##### 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, 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(Do not check if smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



PIKE ELECTRIC CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    18Item 1A. Risk Factors
    
    
    18Item 6. Exhibits
    
    
    19Signatures
    
    
    20Exhibit 10.1Exhibit 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)
 September 30,
    
    
    June 30,2008
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,054
    
    
    $
    11,357Accounts receivable from customers, net
    
    
    106,344
    
    
    
    62,224Work completed not billed
    
    
    62,911
    
    
    
    40,013Inventories
    
    
    9,976
    
    
    
    8,343Prepaid expenses and other
    
    
    7,036
    
    
    
    5,123Deferred income taxes
    
    
    14,083
    
    
    
    15,376Total current assets
    
    
    201,404
    
    
    
    142,436Property and equipment, net
    
    
    229,735
    
    
    
    229,119Goodwill
    
    
    100,881
    
    
    
    94,402Other intangibles, net
    
    
    43,324
    
    
    
    40,065Deferred loan costs, net
    
    
    2,579
    
    
    
    2,778Other assets
    
    
    1,463
    
    
    
    1,463Total assets
    
    $
    579,386
    
    
    $
    510,263LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    15,323
    
    
    $
    10,867Accrued compensation
    
    
    39,939
    
    
    
    22,157Accrued expenses and other
    
    
    10,962
    
    
    
    5,018Income taxes payable
    
    
    10,787
    
    
    
    442Current portion of deferred compensation
    
    
    1,341
    
    
    
    3,666Current portion of insurance and claim accruals
    
    
    27,387
    
    
    
    28,873Revolving credit facility
    
    
    17,370
    
    
    
    Total current liabilities
    
    
    123,109
    
    
    
    71,023Long-term debt
    
    
    140,500
    
    
    
    140,500Insurance and claim accruals, net of current portion
    
    
    7,917
    
    
    
    7,989Deferred compensation, net of current portion
    
    
    4,954
    
    
    
    6,283Deferred income taxes
    
    
    61,301
    
    
    
    62,416Other liabilities
    
    
    907
    
    
    
    1,100Commitments 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; 33,317 and 33,183 shares issued and outstanding at
September 30, 2008 and June 30, 2008, respectively
    
    
    6,427
    
    
    
    6,427Additional paid-in capital
    
    
    149,627
    
    
    
    148,288Accumulated other comprehensive income (loss), net of taxes
    
    
    (668
    )
    
    
    (806
    )Retained earnings
    
    
    85,312
    
    
    
    67,043Total stockholders equity
    
    
    240,698
    
    
    
    220,952Total liabilities and stockholders equity
    
    $
    579,386
    
    
    $
    510,263
   1




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PIKE ELECTRIC CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 (In thousands, except per share amounts)
 Three Months EndedSeptember 30,2008
    
    
    2007Revenues
    
    $
    185,506
    
    
    $
    139,735Cost of operations
    
    
    140,545
    
    
    
    116,457Gross profit
    
    
    44,961
    
    
    
    23,278General and administrative expenses
    
    
    13,301
    
    
    
    10,311Loss on sale and impairment of property and equipment
    
    
    242
    
    
    
    45Income from operations
    
    
    31,418
    
    
    
    12,922Other expense (income):Interest expense
    
    
    2,335
    
    
    
    4,372Other, net
    
    
    (207
    )
    
    
    (60
    )Total other expense
    
    
    2,128
    
    
    
    4,312Income before income taxes
    
    
    29,290
    
    
    
    8,610Income tax expense
    
    
    11,021
    
    
    
    3,327Net income
    
    $
    18,269
    
    
    $
    5,283Earnings per share:Basic
    
    $
    0.55
    
    
    $
    0.16Diluted
    
    $
    0.54
    
    
    $
    0.16Shares used in computing earnings per share:Basic
    
    
    32,987
    
    
    
    32,696Diluted
    
    
    33,842
    
    
    
    33,671
   2




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PIKE ELECTRIC CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In thousands)
 Three Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    18,269
    
    
    $
    5,283Adjustments to reconcile net income to net cash (used in) provided by
operating activities:Depreciation and amortization
    
    
    9,373
    
    
    
    9,562Non-cash interest expense
    
    
    254
    
    
    
    924Deferred income taxes
    
    
    89
    
    
    
    (1,679
    )Loss on sale and impairment of property and equipment
    
    
    242
    
    
    
    45Equity compensation expense
    
    
    637
    
    
    
    605Excess tax benefit from stock-based compensation
    
    
    (167
    )
    
    
    (957
    )Changes in operating assets and liabilities:Accounts receivable and work completed not billed
    
    
    (48,841
    )
    
    
    (1,264
    )Inventories, prepaid expenses and other
    
    
    (722
    )
    
    
    425Insurance and claim accruals
    
    
    (1,558
    )
    
    
    (296
    )Accounts payable and other
    
    
    25,556
    
    
    
    514Deferred compensation
    
    
    (3,709
    )
    
    
    (3,035
    )Net cash (used in) provided by operating activities
    
    
    (577
    )
    
    
    10,127Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,938
    )
    
    
    (1,772
    )Business acquisitions, net
    
    
    (25,882
    )
    
    
    Net proceeds from sale of property and equipment
    
    
    2,272
    
    
    
    4,098Net cash (used in) provided by investing activities
    
    
    (27,548
    )
    
    
    2,326Cash flows from financing activities:Principal payments on long-term debt
    
    
    
    
    
    
    (17,800
    )Borrowings under revolving credit facility
    
    
    27,930
    
    
    
    8,025Repayments under revolving credit facility
    
    
    (10,560
    )
    
    
    (6,025
    )Proceeds from exercise of stock options and employee stock purchases
    
    
    285
    
    
    
    979Excess tax benefit from stock-based compensation
    
    
    167
    
    
    
    957Net cash provided by (used in) financing activities
    
    
    17,822
    
    
    
    (13,864
    )Net decrease in cash and cash equivalents
    
    
    (10,303
    )
    
    
    (1,411
    )Cash and cash equivalents beginning of year
    
    
    11,357
    
    
    
    1,467Cash and cash equivalents end of period
    
    $
    1,054
    
    
    $
    56
   3




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PIKE ELECTRIC CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 For the three months ended September 30, 2008 and 2007
 (In thousands, except per share amounts)
 1. Basis of Presentation
  2. Business
    Three Months EndedSeptember 30,2008
    
    
    2007Core services
    
    $
    107,836
    
    
    
    58.1
    %
    
    $
    134,873
    
    
    
    96.5
    %Storm restoration services
    
    
    77,670
    
    
    
    41.9
    %
    
    
    4,862
    
    
    
    3.5
    %Total
    
    $
    185,506
    
    
    
    100.0
    %
    
    $
    139,735
    
    
    
    100.0
    %
 3. Energy Delivery Services Acquisition
   4




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Current assets
    
    $
    18,689Property and equipment
    
    
    6,465Customer relationships
    
    
    3,400Non-compete agreements
    
    
    700Goodwill
    
    
    6,479Total assets acquired
    
    
    35,733Current liabilities
    
    
    (13,422
    )Other liabilities
    
    
    Total liabilities assumed
    
    
    (13,422
    )Net assets
    
    $
    22,311
 
  Three months endedSeptember 30,2008
    
    
    2007Revenues
    
    $
    203,554
    
    
    $
    161,079Net income
    
    $
    17,833
    
    
    $
    2,630Basic earnings per common share
    
    $
    0.54
    
    
    $
    0.08Diluted earnings per common share
    
    $
    0.53
    
    
    $
    0.08
 4. Stock-Based Compensation
   5




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5. Earnings Per Share
  Three Months EndedSeptember 30,2008
    
    
    2007Basic:Net income
    
    $
    18,269
    
    
    $
    5,283Weighted average common shares
    
    
    32,987
    
    
    
    32,696Basic earnings per share
    
    $
    0.55
    
    
    $
    0.16Diluted:Net income
    
    $
    18,269
    
    
    $
    5,283Weighted average common shares
    
    
    32,987
    
    
    
    32,696Potential common stock arising from stock options and restricted stock
    
    
    855
    
    
    
    975Weighted average common shares  diluted
    
    
    33,842
    
    
    
    33,671Diluted earnings per share
    
    $
    0.54
    
    
    $
    0.16
  6. Fair Value of Financial Instruments
 Fair Value Measurements
 Effective Date of FASB
Statement No. 157
  
    
    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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September 30,Description
    
    2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Interest rate swap agreements
    
    $
    (1,096
    )
    
    $
    
    
    
    $
    (1,096
    )
    
    $
    Diesel fuel swap agreements
    
    
    (263
    )
    
    
    
    
    
    
    (263
    )
    
    
    Total
    
    $
    (1,359
    )
    
    $
    
    
    
    $
    (1,359
    )
    
    $
    
 7. Income Taxes
   8. Derivative Instruments, Other Comprehensive Income and Comprehensive Income
   Interest Rate Risk
   7




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Diesel Fuel Risk
    Accumulated OCI
  For the Three Months EndedSeptember 30,2008
    
    
    2007Net accumulated derivative loss deferred at
beginning of period
    
    $
    (806
    )
    
    $
    (8
    )Deferral of net derivative loss in accumulated
other comprehensive loss
    
    
    (92
    )
    
    
    (41
    )Reclassification of net derivative loss to income
    
    
    230
    
    
    
    6Net accumulated derivative loss
deferred at end of period
    
    $
    (668
    )
    
    $
    (43
    )
  8




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Comprehensive Income
  For the Three Months EndedSeptember 30,2008
    
    
    2007Net income
    
    $
    18,269
    
    
    $
    5,283Diesel fuel cash flow hedge,
net of income taxes of $33
    
    
    
    
    
    
    51Interest rate cash flow hedges,
net of income taxes of ($89)
    
    
    (138
    )
    
    
    Comprehensive income
    
    $
    18,131
    
    
    $
    5,334
 9. Recent Accounting Pronouncements
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161) . Accounting for Derivative Instruments and Hedging Activities,
  9




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10. Commitments and Contingencies
 Litigation
  Performance Bonds
  Operating Leases
   10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Introduction
    Three Months EndedSeptember 30,2008
    
    
    2007Core services
    
    $
    107.8
    
    
    
    58.1
    %
    
    $
    134.9
    
    
    
    96.5
    %Storm restoration services
    
    
    77.7
    
    
    
    41.9
    %
    
    
    4.8
    
    
    
    3.5
    %Total
    
    $
    185.5
    
    
    
    100.0
    %
    
    $
    139.7
    
    
    
    100.0
    %
 Critical Accounting Policies
   11




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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 utilize diesel
fuel swaps and may enter into additional diesel fuel derivative instruments in the future,
depending on market conditions.
 Results of Operations
  Three Months EndedSeptember 30,2008
    
    
    2007Revenues:Core services
    
    
    58.1
    %
    
    
    96.5
    %Storm restoration services
    
    
    41.9
    
    
    
    3.5Total
    
    
    100.0
    %
    
    
    100.0
    %Cost of operations
    
    
    75.8
    
    
    
    83.3Gross profit
    
    
    24.2
    
    
    
    16.7General and administrative expenses
    
    
    7.2
    
    
    
    7.4Loss on sale of property and equipment
    
    
    0.1
    
    
    
    Income from operations
    
    
    16.9
    
    
    
    9.3Interest expense and other, net
    
    
    1.1
    
    
    
    3.1Income before income taxes
    
    
    15.8
    
    
    
    6.2Income tax expense
    
    
    6.0
    
    
    
    2.4Net income
    
    
    9.8
    %
    
    
    3.8
    %
  12




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Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
 Revenues.
  Gross Profit.
 General and Administrative Expenses.
 Interest Expense and Other, Net.
 Income Tax Expense.
 Net Income.
 Liquidity and Capital Resources
     13




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Changes in Cash Flows:
 Three Months EndedSeptember 30,2008
    
    
    2007(In millions)Net cash (used in) provided by operating activities
    
    $
    (0.6
    )
    
    $
    10.1Net cash (used in) provided by investing activities
    
    $
    (27.5
    )
    
    $
    2.3Net cash provided by (used in) financing activities
    
    $
    17.8
    
    
    $
    (13.9
    )
    Senior Credit Facility
    Contractual Obligations and Other Commitments
   14




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Off-Balance Sheet Arrangements
    Seasonality; Fluctuations of Results
  Inflation
  Recent Accounting Pronouncements
  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 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.
  15




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
    
    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. As a result, we are at risk of losing
significant business 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.
    
    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.
    
    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.
    
    We are dependent on our senior management and other key personnel, the loss of which
could have a material adverse effect on our business.
    
    A continued slowdown in the housing market could negatively affect our revenues from
distribution work.
    
    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 acquired substantially all of the assets of EDS on September 1, 2008, and this
acquisition could have a negative effect on our business and results of operations.
    
    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.
    
    We are in the process of implementing various information technology systems 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.
  16




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
    
    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.
    
    Utilities focus on power generation may temporarily divert attention and capital away
from maintenance projects we perform.
    
    Bonding indemnification requirements may change on existing or new contracts.
    
    Our financial results are based upon estimates and assumptions that may differ from
actual results.
 forward-looking
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
    17




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Our ability to access the capital and credit markets could harm our future growth and
expansion opportunities.
  18




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Item 6. Exhibits
 Exhibit
    
    Description10.1
    
    
    Employment Agreement, dated September 1, 2008, by and among Jim
Hicks, Pike Electric, Inc. and 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)
  19




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SIGNATURES
  PIKE ELECTRIC CORPORATION
(Registrant)Date: November 10, 2008
    By:
    /s/ J. Eric PikeJ. Eric PikeChairman, Chief Executive Officer and PresidentDate: November 10, 2008
    By:
    /s/ Anthony K. SlaterAnthony K. SlaterChief Financial Officer  20




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EXHIBIT INDEX
 Exhibit
    
    Description10.1
    
    
    Employment Agreement, dated September 1, 2008, by and among Jim
Hicks, Pike Electric, Inc. and 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