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, 2007

OR

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

PIKE ELECTRIC CORPORATION

Delaware (State of incorporation)		20-3112047 (I.R.S. Employer Identification No.)

100 Pike Way, PO Box 868, Mount Airy, NC 27030

(336) 789-2171

     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 o      Non-accelerated filer þ

     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 May 4, 2007, there were 32,903,345 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, 2007

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		7
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		16
Item 4.		Controls and Procedures		16
Part II. OTHER INFORMATION
Item 1.		Legal Proceedings		17
Item 1A.		Risk Factors		17
Item 6.		Exhibits		18
Signatures				19
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I – FINANCIAL INFORMATION

PIKE ELECTRIC CORPORATION AND SUBSIDIARIES

		March 31,				June 30,
		2007				2006
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	696			$	3,391
Accounts receivable, net			63,426				66,629
Work completed not billed			50,131				56,430
Inventories			8,813				8,041
Prepaid expenses and other			4,915				5,928
Deferred income taxes			8,469				12,460
Total current assets			136,450				152,879
Property and equipment, net			279,145				284,452
Goodwill			94,402				94,402
Other intangibles, net			43,991				49,978
Deferred loan costs, net			5,139				6,265
Other assets			1,662				1,990
Total assets		$	560,789			$	589,966
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	9,053			$	9,706
Accrued compensation			20,559				24,954
Accrued expenses and other			7,953				5,243
Current portion of deferred compensation			2,456				10,614
Current portion of insurance and claim accruals			26,823				18,867
Revolving credit facility			—				4,500
Total current liabilities			66,844				73,884
Long-term debt, net of current portion			214,500				249,000
Insurance and claim accruals, net of current portion			12,951				13,439
Deferred compensation, net of current portion			10,192				10,378
Deferred income taxes			67,461				72,333
Other liabilities			—				200
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; 32,825 and 32,577 shares issued and outstanding at March 31, 2007 and June 30, 2006, respectively			6,426				6,426
Additional paid-in capital			141,264				135,869
Accumulated other comprehensive income (loss)			(72	)			—
Retained earnings			41,223				28,437
Total stockholders’ equity			188,841				170,732
Total liabilities and stockholders’ equity		$	560,789			$	589,966

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

PIKE ELECTRIC CORPORATION AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Revenues		$	154,272			$	157,202			$	452,496			$	571,358
Cost of operations			126,751				139,902				380,723				465,969
Gross profit			27,521				17,300				71,773				105,389
General and administrative expenses			12,428				9,836				34,706				31,985
Loss on sale of property and equipment			349				1,556				847				1,905
Income from operations			14,744				5,908				36,220				71,499
Other expense (income):
Interest expense			5,053				5,484				15,275				19,337
Other, net			(83	)			(58	)			(199	)			(163	)
Total other expense			4,970				5,426				15,076				19,174
Income before income taxes			9,774				482				21,144				52,325
Income tax expense			3,810				194				8,358				20,951
Net income		$	5,964			$	288			$	12,786			$	31,374
Earnings per share:
Basic		$	0.18			$	0.01			$	0.40			$	1.02
Diluted		$	0.18			$	0.01			$	0.38			$	0.98
Shares used in computing earnings per share:
Basic			32,505				31,932				32,359				30,846
Diluted			33,377				33,092				33,278				32,016

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

PIKE ELECTRIC CORPORATION AND SUBSIDIARIES

		Nine Months Ended
		March 31,
		2007				2006
Cash flows from operating activities:
Net income		$	12,786			$	31,374
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			29,521				28,352
Non-compete litigation settlement			3,551				—
Non-cash interest expense			2,373				4,170
Deferred income taxes			(881	)			(4,901	)
Loss on sale of property and equipment			847				1,905
Equity compensation expense			1,700				2,518
Changes in operating assets and liabilities:
Accounts receivable and work completed not billed			9,502				(1,573	)
Inventories, prepaid expenses and other			1,039				5,142
Insurance and claim accruals			7,468				8,624
Accounts payable and other			(2,609	)			(7,403	)
Deferred compensation			(9,428	)			(8,793	)
Net cash provided by operating activities			55,869				59,415
Cash flows from investing activities:
Purchases of property and equipment			(29,981	)			(39,855	)
Net proceeds from sale of property and equipment			6,884				7,052
Net cash used in investing activities			(23,097	)			(32,803	)
Cash flows from financing activities:
Principal payments on long-term debt			(34,500	)			(147,000	)
Payments on revolving credit facility, net			(4,500	)			(11,500	)
Net proceeds from sale of common stock			2,695				128,796
Equity compensation tax benefit			1,000				3,673
Deferred loan costs			(162	)			(656	)
Net cash used in by financing activities			(35,467	)			(26,687	)
Net decrease in cash and cash equivalents			(2,695	)			(75	)
Cash and cash equivalents beginning of year			3,391				3,106
Cash and cash equivalents end of period		$	696			$	3,031

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

PIKE ELECTRIC CORPORATION AND SUBSIDIARIES

1. Basis of Presentation

     The accompanying condensed consolidated financial statements of Pike Electric Corporation and its wholly-owned subsidiaries (the “Company”) 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 the Company’s 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, 2006 has been derived from the audited financial statements of the Company but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s financial statements and related notes included its report on Form 10-K for the year ended June 30, 2006.

2. Business

     The Company is headquartered in Mount Airy, North Carolina and operates in one reportable segment as a provider of outsourced electric distribution and transmission services. The Company’s customers include more than 150 electric utilities, cooperatives and municipalities across a contiguous 19-state region that stretches from Pennsylvania in the north to Florida in the southeast and to Texas in the southwest. The Company’s core services consist of the maintenance, upgrade and extension of electric distribution and sub-500 kilovolt (“kV”) transmission power lines. Additionally, the Company provides storm restoration services and a variety of ancillary services. The Company does not have operations or assets outside the United States.

     The Company monitors revenues by two categories of services: powerline and storm restoration. The Company uses this breakdown because powerline services represent its ongoing service revenues, most of which are generated by its customers’ recurring maintenance needs, and storm restoration revenues represent additional revenue opportunities that depend on weather conditions.

     The following table sets forth the Company’s revenues by category of service for the periods indicated:

		Three Months Ended																Nine Months Ended
		March 31,																March 31,
		2007								2006								2007								2006
Powerline services		$	135,051				87.5	%		$	148,351				94.4	%		$	406,929				89.9	%		$	396,366				69.4	%
Storm restoration services			19,221				12.5	%			8,851				5.6	%			45,567				10.1	%			174,992				30.6	%
Total		$	154,272				100.0	%		$	157,202				100.0	%		$	452,496				100.0	%		$	571,358				100.0	%

3. Stock-Based Compensation

     Compensation expense related to stock-based compensation plans was $614 and $849 for the three months ended March 31, 2007 and March 31 2006, respectively, and $1,700 and $2,518 for the nine months ended March 31, 2007 and March 31, 2006, respectively. Expense for the nine months ended March 31, 2006 includes $436 related to stock options which, in accordance with their terms, became fully vested upon the completion of the Company’s initial public offering in August 2005.

     The income tax benefit recognized for stock-based compensation arrangements was approximately $240 and approximately $342 for the three months ended March 31, 2007 and March 31, 2006, respectively, and approximately $664 and approximately $1,007 for the nine months ended March 31, 2007 and March 31, 2006, respectively.

4. Earnings Per Share

     Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and restricted stock awards. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computation as required by Statement of Financial Accounting Standards (“SFAS”) No. 128.

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Net income (numerator)		$	5,964			$	288			$	12,786			$	31,374
Weighted-average number of common shares (denominator)			32,505				31,932				32,359				30,846
Basic earnings per share		$	0.18			$	0.01			$	0.40			$	1.02
Weighted-average number of common shares			32,505				31,932				32,359				30,846
Potential common shares arising from stock options and restricted stock			872				1,160				919				1,170
Total shares-diluted (denominator)			33,377				33,092				33,278				32,016
Diluted earnings per share		$	0.18			$	0.01			$	0.38			$	0.98

     The weighted-average number of shares outstanding listed in the table below for the three and nine months ended March 31, 2007 and 2006 were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.

		Three months ended								Nine months ended
		March 31,								March 31,
		2007				2006				2007				2006
Common stock options			405				983				1,105				882
Shares of restricted stock			—				—				2				—

5. Income Taxes

     Effective income tax rates of 39.0% and 40.3% for three months ended March 31, 2007 and March 31, 2006, respectively, and 39.5% and 40.0% for the nine months ended March 31, 2007 and March 31, 2006, respectively, varied from the statutory federal income tax rate of 35% primarily as a result of the effect of state income taxes.

6. Comprehensive Income

     The Company has entered into two separate diesel fuel swap agreements to manage exposure to diesel fuel price volatility. The Company did not elect to apply hedge accounting for the first swap, entered into in May 2006. This swap is marked to market and included on the balance sheet at fair value. Realized and unrealized gains and losses are recognized in cost of operations.

     The second swap, entered into in October 2006, qualified for hedge accounting and was designated as a cash flow hedge. This swap is marked to market and included on the balance sheet at fair value. The effective portions of changes in the fair value of the swap are recorded in other comprehensive income (loss) (“OCI”) and are recognized in the statement of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in cost of operations.

     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 diesel fuel prices. As diesel fuel prices decrease, the charge to earnings will increase. Conversely, as diesel fuel prices increase, the charge to earnings will decrease.

     The components of comprehensive income, net of tax, were as follows for the periods presented below:

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Net income		$	5,964			$	288			$	12,786			$	31,374
Diesel fuel hedge			228				—				(72	)			—
Comprehensive income		$	6,192			$	288			$	12,714			$	31,374

7. Property and Equipment

     During the three months ended December 31, 2006 the Company revised the salvage values for certain classes of equipment, based primarily on current market conditions for used equipment. The revisions resulted in an increase to depreciation expense of approximately $1,800 for the second quarter of fiscal 2007 (approximately $1,100 net of tax or $0.03 per diluted share) and $900 for the third quarter of fiscal 2007 (approximately $550 net of tax or $0.02 per diluted share). Approximately $800 of the increase to depreciation expense for the second quarter of fiscal 2007 was attributable to assets that reached the end of their useful lives prior to December 31, 2006.

8. Commitments and Contingencies

   Litigation

     The Company continues to pursue litigation proceedings against a collective group of former Red Simpson employees to enforce its non-compete agreements and will continue to enforce its rights under non-compete agreements.

     The Company is, 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, the Company accrues reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on the Company’s results of operations or financial position.

   Performance Bonds

     In certain circumstances the Company is required to provide performance bonds in connection with its contractual commitments. The Company has indemnified the surety for any expenses that may be paid out under these performance bonds. At March 31, 2007 the Company had an outstanding letter of credit of $4,000 to provide collateral to the surety, and the total amount of outstanding performance bonds was approximately $35,217.

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 28, 2006 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.”

Introduction

     We are one of the largest third-party providers of outsourced electric distribution and transmission services in the United States. Our core activities consist of the maintenance, upgrade and extension of electric distribution and sub-500 kV transmission power lines. Our customers include more than 150 electric utilities, cooperatives and municipalities across a contiguous 19-state region that stretches from Pennsylvania in the north to Florida in the southeast and to Texas in the southwest.

     We monitor our revenues by the two categories of services we provide: powerline and storm restoration. We use this breakdown because powerline services represent our 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.

     Our powerline services are our core business because of the magnitude and stability of our revenues from these operations. These powerline services have benefited from favorable industry growth trends, including a growth in demand for electricity, the passage of the Energy Policy Act of 2005, increased outsourcing of infrastructure services by electric companies and the inadequacy of the current electric infrastructure. Although storm restoration services can generate significant revenues, the frequency and severity of storms are highly unpredictable. As an illustration of the volatility of our storm restoration services, our annual storm restoration revenues have ranged from a low of $7.0 million to a high of $185.3 million during the seven fiscal years ended June 30, 2006. For the three months ended March 31, 2007 and 2006, storm restoration activity resulted in revenues of $19.2 million and $8.9 million, respectively. For the nine months ended March 31, 2007 and 2006, storm restoration activity resulted in revenues of $45.6 million and $175.0 million, respectively. During the nine months ended March 31, 2006 we experienced the largest storm restoration events of our history as several significant hurricanes affected the Gulf Coast and Florida. Our storm restoration revenue for the three and nine months ended March 31, 2006 is not indicative of the revenues that we typically generate in any period or that we should be expected to generate in any future period.

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

		Three Months Ended																Nine Months Ended
		March 31,																March 31,
		2007								2006								2007								2006
Powerline services		$	135.1				87.5	%		$	148.3				94.4	%		$	406.9				89.9	%		$	396.4				69.4	%
Storm restoration services			19.2				12.5	%			8.9				5.6	%			45.6				10.1	%			175.0				30.6	%
Total		$	154.3				100.0	%		$	157.2				100.0	%		$	452.5				100.0	%		$	571.4				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, 2006 for further information regarding our critical accounting policies and estimates.

Operational and Other Factors

     Although we benefit from general industry trends, 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:

	•		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 specialized tools and supplies. Once the crews and equipment are fully utilized, our margins generally increase over the life of the arrangement.
	•		The significant storm activity during our two most recently completed fiscal years has had a significant financial impact on several of our customers. As a result, they may defer certain powerline maintenance projects, which would affect our powerline revenues.
	•		Industry-wide insurance costs for workers’ compensation, medical and general liability have risen in the past several years and are expected to continue to rise at a rate faster than our revenues. We have implemented several safety initiatives designed to reduce incident rates and corresponding insurance costs as well as introduced an employee safety bonus in fiscal 2005.
	•		There are a limited number of skilled workers who can perform our work, and during historic periods of increased demand, labor costs have tended to increase. We are currently experiencing shortages of skilled personnel in certain markets. While shortages have caused our labor costs to increase, we historically have been able to obtain increases when we renegotiate rates with our customers to offset these cost increases.
	•		Our general and administrative expenses will include additional implementation costs relating to compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and will range from $1.5 million to $2.0 million in fiscal 2007 compared to approximately $0.7 million in fiscal 2006.
	•		Fuel costs have risen and may continue to rise at a rate faster than our revenues. We have a large fleet of vehicles and equipment that primarily use diesel fuel. We have implemented bulk purchasing in certain areas to lower our fuel costs. In addition, we have entered into two diesel fuel swaps that cover, based on current volumes, approximately 30% of our diesel requirements through February 2008.

Results of Operations

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

		Three Months								Nine Months
		Ended March 31,								Ended March 31,
		2007				2006				2007				2006
Revenues:
Powerline services			87.5	%			94.4	%			89.9	%			69.4	%
Storm restoration services			12.5				5.6				10.1				30.6
Total			100.0	%			100.0	%			100.0	%			100.0	%
Cost of operations			82.2				89.0				84.1				81.6
Gross profit			17.8				11.0				15.9				18.4
General and administrative expenses			8.1				6.2				7.7				5.6
Loss on sale of property and equipment			0.2				1.0				0.2				0.3
Income from operations			9.5				3.8				8.0				12.5
Interest expense and other, net			3.2				3.5				3.3				3.3
Income before income taxes			6.3				0.3				4.7				9.2
Income tax expense			2.4				0.1				1.9				3.7
Net income			3.9	%			0.2	%			2.8	%			5.5	%

   Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

     Revenues. Revenues decreased 1.9%, or $2.9 million, to $154.3 million for the three months ended March 31, 2007 from $157.2 million for the three months ended March 31, 2006. The decrease was due to a $13.2 million decrease in powerline revenues partially offset by a $10.3 million increase in storm restoration revenues compared to the prior fiscal year. Total billable hours decreased by 8.9% during the three months ended March 31, 2007 compared to the same period in the prior year. Our average revenue-producing headcount decreased 9.7% during the three months ending March 31, 2007 compared to the same period in the prior year. Billable hours and headcount decreased due to the Company terminating certain services that did not meet strategic goals including right-of-way maintenance and the Company exiting certain accounts that did not meet long-term profitability goals.

     Our powerline revenues decreased 9.0% to $135.1 million for the three months ended March 31, 2007 from $148.3 million for the same period in the prior year. Powerline billable man-hours decreased 13.2% and revenue per man-hour increased 4.8%. Powerline revenues consist primarily of continued maintenance projects with existing customers.

     Our storm restoration revenues increased 115.7% to $19.2 million for the three months ended March 31, 2007 from $8.9 million for the same period in the prior year. This increase was primarily related to damages caused by winter storms in the three months ended March 31, 2007. Our storm restoration revenues are highly volatile and unpredictable.

     Gross Profit. Gross profit increased 59.1%, or $10.2 million, to $27.5 million for the three months ended March 31, 2007 from $17.3 million for the same period in the prior year. Gross profit as a percentage of revenues increased to 17.8% for the three months ended March 31, 2007 from 11.0% the three months ended March 31, 2006, primarily due to the increase in higher margin storm restoration revenues, an increase in billable rates from recent contract negotiations, and exiting certain lower margin accounts and services.

     General and Administrative Expenses. General and administrative expenses increased $2.6 million to $12.4 million for the three months ended March 31, 2007 from $9.8 million for the three months ended March 31, 2006. This increase is primarily due to increased legal fees associated with non-compete litigation against former employees and an increase in implementation costs relating to Sarbanes-Oxley compliance. As a percentage of revenues, general and administrative expenses increased to 8.1% from 6.3%.

     Loss on Sale of Property and Equipment. Loss on sale of property and equipment decreased $1.3 million to $0.3 million for the three months ended March 31, 2007 compared to $1.6 million for the three months ended March 31, 2006. This decrease is primarily due to the reduction in estimated salvage values on fleet equipment and the timing of the continued replenishment of aging or damaged fleet equipment in the normal course of business.

     Interest Expense and Other, Net. Interest expense and other, net decreased $0.4 million to $5.0 million for the quarter ended March 31, 2007 from $5.4 million for the quarter ended March 31, 2006. This decrease was primarily due to lower average debt levels.

     Income Tax Expense. Income tax expense increased $3.6 million to $3.8 million for the three months ended March 31, 2007 from $0.2 million for the three months ended March 31, 2006 primarily as a result of a increase in income before income taxes. The effective tax rate was 39.0% and 40.3% for the three months ended March 31, 2007 and March 31, 2006, respectively.

     Net Income. As a result of the factors discussed above, net income increased $5.7 million to $6.0 million for the three months ended March 31, 2007 from $0.3 million for the three months ended March 31, 2006.

   Nine Months Ended March 31, 2007 Compared to the Nine Months Ended March 31, 2006

     Revenues. Revenues decreased 20.8%, or $118.9 million, to $452.5 million for the nine months ended March 31, 2007 from $571.4 million for the same period in the prior year. The decrease was due to a $129.4 million decrease in storm revenues partially offset by a $10.5 million increase in powerline revenues. We generated substantial revenues from storm restoration services in the nine months ended March 31, 2006 related to major storms impacting the Gulf Coast and Florida. Total billable hours decreased 19.1% during the nine months ended March 31, 2007 compared to the same period in the prior fiscal year. Our crews worked significant amounts of overtime during storm restoration projects during the nine months ended March 31, 2006. In addition, our average revenue-producing headcount decreased 7.0% during the nine months ending March 31, 2007 from the same period in the prior year.

     Our powerline service revenues increased 2.7% to $406.9 million for the nine months ended March 31, 2007 from $396.4 million for the nine months ended March 31, 2006. Powerline billable man-hours were virtually unchanged and revenue per man-hour increased 2.4%. The growth in powerline revenues is primarily a result of continued maintenance projects with existing customers.

     Our storm restoration revenues decreased 74.0% to $45.6 million for the nine months ended March 31, 2007 from $175.0 million for the nine months ended March 31, 2006. We generated unusually significant revenues from storm restoration services during the first nine months of the prior year due primarily to Hurricanes Dennis, Katrina, Rita, and Wilma that impacted the Gulf Coast and Florida.

     Gross Profit. Gross profit decreased $33.6 million to $71.8 million for the nine months ended March 31, 2007 from $105.4 million for the nine months ended March 31, 2006. Gross profit as a percentage of revenues decreased to 15.9% from 18.4% during the nine months ended March 31, 2006 primarily due to the significant decrease in higher margin storm restoration revenues and losses in our Florida operation in early fiscal 2007.

     General and Administrative Expenses. General and administrative expenses increased $2.7 million to $34.7 million for the nine months ended March 31, 2007 from $32.0 million for the nine months ended March 31, 2006. This increase is primarily due to higher legal fees associated with non-compete litigation against former employees, expenses related to the termination of former officers, and an increase in implementation costs relating to Sarbanes-

Oxley compliance, partially offset by lower compensation related expenses. As a percentage of revenues, general and administrative expenses increased to 7.7% from 5.6%.

     Loss on Sale of Property and Equipment. Loss on sale of property and equipment decreased $1.1 million to $0.8 million for the nine months ended March 31, 2007 compared to $1.9 million for the nine months ended March 31, 2006. This decrease is primarily due to the reduction in estimated salvage values on fleet equipment and the timing of the continued replenishment of aging or damaged fleet equipment in the normal course of business.

     Interest Expense and Other, Net. Interest expense and other, net decreased $4.1 million to $15.1 million for the nine months ended March 31, 2007 from $19.2 million for the nine months ended March 31, 2006. This decrease was primarily due to a reduction in accelerated amortization of deferred loan costs of $2.4 million primarily due to the significant debt prepayments immediately following the Company’s IPO completed in August 2005 and a reduction in average debt levels.

     Income Tax Expense. Income tax expense decreased $12.6 million to $8.4 million for the nine months ended March 31, 2007 from $21.0 million for the nine months ended March 31, 2006 primarily as a result of the decrease in income before income taxes. The effective tax rate was 39.5% and 40.0% for the nine months ended March 31, 2007 and March 31, 2006, respectively.

     Net Income. As a result of the factors discussed above, net income decreased $18.6 million to $12.8 million for the nine months ended March 31, 2007 from $31.4 million for the nine months ended March 31, 2006.

Liquidity and Capital Resources

     Our primary cash needs have been for capital expenditures, working capital and payments under our senior credit facility. Our primary source of cash for the nine months ended March 31, 2007 was cash provided by operations. Our primary sources of cash for the nine months ended March 31, 2006 were cash provided by the issuance of stock in our initial public offering and, to a lesser extent, cash provided by operations.

     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. We may experience working capital needs in connection with our storm restoration services. The increased service activity 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 operating costs during these periods.

     As of March 31, 2007, our cash totaled $0.6 million and we had $66.4 million available under the $90.0 million revolving portion of our senior credit facility (after giving effect to outstanding standby letters of credit of approximately $23.6 million).

     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:

		Nine Months Ended
		March 31,
		2007				2006
		(in millions)
Net cash provided by operating activities		$	55.9			$	59.4
Net cash used in investing activities		$	(23.1	)		$	(32.8	)
Net cash used in financing activities		$	(35.5	)		$	(26.7	)

     Net cash provided by operating activities decreased $3.5 million to $55.9 million for the nine months ended March 31, 2007 from $59.4 million for the nine months ended March 31, 2006. The decrease in cash flows from operating activities was primarily due to the decrease in storm activity and was partially offset by favorable receivable collection trends.

     Net cash used in investing activities decreased $9.7 million to $23.1 million for the nine months ended March 31, 2007 from $32.8 million for the nine months ended March 31, 2006. Capital expenditures for both periods consisted primarily of purchases of vehicles and equipment used to service our customers.

     Net cash used in financing activities increased $8.8 million to $35.5 million for the nine months ended March 31, 2007 from $26.7 million for the nine months ended March 31, 2006. Net cash used in financing activities in the nine months ended March 31, 2007 primarily reflected payments under our senior credit facility. Net cash used in financing activities in the nine months ended March 31, 2006 primarily reflected a net pay down on our senior credit facility of $158.5 million that was partially offset by proceeds from stock issuances of $128.8 million.

   Senior Credit Facility

     As of March 31, 2007, we had $214.5 million of term loan and no revolver indebtedness outstanding under our senior credit facility. As of March 31, 2007, our borrowing availability under the $90.0 million revolving portion of our senior credit facility was $66.4 million (after giving effect to $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 repaid $22.0 million and $34.5 million of term loans outstanding under our senior credit facility during the three and nine months ended March 31, 2007, respectively, primarily with cash provided by operations.

     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.

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 March 31, 2007, 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 occasionally are required by our customers to post surety or performance bonds in connection with services that we provide to them. These bonds have face amounts ranging

from $25,000 to $14.0 million. As of March 31, 2007, we have approximately $35.2 million in surety bonds outstanding. In addition, we have 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

     Our services are performed outdoors, causing our results of operations to be subject to seasonal variations due to weather conditions. These seasonal variations affect both our powerline and storm restoration services. Extended periods of rain affect the deployment of our powerline crews, particularly with respect to underground work. During the winter months, demand for powerline work is generally lower due to inclement weather. In addition, demand for powerline 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. Demand for electrical repairs may be impacted during the fall months due to damage caused by weather conditions, such as hurricanes. In addition, our results of operations are subject to significant variations related to storm restoration services. As an illustration of the volatility of our storm restoration services, our annual storm restoration revenues have ranged from a low of $7.0 million to a high of $185.3 million during the seven fiscal years ended June 30, 2006. 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 nine months of fiscal 2007 and 2006, inflation did not have a significant effect on our results.

Recent Accounting Pronouncements

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We will continue to evaluate FIN 48 to determine the impact on our consolidated results of operations or financial position, but do not currently anticipate that the adoption of FIN 48 will have a material impact on our consolidated financial statements.

     In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a measurement framework and expands disclosure requirements. SFAS No. 157 does not require any new fair value measurements but does apply to assets and liabilities that are required to be recorded at fair value pursuant to other accounting standards. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We are evaluating the impact of SFAS No. 157 but do not expect the standard to have a material effect on our consolidated financial statements.

     In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years beginning after November 15, 2006, and early application is encouraged. The application of SAB 108 is not expected to have a material impact on our consolidated financial statements.

     In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R). Among other items, SFAS No. 158 requires recognition of the overfunded or underfunded status of an entity’s defined benefit postretirement plan as an asset or liability in the financial statements, requires the measurement of defined benefit postretirement plan assets and obligations as of the end of the employer’s fiscal year, and requires recognition of the funded status of defined benefit postretirement plans in other comprehensive income. SFAS No. 158 is effective for fiscal years ending after December 15, 2006, and early application is encouraged. SFAS No. 158 will not have a material impact on our consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure at fair value many financial instruments and certain other items at fair value that are not currently required to be measured. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We will adopt SFAS No. 159 on July 1, 2008, and we are currently evaluating the impact of adoption 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 the Company’s results of operation or financial position;
	•		our expectation that our general and administrative expenses will include additional implementation costs relating to compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and will range from $1.5 million to $2.0 million in fiscal 2007 compared to approximately $0.7 million in fiscal 2006; and
	•		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, 2006:

	•		We derive a significant portion of our revenues from a small group of customers. The loss of 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. This risk may be accentuated for customers we obtained in the Red Simpson acquisition.
	•		Our storm restoration services are highly volatile and unpredictable, which could result in substantial variations in, and uncertainties regarding, the levels of our financial results from period to period.
	•		Our business is subject to numerous hazards that could subject us to substantial monetary and other liabilities. If accidents occur, they could materially and adversely affect our business and results of operations.
	•		Our current insurance coverage may not be adequate, and we may not be able to obtain insurance at acceptable rates, or at all.
	•		Record high fuel costs could materially and adversely affect our operating results.

	•		Demand for some of our services is cyclical and vulnerable to industry and economic downturns, which could materially and adversely affect our business and results of operations.
	•		The Energy Policy Act may fail to result in increased spending in the electric power transmission infrastructure, which could slow our expected growth.
	•		Failure to establish and maintain effective internal control over financial reporting could have a material adverse effect on our business, operating results and stock price. We may identify significant deficiencies or material weaknesses in our internal controls during our testing of such in connection with our future compliance obligations under Section 404 of the Sarbanes-Oxley Act of 2002.
	•		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.
	•		Our industry is highly competitive and we may be unable to compete effectively, retain our customers or win new customers, which could result in reduced profitability and loss of market share.
	•		We may be unsuccessful at acquiring companies or at integrating companies that we may acquire, and as a result, we may not achieve the expected benefits and our profitability could materially suffer.
	•		We have a substantial amount of indebtedness incurred 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 certain financial and accounting applications and investigating a company-wide ERP system 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.
	•		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.
	•		Weather conditions can adversely affect our operations and revenues.
	•		We have incurred and will continue to incur increased costs as a result of being a public company.
	•		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.
	•		A significant stockholder controls the direction of our business. The concentrated ownership of our common stock will prevent other stockholders from influencing significant corporate decisions.

•

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.

     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

     We have a large fleet of vehicles and equipment that primarily use diesel fuel and, as a result, have market risk for changes in the prices of diesel fuel. 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. On May 5, 2006, we entered into a swap agreement that covers a portion of our diesel requirements through February 2008. On October 6, 2006, we entered into an additional swap agreement that covers an additional portion of our diesel requirements through February 2008. Combined, the two swap agreements cover, based on current volumes, approximately 30% of our diesel requirements through February 2008.

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 March 31, 2007.

     There has been no change in our internal control over financial reporting during the quarter ended March 31, 2007 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.

     We have initiated litigation proceedings against a collective group of former Red Simpson employees to enforce their non-compete agreements and will continue to enforce our rights under non-compete agreements.

Item 1A. Risk Factors

     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, 2006.

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.