Pike 10Q 2010 Q3 Quarterly report

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, 2010


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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filero		Accelerated filerþ		Non-accelerated filero (Do not check if smaller reporting company)		Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

As of April 30, 2010, there were 33,530,481 shares of our Common Stock, par value $0.001 per share, outstanding.

PIKE ELECTRIC CORPORATION
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2010

INDEX


Part I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited):

Condensed consolidated balance sheets			1

Condensed consolidated statements of operations			2

Condensed consolidated statements of cash flows			3

Notes to condensed consolidated financial statements			4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14

Item 3. Quantitative and Qualitative Disclosures about Market Risk			25

Item 4. Controls and Procedures			25

Part II. OTHER INFORMATION

Item 1. Legal Proceedings			26

Item 1A. Risk Factors			26

Item 6. Exhibits			26

Signatures			27

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

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,
	2010		2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	51,683	$	43,820
Accounts receivable from customers, net		61,853		57,766
Costs and estimated earnings in excess of billings on uncompleted contracts		45,188		46,674
Inventories		7,078		7,718
Prepaid expenses and other		5,512		5,481
Assets held for sale		1,754		825
Deferred income taxes		11,367		13,649

Total current assets		184,435		175,933
Property and equipment, net		195,942		222,539
Goodwill		106,123		106,865
Other intangibles, net		37,619		40,139
Deferred loan costs, net		3,616		2,028
Other assets		1,903		1,465

Total assets	$	529,638	$	548,969


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,138	$	13,231
Accrued compensation		21,174		23,002
Billings in excess of costs and estimated earnings on uncompleted contracts		4,178		5,176
Accrued expenses and other		7,293		8,301
Current portion of deferred compensation		—		1,402
Current portion of insurance and claim accruals		24,111		26,442

Total current liabilities		71,894		77,554
Long-term debt		140,500		140,500
Insurance and claim accruals, net of current portion		7,263		7,335
Deferred compensation, net of current portion		5,773		5,563
Deferred income taxes		49,168		57,251
Other liabilities		2,852		3,801
Commitments and contingencies
Stockholders’ 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; 33,530 and 33,462 shares issued and outstanding at March 31, 2010 and June 30, 2009, respectively		6,427		6,427
Additional paid-in capital		156,587		153,035
Accumulated other comprehensive loss, net of taxes		—		(1,109	)
Retained earnings		89,174		98,612

Total stockholders’ equity		252,188		256,965

Total liabilities and stockholders’ equity	$	529,638	$	548,969

The accompanying notes are an integral part of these condensed consolidated financial statements.

PIKE ELECTRIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2010			2009			2010			2009

Revenues	$	120,931		$	154,921		$	383,349		$	485,014
Cost of operations		110,500			126,792			344,287			393,488

Gross profit		10,431			28,129			39,062			91,526
General and administrative expenses		12,007			12,137			38,261			36,607
Loss on sale and impairment of property and equipment		240			1,096			1,202			1,949
Restructuring expenses		59			—			8,983			—

(Loss) income from operations		(1,875	)		14,896			(9,384	)		52,970
Other expense (income):
Interest expense		1,441			2,162			6,085			7,228
Other, net		(49	)		(238	)		(229	)		(746	)

Total other expense		1,392			1,924			5,856			6,482

(Loss) income before income taxes		(3,267	)		12,972			(15,240	)		46,488
Income tax (benefit) expense		(1,236	)		4,702			(5,802	)		17,378

Net (loss) income	$	(2,031	)	$	8,270		$	(9,438	)	$	29,110


(Loss) earnings per share:
Basic	$	(0.06	)	$	0.25		$	(0.28	)	$	0.88

Diluted	$	(0.06	)	$	0.25		$	(0.28	)	$	0.86


Shares used in computing (loss) earnings per share:
Basic		33,149			33,036			33,119			33,011

Diluted		33,149			33,703			33,119			33,733

The accompanying notes are an integral part of these condensed consolidated financial statements.

PIKE ELECTRIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended
	March 31,
	2010			2009
Cash flows from operating activities:
Net (loss) income	$	(9,438	)	$	29,110
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		26,860			27,823
Non-cash interest expense		1,415			1,116
Deferred income taxes		(6,573	)		(2,845	)
Loss on sale and impairment of property and equipment		1,202			1,949
Restructuring expenses, non-cash		7,958			—
Equity compensation expense		3,514			2,520
Excess tax expense (benefit) from stock-based compensation		43			(198	)
Changes in operating assets and liabilities:
Accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts		(2,601	)		2,961
Inventories, prepaid expenses and other		2,452			(1,717	)
Insurance and claim accruals		(2,403	)		591
Accounts payable and other		(2,623	)		(5,603	)
Deferred compensation		(1,402	)		(3,710	)

Net cash provided by operating activities		18,404			51,997

Cash flows from investing activities:
Purchases of property and equipment		(13,628	)		(21,270	)
Business acquisitions, net		—			(22,632	)
Net proceeds from sale of property and equipment		5,840			5,247

Net cash used in investing activities		(7,788	)		(38,655	)

Cash flows from financing activities:
Borrowings under revolving credit facility		—			84,705
Repayments under revolving credit facility		—			(84,705	)
Stock option and employee stock purchase activity, net		82			675
Excess tax (expense) benefit from stock-based compensation		(43	)		198
Deferred loan costs		(2,792	)		—

Net cash (used in) provided by financing activities		(2,753	)		873


Net increase in cash and cash equivalents		7,863			14,215
Cash and cash equivalents beginning of year		43,820			11,357

Cash and cash equivalents end of period	$	51,683		$	25,572

The accompanying notes are an integral part of these condensed consolidated financial statements.

PIKE ELECTRIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three and nine months ended March 31, 2010 and 2009

(In thousands, except per share amounts)

1. Basis of Presentation

The accompanying condensed consolidated financial statements of Pike Electric Corporation and its wholly-owned subsidiaries (“Pike,” “Pike Electric,” “we,” “us,” and “our”) are unaudited and have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management these financial statements include all adjustments (consisting of normal recurring adjustments) that are considered necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods presented. The operating results for interim periods are not necessarily indicative of results to be expected for a full year or future interim periods. The balance sheet at June 30, 2009 has been derived from our audited financial statements but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Certain amounts reported previously have been reclassified to conform to the current year presentation. These financial statements should be read in conjunction with our financial statements and related notes included in our report on Form 10-K for the year ended June 30, 2009.

2. Business

Pike Electric is headquartered in Mount Airy, North Carolina and is one of the largest providers of energy solutions for investor-owned, municipal and co-operative utilities throughout the United States. Our comprehensive services include siting, permitting, engineering, design, installation, maintenance and repair of power delivery systems, including renewable energy projects. We operate in one reportable segment and we do not have operations or assets outside the United States.

We monitor revenue by two categories of services: core and storm restoration. We use this breakdown because core services represent ongoing service revenues, most of which are generated by our customers’ recurring maintenance needs, and storm restoration revenues represent additional revenue opportunities that depend on weather conditions.

The table below sets forth our revenues by category of service for the periods indicated:


	Three Months Ended								Nine Months Ended
	March 31,								March 31,
	2010				2009				2010				2009
Core services	$	98,643	81.6	%	$	100,681	65.0	%	$	340,587	88.8	%	$	342,212	70.6	%
Storm restoration services		22,288	18.4	%		54,240	35.0	%		42,762	11.2	%		142,802	29.4	%

Total	$	120,931	100.0	%	$	154,921	100.0	%	$	383,349	100.0	%	$	485,014	100.0	%

3. Acquisition of Energy Delivery Services

On September 1, 2008, we acquired substantially all of the assets of Shaw Energy Delivery Services, Inc. (“EDS”) for $22,632 in cash, including transaction costs, plus the assumption of certain operating liabilities. This acquisition enabled Pike to expand its operations into engineering, design, procurement and construction management services and expand its geographic presence through engineering offices in the Southwest, Pacific Northwest, Northeast and Mid-Atlantic markets. In addition, the acquisition added talented workforce and equipment for transmission projects up to 345 kilovolt with substation construction capabilities and an operational team focused on renewable energy projects.

The financial results of the operations of EDS have been included in our consolidated financial statements since the date of the acquisition. The following unaudited pro forma statement of income data gives effect to the acquisition of EDS as if it had occurred on July 1, 2008. The pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented.


	Nine Months Ended
	March 31,
	2010			2009

Revenues	$	383,349		$	503,061


Net (loss) income	$	(9,438	)	$	28,621


Basic (loss) earnings per common share	$	(0.28	)	$	0.87


Diluted (loss) earnings per common share	$	(0.28	)	$	0.85

4. Restructuring Expenses

During the second quarter of fiscal 2010, we initiated plans to implement cost restructuring measures in our distribution operations and support services. The cost restructuring initiatives included reductions in headcount, pay levels and employee benefits in distribution operations and support services, and the disposition of excess fleet assets. We made these changes in order to improve our efficiency and to better align our costs with the current operating environment.

We recorded a pre-tax restructuring charge related to these measures of $8,924 for our fiscal quarter ended December 31, 2009, comprised of $1,025 for severance and other termination benefits and a $7,899 non-cash writedown of fleet and other fixed assets to be disposed. During our fiscal quarter ended March 31, 2010, we recognized an additional $59 in non-cash writedowns due to a change in the estimated value of fixed assets to be sold. The following table summarizes the restructuring activity during the nine months ended March 31, 2010:


	One-Time
	Employee
	Termination			Fixed Asset
Description	Benefits			Writedowns			Total

Accrued restructuring balance as of June 30, 2009	$	—		$	—		$	—
Costs incurred and charged to expense		1,025			7,958			8,983
Cash payments		(725	)		—			(725	)
Non-cash settlement		—			(7,958	)		(7,958	)

Accrued restructuring balance as of March 31, 2010	$	300		$	—		$	300

Substantially all of the cost restructuring initiatives noted above were implemented during our fiscal quarter ended December 31, 2009. As of March 31, 2010 we had received $3,639 in proceeds from the sale of assets written down in connection with the restructuring. The carrying value of the remaining assets to be disposed of in connection with the restructuring was $1,532 at March 31, 2010 and was included within assets held for sale in the condensed consolidated balance sheets. We expect to complete the disposition of these remaining assets within the next six months.

We anticipate that substantially all termination benefits associated with the headcount reductions will be paid by June 30, 2010. At March 31, 2010, the unpaid severance charges of $300 were included within accrued compensation in the condensed consolidated balance sheets.

5. Credit Facility

On July 29, 2009, we entered into an amended and restated secured bank credit agreement (“Amended Credit Agreement”), which replaced our prior credit facility (“Original Credit Facility”). The Amended Credit Agreement: (i) extended the maturity of the revolving facility from July 1, 2010 to July 1, 2012; (ii) increased availability under the revolving facility from $90,000 to $115,000; (iii) increased the interest rate on the revolving facility by 2.0%; (iv) increased the aggregate dollar limits on our ability to invest in joint ventures, transfer assets to foreign subsidiaries, make earn-out payments, use unsecured debt, lease equipment, repurchase debt, pay dividends and repurchase equity; and (v) increased the letter of credit limit from $50,000 to $90,000, with the addition of an additional $25,000 cash collateralized letter of credit facility at our option. The financial covenants in the credit facility remained unchanged in the Amended Credit Agreement.

We paid and capitalized $2,851 of fees related to the Amended Credit Agreement that are being amortized on a straight-line basis as part of interest expense over the remaining term of the revolving facility. During the three months ended September 30, 2009, we immediately recognized expense for $112 in deferred loan costs associated with the Original Credit Facility, which was related to costs assigned to parties not involved in the amended revolving facility. In addition to the fees to be amortized related to our revolving credit facility, we continue to amortize, over the remaining term of the related debt using the effective-interest method, $13,071 in deferred loan costs related to the Original Credit Facility. At March 31, 2010, accumulated amortization related to all deferred loan costs was $12,307.

In addition to the revolving facility, the Amended Credit Agreement includes a $300,000 term loan due July 1, 2012 and a $150,000 term loan due March 10, 2012, of which we had $140,500 outstanding at March 31, 2010. The Amended Credit Agreement is secured by substantially all of our assets and contains a number of affirmative and restrictive covenants, including limitations on mergers, consolidations and dissolutions, sales of assets, investments and acquisitions, indebtedness, liens and restricted payments, and a requirement to maintain certain financial ratios. Pursuant to the terms of the Amended Credit Agreement, we may prepay any loans under the agreement in whole or in part without penalty.

The term loans bear interest at a variable rate at our option of either (a) the Alternate Base Rate, defined as the greater of the Prime Rate or the Federal Funds Effective Rate plus 0.50%, plus a margin ranging from 0.50% to 0.75% or (b) LIBOR plus a margin ranging from 1.50% to 1.75%. The margins are applied based on our leverage ratio, which is computed quarterly. At March 31, 2010, the LIBOR margin was 1.50%; however it will increase to 1.75% during our fiscal quarter ending June 30, 2010. At March 31, 2010, our interest rate for both term loans was 1.75%.

Advances made under the revolving facility bear interest at a variable rate at our election of either (a) the Alternate Base Rate as defined, plus a margin ranging from 2.50% to 3.00% or (b) LIBOR plus a margin ranging from 3.50% to 4.00%. The margins are applied based on our leverage ratio, which is computed quarterly. At March 31, 2010, the LIBOR margin was 3.50%; however it will increase to 4.00% during our fiscal quarter ending June 30, 2010. The borrowing availability under the revolving credit facility was $90,360 as of March 31, 2010 (after giving effect to outstanding standby letters of credit of $24,640). This borrowing availability is subject to, and potentially limited by, our compliance with the covenants of the Amended Credit Agreement. We are subject to a commitment fee of 0.75% and letter of credit fees between 3.75% and 4.25% based on our leverage ratio.

6. Stock-Based Compensation

Compensation expense related to stock-based compensation plans was $1,209 and $1,024 for the three months ended March 31, 2010 and March 31, 2009, respectively, and $3,514 and $2,520 for the nine months ended March 31, 2010 and March 31, 2009, respectively. The income tax benefit recognized for stock-based compensation arrangements was $472 and $400 for the three months ended March 31, 2010 and March 31, 2009, respectively, and $1,373 and $984 for the nine months ended March 31, 2010 and March 31, 2009, respectively.

7. Property and Equipment

Amounts reported as loss on sale and impairment of property and equipment relate primarily to aging, damaged or excess fleet equipment. Assets held for sale are recorded at the lower of carrying value or fair value, less selling costs. Substantially all of the assets held for sale at March 31, 2010 are expected to be sold over the next six months.

8. (Loss) Earnings Per Share

The following table sets forth the calculations of basic and diluted (loss) earnings per share:


	Three Months Ended					Nine Months Ended
	March 31,					March 31,
	2010			2009		2010			2009
Basic:
Net (loss) income	$	(2,031	)	$	8,270	$	(9,438	)	$	29,110

Weighted average common shares		33,149			33,036		33,119			33,011

Basic (loss) earnings per share	$	(0.06	)	$	0.25	$	(0.28	)	$	0.88

Diluted:
Net (loss) income	$	(2,031	)	$	8,270	$	(9,438	)	$	29,110

Weighted average common shares		33,149			33,036		33,119			33,011
Potential common stock arising from stock options and restricted stock		—			667		—			722

Weighted average common shares — diluted		33,149			33,703		33,119			33,733

Diluted (loss) earnings per share	$	(0.06	)	$	0.25	$	(0.28	)	$	0.86

All outstanding options and restricted stock awards were excluded from the calculation of diluted earnings per share for the three and nine months ended March 31, 2010, respectively, because their effect would have been anti-dilutive. Outstanding options and restricted stock awards equivalent to 1,715 and 1,448 shares of common stock were excluded from the calculation of diluted earnings per share for the three and nine months ended March 31, 2009, respectively, because their effect would have been anti-dilutive.

9. Fair Value

Fair value rules currently apply to all financial assets and liabilities and for certain nonfinancial assets and liabilities that are required to be recognized or disclosed at fair value. For this purpose, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

•

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.

As of March 31, 2010, we held certain items that are required to be measured at fair value on a recurring basis. These items consisted of diesel fuel swaps, which are used to hedge a portion of our diesel fuel costs. See Note 11 for further information on our derivative instruments and hedging activities.

Our diesel fuel derivative instruments consist of over-the-counter contracts, which are not traded on a public exchange. The fair values for our diesel fuel swaps are based on current settlement values and represent the estimated amount we would have received or paid upon termination of these agreements. The fair values are derived using pricing models that rely on market observable inputs such as yield curves and commodity forward prices, and therefore are classified as Level 2. We also consider counterparty credit risk in our determination of all estimated fair values. We have consistently applied these valuation techniques in all periods presented.

At March 31, 2010, both the carrying amount and fair value for our diesel fuel swaps were as follows:


	March 31,
Description	2010		Level 1		Level 2		Level 3

Diesel fuel swap agreements	$	614	$	—	$	614	$	—

Total	$	614	$	—	$	614	$	—

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair values due to the short-term nature of these instruments. The carrying value of our debt approximates fair value based on the market-determined, variable interest rates.

Assets and liabilities that are measured at fair value on a nonrecurring basis include reporting units valued in connection with annual and interim goodwill impairment testing, assets held for sale, and termination benefits to be paid in connection with our restructuring plans (Note 4). For goodwill impairment testing we rely primarily on a discounted cash flow approach, using Level 3 inputs. This approach requires significant estimates and judgmental factors, including revenue growth rates, terminal values, and weighted average cost of capital, which is used to discount future cash flows. Assets held for sale are valued using Level 2 inputs, primarily observed prices for similar assets in the used equipment market. Liabilities measured and recorded for termination benefits are based on the estimated ultimate payment amounts, which approximate fair value as determined using Level 3 inputs.

10. Income Taxes

Effective income tax rates of 37.8% and 36.2% for the three months ended March 31, 2010 and March 31, 2009, respectively, and 38.1% and 37.4% for the nine months ended March 31, 2010 and March 31, 2009, respectively, varied from the statutory federal income tax rate of 35% primarily as a result of the effect of state income taxes.

11. Derivative Instruments and Hedging Activities

All derivative instruments are recorded on the consolidated balance sheets at their respective fair values under U.S. GAAP. Changes in fair value are recognized either in earnings or other comprehensive income (loss) (“OCI”), depending on whether the transaction qualifies for hedge accounting and, if so, the nature of the underlying exposure being hedged and how effective the derivatives are at offsetting price movements in the underlying exposure. The effective portions recorded in OCI are recognized in the statement of operations when the hedged item affects earnings.

We have used certain derivative instruments to enhance our ability to manage risk relating to diesel fuel and interest rate exposure. Derivative instruments are not entered into for trading or speculative purposes. We document all relationships between derivative instruments and related items, as well as our risk-management objectives and strategies for undertaking various derivative transactions.

Interest Rate Risk

We are exposed to market risk related to changes in interest rates on borrowings under our senior credit facility, which bears interest based on LIBOR, plus an applicable margin dependent upon our leverage ratio. We have used derivative financial instruments to manage exposure to fluctuations in interest rates on our senior credit facility.

Effective December 2007, we entered into two interest rate swap agreements with a total notional amount of $100,000 to help manage a portion of our interest risk related to our floating-rate debt. Under both swap agreements, we paid a fixed rate of 3.99% and received a rate equivalent to the thirty-day LIBOR, adjusted monthly. The interest rate swaps qualified for hedge accounting and were designated as cash flow hedges. As determined in accordance with U.S. GAAP, there was no hedge ineffectiveness for the interest rate swaps for both the nine months ended March 31, 2010 and 2009, respectively, and for the three months ended March 31, 2009. The interest rate swaps expired in December 2009.

Diesel Fuel Risk

We have a large fleet of vehicles and equipment that primarily uses diesel fuel. As a result, we have market risk for changes in diesel fuel prices. If diesel prices rise, our gross profit and operating earnings would be negatively affected due to additional costs that may not be fully recovered through increases in prices to customers.

We periodically enter into diesel fuel swaps to decrease our price volatility. As of March 31, 2010, we had hedged approximately 50% of our next 12 months of projected diesel fuel purchases at prices ranging from $2.70 to $3.11 per gallon. We are not currently utilizing hedge accounting for any active diesel fuel derivatives.

Balance Sheet and Statement of Operations Information

The fair value of derivatives at March 31, 2010 and June 30, 2009 is summarized in the following table:


		Asset Derivatives				Liability Derivatives
		Fair Value		Fair Value		Fair Value		Fair Value
		at Mar. 31,		at June 30,		at Mar. 31,		at June 30,
	Balance Sheet Location	2010		2009		2010		2009
Derivatives designated as hedging instruments under U.S. GAAP:
Interest rate swaps	Accrued expenses and other	$	—	$	—	$	—	$	1,821

Total derivatives designated as hedging instruments under U.S. GAAP		$	—	$	—	$	—	$	1,821


Derivatives not designated as hedging instruments under U.S. GAAP:
Diesel fuel swaps (gross) (1)	Prepaid expenses and other	$	616	$	—	$	2	$	—
Diesel fuel swaps (gross) (1)	Accrued expenses and other		—		259		—		572

Total derivatives not designated as hedging instruments under U.S. GAAP		$	616	$	259	$	2	$	572


Total derivatives		$	616	$	259	$	2	$	2,393


(1)		The fair values of asset and liability derivatives with the same counterparty are netted on the balance sheet.

The effects of derivative instruments, net of tax, on the condensed consolidated statements of operations for the three and nine months ended March 31, 2010 and 2009 are summarized in the following tables:

Derivatives designated as cash flow hedging instruments under U.S. GAAP:


							Amount of Loss
	Amount of Gain (Loss)					Location of Loss	Reclassified from
	Recognized in OCI					Reclassified from	Accumulated OCI into
For the Three Months Ended	(Effective Portion)					Accumulated OCI into	Earnings
March 31,	2010		2009			Earnings	2010			2009
Interest rate swaps	$	—	$	388		Interest expense	$	—		$	(529	)

Totals	$	—	$	388			$	—		$	(529	)


For the Nine Months Ended
March 31,	2010		2009				2010			2009
Interest rate swaps	$	1,109	$	(753	)	Interest expense	$	(1,068	)	$	(976	)

Totals	$	1,109	$	(753	)		$	(1,068	)	$	(976	)

Derivatives not designated as cash flow hedging instruments under U.S. GAAP:


	Location of Gain	Amount of Gain (Loss)
For the Three Months Ended	(Loss) Recognized	Recognized in Earnings
March 31,	in Earnings	2010		2009
Diesel fuel swaps	Cost of operations	$	142	$	247

Total		$	142	$	247


For the Nine Months Ended
March 31,		2010		2009
Diesel fuel swaps	Cost of operations	$	565	$	(725	)

Total		$	565	$	(725	)

For the three and nine months ended March 31, 2010 and 2009, there were no reclassifications to earnings due to hedged firm commitments no longer deemed probable or due to hedged forecasted transactions that had not occurred by the end of the originally specified time period.

12. Comprehensive (Loss) Income

The components of comprehensive (loss) income were as follows for the periods presented:


	For the Three Months Ended
	March 31,
	2010			2009
Net (loss) income	$	(2,031	)	$	8,270
Change in fair value of interest rate cash low hedges, net of income taxes of $249		—			388

Comprehensive (loss) income	$	(2,031	)	$	8,658


	For the Nine Months Ended
	March 31,
	2010			2009
Net (loss) income	$	(9,438	)	$	29,110
Change in fair value of interest rate cash low hedges, net of income taxes of $711 and ($482), respectively		1,109			(753	)

Comprehensive (loss) income	$	(8,329	)	$	28,357

13. Recent Accounting Pronouncements

FASB Accounting Standards Codification

In June 2009, the Financial Accounting Standards Board (“FASB”) issued new guidance concerning the organization of authoritative guidance under U.S. GAAP. This new guidance created the FASB Accounting Standards Codification (“Codification”). The Codification has become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Codification became effective for us in our first quarter of fiscal 2010. As the Codification is not intended to change or alter existing U.S. GAAP, it did not have any impact on our consolidated financial statements. On its effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative.

Accounting for Business Combinations

We adopted new U.S. GAAP guidance related to business combinations beginning in our first quarter of fiscal 2010. The adoption of the new guidance did not have an immediate significant impact on our consolidated financial statements. However, it will impact the accounting for any future business combinations and it will impact the resolution of certain tax contingencies and adjustments to valuation allowances related to business combinations, which previously were adjusted to goodwill, but will now be adjusted to income tax expense, regardless of the date of the original business combination. This guidance defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. In addition, this guidance requires expensing of acquisition-related and restructure-related costs, remeasurement of earn-out provisions at fair value, measurement of equity securities issued for purchase at the date of close of the transaction and non-expensing of in-process research and development related intangibles.

Determination of the Useful Life of Intangible Assets

We adopted new U.S. GAAP guidance concerning the determination of the useful life of intangible assets beginning in our first quarter of fiscal 2010. The adoption of the new guidance did not have a significant impact on our consolidated financial statements. The new guidance amends the factors that are to be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The new guidance is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows originally used to measure the fair value of the intangible asset under U.S. GAAP.

Measuring Liabilities at Fair Value

In August 2009, the FASB released new guidance concerning measuring liabilities at fair value. The new guidance provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain valuation techniques. Additionally, it clarifies that a reporting entity is not required to adjust the fair value of a liability for the existence of a restriction that prevents the transfer of the liability. This new guidance was effective for our second quarter of fiscal 2010 and did not have a significant impact on our consolidated financial statements.

Disclosures for Fair Value Measurements

In January 2010, the FASB issued new guidance which requires additional disclosures for recurring and nonrecurring fair value measurements and clarifies certain existing disclosure requirements. These additional disclosures include: amounts and reasons for significant transfers between Level 1 and Level 2 of the fair value hierarchy; reasons for significant transfers in and out of Level 3 of the fair value hierarchy; and information about purchases, sales, issuances and settlements on a gross basis in the reconciliation of recurring Level 3 measurements.

The clarification of existing fair value disclosure requirements include the requirement for entities to disclose information about both the inputs and valuation techniques used in estimating Level 2 and Level 3 fair value measurements and to provide disclosures for fair value measurements for each class of assets and liabilities. The requirements of this guidance were effective for periods beginning after December 15, 2009, with the exception of the requirement of information about purchases, sales, issuances and settlements of Level 3 measurements, which becomes effective for periods ending after December 15, 2010. We do not expect this new guidance to have a material impact on our consolidated financial statements.

14. Commitments and Contingencies

Legal Proceedings

We are from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things: (a) compensation for alleged personal injury, workers’ compensation, employment discrimination, breach of contract or property damage, (b) punitive damages, civil penalties or other damages, or (c) injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we accrue reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our results of operations, financial position or cash flows.

Performance Bonds and Parent Guarantees

In the ordinary course of business, we are required by certain customers to post surety or performance bonds in connection with services that we provide to them. These bonds provide a guarantee to the customer that we will perform under the terms of a contract and that we will pay subcontractors and vendors. If we fail to perform under a contract or to pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the surety for any expenses or outlays it incurs. As of March 31, 2010, we had $109,313 in surety bonds outstanding, and we also had provided collateral in the form of letters of credit to sureties in the amount of $2,000. To date, we have not been required to make any reimbursements to our sureties for bond-related costs. We believe that it is unlikely that we will have to fund significant claims under our surety arrangements in the foreseeable future. Pike Electric Corporation, from time to time, guarantees the obligations of its wholly owned subsidiaries, including obligations under certain contracts with customers.

Indemnities

We generally indemnify our customers for the services we provide under our contracts, as well as other specified liabilities, which may subject us to indemnity claims and liabilities and related litigation. As of March 31, 2010, we do not believe that any future indemnity claims against us would have a material adverse effect on our results of operations, financial position or cash flows.

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 unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (“SEC”) on September 1, 2009 and is available on the SEC’s website at www.sec.gov. 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 “Risk Factors” in Item 1A of Part II of this Quarterly Report.

Introduction

Pike Electric is headquartered in Mount Airy, North Carolina and is one of the largest providers of energy solutions for investor-owned, municipal and co-operative utilities in the United States. Our comprehensive services include siting, permitting, engineering, design, installation, maintenance and repair of power delivery systems, including renewable energy projects. We operate in one reportable segment and we do not have operations or assets outside the United States.

Historically, we were a specialty contractor for utilities focused on distribution powerline maintenance and construction. We have repositioned Pike to be an energy solutions company focused on providing a diverse service offering to our customers for their outsourcing needs. We continue to develop our diverse service offerings and remain focused on distribution services which still provide the majority of our revenues.

Our service offering now includes the following:


Service		Description

Planning & Siting		Our planning and siting process leverages technology and the collection of environmental, cultural, land use and scientific data to facilitate successful right-of-way negotiations and permitting for powerlines, substations, pipelines and renewable energy installations.

Engineering & Design		We provide design, engineering, procurement and construction (“EPC”), owner engineer, project management, multi-entity coordination, grid integration, balance-of-plant and Thermal Rate solutions for individual or turn-key powerline, substation and renewable energy projects.

Construction		We provide overhead and underground powerline construction, upgrade and extension services (predominately single-pole and H-frame wood, concrete or steel poles) for distribution networks and transmission lines with voltages up to 345kV (“kV”), energized maintenance work for voltages up to 500kV and substation construction and service. Overhead services consist of construction, repair and maintenance of wire and components in energized overhead electric distribution and transmission systems. Underground services range from simple residential installations, directional boring, duct bank and manhole installation, to the construction of complete underground distribution facilities. Substation services include construction or new substations, existing substation upgrades, relay testing, commissioning, emergency outage response and Smart Grid component installation.

Renewables		We provide a total energy solution platform, including preliminary studies, planning, siting and permitting, engineering and design, construction, procurement and grid interconnection.

Storm Restoration Services		Storm restoration involves the repair or reconstruction of any part of a distribution or sub-500 kV transmission network, including substations, power lines, utility poles or other components, damaged during snow, ice or wind storms, flash floods, hurricanes, tornadoes or other natural disasters. We are a recognized leader in storm restoration, due to our ability to rapidly mobilize thousands of existing employees and equipment within 24 hours, while maintaining a functional force for unaffected customers.

Although storm restoration services can generate significant revenues, their unpredictability is demonstrated by comparing our revenues from those services in the last five full fiscal years which have ranged from 8.9% to 25.5% of total revenues. During periods with significant storm restoration work, we generally see man-hours diverted from core work, which decreases core services revenues. The table below sets forth our revenues by category of service for the periods indicated (dollars in millions):


	Three Months Ended								Nine Months Ended
	March 31,								March 31,
	2010				2009				2010				2009
Core services	$	98.6	81.6	%	$	100.7	65.0	%	$	340.6	88.8	%	$	342.2	70.6	%
Storm restoration services		22.3	18.4	%		54.2	35.0	%		42.7	11.2	%		142.8	29.4	%

Total	$	120.9	100.0	%	$	154.9	100.0	%	$	383.3	100.0	%	$	485.0	100.0	%

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make certain estimates and assumptions for interim financial information that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate these estimates and assumptions, including those related to revenue recognition for work in progress, allowance for doubtful accounts, self-insured claims liability, valuation of goodwill and other intangible assets, asset lives and salvage values used in computing depreciation and amortization, including amortization of intangibles, and accounting for income taxes, contingencies, litigation and stock-based compensation. Application of these estimates and assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” included in our Annual Report on Form 10-K for the year ended June 30, 2009 for further information regarding our critical accounting policies and estimates.

Operational and Other Factors

We are subject to various operational and other factors that can affect our business and results of operations. To mitigate the effects of these factors, we focus on elements of our business we can control, including excellent customer service, safety, employee development and cost control. The statements in this section are based on our current expectations. See “Uncertainty of Forward-Looking Statements and Information.” Certain of these operational and other factors that affect our business include the following:

	•		General economic conditions and unsuccessful public utility rate cases may impact utility maintenance expenditures going forward, and certain of our customers’ powerline maintenance projects may be temporarily deferred. We have experienced a reduction of utility distribution maintenance spending over the past two years and this reduction has materially impacted our distribution revenues and profit margins.

	•		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 costs for worker’s compensation, medical and general liability insurance could rise at a rate faster than our revenues.

	•		We own the vast majority of our equipment and vehicles. Due to decreased demand for our distribution services in recent periods, the percentage of underutilized equipment has increased. We had intended on retaining most of the underutilized equipment for future needs. However, during our fiscal second quarter, given current market conditions we decided instead to dispose of a large portion of this equipment, resulting in an impairment charge. See “Restructuring Expenses” discussion below. We intend to retain a portion of the underutilized equipment to provide for flexibility in fleet management and for future growth. However, if demand for our distribution services continues to decline, we may face additional fixed asset impairment charges.

	•		We have a large fleet of vehicles and equipment that primarily use diesel fuel. Fuel costs have been extremely volatile in recent years. We have implemented bulk purchasing in certain areas to lower our fuel costs. We utilize diesel fuel swaps and fixed-price arrangements and plan to enter into additional diesel fuel derivative instruments and fixed-price arrangements in the future.

Results of Operations

The following table sets forth selected statements of operations data as approximate percentages of revenues for the periods indicated:


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2010			2009			2010			2009
Revenues:
Core services		81.6	%		65.0	%		88.8	%		70.6	%
Storm restoration services		18.4	%		35.0	%		11.2	%		29.4	%

Total		100.0	%		100.0	%		100.0	%		100.0	%
Cost of operations		91.4	%		81.8	%		89.8	%		81.1	%

Gross profit		8.6	%		18.2	%		10.2	%		18.9	%
General and administrative expenses		9.9	%		7.8	%		10.0	%		7.5	%
Loss on sale of property and equipment		0.2	%		0.8	%		0.3	%		0.4	%
Restructuring expense		0.1	%		0.0	%		2.3	%		0.0	%

(Loss) income from operations		-1.6	%		9.6	%		-2.4	%		11.0	%
Interest expense and other, net		1.1	%		1.2	%		1.6	%		1.4	%

(Loss) income before income taxes		-2.7	%		8.4	%		-4.0	%		9.6	%
Income tax (benefit) expense		-1.0	%		3.0	%		-1.5	%		3.6	%

Net (loss) income		-1.7	%		5.4	%		-2.5	%		6.0	%

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

Revenues.Revenues decreased 21.9%, or $34.0 million, to $120.9 million for the three months ended March 31, 2010 from $154.9 million for the three months ended March 31, 2009. The decrease was attributable to a $2.0 million decrease in core revenues and a $32.0 million decrease in storm restoration revenues.

Our storm restoration revenues decreased 58.9% to $22.3 million for the three months ended March 31, 2010 from $54.2 million for the same period in the prior year. Storm restoration work during both periods primarily included various winter storm events, including the significant February 2009 Midwest winter storms. Our storm restoration revenues are highly volatile and unpredictable.

Our core revenues decreased 2.0% to $98.6 million for the three months ended March 31, 2010 from $100.7 million for the same period in the prior year. Our distribution services continue to suffer from low utility growth and reduced maintenance spending in our service territory. In addition, the large amount of storm restoration work during the third quarter of the prior fiscal year diverted significant man-hours from core work during that period, which minimized the current period decrease for core revenues. Our new diversified services including engineering, substation and transmission continue to produce solid revenues, however engineering and substation revenues may fluctuate due to the timing of material procurement revenues. The following table contains information on revenue and percentage changes by category for the periods indicated:


	Three Months Ended
	March 31,
Category of Core Revenue	2010		2009		% Change
Overhead distribution and other	$	51.2	$	52.3		-2.1	%
Underground distribution		14.6		17.4		-16.1	%
Transmission		16.3		14.0		16.2	%
Engineering and substation		16.5		17.0		-2.8	%

Total	$	98.6	$	100.7		-2.0	%

The majority of our distribution services are provided to investor-owned, municipal and co-operative utilities under master service agreements (“MSAs”). Services provided under these MSAs include both overhead and underground powerline distribution services. Our MSAs do not guarantee a minimum volume of work. The MSAs provide a framework for core and storm restoration pricing and provide an outline of the service territory in which we will work or the percentage of overall outsourced distribution work we will provide for the customer. Our MSAs also provide a platform for multi-year relationships with our customers. We can easily ramp up staffing for a customer without exhaustive contract negotiations and the MSAs also allow our customers to reduce staffing needs.

Our underground distribution services continue to be impacted by a weak market for new residential housing. We began experiencing a decline in underground distribution service revenue in our first fiscal quarter of 2008. Many residential developments utilize underground distribution powerlines for aesthetic reasons and the underground powerlines can be put in place with required cable, phone or gas lines. Continued challenging economic conditions and tight credit markets have also caused our customers to reduce overhead distribution maintenance spending. Our customers face difficulty in obtaining capital for capital projects and are faced with declining power usage from residential and commercial customers. Reducing maintenance expenditures is an action taken by our customers to improve short-term cash flow and operating results. We believe that a significant amount of pent-up demand is building and power system reliability is being challenged. We remain well positioned to benefit from a reacceleration in maintenance spending, which will remain dependent to a large extent on the health of the economy.

Gross Profit.Gross profit decreased 62.9% to $10.4 million for the three months ended March 31, 2010 from $28.1 million for the three months ended March 31, 2009. Gross profit as a percentage of revenues decreased to 8.6% for the three months ended March 31, 2010 from 18.2% for the three months ended March 31, 2009. Although we realized approximately $3.3 million in savings from our December 2009 restructuring, our gross profit was negatively impacted by the following:

	•		A significantly lower mix of storm revenue for the current quarter.Our storm restoration services typically generate a higher profit margin than core services. During a storm response, our storm-assigned crews and equipment are fully utilized. In addition, the overtime typically worked on storm events lowers the ratio of fixed costs to revenue. Storm gross profit margins can vary greatly depending on the geographic area, customer and amount of overtime worked.

	•		Distribution margins. Due to the decline in overall distribution demand, we experienced compressed margins during the quarter due to the following: (i) increased level of idle equipment, (ii) decreased distribution productivity due to the types of projects being outsourced by our customers, (iii) higher average wage rates as we have retained our most experienced workers and (iv) increased overhead as a percentage of revenue. Major steps were taken as part of our restructuring during our fiscal second quarter to better align our costs with revenue expectations. However, because of the continued reduction of distribution revenues and intense competition, our distribution margins remain under significant pressure.

	•		Crew start-up costs.Toward the end of our third fiscal quarter, we had additions to our transmission and distribution headcount, which resulted in new crews and caused us to absorb costs related to: the release of certain tools and supplies from inventory, the acquisition of certain new tools, and additional specialized rental equipment.

	•		Environmental matter.We recognized an additional $1.5 million of costs during the three months ended March 31, 2010 related to the cleanup of certain petroleum-related products on an owned property in Georgia. We believe the contamination occurred before we purchased the property. We have committed the necessary resources to remediate this contamination in a timely and appropriate manner. We continue to work with appropriate regulatory agencies and other interested parties to remediate the site.

	•		Higher fuel expense as a percentage of revenue. Fuel expense increased to 4.5% of total revenues for the three months ended March 31, 2010 compared to 3.7% for the same period in the prior year. Average fuel prices were approximately $0.60 per gallon higher for the three months ended March 31, 2010 compared to the same period in the prior year. These costs were partially offset by a $0.2 million positive impact from diesel fuel swaps for the three months ended March 31, 2010 compared to a $0.2 million negative impact for the same period of the prior year.

	•		Utilization.During the three months ended March 31, 2010, we experienced increased snow and extremely wet weather conditions in our service territory. Because of these weather conditions, we experienced additional non-productive paid time compared to the same period of the prior year. In addition, because of the difficult weather conditions, we experienced periods of lower productivity (while working) than in the prior year.

General and Administrative Expenses.General and administrative expenses were $12.0 million for the three months ended March 31, 2010, approximately the same level as for the three months ended March 31, 2009. As a percentage of revenues, general and administrative expenses increased to 9.9% for the three months ended March 31, 2010 from 7.8% for the same period in the prior year. Lower general and administrative expense of approximately $0.5 million resulting from the December 2009 restructuring were offset by increased stock-based compensation expense and increased depreciation expense related to recent software and office equipment additions.

Loss on Sale and Impairment of Property and Equipment.Loss on sale and impairment of property and equipment was $0.2 million for the three months ended March 31, 2010 compared to $1.1 million for the three months ended March 31, 2009. The level of losses is affected by several factors, including the timing of the continued replenishment of aging, damaged or excess fleet equipment, and conditions in the market for used equipment. We continually evaluate the depreciable lives and salvage values of our equipment.

Interest Expense and Other, Net.Interest expense and other, net decreased 27.7% to $1.4 million for the quarter ended March 31, 2010 from $1.9 million for the quarter ended March 31, 2009. This decrease was primarily due to decreased settlement costs related to our interest rates swaps, which expired in December 2009.

Income Tax Benefit or Expense.The income tax benefit was $1.2 million for the three months ended March 31, 2010 compared to income tax expense of $4.7 million for the three months ended March 31, 2009. The effective tax rate was 37.8% and 36.2% for the three months ended March 31, 2010 and March 31, 2009, respectively.

Nine Months Ended March 31, 2010 Compared to Nine Months Ended March 31, 2009

Revenues.Revenues decreased 21.0%, or $101.7 million, to $383.3 million for the nine months ended March 31, 2010 from $485.0 million for the nine months ended March 31, 2009. The decrease was attributable to a $100.1 million decrease in storm restoration revenues and a $1.6 million decrease in core revenues.

Our storm restoration revenues are highly volatile and unpredictable. For the nine months ended March 31, 2009, storm revenues totaled $42.7 million. In contrast, primarily due to damages caused by Hurricanes Gustav and Ike and significant winter storms in the Midwest during February 2009, storm revenues totaled $142.8 million for the nine months ended March 31, 2009.

Our core revenues decreased slightly to $340.6 million for the nine months ended March 31, 2010 from $342.2 million for the same period in the prior year. Our distribution services continue to suffer from low utility growth and reduced maintenance spending in our service territory. In addition, the large amount of storm restoration work during the prior fiscal year diverted significant man-hours from core work during that period, which minimized the fiscal 2010 decrease for core revenues. The following table contains information on revenue and percentage changes by category for the periods indicated (engineering and substation construction revenues are related to the September 1, 2008 acquisition of Shaw Energy Delivery Services, Inc.):


	Nine Months Ended
	March 31,
Category of Core Revenue	2010		2009		% Change
Overhead distribution and other	$	185.1	$	200.8		-7.8	%
Underground distribution		46.9		70.7		-33.7	%
Transmission		51.7		35.5		45.6	%
Engineering and substation		56.9		35.2		61.5	%

Total	$	340.6	$	342.2		-0.5	%

Gross Profit.Gross profit decreased 57.3% to $39.1 million for the nine months ended March 31, 2010 from $91.5 million for the nine months ended March 31, 2009. Gross profit as a percentage of revenues decreased to 10.2% for the nine months ended March 31, 2010 from 18.9% for the nine months ended March 31, 2009. Our gross profit was impacted negatively by the following:

	•		A significantly lower mix of storm revenue for the current year.Our storm restoration services typically generate a higher profit margin than core services. During a storm response, our storm-assigned crews and equipment are fully utilized. In addition, the overtime typically worked on storm events lowers the ratio of fixed costs to revenue. Storm gross profit margins can vary greatly depending on the geographic area, customer and amount of overtime worked.

	•		Distribution margins. Due to the decline in overall distribution demand, we experienced compressed margins due to the following: (i) increased level of idle equipment, (ii) decreased distribution productivity due to the types of projects being outsourced by our customers, (iii) higher average wage rates as we have retained our most experienced workers and (iv) increased overhead as a percentage of revenue. Major steps were taken as part of our restructuring during our fiscal second quarter to better align our costs with revenue expectations. However, because of the continued reduction of distribution revenues and intense competition, our distribution margins remain under significant pressure.

	•		Lower gross profit margin material procurement services. Material procurement services offered primarily in the engineering, substation and transmission businesses generate lower gross profit margins compared to other core services. We recognized approximately $17.4 million in material procurement revenues for the nine months ended March 31, 2010 compared to approximately $7.3 million for the same period in the prior year.

	•		Environmental matter.We recognized $3.2 million of costs for the nine months ended March 31, 2010 related to the cleanup of certain petroleum-related products on an owned property in Georgia. We believe the contamination occurred before we purchased the property. We have committed the necessary resources to remediate this contamination in a timely and appropriate manner. We continue to work with appropriate regulatory agencies and other interested parties to remediate the site.

General and Administrative Expenses.General and administrative expenses increased 4.5% to $38.3 million for the nine months ended March 31, 2010 from $36.6 million for the nine months ended March 31, 2009. As a percentage of revenues, general and administrative expenses increased to 10.0% from 7.5%. The increase in general and administrative expenses was primarily due to increased stock-based compensation expense, increased professional fees and increased depreciation expense related to recent software and office equipment additions, partially offset by decreased cash incentive compensation expense.

Loss on Sale and Impairment of Property and Equipment.Loss on sale and impairment of property and equipment was $1.2 million for the nine months ended March 31, 2010 compared to $1.9 million for the nine months ended March 31, 2009. The level of losses is affected by several factors, including the timing of the continued replenishment of aging, damaged or excess fleet equipment, and conditions in the market for used equipment. We continually evaluate the depreciable lives and salvage values of our equipment.

Restructuring Expenses.During the second quarter ended December 31, 2009, we implemented cost restructuring measures in our distribution operations and support services. The cost restructuring initiatives included reductions in headcount, pay levels and employee benefits in distribution operations and support services, and the disposition of excess fleet assets. We have made these changes in order to improve our efficiency and to better align our costs with the current operating environment.

We recorded a pre-tax restructuring charge related to these measures of $9.0 million ($5.5 million or $0.17 per diluted share on an after-tax basis) for the nine months ended March 31, 2010, comprised of $1.0 million for severance and other termination benefits and a $8.0 million non-cash writedown of fleet and other fixed assets to be disposed.

Substantially all of the cost restructuring initiatives noted above were implemented during our fiscal quarter ended December 31, 2009. As of March 31, 2010 we had received $3.6 million in proceeds from the sale of assets written down in connection with the restructuring. The carrying value of the remaining assets to be disposed of in connection with the restructuring was $1.5 million at March 31, 2010 and was included within assets held for sale in the condensed consolidated balance sheets. We expect to complete the disposition of assets within the next six months.

We anticipate that substantially all termination benefits associated with the headcount reductions will be paid by June 30, 2010. At March 31, 2010, the unpaid severance charges of $0.3 million were included within accrued compensation in the condensed consolidated balance sheets. We currently expect these restructuring measures to result in annual savings of $15.2 million.

Interest Expense and Other, Net.Interest expense and other, net decreased 9.7% to $5.9 million for the nine months ended March 31, 2010 from $6.5 million for the nine months ended March 31, 2009. This decrease was primarily due to lower interest rates, partially offset by increased amortization of deferred loan costs related to the extension of our revolving credit facility.

Income Tax Benefit or Expense.The income tax benefit was $5.8 million for the nine months ended March 31, 2010 compared to income tax expense of $17.4 million for the nine months ended March 31, 2009. The effective tax rate was 38.1% and 37.4% for the nine months ended March 31, 2010 and March 31, 2009, respectively.

Liquidity and Capital Resources

Our primary cash needs have been for working capital and capital expenditures. We need working capital to support seasonal variations in our business, primarily due to the impact of weather conditions on the electric infrastructure and the corresponding spending by our customers on electric service and repairs. The increased service activity during storm restoration events temporarily causes an excess of customer billings over customer collections, leading to increased accounts receivable during those periods. In the past, we have utilized borrowings under the revolving portion of our senior credit facility to satisfy normal cash needs during these periods.

As of March 31, 2010, our cash totaled $51.7 million and we had $90.4 million available under the $115.0 million revolving portion of our senior credit facility (after giving effect to the outstanding balance of $24.6 million of standby letters of credit). This borrowing availability is subject to, and potentially limited by, our compliance with the covenants of our credit facility which are discussed below.

To date, recent distress in the financial markets has not had a significant impact on our financial position. We consider our cash investment policies to be conservative in that we maintain a diverse portfolio of what we believe to be high-quality cash investments with short-term maturities. Accordingly, we do not anticipate that the current volatility in the capital markets will have a material impact on the principal amounts of our cash investments.

We believe 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. Our ability to satisfy our obligations or to fund planned capital expenditures will depend on our future performance, which to a certain extent is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control.

Changes in Cash Flows:


	Nine Months Ended
	March 31,
	2010			2009
	(In millions)
Net cash provided by operating activities	$	18.4		$	52.0
Net cash used in investing activities	$	(7.8	)	$	(38.7	)
Net cash (used in) provided by financing activities	$	(2.7	)	$	0.9

Net cash provided by operating activities decreased to $18.4 million for the nine months ended March 31, 2010 compared to cash provided by operations of $52.0 million for the nine months ended March 31, 2009. The decrease in cash flows from operating activities was primarily due to the significant change in net (loss)/income between the two time periods. We had a net loss of $9.4 million for the nine months ended March 31, 2010 compared to net income of $29.1 million for the nine months ended March 31, 2009.

During the three months ended March 31, 2010, we had storm billings that totaled approximately $22.3 million, of which approximately $18.2 million remained in accounts receivable at March 31, 2010. Our customers have historically been financially stable and creditworthy and we believe that we will continue to collect our AR in normal time parameters, which are typically slightly extended for storm restoration services.

Net cash used in investing activities decreased to $7.8 million for the nine months ended March 31, 2010 from $38.7 million for the nine months ended March 31, 2009. Capital expenditures for both periods consisted primarily of purchases of vehicles and equipment used to service our customers and software purchases for both the implementation of our human resource and payroll system and toward the implementation of our job cost reporting and billings system. The decrease in cash used in investing activities was primarily due to the purchase of EDS during the nine months ended March 31, 2009.

Net cash used in financing activities was $2.7 million for the nine months ended March 31, 2010 compared to net cash provided by financing activities of $0.9 million for the nine months ended March 31, 2009. Our cash used in financing activities during the nine months ended March 31, 2010 primarily related to $2.8 million of fees associated with the July 29, 2009 closing of our amended and restated credit agreement.

Senior Credit Facility

On July 29, 2009, we entered into an amended and restated credit agreement that replaced our existing credit facility. The amended credit agreement: (i) extended the maturity of the revolving facility from July 1, 2010 to July 1, 2012; (ii) increased availability under the revolving facility from $90.0 million to $115.0 million; (iii) increased the interest rate on the revolving facility by 2.0%; (iv) increased the aggregate dollar limits on our ability to invest in joint ventures, transfer assets to foreign subsidiaries, make earn-out payments, use unsecured debt, lease equipment, repurchase debt, pay dividends and repurchase equity; and (v) increased the letter of credit limit from $50.0 million to $90.0 million, with the addition of an additional $25.0 million cash collateralized letter of credit facility at our option. The financial covenants in the credit facility remained unchanged in the restated credit agreement.

As of March 31, 2010, we had $140.5 million of term loans outstanding under our amended credit agreement. As of March 31, 2010, our borrowing availability under the $115.0 million revolving portion of our amended credit agreement was $90.4 million (after giving effect to the outstanding balance of $24.6 million of outstanding standby letters of credit). This borrowing availability is subject to, and potentially limited by, our compliance with the covenants of the credit facility. The obligations under our amended credit agreement are unconditionally guaranteed by us and each of our existing and subsequently acquired or organized subsidiaries (other than Pike Electric, Inc., which is the borrower under the facility) and secured on a first-priority basis by security interests (subject to permitted liens) in substantially all assets owned by us, Pike Electric, Inc. and each of our other domestic subsidiaries, subject to limited exceptions.

Our amended credit agreement contains a number of affirmative and restrictive covenants including limitations on mergers, consolidations and dissolutions, sales of assets, investments and acquisitions, indebtedness, liens and other restricted payments. Among these covenants, our amended credit agreement includes a requirement that we maintain: (i) a leverage ratio (as defined in the senior credit facility; measured on a trailing four-quarter basis) of no more than 3.25 to 1.0 as of the last day of each fiscal quarter, with declining ratios at June 30 each year, down to 2.25 on June 30, 2012, and (ii) a cash interest coverage ratio (as defined in the senior credit facility; measured on a trailing four-quarter basis) of at least 3.5 to 1.0 as of the last day of each fiscal quarter. The amended credit agreement also contains an excess cash provision which could require us to make debt payments, if the leverage ratio is 2.0 or higher at June 30 of each year, based on a defined calculation. As of March 31, 2010, we were in compliance with all of our debt covenants, including those noted above, with a leverage ratio of 3.06 to 1.00 and a cash interest coverage ratio of 7.31 to 1.00.

We have experienced net losses for the past three quarters, which have negatively impacted our debt covenant ratios. The decrease in our leverage ratio threshold to no more than 3.0 to 1.0 as of June 30, 2010 may require the use of a portion of our cash on-hand to reduce our debt outstanding.

Concentration of Credit Risk

We are subject to concentrations of credit risk related primarily to our cash and cash equivalents and accounts receivable. We maintain substantially all of our cash investments with what we believe to be high credit quality financial institutions. We grant credit under normal payment terms, generally without collateral, to our customers, which include electric power companies, governmental entities, general contractors and builders, owners and managers of commercial and industrial properties located in the United States. Consequently, we are subject to potential credit risk related to changes in business and economic factors throughout the United States. However, we generally have certain statutory lien rights with respect to services provided.

Legal Proceedings

We are from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things: (a) compensation for alleged personal injury, workers’ compensation, employment discrimination, breach of contract, or property damage, (b) punitive damages, civil penalties or other damages, or (c) injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we accrue reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our results of operations, financial position or cash flows.

Off-Balance Sheet Arrangements

As is common in our industry, we have entered into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected in our balance sheets. Our significant off-balance sheet transactions include liabilities associated with non-cancelable operating leases, letter of credit obligations, and surety guarantees entered into in the normal course of business. We have not engaged in any off-balance sheet financing arrangements through special purpose entities.

Letters of Credit

Certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf. In addition, from time to time some customers require us to post letters of credit to ensure payment to our subcontractors and vendors under those contracts and to guarantee performance under our contracts. Such letters of credit are generally issued by a bank or similar financial institution. The letter of credit commits the issuer to pay specified amounts to the holder of the letter of credit if the holder claims that we have failed to perform specified actions. If this were to occur, we would be required to reimburse the issuer of the letter of credit. Depending on the circumstances of such a reimbursement, we may also have to record a charge to earnings for the reimbursement. We do not believe that it is likely that any material claims will be made under a letter of credit in the foreseeable future. As of March 31, 2010, we had $24.6 million of standby letters of credit issued under our senior credit facility primarily for insurance and bonding purposes.

Performance Bonds and Parent Guarantees

In the ordinary course of business, we are required by certain customers to post surety or performance bonds in connection with services that we provide to them. These bonds provide a guarantee to the customer that we will perform under the terms of a contract and that we will pay subcontractors and vendors. If we fail to perform under a contract or to pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the surety for any expenses or outlays it incurs. As of March 31, 2010, we had $109.3 million in surety bonds outstanding, and we also had provided collateral in the form of a letter of credit to sureties in the amount of $2.0 million, which is included in the total letters of credit outstanding above. To date, we have not been required to make any reimbursements to our sureties for bond-related costs. We believe that it is unlikely that we will have to fund significant claims under our surety arrangements in the foreseeable future.

Pike Electric Corporation, from time to time, guarantees the obligations of its wholly-owned subsidiaries, including obligations under certain contracts with customers.

Seasonality; Fluctuations of Results

Because our services are performed outdoors, our results of operations can be subject to seasonal variations due to weather conditions. These seasonal variations affect both our core and storm restoration services. Extended periods of rain or snow affect the deployment of our core crews, particularly with respect to underground work. During the winter months, demand for core work is generally lower due to inclement weather. In addition, demand for core work generally increases during the spring months due to improved weather conditions and is typically the highest during the summer due to better weather conditions. Due to the unpredictable nature of storms, the level of our storm restoration revenues fluctuates from period to period.

Recent Accounting Pronouncements

See Note 13, “Recent Accounting Pronouncements,” to our Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

Uncertainty of Forward-Looking Statements and Information

This Quarterly Report on Form 10-Q, as well as information included in future filings by Pike Electric Corporation with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company, contains, or may contain, certain “forward-looking statements” under Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such “forward-looking statements” include information relating to, among other matters, our future prospects, developments and business strategies for our operations. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our company and the industry in which we operate and management’s beliefs and assumptions. Words such as “may,” “will,” “should,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “predict,” “potential,” “project,” “continue,” “believe,” “seek,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements include, among others, statements relating to:

	•		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 a significant amount of pent-up demand is building and power system reliability is being challenged and that we remain well positioned to benefit from a reacceleration in maintenance spending, which will remain dependent to a large extent on the health of the economy;

	•		our belief that we maintain substantially all of cash investments in high credit quality financial institutions;

	•		our belief that our cash investment policies are conservative and that we maintain a diverse portfolio of high-quality cash investments;

	•		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 credit facility will be adequate to meet our ordinary course liquidity needs for the foreseeable future;

	•		our belief that it is unlikely that any material claims will be made under a letter of credit in the foreseeable future;

	•		our belief that it is unlikely that we will have to fund significant claims under our surety arrangements in the foreseeable future;

	•		our belief that contamination at our owned property in Georgia occurred before we purchased the property and that we have committed the necessary resources to remediate the contamination in a timely and appropriate manner;

	•		our expectation that certain recent accounting pronouncements will have no material effect on our consolidated financial statements;

	•		our expectation that our restructuring measures will result in annual savings of $15.2 million;

	•		our expectation that substantially all termination benefits associated with our headcount reductions will be paid by June 30, 2010; and

	•		our expectation that substantially all the assets held for sale at March 31, 2010 will be sold over the next six months.

These statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances, and involve risks and uncertainties that may cause actual future activities and results of operations to be materially different from historical or anticipated results. Factors that could impact those differences or adversely affect future periods include, but are not limited to, the factors set forth in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended June 30, 2009.

Caution should be taken not to place undue reliance on our forward-looking statements, which reflect the expectations of management of Pike Electric only as of the time such statements are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about our market risks, see Item 7A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has established and maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, such as this quarterly report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this quarterly report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, these officers have concluded that, as of March 31, 2010, our disclosure controls and procedures were effective to provide reasonable assurance of achieving their objectives.

Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Design and Operation of Control Systems

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and breakdowns can occur because of simple errors or mistakes. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings

We are from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, (a) compensation for alleged personal injury, workers’ compensation, employment discrimination, breach of contract, or property damages, (b) punitive damages, civil penalties or other damages, or (c) injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we record reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. We do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our results of operations, financial position or cash flows.

Item 1A.Risk Factors

There have been no material changes from the risk factors disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

Item 6.Exhibits


Exhibit		Description

	3.1	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)

	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)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	PIKE ELECTRIC CORPORATION (Registrant)
Date: May 10, 2010	By:	/s/ J. Eric Pike
		J. Eric Pike
		Chairman, Chief Executive Officer and President


Date: May 10, 2010	By:	/s/ Anthony K. Slater
		Anthony K. Slater
		Executive Vice President and Chief Financial Officer

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. freshman Avg

Pike Inactive 10-Q2010 Q3 Quarterly report

Content analysis

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents