPTEMBER 30, 2010
 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
    
    20-3112047(State of incorporation)
    
    (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)
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if smaller reporting company)
 Yes o No þ




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##### 



PIKE ELECTRIC CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010
 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
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 6. Exhibits
    
    
    21Signatures
    
    
    22Exhibit 21.1Exhibit 31.1Exhibit 31.2Exhibit 32.1




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PIKE ELECTRIC CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
 September 30,
    
    
    June 30,2010
    
    
    2010(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,775
    
    
    $
    11,133Accounts receivable from customers, net
    
    
    64,374
    
    
    
    64,672Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    49,540
    
    
    
    50,215Inventories
    
    
    6,763
    
    
    
    6,401Prepaid expenses and other
    
    
    9,985
    
    
    
    9,115Deferred income taxes
    
    
    10,017
    
    
    
    10,526Total current assets
    
    
    146,454
    
    
    
    152,062Property and equipment, net
    
    
    189,226
    
    
    
    194,885Goodwill
    
    
    114,866
    
    
    
    114,778Other intangibles, net
    
    
    37,334
    
    
    
    38,527Deferred loan costs, net
    
    
    3,573
    
    
    
    3,021Other assets
    
    
    1,804
    
    
    
    2,105Total assets
    
    $
    493,257
    
    
    $
    505,378LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    17,604
    
    
    $
    17,484Accrued compensation
    
    
    19,735
    
    
    
    22,589Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    8,111
    
    
    
    8,925Accrued expenses and other
    
    
    6,128
    
    
    
    6,112Current portion of insurance and claim accruals
    
    
    21,693
    
    
    
    23,422Total current liabilities
    
    
    73,271
    
    
    
    78,532Long-term debt
    
    
    111,000
    
    
    
    114,500Insurance and claim accruals, net of current portion
    
    
    5,934
    
    
    
    6,005Deferred compensation, net of current portion
    
    
    5,918
    
    
    
    5,844Deferred income taxes
    
    
    47,323
    
    
    
    48,170Other liabilities
    
    
    2,528
    
    
    
    2,859Commitments 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; 33,548
and 33,544 shares issued and outstanding at September 30, 2010 and
June 30, 2010, respectively
    
    
    6,427
    
    
    
    6,427Additional paid-in capital
    
    
    158,265
    
    
    
    158,030Accumulated other comprehensive loss, net of taxes
    
    
    (272
    )
    
    
    (142
    )Retained earnings
    
    
    82,863
    
    
    
    85,153Total stockholders equity
    
    
    247,283
    
    
    
    249,468Total liabilities and stockholders equity
    
    $
    493,257
    
    
    $
    505,378
   1




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##### Table of Contents



PIKE ELECTRIC CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
(In thousands, except per share amounts)
 Three Months EndedSeptember 30,2010
    
    
    2009Revenues
    
    $
    128,759
    
    
    $
    127,220Cost of operations
    
    
    117,036
    
    
    
    115,525Gross profit
    
    
    11,723
    
    
    
    11,695General and administrative expenses
    
    
    13,557
    
    
    
    13,123Loss on sale and impairment of property
and equipment
    
    
    167
    
    
    
    661Loss from operations
    
    
    (2,001
    )
    
    
    (2,089
    )Other expense (income):Interest expense
    
    
    1,660
    
    
    
    2,371Other, net
    
    
    (9
    )
    
    
    (101
    )Total other expense
    
    
    1,651
    
    
    
    2,270Loss before income taxes
    
    
    (3,652
    )
    
    
    (4,359
    )Income tax benefit
    
    
    (1,362
    )
    
    
    (1,654
    )Net loss
    
    $
    (2,290
    )
    
    $
    (2,705
    )Loss per share:Basic
    
    $
    (0.07
    )
    
    $
    (0.08
    )Diluted
    
    $
    (0.07
    )
    
    $
    (0.08
    )Shares used in computing loss per share:Basic
    
    
    33,272
    
    
    
    33,077Diluted
    
    
    33,272
    
    
    
    33,077
   2




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PIKE ELECTRIC CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Three Months EndedSeptember 30,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (2,290
    )
    
    $
    (2,705
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    9,797
    
    
    
    9,243Non-cash interest expense
    
    
    513
    
    
    
    510Deferred income taxes
    
    
    (1,325
    )
    
    
    (987
    )Loss on sale and impairment of property and equipment
    
    
    167
    
    
    
    661Equity compensation expense
    
    
    1,063
    
    
    
    1,083Excess tax expense from stock-based compensation
    
    
    
    
    
    
    33Changes in operating assets and liabilities:Accounts receivable and costs and estimated earnings in excess
of billings on uncompleted contracts
    
    
    972
    
    
    
    (981
    )Inventories, prepaid expenses and other
    
    
    (533
    )
    
    
    (104
    )Insurance and claim accruals
    
    
    (1,800
    )
    
    
    (1,540
    )Accounts payable and other
    
    
    (4,066
    )
    
    
    1,286Deferred compensation
    
    
    
    
    
    
    (1,402
    )Net cash provided by operating activities
    
    
    2,498
    
    
    
    5,097Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,416
    )
    
    
    (4,680
    )Net proceeds from sale of property and equipment
    
    
    534
    
    
    
    902Net cash used in investing activities
    
    
    (2,882
    )
    
    
    (3,778
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (3,500
    )
    
    
    Stock option and employee stock purchase activity, net
    
    
    (483
    )
    
    
    129Excess tax expense from stock-based compensation
    
    
    
    
    
    
    (33
    )Deferred loan costs
    
    
    (991
    )
    
    
    (2,792
    )Net cash used in financing activities
    
    
    (4,974
    )
    
    
    (2,696
    )Net decrease in cash and cash equivalents
    
    
    (5,358
    )
    
    
    (1,377
    )Cash and cash equivalents beginning of year
    
    
    11,133
    
    
    
    43,820Cash and cash equivalents end of period
    
    $
    5,775
    
    
    $
    42,443
   3




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##### Table of Contents



PIKE ELECTRIC CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2010 and 2009
(In thousands, except per share amounts)
 1. Basis of Presentation
  2. Business
     Three Months EndedSeptember 30,2010
    
    
    2009Core services
    
    $
    123,778
    
    
    
    96.1
    %
    
    $
    124,713
    
    
    
    98.0
    %Storm restoration services
    
    
    4,981
    
    
    
    3.9
    %
    
    
    2,507
    
    
    
    2.0
    %Total
    
    $
    128,759
    
    
    
    100.0
    %
    
    $
    127,220
    
    
    
    100.0
    %
  4




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##### Table of Contents



3. Acquisition of Klondyke
    Three months endedSeptember 30,2010
    
    
    2009Revenues
    
    $
    128,759
    
    
    $
    138,566Net loss
    
    $
    (2,290
    )
    
    $
    (2,328
    )Basic loss per common share
    
    $
    (0.07
    )
    
    $
    (0.07
    )Diluted loss per common share
    
    $
    (0.07
    )
    
    $
    (0.07
    )
 4. Stock-Based Compensation
 .
 5. Property and Equipment
   5




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##### Table of Contents



6. Debt
  7. Loss Per Share
  Three Months EndedSeptember 30,2010
    
    
    2009Basic:Net loss
    
    $
    (2,290
    )
    
    $
    (2,705
    )Weighted average common shares
    
    
    33,272
    
    
    
    33,077Basic loss per share
    
    $
    (0.07
    )
    
    $
    (0.08
    )Diluted:Net loss
    
    $
    (2,290
    )
    
    $
    (2,705
    )Weighted average common shares
    
    
    33,272
    
    
    
    33,077Potential common stock arising from stock
options and restricted stock
    
    
    
    
    
    
    Weighted average common shares  diluted
    
    
    33,272
    
    
    
    33,077Diluted loss per share
    
    $
    (0.07
    )
    
    $
    (0.08
    )
  8. Fair Value of Financial Instruments
   
    
    Level 1  Valuations based on quoted prices in active markets for
identical instruments that we are able to access. Since valuations
are based on quoted prices that are readily and regularly available in
an active market, valuation of these products does not entail a
significant degree of judgment.
    
    Level 2  Valuations based on quoted prices in active markets for
instruments that are similar, or quoted prices in markets that are not
active for identical or similar instruments, and model-derived
valuations in which all significant inputs and significant value
drivers are observable in active markets.
    
    Level 3  Valuations based on inputs that are unobservable and
significant to the overall fair value measurement.
  6




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##### Table of Contents



September 30,Description
    
    2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Asset:Diesel fuel swap agreements
    
    $
    435
    
    
    $
    
    
    
    $
    435
    
    
    $
    Liability:Interest rate swap agreements
    
    
    (446
    )
    
    
    
    
    
    
    (446
    )
    
    
    Total
    
    $
    (11
    )
    
    $
    
    
    
    $
    (11
    )
    
    $
    
 Description
    
    June 30, 2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Asset:Diesel fuel swap agreements
    
    $
    3
    
    
    $
    
    
    
    $
    3
    
    
    $
    Liability:Interest rate swap agreements
    
    
    (245
    )
    
    
    
    
    
    
    (245
    )
    
    
    Total
    
    $
    (242
    )
    
    $
    
    
    
    $
    (242
    )
    
    $
    
   9. Income Taxes
   7




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10. Derivative Instruments and Hedging Activities
   Interest Rate Risk
      Diesel Fuel Risk
    8




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Balance Sheet and Statement of Operations Information
  Asset Derivatives
    
    
    Liability DerivativesFair Value
    
    
    Fair Value
    
    
    Fair Value
    
    
    Fair Valueat Sept. 30,
    
    
    at June 30,
    
    
    at Sept. 30,
    
    
    at June 30,Balance Sheet Location
    
    2010
    
    
    2010
    
    
    2010
    
    
    2010Derivatives designated as hedging
instruments:Interest rate swaps
    
    Accrued expenses and other
    
    $
    
    
    
    $
    
    
    
    $
    446
    
    
    $
    245Total derivatives designated as
hedging instruments under SFAS 133
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    446
    
    
    $
    245Derivatives not designated as hedging
instruments:Diesel fuel swaps (gross) (1)
    
    Prepaid expenses and other
    
    $
    456
    
    
    $
    169
    
    
    $
    
    
    
    $
    Diesel fuel swaps (gross) (1)
    
    Accrued expenses and other
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    166Total derivatives not designated as 
hedging instruments under SFAS 133
    
    
    
    
    
    $
    456
    
    
    $
    169
    
    
    $
    21
    
    
    $
    166Total derivatives
    
    
    
    
    
    $
    456
    
    
    $
    169
    
    
    $
    467
    
    
    $
    411
 (1)
    
    The fair values of asset and liability derivatives with the same counterparty are netted
on the balance sheet.  Derivatives designated as cash flow hedging instruments:
 Amount of LossAmount of (Loss) Gain
    
    
    Location of Loss
    
    
    Reclassified fromRecognized in OCI
    
    
    Reclassified from
    
    
    Accumulated OCI intoFor the Three Months Ended
    
    (Effective Portion)
    
    
    Accumulated OCI
    
    
    EarningsSeptember 30,
    
    2010
    
    
    2009
    
    
    into Earnings
    
    
    2010
    
    
    2009Interest rate swaps (1)
    
    $
    (122
    )
    
    $
    533
    
    
    Interest expense (1)
    
    
    $
    (49
    )
    
    $
    (575
    )Totals
    
    $
    (122
    )
    
    $
    533
    
    
    
    
    
    
    $
    (49
    )
    
    $
    (575
    )
 (1)
    
    Net of tax. Derivatives not designated as cash flow hedging instruments:
 Location of Gain
    
    
    Amount of Gain Recognized inFor the Three Months Ended
    
    Recognized in
    
    
    EarningsSeptember 30,
    
    Earnings
    
    
    2010
    
    
    2009Diesel fuel swaps
    
    Cost of operations
    
    
    $
    432
    
    
    $
    368Total
    
    
    
    
    
    $
    432
    
    
    $
    368
  9




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Accumulated OCI
  For the Three Months EndedSeptember 30,2010
    
    
    2009Net accumulated derivative loss deferred at beginning of period
    
    $
    (142
    )
    
    $
    (1,109
    )Changes in fair value
    
    
    (179
    )
    
    
    (42
    )Reclassification to net loss
    
    
    49
    
    
    
    575Net accumulated derivative loss deferred at end of period
    
    $
    (272
    )
    
    $
    (576
    )
   11. Comprehensive Loss
  For the Three Months EndedSeptember 30,2010
    
    
    2009Net loss
    
    $
    (2,290
    )
    
    $
    (2,705
    )Change in fair value of interest rate
cash flow hedges,
net of income taxes of ($78) and
$342, respectively
    
    
    (130
    )
    
    
    533Comprehensive loss
    
    $
    (2,420
    )
    
    $
    (2,172
    )
 12. Recent Accounting Pronouncements
 Disclosures for Fair Value Measurements
    10




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13. Commitments and Contingencies
 Legal Proceedings
  Performance Bonds and Parent Guarantees
  Collective Bargaining Agreements
  Indemnities
   11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and related
notes thereto in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for this
fiscal year ended June 30, 2010. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to
uncertainty and changes in circumstances. Actual results may differ materially from these
expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including
those identified in Uncertainty of Forward-Looking Statements and Information below in this Item 2 and in Risk Factors in Item 1A of Part 1
of our Annual Report on Form 10-K for the fiscal year ended June 30, 2010.
 Overview
   Critical Accounting Policies
   12




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Results of Operations
  Three Months EndedSeptember 30,2010
    
    
    2009Revenues:Core services
    
    
    96.1
    %
    
    
    98.0
    %Storm restoration services
    
    
    3.9
    %
    
    
    2.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %Cost of operations
    
    
    90.9
    %
    
    
    90.8
    %Gross profit
    
    
    9.1
    %
    
    
    9.2
    %General and administrative expenses
    
    
    10.5
    %
    
    
    10.3
    %Loss on sale and impairment of property and equipment
    
    
    0.1
    %
    
    
    0.5
    %Loss from operations
    
    
    -1.5
    %
    
    
    -1.6
    %Interest expense and other, net
    
    
    1.3
    %
    
    
    1.8
    %Loss before income taxes
    
    
    -2.8
    %
    
    
    -3.4
    %Income tax benefit
    
    
    -1.0
    %
    
    
    -1.3
    %Net loss
    
    
    -1.8
    %
    
    
    -2.1
    %
 Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
 Revenues.
   Three Months EndedSeptember 30,Category of Core Revenue
    
    2010
    
    
    2009
    
    
    % ChangeOverhead distribution and other
    
    $
    68.4
    
    
    $
    70.7
    
    
    
    -3.3
    %Underground distribution
    
    
    17.2
    
    
    
    17.0
    
    
    
    1.0
    %Transmission
    
    
    17.8
    
    
    
    18.1
    
    
    
    -1.3
    %Engineering and substation
    
    
    20.4
    
    
    
    18.9
    
    
    
    7.9
    %Total
    
    $
    123.8
    
    
    $
    124.7
    
    
    
    -0.7
    %
  13




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Gross Profit.
 General and Administrative Expenses.
 Loss on Sale and Impairment of Property and Equipment .
 Interest Expense and Other, Net.
  14




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Income Tax Benefit.
 Liquidity and Capital Resources
      Changes in Cash Flows:
 Three Months EndedSeptember 30,2010
    
    
    2009(In millions)Net cash provided by operating activities
    
    $
    2.5
    
    
    $
    5.1Net cash used in investing activities
    
    $
    (2.9
    )
    
    $
    (3.8
    )Net cash used in financing activities
    
    $
    (5.0
    )
    
    $
    (2.7
    )
   15




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Senior Credit Facility
     Concentration of Credit Risk
   16




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Legal Proceedings
  Off-Balance Sheet Arrangements
  Letters of Credit
  Performance Bonds and Parent Guarantees
   Seasonality; Fluctuations of Results
   17




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Recent Accounting Pronouncements
  Uncertainty of Forward-Looking Statements and Information
  
    
    our expectation that the Tanzanian powerline projects will utilize our engineering,
procurement and construction capabilities and that the project will begin during the third
quarter of fiscal 2011 and continue through the second quarter of fiscal 2013;
    
    our expectation the goodwill recognized in our acquisition of Klondyke will be
amortizable for tax purposes;
    
    our expectation that substantially all the assets held for sale at September 30, 2010
will be sold during the next twelve months;
    
    our expectation that certain recent accounting pronouncements will not have a material
impact on our consolidated financial statements;
    
    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 our results of
operation or financial position;
    
    our expectation that our new diversified engineering and substation services continue to
produce increased revenues in the future;
    
    our expectation that our transmission revenues continue to increase year over year;
    
    our belief that a significant amount of pent-up demand is building and has been building
for the last 24 months and power system reliability is being challenged and that we remain
well positioned to benefit from a reacceleration in distribution maintenance spending, the
timing of which remains dependent primarily on the health of the broader economy;
    
    our expectation that current volatility in the capital markets will not have a material
impact on the principal amounts of our cash investments;
    
    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;
  18




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
    
    our expectation that our ability to satisfy our obligations or to fund planned capital
expenditures will depend on our future performance and our belief that this is subject to a
certain extent on general economic, financial, competitive, legislative, regulatory and
other factors beyond our control;
    
    the possibility that if we fail to comply with the covenants contained in our senior
credit facility, we may be unable to access the revolving portion of our senior credit
facility upon which we depend for letters of credit and other short-term borrowings and
that this would have a negative impact on our liquidity and could require us to obtain
alternative short-term financing;
    
    our belief that if we pursue any material acquisitions in the foreseeable future we may
need to finance this activity through additional equity or debt financing;
    
    our belief that it is unlikely that any material claims will be made under a letter of
credit in the foreseeable future; and
    
    our belief that it is unlikely that we will have to fund significant claims under our
surety arrangements in the foreseeable future.
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    19




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Internal Control over Financial Reporting
  Design and Operation of Control Systems
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
   20




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Item 6. Exhibits
 Exhibit
    
    Description3.1
    
    
    Certificate of Incorporation of Pike Electric Corporation
(Incorporated by reference to Exhibit 3.1 on our Registration
Statement on Form S-1/A filed July 11, 2005)3.2
    
    
    Amended and Restated Bylaws of Pike Electric Corporation, as of
April 30, 2009 (Incorporated by reference to Exhibit 3.1 on our
Form 8-K filed May 5, 2009)21.1
    
    
    List of subsidiaries of Pike Electric Corporation (filed herewith)31.1
    
    
    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)
  21




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##### Table of Contents



SIGNATURES
  PIKE ELECTRIC CORPORATION
(Registrant)Date: November 9, 2010
    By:
    /s/ J. Eric PikeJ. Eric PikeChairman, Chief Executive Officer and PresidentDate: November 9, 2010
    By:
    /s/ Anthony K. SlaterAnthony K. SlaterExecutive Vice President and Chief Financial Officer  22