##### 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, 2008
 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)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if smaller reporting company)
 o þ




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##### 



PIKE ELECTRIC CORPORATION
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2008
 INDEX
 Part I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited):Condensed consolidated balance sheets
    
    
    1Condensed consolidated statements of income
    
    
    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
    
    
    15Item 4. Controls and Procedures
    
    
    16Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 1A. Risk Factors
    
    
    17Item 6. Exhibits
    
    
    17Signatures
    
    
    18Exhibit
Index
    
    
    19Exhibit 31.1Exhibit 31.2Exhibit 32.1




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PIKE ELECTRIC CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share amounts)
 March 31,
    
    
    June 30,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,466
    
    
    $
    1,467Accounts receivable from customers, net
    
    
    47,708
    
    
    
    59,603Work completed not billed
    
    
    42,360
    
    
    
    44,527Inventories
    
    
    8,709
    
    
    
    8,535Prepaid expenses and other
    
    
    6,646
    
    
    
    6,219Deferred income taxes
    
    
    15,440
    
    
    
    13,633Total current assets
    
    
    125,329
    
    
    
    133,984Property and equipment, net
    
    
    235,627
    
    
    
    267,740Goodwill
    
    
    94,402
    
    
    
    94,402Other intangibles, net
    
    
    40,855
    
    
    
    43,228Deferred loan costs, net
    
    
    2,983
    
    
    
    4,482Other assets
    
    
    1,463
    
    
    
    1,661Total assets
    
    $
    500,659
    
    
    $
    545,497LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    8,624
    
    
    $
    8,503Accrued compensation
    
    
    20,568
    
    
    
    20,597Accrued expenses and other
    
    
    4,147
    
    
    
    4,447Income taxes payable
    
    
    1,112
    
    
    
    6,146Current portion of deferred compensation
    
    
    4,717
    
    
    
    3,544Current portion of insurance and claim accruals
    
    
    27,742
    
    
    
    26,669Total current liabilities
    
    
    66,910
    
    
    
    69,906Long-term debt
    
    
    140,500
    
    
    
    191,500Insurance and claim accruals, net of current portion
    
    
    9,595
    
    
    
    10,894Deferred compensation, net of current portion
    
    
    6,168
    
    
    
    9,315Deferred income taxes
    
    
    62,265
    
    
    
    67,259Other liabilities
    
    
    1,948
    
    
    
    562Commitments 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 shares authorized; 33,147 and 32,916 shares issued and outstanding at
March 31, 2008 and June 30, 2007, respectively
    
    
    6,427
    
    
    
    6,426Additional paid-in capital
    
    
    147,255
    
    
    
    142,849Accumulated other comprehensive income (loss), net of taxes
    
    
    (1,849
    )
    
    
    (8
    )Retained earnings
    
    
    61,440
    
    
    
    46,794Total stockholders equity
    
    
    213,273
    
    
    
    196,061Total liabilities and stockholders equity
    
    $
    500,659
    
    
    $
    545,497
   1




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PIKE ELECTRIC CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 (In thousands, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    131,362
    
    
    $
    154,272
    
    
    $
    414,213
    
    
    $
    452,496Cost of operations
    
    
    110,607
    
    
    
    126,751
    
    
    
    345,717
    
    
    
    380,723Gross profit
    
    
    20,755
    
    
    
    27,521
    
    
    
    68,496
    
    
    
    71,773General and administrative expenses
    
    
    10,377
    
    
    
    12,428
    
    
    
    31,253
    
    
    
    34,706Loss on sale and impairment of property and equipment
    
    
    93
    
    
    
    349
    
    
    
    2,076
    
    
    
    847Income from operations
    
    
    10,285
    
    
    
    14,744
    
    
    
    35,167
    
    
    
    36,220Other expense (income):Interest expense
    
    
    3,327
    
    
    
    5,053
    
    
    
    11,473
    
    
    
    15,275Other, net
    
    
    (43
    )
    
    
    (83
    )
    
    
    (168
    )
    
    
    (199
    )Total other expense
    
    
    3,284
    
    
    
    4,970
    
    
    
    11,305
    
    
    
    15,076Income before income taxes
    
    
    7,001
    
    
    
    9,774
    
    
    
    23,862
    
    
    
    21,144Income tax expense
    
    
    2,718
    
    
    
    3,810
    
    
    
    9,217
    
    
    
    8,358Net income
    
    $
    4,283
    
    
    $
    5,964
    
    
    $
    14,645
    
    
    $
    12,786Earnings per share:Basic
    
    $
    0.13
    
    
    $
    0.18
    
    
    $
    0.45
    
    
    $
    0.40Diluted
    
    $
    0.13
    
    
    $
    0.18
    
    
    $
    0.44
    
    
    $
    0.38Shares used in computing earnings per share:Basic
    
    
    32,844
    
    
    
    32,505
    
    
    
    32,791
    
    
    
    32,359Diluted
    
    
    33,605
    
    
    
    33,377
    
    
    
    33,655
    
    
    
    33,278
   2




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PIKE ELECTRIC CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In thousands)
 Nine Months EndedMarch 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    14,645
    
    
    $
    12,786Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    27,408
    
    
    
    29,521Non-compete litigation settlement
    
    
    
    
    
    
    3,551Non-cash interest expense
    
    
    2,560
    
    
    
    2,373Deferred income taxes
    
    
    (5,621
    )
    
    
    (881
    )Loss on sale and impairment of property and equipment
    
    
    2,076
    
    
    
    847Equity compensation expense
    
    
    2,085
    
    
    
    1,700Excess tax benefit from stock-based compensation
    
    
    (977
    )
    
    
    (1,000
    )Changes in operating assets and liabilities:Accounts receivable and work completed not billed
    
    
    14,062
    
    
    
    9,502Inventories, prepaid expenses and other
    
    
    770
    
    
    
    1,039Insurance and claim accruals
    
    
    (226
    )
    
    
    7,468Accounts payable and other
    
    
    (5,840
    )
    
    
    (1,609
    )Deferred compensation
    
    
    (3,034
    )
    
    
    (9,428
    )Net cash provided by operating activities
    
    
    47,908
    
    
    
    55,869Cash flows from investing activities:Purchases of property and equipment
    
    
    (6,353
    )
    
    
    (29,981
    )Net proceeds from sale of property and equipment
    
    
    10,182
    
    
    
    6,884Net cash provided by (used in) investing activities
    
    
    3,829
    
    
    
    (23,097
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (51,000
    )
    
    
    (34,500
    )Repayments on revolving credit facility, net
    
    
    
    
    
    
    (4,500
    )Net proceeds from sale of common stock
    
    
    1,285
    
    
    
    2,695Equity compensation tax benefit
    
    
    977
    
    
    
    1,000Deferred loan costs
    
    
    
    
    
    
    (162
    )Net cash used in financing activities
    
    
    (48,738
    )
    
    
    (35,467
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,999
    
    
    
    (2,695
    )Cash and cash equivalents beginning of year
    
    
    1,467
    
    
    
    3,391Cash and cash equivalents end of period
    
    $
    4,466
    
    
    $
    696
   3




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PIKE ELECTRIC CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 For the three and nine months ended March 31, 2008 and 2007
 (In thousands, except per share amounts)
 (unaudited)
 1. Basis of Presentation
  2. Business
    Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Core powerline services
    
    $
    120,305
    
    
    
    91.6
    %
    
    $
    135,051
    
    
    
    87.5
    %
    
    $
    378,705
    
    
    
    91.4
    %
    
    $
    406,929
    
    
    
    89.9
    %Storm restoration services
    
    
    11,057
    
    
    
    8.4
    %
    
    
    19,221
    
    
    
    12.5
    %
    
    
    35,508
    
    
    
    8.6
    %
    
    
    45,567
    
    
    
    10.1
    %Total
    
    $
    131,362
    
    
    
    100.0
    %
    
    $
    154,272
    
    
    
    100.0
    %
    
    $
    414,213
    
    
    
    100.0
    %
    
    $
    452,496
    
    
    
    100.0
    %
 3. Stock-Based Compensation
   4




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.
 4. Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Basic:Net income
    
    $
    4,283
    
    
    $
    5,964
    
    
    $
    14,645
    
    
    $
    12,786Weighted average common shares
    
    
    32,844
    
    
    
    32,505
    
    
    
    32,791
    
    
    
    32,359Basic earnings per share
    
    $
    0.13
    
    
    $
    0.18
    
    
    $
    0.45
    
    
    $
    0.40Diluted:Net income
    
    $
    4,283
    
    
    $
    5,964
    
    
    $
    14,645
    
    
    $
    12,786Weighted average common shares
    
    
    32,844
    
    
    
    32,505
    
    
    
    32,791
    
    
    
    32,359Potential common stock arising from stock
options and restricted stock
    
    
    761
    
    
    
    872
    
    
    
    864
    
    
    
    919Weighted average common shares  diluted
    
    
    33,605
    
    
    
    33,377
    
    
    
    33,655
    
    
    
    33,278Diluted earnings per share
    
    $
    0.13
    
    
    $
    0.18
    
    
    $
    0.44
    
    
    $
    0.38
  5. Property and Equipment
  6. Income Taxes
  Accounting for Uncertainty in Income Taxes  an Interpretation of FASB
Statement No. 109
  5




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7. Comprehensive Income
     Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    4,283
    
    
    $
    5,964
    
    
    $
    14,645
    
    
    $
    12,786Diesel fuel hedge
    
    
    (102
    )
    
    
    228
    
    
    
    8
    
    
    
    (72
    )Interest rate hedges
    
    
    (1,487
    )
    
    
    
    
    
    
    (1,849
    )
    
    
    Comprehensive income
    
    $
    2,694
    
    
    $
    6,192
    
    
    $
    12,804
    
    
    $
    12,714
 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 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Core powerline services
    
    $
    120.3
    
    
    
    91.6
    %
    
    $
    135.1
    
    
    
    87.5
    %
    
    $
    378.7
    
    
    
    91.4
    %
    
    $
    406.9
    
    
    
    89.9
    %Storm restoration services
    
    
    11.1
    
    
    
    8.4
    %
    
    
    19.2
    
    
    
    12.5
    %
    
    
    35.5
    
    
    
    8.6
    %
    
    
    45.6
    
    
    
    10.1
    %Total
    
    $
    131.4
    
    
    
    100.0
    %
    
    $
    154.3
    
    
    
    100.0
    %
    
    $
    414.2
    
    
    
    100.0
    %
    
    $
    452.5
    
    
    
    100.0
    %
 Critical Accounting Policies
   7




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Operational and Other Factors
  
    
    General economic conditions may impact utility maintenance expenditures, and certain of
our customers powerline maintenance projects may be temporarily deferred. We continue to
work closely with all customers to provide a skilled, flexible work force.
    
    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 equipment
and specialized tools and supplies. Once the crews and equipment are fully utilized, our
margins generally increase over the life of the arrangement.
    
    Industry-wide insurance costs for workmens compensation, medical and general liability
could rise at a rate faster than our revenues. We have implemented several safety
initiatives designed to reduce incident rates and corresponding insurance costs.
    
    There are a limited number of skilled workers who can perform our work. When we
experience increased demand in a particular market, labor costs tend to increase. We
historically have been able to obtain price increases when we renegotiate rates with our
customers to offset these cost increases.
    
    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. We have entered into
diesel fuel swaps in the past and may enter into additional diesel fuel derivative
instruments in the future, depending on market conditions.
  8




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Results of Operations
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Core powerline services
    
    
    91.6
    %
    
    
    87.5
    %
    
    
    91.4
    %
    
    
    89.9
    %Storm restoration services
    
    
    8.4
    
    
    
    12.5
    
    
    
    8.6
    
    
    
    10.1Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of operations
    
    
    84.2
    
    
    
    82.2
    
    
    
    83.5
    
    
    
    84.1Gross profit
    
    
    15.8
    
    
    
    17.8
    
    
    
    16.5
    
    
    
    15.9General and administrative expenses
    
    
    7.9
    
    
    
    8.1
    
    
    
    7.5
    
    
    
    7.7Loss on sale and impairment of property
and equipment
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.5
    
    
    
    0.2Income from operations
    
    
    7.8
    
    
    
    9.5
    
    
    
    8.5
    
    
    
    8.0Interest expense and other, net
    
    
    2.5
    
    
    
    3.2
    
    
    
    2.7
    
    
    
    3.3Income before income taxes
    
    
    5.3
    
    
    
    6.3
    
    
    
    5.8
    
    
    
    4.7Income tax expense
    
    
    2.0
    
    
    
    2.4
    
    
    
    2.3
    
    
    
    1.9Net income
    
    
    3.3
    %
    
    
    3.9
    %
    
    
    3.5
    %
    
    
    2.8
    %
 Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
 Revenues.
   Gross Profit.
  9




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General and Administrative Expenses.
 Loss on Sale and Impairment of Property and Equipment .
 Interest Expense and Other, Net.
 Income Tax Expense.
 Net Income.
 Nine Months Ended March 31, 2008 Compared to the Nine Months Ended March 31, 2007
 Revenues.
   Gross Profit.
 General and Administrative Expenses.
  10




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Loss on Sale and Impairment of Property and Equipment .
 Interest Expense and Other, Net.
 Income Tax Expense.
 Net Income .
 Liquidity and Capital Resources
    Changes in Cash Flows:
 Nine Months EndedMarch 31,2008
    
    
    2007(in millions)Net cash provided by operating activities
    
    $
    47.9
    
    
    $
    55.9Net cash provided by (used in) investing activities
    
    $
    3.8
    
    
    $
    (23.1
    )Net cash used in financing activities
    
    $
    (48.7
    )
    
    $
    (35.5
    )
   11




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Senior Credit Facility
    Off-Balance Sheet Arrangements
    Seasonality; Fluctuations of Results
   12




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Inflation
  Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB Statement No. 115
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51
 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 our results of
operation or financial position;
    
    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.
  13




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##### Table of Contents




    
    We derive a significant portion of our revenues from a small group of customers. The
loss of or a significant decrease in services to 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.
    
    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.
    
    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 maintain effective internal control over financial reporting could have a
material adverse effect on our business, operating results and stock price.
    
    To be successful, we need to attract and retain qualified personnel, and any inability
to do so would adversely affect our business.
    
    The slowdown in the housing market could negatively affect our revenues from
distribution work.
    
    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 incurred indebtedness 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.
  14




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
    
    We are in the process of investigating a company-wide information technology (IT)
solution 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.
    
    Weather conditions can adversely affect our operations and, consequently, revenues. 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.
    
    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.
    
    The concentration of our capital stock among a relatively small group of stockholders
may limit other stockholders ability to influence corporate matters.
    
    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
   15




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Item 4. Controls and Procedures
    16




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 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)
  17




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##### Table of Contents



SIGNATURES
  PIKE ELECTRIC CORPORATION
(Registrant)Date: May 9, 2008
    By:
    /s/ J. Eric PikeJ. Eric PikeChairman, Chief Executive Officer and PresidentDate: May 9, 2008
    By:
    /s/ Anthony K. SlaterAnthony K. SlaterChief Financial Officer  18




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##### Table of Contents



EXHIBIT INDEX
 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)
  19