UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

PIKE ELECTRIC CORPORATION

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)

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. Yes þ No o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of January 30, 2009, there were 33,401,319 shares of our Common Stock, par value $0.001 per share, outstanding.

 

 

PIKE ELECTRIC CORPORATION
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2008

INDEX

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed consolidated balance sheets			1
Condensed consolidated statements of income			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			11
Item 3. Quantitative and Qualitative Disclosures about Market Risk			20
Item 4. Controls and Procedures			20
Part II. OTHER INFORMATION
Item 1. Legal Proceedings			21
Item 1A. Risk Factors			21
Item 4. Submission of Matters to a Vote of Security Holders			21
Item 6. Exhibits			22
Signatures			23
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I — FINANCIAL INFORMATION

PIKE ELECTRIC CORPORATION

		December 31,				June 30,
		2008				2008
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	5,591			$	11,357
Accounts receivable from customers, net			78,393				62,224
Costs and estimated earnings in excess of billings on uncompleted contracts			54,344				40,410
Inventories			9,715				8,343
Prepaid expenses and other			5,424				5,123
Deferred income taxes			14,011				15,376
Total current assets			167,478				142,833
Property and equipment, net			225,091				229,119
Goodwill			104,387				94,402
Other intangibles, net			42,372				40,065
Deferred loan costs, net			2,378				2,778
Other assets			1,464				1,463
Total assets		$	543,170			$	510,660
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	12,090			$	10,867
Accrued compensation			19,178				22,157
Billings in excess of costs and estimated earnings on uncompleted contracts			6,732				397
Accrued expenses and other			8,931				5,018
Income taxes payable			6,331				442
Current portion of deferred compensation			1,365				3,666
Current portion of insurance and claim accruals			30,637				28,873
Total current liabilities			85,264				71,420
Long-term debt			140,500				140,500
Insurance and claim accruals, net of current portion			6,694				7,989
Deferred compensation, net of current portion			5,241				6,283
Deferred income taxes			57,474				62,416
Other liabilities			5,009				1,100
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; 33,385 and 33,183 shares issued and outstanding at December 31, 2008 and June 30, 2008, respectively			6,427				6,427
Additional paid-in capital			150,625				148,288
Accumulated other comprehensive loss, net of taxes			(1,947	)			(806	)
Retained earnings			87,883				67,043
Total stockholders’ equity			242,988				220,952
Total liabilities and stockholders’ equity		$	543,170			$	510,660

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

PIKE ELECTRIC CORPORATION

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2008				2007				2008				2007
Revenues		$	144,586			$	143,116			$	330,093			$	282,852
Cost of operations			126,150				118,653				266,696				235,110
Gross profit			18,436				24,463				63,397				47,742
General and administrative expenses			11,169				10,564				24,470				20,876
Loss on sale and impairment of property and equipment			612				1,939				854				1,984
Income from operations			6,655				11,960				38,073				24,882
Other expense (income):
Interest expense			2,730				3,774				5,066				8,146
Other, net			(301	)			(64	)			(508	)			(125	)
Total other expense			2,429				3,710				4,558				8,021
Income before income taxes			4,226				8,250				33,515				16,861
Income tax expense			1,655				3,171				12,675				6,498
Net income		$	2,571			$	5,079			$	20,840			$	10,363
Earnings per share:
Basic		$	0.08			$	0.15			$	0.63			$	0.32
Diluted		$	0.08			$	0.15			$	0.62			$	0.31
Shares used in computing earnings per share:
Basic			33,012				32,833				32,999				32,764
Diluted			33,699				33,668				33,747				33,677

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

PIKE ELECTRIC CORPORATION

		Six Months Ended
		December 31,
		2008				2007
Cash flows from operating activities:
Net income		$	20,840			$	10,363
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			18,820				18,712
Non-cash interest expense			767				1,620
Deferred income taxes			(1,283	)			(4,402	)
Loss on sale and impairment of property and equipment			854				1,984
Equity compensation expense			1,497				1,312
Excess tax benefit from stock-based compensation			(168	)			(957	)
Changes in operating assets and liabilities:
Accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts			(11,388	)			(4,984	)
Inventories, prepaid expenses and other			(1,989	)			(747	)
Insurance and claim accruals			469				2,005
Accounts payable and other			(1,648	)			(3,975	)
Deferred compensation			(3,710	)			(3,034	)
Net cash provided by operating activities			23,061				17,897
Cash flows from investing activities:
Purchases of property and equipment			(10,432	)			(3,584	)
Business acquisitions, net			(22,635	)			—
Net proceeds from sale of property and equipment			3,649				6,215
Net cash (used in) provided by investing activities			(29,418	)			2,631
Cash flows from financing activities:
Principal payments on long-term debt			—				(24,800	)
Borrowings under revolving credit facility			84,705				10,775
Repayments under revolving credit facility			(84,705	)			(9,975	)
Proceeds from exercise of stock options and employee stock purchases			423				1,108
Excess tax benefit from stock-based compensation			168				957
Net cash provided by (used in) financing activities			591				(21,935	)
Net decrease in cash and cash equivalents			(5,766	)			(1,407	)
Cash and cash equivalents beginning of year			11,357				1,467
Cash and cash equivalents end of period		$	5,591			$	60

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

PIKE ELECTRIC CORPORATION

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, 2008 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, 2008.

2. Business

Pike Electric is headquartered in Mount Airy, North Carolina and is one of the largest providers of energy solutions in the United States. Our core services are transmission and distribution powerline construction, engineering, substation, EPC, and renewable energy. We are also a recognized leader in storm restoration services. We operate in one reportable segment. 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 following table sets forth our revenue by category of service for the periods indicated:

		Three Months Ended																Six Months Ended
		December 31,																December 31,
		2008								2007								2008								2007
Core services		$	133,695				92.5	%		$	123,527				86.3	%		$	241,532				73.2	%		$	258,401				91.4	%
Storm restoration services			10,891				7.5	%			19,589				13.7	%			88,561				26.8	%			24,451				8.6	%
Total		$	144,586				100.0	%		$	143,116				100.0	%		$	330,093				100.0	%		$	282,852				100.0	%

3. Energy Delivery Services Acquisition

On September 1, 2008, we acquired substantially all of the assets of Shaw Energy Delivery Services, Inc. (“EDS”) for $22,635 in cash, including transaction costs, plus the assumption of certain operating liabilities. EDS provides engineering, design, procurement and construction management services on transmission and distribution powerlines and substations, and also performs maintenance and construction services on transmission and distribution powerlines and substations. Among other benefits, the acquisition provided us an opportunity to expand our operations to the West Coast, Southwest, Pacific Northwest and Mid-Atlantic markets.

The purchase price to acquire EDS, including transaction costs, has been allocated to the assets acquired and liabilities assumed at the effective date of the acquisition based on estimated fair values, as summarized in the table below. The fair values are based on preliminary valuations and are subject to adjustment as additional information is obtained.

Current assets		$	19,227
Property and equipment			6,245
Customer relationships			3,400
Non-compete agreements			700
Deferred tax asset			1,562
Goodwill			9,985
Total assets acquired			41,119
Current liabilities			(14,484	)
Non-current liabilities			(4,000	)
Total liabilities assumed			(18,484	)
Net assets		$	22,635

The intangible asset related to customer relationships is being amortized over eight years. Intangible assets related to non-compete agreements with the seller and certain employees are being amortized over a weighted-average useful life of two years.

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 at the beginning of each period presented. The pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented.

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2008				2007				2008				2007
Revenues		$	144,586			$	165,332			$	348,141			$	326,411
Net income		$	2,571			$	3,649			$	20,351			$	6,295
Basic earnings per common share		$	0.08			$	0.11			$	0.62			$	0.19
Diluted earnings per common share		$	0.08			$	0.11			$	0.60			$	0.19

4. Stock-Based Compensation

Compensation expense related to stock-based compensation plans was $860 and $706 for the three months ended December 31, 2008 and December 31, 2007, respectively, and $1,497 and $1,312 for the six months ended December 31, 2008 and December 31, 2007, respectively. The income tax benefit recognized for stock-based compensation arrangements was $336 and $276 for the three months ended December 31, 2008 and December 31, 2007, respectively, and $585 and $513 for the six months ended December 31, 2008 and December 31, 2007, respectively.

5. Earnings Per Share

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

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2008				2007				2008				2007
Basic:
Net income		$	2,571			$	5,079			$	20,840			$	10,363
Weighted average common shares			33,012				32,833				32,999				32,764
Basic earnings per share		$	0.08			$	0.15			$	0.63			$	0.32
Diluted:
Net income		$	2,571			$	5,079			$	20,840			$	10,363
Weighted average common shares			33,012				32,833				32,999				32,764
Potential common stock arising from stock options and restricted stock			687				835				748				913
Weighted average common shares — diluted			33,699				33,668				33,747				33,677
Diluted earnings per share		$	0.08			$	0.15			$	0.62			$	0.31

Outstanding options and restricted stock awards equivalent to 1,656 and 432 shares of common stock were excluded from the calculation of diluted earnings per share for the three months ended December 31, 2008 and 2007, respectively, because their effect would have been anti-dilutive. Outstanding options and restricted stock awards equivalent to 1,406 and 374 shares of common stock were excluded from the calculation of diluted earnings per share for the six months ended December 31, 2008 and 2007, respectively, because their effect would have been anti-dilutive.

6. Fair Value of Financial Instruments

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. We have adopted the provisions of SFAS 157 as of July 1, 2008, for financial instruments. Although the adoption of SFAS 157 did not materially impact our financial condition, results of operations, or cash flow, we are now required to provide additional disclosures as part of our financial statements.

In February 2008, the FASB issued FASB Staff Position SFAS No. 157-2, Effective Date of FASB Statement No. 157, which defers the application date of the provisions of SFAS 157 for all nonfinancial assets and liabilities until fiscal years beginning after November 15, 2009, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS 157 currently applies to all financial assets and liabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value on a recurring basis.

SFAS 157 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 December 31, 2008, we held certain items that are required to be measured at fair value on a recurring basis. These included interest rate derivative instruments and diesel fuel derivative instruments. Derivative instruments are used to hedge a portion of our diesel fuel costs and our exposure to interest rate fluctuations. These derivative instruments currently consist of swaps only. See Note 8 for further information on our derivative instruments and hedging activities.

Our interest rate derivative instruments and diesel fuel derivative instruments consist of over-the-counter contracts, which are not traded on a public exchange. The fair values for our interest rate swaps and diesel fuel swaps are based on current settlement values and represent the estimated amount we would have received 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 December 31, 2008, both the carrying amounts and fair values for our interest rate swaps and diesel fuel swaps were as follows:

		December 31,
Description		2008				Level 1				Level 2				Level 3
Interest rate swap agreements		$	(3,195	)		$	—			$	(3,195	)		$	—
Diesel fuel swap agreements			(1,596	)			—				(1,596	)			—
Total		$	(4,791	)		$	—			$	(4,791	)		$	—

7. Income Taxes

Effective income tax rates of 39.2% and 38.4% for the three months ended December 31, 2008 and December 31, 2007, respectively, and 37.8% and 38.5% for the six months ended December 31, 2008 and December 31, 2007, respectively, varied from the statutory federal income tax rate of 35% primarily as a result of the effect of state income taxes.

8. Derivative Instruments, Other Comprehensive Income and Comprehensive Income

All derivative instruments are recorded on the consolidated balance sheet at their respective fair values in accordance with SFAS 133, as amended. Changes in fair value are recognized either in income 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 income 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 total leverage ratio. We use 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 floating-rate debt interest risk. Under both swap agreements, we pay a fixed rate of 3.99% and receive a rate equivalent to the thirty-day LIBOR, adjusted monthly. Based on our current leverage ratio, these swap agreements effectively fix the interest rate at 5.49% for $100,000 of our term debt. The interest rate swaps qualified for hedge accounting and were designated as cash flow hedges. As determined in accordance with SFAS 133, as amended, there was no hedge ineffectiveness for the interest rate swaps for the three and six months ended December 31, 2008. The interest rate swaps expire in December 2009. The fair value of the interest rate swaps at December 31, 2008 was reflected on the balance sheet in accrued expenses and other for $3,195.

The net derivative income (loss) recorded in OCI will be reclassified into earnings over the term of the underlying cash flow hedge. The amount that will be reclassified into earnings will vary depending upon the movement of the underlying interest rates. As interest rates decrease, the charge to earnings will increase. Conversely, as interest rates increase, the charge to earnings will decrease.

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 income 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. We currently hedge approximately 30% of our diesel usage with prices ranging from $2.52 to $4.25 per gallon. In prior periods, we designated one diesel fuel swap as a cash flow hedge qualifying for hedge accounting treatment. We did not elect to apply hedge accounting for the swaps we entered into during the first and second quarters of fiscal 2009 and are currently not utilizing hedge accounting for any active diesel fuel derivatives. Accordingly, the changes in the fair values of these derivatives are currently recorded in cost of operations in our consolidated statements of income. We recognized a loss on the change in fair value of diesel fuel swaps for $1,333 and $1,596 for the three and six months ended December 31, 2008, respectively.

The ineffective portion of the change in the fair value of our diesel fuel cash flow hedge, which expired in February 2008, was recognized in cost of operations in the consolidated statements of income during the three and six months ended December 31, 2007. The amount was insignificant for both periods.

Accumulated OCI

For the interest rate swaps and diesel fuel swap, the following table summarizes the net derivative gains or losses, net of taxes, deferred into accumulated other comprehensive loss and reclassified to earnings for the periods indicated below.

		For the Three Months Ended								For the Six Months Ended
		December 31,								December 31,
		2008				2007				2008				2007
Net accumulated derivative (loss) income deferred at beginning of period		$	(668	)		$	43			$	(806	)		$	(8	)
Deferral of net derivative loss in accumulated other comprehensive loss			(1,495	)			(203	)			(1,588	)			(160	)
Reclassification of net derivative income (loss) to income			216				(100	)			447				(92	)
Net accumulated derivative loss deferred at end of period		$	(1,947	)		$	(260	)		$	(1,947	)		$	(260	)

Comprehensive Income

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

		For the Three Months Ended								For the Six Months Ended
		December 31,								December 31,
		2008				2007				2008				2007
Net income		$	2,571			$	5,079			$	20,840			$	10,363
Change in fair value of diesel fuel cash flow hedge, net of income taxes			—				59				—				110
Change in fair valur of interest rate cash flow hedges, net of income taxes			(1,279	)			(362	)			1,140				(362	)
Comprehensive income		$	1,292			$	4,776			$	21,980			$	10,111

9. Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income tax expense. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008 and early adoption is not permitted. SFAS 141R will impact our consolidated financial statements if we are party to a business combination that closes after our fiscal year that ends June 30, 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We intend to adopt SFAS 160 for our fiscal year 2010 which begins July 1, 2009. We currently have no minority interest; therefore we do not expect the standard to have an effect on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand how and why an entity uses derivative instruments, how they are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and related interpretations, and their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We intend to adopt SFAS 161 for our third quarter of fiscal year 2009 which begins January 1, 2009. We are currently evaluating the effects of SFAS 161, but do not expect the standard to have a material effect on our consolidated financial statements.

10. Commitments and Contingencies

Litigation

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, compensation for alleged personal injury, workers’ compensation, employment discrimination, breach of contract, property damage, punitive damages, civil penalties or other losses, or 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 or financial position.

Performance Bonds

In certain circumstances we are required to provide performance bonds in connection with our contractual commitments. We have indemnified the surety for any expenses that may be paid out under these performance bonds. At December 31, 2008 we had an outstanding letter of credit of $4,000 to provide collateral to the surety. At December 31, 2008 the total amount of outstanding performance bonds was $61,852.

Operating Leases

In connection with our acquisition of EDS (Note 3), we assumed certain operating lease obligations. Commitments for minimum payments under these leases total $3,471 for the remainder of fiscal 2009. For fiscal 2010, 2011, 2012, 2013 and thereafter, the commitments for minimum payments total $6,570, $5,577, $2,447, $588 and $599, respectively.

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 5, 2008 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 in the United States. Our core services are transmission and distribution powerline construction, engineering, substation, EPC, and renewable energy. We are also a recognized leader in storm restoration services. We operate in one reportable segment. We do not have operations or assets outside the United States.

We monitor our revenues by the two categories of services we provide: core and storm restoration. We use this breakdown because core services represent our ongoing service revenues, most of which are generated by our customers’ recurring maintenance needs and new construction projects, and storm restoration revenues represent additional revenue opportunities that depend on weather conditions. Although storm restoration services can generate significant revenues, their unpredictability is demonstrated by comparing our revenues from those services in the last five fiscal years which have ranged from 2.6% to 25.5% of total revenues.

The following table sets forth our revenues by category of service for the periods indicated (dollars in millions):

		Three Months Ended																Six Months Ended
		December 31,																December 31,
		2008								2007								2008								2007
Core services		$	133.7				92.5	%		$	123.5				86.3	%		$	241.5				73.2	%		$	258.4				91.4	%
Storm restoration services			10.9				7.5	%			19.6				13.7	%			88.6				26.8	%			24.5				8.6	%
Total		$	144.6				100.0	%		$	143.1				100.0	%		$	330.1				100.0	%		$	282.9				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, 2008 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 and 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 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.

•

We own the majority of our equipment and vehicles. We maintain certain underutilized equipment and vehicles for future growth. As utility maintenance is deferred our fixed fleet costs will cause a decline in our gross profit percentage.

•

We have a large fleet of vehicles and equipment that primarily use diesel fuel. Fuel costs have been extremely volatile in recent years and, until the most recent quarter, at historically high levels. We have implemented bulk purchasing in certain areas to lower our fuel costs. We utilize diesel fuel swaps and fixed price arrangements and may enter into additional diesel fuel derivative instruments and fixed price arrangements in the future, depending on market conditions.

Results of Operations

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

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2008				2007				2008				2007
Revenues:
Core services			92.5	%			86.3	%			73.2	%			91.4	%
Storm restoration services			7.5				13.7				26.8				8.6
Total			100.0	%			100.0	%			100.0	%			100.0	%
Cost of operations			87.2				82.9				80.8				83.1
Gross profit			12.8				17.1				19.2				16.9
General and administrative expenses			7.7				7.4				7.4				7.4
Loss on sale of property and equipment			0.5				1.3				0.3				0.7
Income from operations			4.6				8.4				11.5				8.8
Interest expense and other, net			1.7				2.6				1.4				2.8
Income before income taxes			2.9				5.8				10.1				6.0
Income tax expense			1.1				2.3				3.8				2.3
Net income			1.8	%			3.5	%			6.3	%			3.7	%

Three Months Ended December 31, 2008 Compared to Three Months Ended December 31, 2007

Revenues. Revenues increased 1.0%, or $1.5 million, to $144.6 million for the three months ended December 31, 2008 from $143.1 million for the three months ended December 31, 2007. The increase was attributable to a $10.2 million increase in core revenues, partially offset by an $8.7 million decrease in storm restoration revenues compared to the prior fiscal year.

Our core revenue increased 8.2% to $133.7 million for the three months ended December 31, 2008 from $123.5 million for the same period in the prior year. The September 1, 2008 acquisition of EDS provided $23.8 million in core revenues for the quarter. Our transmission services grew by $4.3 million, or 42.0%, compared to the same period in the prior year. These increases were partially offset by a reduction in distribution service revenues as customers reduced their distribution, maintenance and upgrade spending across our operating territory.

The majority of our distribution services are provided to utilities, co-operatives and municipalities 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 provides 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 reductions in residential housing developments. We began experiencing a decline in underground distribution service revenue in our first fiscal quarter of 2008. Many residential developments utilize underground power distribution powerlines for aesthetic reasons and the underground powerlines can be put in place with required cable, phone or gas lines. Recent 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. Where customers have reduced our crews, in many cases we have extended the terms and conditions of our MSAs to allow us to return to historical staffing levels as the economy improves. In addition to our traditional transmission and distribution services, we believe smart grid technology implementation, the demand for renewable energy solutions, and the anticipated energy infrastructure stimulus plan will continue to highlight the needs for our services.

Storm restoration revenue decreased 44.4% to $10.9 million for the three months ended December 31, 2008 from $19.6 million for the same period in the prior year. Storm restoration work during both periods included various winter storm events and for the three months ended December 31, 2008, work continued related to damages caused by Hurricane Ike. Our storm restoration revenues are highly volatile and unpredictable.

Gross Profit. Gross profit decreased 24.6%, or $6.1 million, to $18.4 million for the three months ended December 31, 2008 from $24.5 million for the three months ended December 31, 2007. Gross profit as a percentage of revenues decreased to 12.8% for the three months ended December 31, 2008 from 17.1% for the three months ended December 31, 2007. Our gross profit was negatively impacted by the following:

•

Higher fixed equipment costs as a percent of revenue due to decreased utilization. We own much of our equipment, and both underground and overhead distribution equipment utilization decreased as a result of a reduction in overall utility distribution maintenance projects in our territory. This impact was compounded by the excess leased and special rental equipment which we assumed in the EDS transaction. The overall worsening condition of the secondary market for used utility equipment and vehicles has also made it difficult to sell excess equipment. If equipment utilization in the second quarter of fiscal 2009 was at the same level as the second quarter of the prior fiscal year, our gross profit would have been approximately $2.0 million higher.

•

Higher fuel expense as a percentage of revenue. Fuel expense increased to 5.9% of total revenues in the second quarter of fiscal 2009 compared to 5.5% for the same period in the prior year. Fuel costs have moderated but the market continues to fluctuate. The reduction in our average fuel price this quarter compared to the prior year was more than offset by a $1.3 million non-cash, mark-to-market adjustment from our diesel fuel swap and $0.4 million for cash settlement charges.

•

A lower mix of storm revenue. 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.

•

Lower gross profit margin material procurement services. Material procurement services offered in the EDS business generate lower gross profit margins compared to other core services. Our engineering and substation businesses recognized approximately $5.0 million in material procurement revenues in the quarter.

•

Investment in engineering services growth. During the quarter, we added additional engineering staff and office space. We expect to experience increased non-billable wages and cost of the office space until these resources are fully utilized.

•

EDS transition costs. During the quarter, we relocated all legacy EDS employees to new Pike facilities. In addition to the expense associated with the moves, the moves also negatively impacted utilization in our engineering group.

General and Administrative Expenses. General and administrative expenses increased $0.6 million to $11.2 million for the three months ended December 31, 2008 from $10.6 million for the three months ended December 31, 2007. As a percentage of revenues, general and administrative expenses increased to 7.7% from 7.4%. Approximately $0.9 million of costs were incurred in the second quarter related to the recently acquired EDS business. Our general and administrative expenses were favorably impacted in the quarter by the voluntary forfeiture of the 2009 fiscal year cash incentives for our top seven management members. This forfeiture caused the reversal of $1.1 million of incentive expense accrued in the first quarter.

Interest Expense and Other, Net. Interest expense and other, net decreased $1.3 million to $2.4 million for the quarter ended December 31, 2008 from $3.7 million for the quarter ended December 31, 2007. This decrease was primarily due to lower average debt balances and lower interest rates.

Income Tax Expense. Income tax expense decreased $1.5 million to $1.7 million for the three months ended December 31, 2008 from $3.2 million for the three months ended December 31, 2007 primarily as a result of a decrease in income before income taxes. The effective tax rate was 39.2% and 38.4% for the three months ended December 31, 2008 and December 31, 2007, respectively.

Net Income. As a result of the factors discussed above, net income decreased $2.5 million to $2.6 million for the three months ended December 31, 2008 from $5.1 million for the three months ended December 31, 2007.

Six Months Ended December 31, 2008 Compared to the Six Months Ended December 31, 2007

Revenues. Revenues increased 16.7%, or $47.2 million, to $330.1 million for the six months ended December 31, 2008 from $282.9 million for the same period in the prior year. The revenue increase resulted from: storm restoration revenues; the September 1, 2008 acquisition of EDS, which provided $29.0 million in core revenues in the period; and continued growth in transmission services of $1.5 million, or 7%.

Our storm restoration revenues are highly volatile and unpredictable. In the six months ended December 31, 2008, primarily due to damages caused by Hurricanes Gustav and Ike, storm revenues totaled $88.6 million. This compares to $24.5 million in storm revenue for the six months ended December 31, 2007. The large amount of storm restoration work in the current fiscal year, however, diverted significant man-hours from core work. Core revenues were also negatively impacted as our customers reduced overhead distribution maintenance projects. As a result, core revenues decreased by 6.5% to $241.5 million for the six months ended December 31, 2008 as compared to the comparable period of the prior fiscal year.

Gross Profit. Gross profit increased $15.7 million to $63.4 million for the six months ended December 31, 2008 from $47.7 million for the six months ended December 31, 2007. Gross profit as a percentage of revenues increased to 19.2% from 16.9% during the six months ended December 31, 2008 primarily due to the significant increase in higher-margin storm restoration revenues, including Hurricanes Gustav and Ike.

General and Administrative Expenses. General and administrative expenses increased $3.6 million to $24.5 million for the six months ended December 31, 2008 from $20.9 million for the six months ended December 31, 2007. This increase is primarily due to higher incentive compensation expense and increased administration costs of approximately $1.2 million related to the EDS acquisition. As a percentage of revenues, general and administrative expenses remained constant at 7.4%.

Interest Expense and Other, Net. Interest expense and other, net decreased $3.4 million to $4.6 million for the six months ended December 31, 2008 from $8.0 million for the six months ended December 31, 2007. This decrease was primarily due to a reduction in average debt balances and lower interest rates.

Income Tax Expense. Income tax expense increased $6.2 million to $12.7 million for the six months ended December 31, 2008 from $6.5 million for the six months ended December 31, 2007 primarily as a result of the increase in income before income taxes. The effective tax rate was 37.8% and 38.5% for the six months ended December 31, 2008 and 2007, respectively.

Net Income. As a result of the factors discussed above, net income increased $10.4 million to $20.8 million for the six months ended December 31, 2008 from $10.4 million for the six months ended December 31, 2007.

Liquidity and Capital Resources

Our primary cash needs have been for working capital. Our primary source of cash for the six months ended December 31, 2008 was cash provided by operations. Our primary sources of cash for the six months ended December 31, 2007 were cash provided by operations and, to a lesser extent, proceeds from the sale of property and equipment.

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 December 31, 2008, our cash totaled $5.6 million and we had $66.4 million available under the $90.0 million revolving portion of our senior credit facility (after giving effect to the outstanding balance of $23.6 million of standby letters of credit).

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. However, 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:

		Six Months Ended
		December 31,
		2008				2007
		(In millions)
Net cash provided by operating activities		$	23.1			$	17.9
Net cash (used in) provided by investing activities		$	(29.4	)		$	2.6
Net cash provided by (used in) financing activities		$	0.6			$	(21.9	)

Net cash provided by operating activities increased $5.2 million to $23.1 million for the six months ended December 31, 2008 from $17.9 million for the six months ended December 31, 2007. The increase in cash flows from operating activities was primarily to storm restoration services related to Hurricanes Gustav and Ike. Our receivable balance was $6.6 million higher at December 31, 2008 compared to December 31, 2007. Our customers are financially stable and creditworthy. We did have one utility customer with a $13.0 million unpaid balance at December 31, 2008 related to hurricane storm restoration work performed during September 2008. Of this balance, $10.0 million was paid in January 2009. We believe the remaining $3.0 million will be collected during the remainder of our third quarter of fiscal 2009. We have not experienced any other major change in customer payment patterns.

Net cash used in investing activities was $29.4 million for the six months ended December 31, 2008 compared to net cash provided by investing activities of $2.6 million for the six months ended December 31, 2007. The change in cash provided by investing activities was primarily due to the purchase of EDS during the six months ended December 31, 2008 and, to a lesser extent, an increase in purchases of property and equipment. Our access to capital for growth and acquisitions will be impacted by the credit market crisis and volatility in the equity markets.

Net cash provided by financing activities was $0.6 million for the six months ended December 31, 2008 compared to net cash used in financing activities of $21.9 million for the six months ended December 31, 2007. Net cash used in financing activities for the six months ended December 31, 2007 primarily reflected net payments under our senior credit facility.

Senior Credit Facility

As of December 31, 2008, we had $140.5 million of term loan outstanding under our senior credit facility. As of December 31, 2008, our borrowing availability under the $90.0 million revolving portion of our senior credit facility was $66.4 million (after giving effect to the outstanding balance of $23.6 million of outstanding standby letters of credit). The obligations under our senior credit facility 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.

We continue to monitor the tightening of the overall credit market. Over the next several quarters, we will be renegotiating the revolving portion of our credit facility, which matures in July 2010. The economic environment and overall credit market will have an impact on those negotiations including availability, interest rates, fees and restrictive covenants. Our long-term debt matures in 2012.

Our credit agreement contains a number of affirmative and restrictive covenants including limitations on mergers, consolidations and dissolutions, sales of assets, investments and acquisitions, indebtedness and liens, and other restricted payments. Among these covenants, our credit agreement includes a requirement that we maintain: (i) a leverage ratio (as defined in the senior credit facility) of no more than 3.75 to 1.0 as of the last day of each fiscal quarter, measured on a trailing four-quarter basis and (ii) a cash interest coverage ratio (as defined in the senior credit facility) of at least 3.5 to 1.0 as of the last day of each fiscal quarter, measured on a trailing four-quarter basis. As of December 31, 2008, we were in compliance with these covenants with a leverage ratio of 1.41 to 1.00 and a cash interest coverage ratio of 11.43 to 1.00. The credit agreement also contains an excess cash provision which requires us to make debt payments based on a defined calculation. As of December 31, 2008, we were in compliance with all of our debt covenants, including those noted above.

Contractual Obligations and Other Commitments

In connection with our acquisition of EDS (Note 3 of “Notes to Condensed Consolidated Financial Statements”), we assumed certain operating lease obligations. These commitments total $3.5 million for the remainder of fiscal 2009. For fiscal 2010, 2011, 2012, 2013 and thereafter, the commitments total $6.6 million, $5.6 million, $2.4 million, $0.6 million and $0.6 million, respectively.

Off-Balance Sheet Arrangements

Other than letters of credit issued under the $90.0 million revolving portion of our senior credit facility and our obligations under the surety and performance bonds described below, we have no obligations or relationships that could be considered material off-balance sheet arrangements.

As of December 31, 2008, we had $23.6 million of standby letters of credit issued under our senior credit facility primarily for insurance and bonding purposes.

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. As of December 31, 2008, we had $61.9 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 $4.0 million, which is included in the total letters of credit outstanding above.

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 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.

Inflation

Due to relatively low levels of inflation experienced during the first six months of fiscal 2009 and 2008, inflation did not have a significant effect on our results.

Recent Accounting Pronouncements

See Note 9, “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 includes statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended to be “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Words such as “may,” “will,” “should,” “expect,” “anticipate,” “intend,” “plan,” “predict,” “potential,” “continue,” “believe,” “seek,” “estimate,” variations of such words and similar expressions are intended to identify such forward-looking statements. In particular, these include, but are not limited to, statements relating to the following:

•

our belief that the lawsuits, claims or other proceedings to which we are subject in the ordinary course of business will not have a material adverse effect on our results of operation or financial position;

•

our belief that our cash flow from operations, available cash and cash equivalents, and borrowings available under our senior credit facility will be adequate to meet our ordinary course liquidity needs for the foreseeable future.

Any or all of our forward-looking statements may turn out to be incorrect. They can be affected by inaccurate assumptions and by known or unknown risks and uncertainties, including the following, which are described in more detail in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008:

	•		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 deterioration 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.
	•		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 and concerns over credit availability 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.

Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement can be guaranteed. Our actual future results may vary materially from those expressed or implied in any forward-looking statements.

All of our forward-looking statements, whether written or oral, are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements. In addition, except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention to update any forward-looking statements to reflect events or circumstances after the date of this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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 London Interbank Offered Rate (“LIBOR”), plus an applicable margin dependent upon a total leverage ratio. We use derivative financial instruments to manage exposure to fluctuations in interest rates on our senior credit facility. These derivative financial instruments, which are currently all swap agreements, are not entered into for trading or speculative purposes. A swap agreement is a contract to exchange a floating rate for a fixed rate without the exchange of the underlying notional amount. Effective December 2007, we entered into two separate interest rate swap agreements. The first agreement had a notional amount of $60.0 million, an effective date of December 13, 2007 and an expiration date of December 13, 2009. The second agreement had a notional amount of $40.0 million, an effective date of December 19, 2007 and an expiration date of December 19, 2009. Under both swap agreements, we pay a fixed rate of 3.99% and receive a rate equivalent to the thirty-day LIBOR, adjusted monthly. Based on our current leverage ratio, these swap agreements effectively fix the interest rate at 5.49% for $100.0 million of our term debt. The fair value of the interest rate swaps at December 31, 2008 was reflected on the balance sheet in accrued expenses and other for $3.2 million.

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 income 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. We currently hedge approximately 30% of our diesel usage with prices ranging from $2.52 to $4.25 per gallon. Our goal is to gradually increase our hedged positions to 40% to 60% of our annual volumes by June 30, 2009 and ultimately maintain a program level of hedged positions at 60% to 70% of our annual volumes on a rolling basis.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including the chief executive officer (“CEO”) and chief financial officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of December 31, 2008.

There has been no change in our internal control over financial reporting during the quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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, compensation for alleged personal injury, breach of contract and/or property damages, punitive damages, civil penalties or other losses, or 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, cash flow or financial position.

Item 1A. Risk Factors

Except for the risk factor set forth below, there have been no material changes to these matters, disclosed in Part I, Item 1 in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

Impairment of our or our customers’ ability to access the capital and credit markets could harm our future growth and expansion opportunities. Recently, the capital and credit markets have become increasingly volatile as a result of adverse conditions that have caused the failure and near failure of a number of large financial services companies. If the capital and credit markets continue to experience volatility and the availability of funds remains limited, we could incur increased costs associated with borrowing. In addition, it is possible that our ability to access the capital and credit markets may be limited by these or other factors at a time when we would like, or need, to do so, which could have an impact on our ability to refinance maturing debt, grow our operations and/or react to changing economic and business conditions. Furthermore, our business model is centered upon being an outsourced service provider of energy solutions. To the extent that our customers are unable to access the capital and credit markets, they may in turn reduce their spending, and consequently the amount of work outsourced to us.

Item 4. Submission of Matters to a Vote of Security Holders

We held our annual meeting of stockholders in Bermuda Run, North Carolina on December 3, 2008. The following matters were submitted to a vote of the shareholders with the results shown below:

(a) Seven members were elected to the board of directors, each to serve until our next annual meeting of stockholders and until their respective successors have been elected and qualified.

Nominee		Votes For				Votes Withheld
J. Eric Pike			31,650,255				326,183
Charles W. Bayless			31,720,862				255,576
Adam B. Godfrey			31,506,141				470,297
James R. Helvey, III			31,720,612				255,826
Robert D. Lindsay			31,508,141				468,297
Daniel J. Sullivan			31,725,462				250,976
Louis F. Terhar			31,725,762				250,676

(b) The stockholders ratified the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2009.

Votes For

Votes Against

Abstained

Broker Non-Votes

31,834,903

141,335

200

None

Item 6. Exhibits

Exhibit				Description
	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.