Attached files
file | filename |
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EX-32.1 - EXHIBIT 32.1 - Pike Corp | c95810exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - Pike Corp | c95810exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - Pike Corp | c95810exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 DECEMBER 31, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION FILE NUMBER 001-32582
PIKE ELECTRIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 20-3112047 | |
(State of incorporation) | (I.R.S. Employer Identification No.) |
100 Pike Way, PO Box 868, Mount Airy, NC 27030
(Address of principal executive office)
(Address of principal executive office)
(336) 789-2171
(Registrants telephone number, including area code)
(Registrants 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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o 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 February 5, 2010, there were 33,509,387 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, 2009
INDEX
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
INDEX
1 | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
13 | ||||||||
24 | ||||||||
24 | ||||||||
25 | ||||||||
25 | ||||||||
26 | ||||||||
26 | ||||||||
27 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 |
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
PIKE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
December 31, | June 30, | |||||||
2009 | 2009 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 32,866 | $ | 43,820 | ||||
Accounts receivable from customers, net |
64,624 | 57,766 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts |
53,225 | 46,674 | ||||||
Inventories |
7,403 | 7,718 | ||||||
Prepaid expenses and other |
5,338 | 5,481 | ||||||
Assets held for sale |
5,361 | 825 | ||||||
Deferred income taxes |
11,989 | 13,649 | ||||||
Total current assets |
180,806 | 175,933 | ||||||
Property and equipment, net |
199,415 | 222,539 | ||||||
Goodwill |
106,239 | 106,865 | ||||||
Other intangibles, net |
38,710 | 40,139 | ||||||
Deferred loan costs, net |
3,999 | 2,028 | ||||||
Other assets |
1,898 | 1,465 | ||||||
Total assets |
$ | 531,067 | $ | 548,969 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 14,052 | $ | 13,231 | ||||
Accrued compensation |
20,148 | 23,002 | ||||||
Billings in excess of costs and estimated earnings on uncompleted contracts |
4,062 | 5,176 | ||||||
Accrued expenses and other |
6,604 | 8,301 | ||||||
Current portion of deferred compensation |
| 1,402 | ||||||
Current portion of insurance and claim accruals |
25,056 | 26,442 | ||||||
Total current liabilities |
69,922 | 77,554 | ||||||
Long-term debt |
140,500 | 140,500 | ||||||
Insurance and claim accruals, net of current portion |
7,506 | 7,335 | ||||||
Deferred compensation, net of current portion |
5,703 | 5,563 | ||||||
Deferred income taxes |
51,407 | 57,251 | ||||||
Other liabilities |
3,144 | 3,801 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred stock, par value $0.001 per share; 100,000 authorized shares; no
shares issued and outstanding |
| | ||||||
Common stock, par value $0.001 per share; 100,000 authorized shares; 33,509
and 33,462 shares issued and outstanding at December 31, 2009 and
June 30, 2009, respectively |
6,427 | 6,427 | ||||||
Additional paid-in capital |
155,254 | 153,035 | ||||||
Accumulated other comprehensive loss, net of taxes |
| (1,109 | ) | |||||
Retained earnings |
91,204 | 98,612 | ||||||
Total stockholders equity |
252,885 | 256,965 | ||||||
Total liabilities and stockholders equity |
$ | 531,067 | $ | 548,969 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Table of Contents
PIKE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues |
$ | 135,198 | $ | 144,586 | $ | 262,418 | $ | 330,093 | ||||||||
Cost of operations |
118,262 | 126,150 | 233,787 | 266,696 | ||||||||||||
Gross profit |
16,936 | 18,436 | 28,631 | 63,397 | ||||||||||||
General and administrative expenses |
13,131 | 11,169 | 26,254 | 24,470 | ||||||||||||
Loss on sale and impairment of property
and equipment |
301 | 612 | 962 | 854 | ||||||||||||
Restructuring expenses |
8,924 | | 8,924 | | ||||||||||||
(Loss) income from operations |
(5,420 | ) | 6,655 | (7,509 | ) | 38,073 | ||||||||||
Other expense (income): |
||||||||||||||||
Interest expense |
2,273 | 2,730 | 4,644 | 5,066 | ||||||||||||
Other, net |
(78 | ) | (301 | ) | (179 | ) | (508 | ) | ||||||||
Total other expense |
2,195 | 2,429 | 4,465 | 4,558 | ||||||||||||
(Loss) income before income taxes |
(7,615 | ) | 4,226 | (11,974 | ) | 33,515 | ||||||||||
Income tax (benefit) expense |
(2,912 | ) | 1,655 | (4,566 | ) | 12,675 | ||||||||||
Net (loss) income |
$ | (4,703 | ) | $ | 2,571 | $ | (7,408 | ) | $ | 20,840 | ||||||
(Loss) earnings per share: |
||||||||||||||||
Basic |
$ | (0.14 | ) | $ | 0.08 | $ | (0.22 | ) | $ | 0.63 | ||||||
Diluted |
$ | (0.14 | ) | $ | 0.08 | $ | (0.22 | ) | $ | 0.62 | ||||||
Shares used in computing (loss)
earnings per share: |
||||||||||||||||
Basic |
33,134 | 33,012 | 33,106 | 32,999 | ||||||||||||
Diluted |
33,134 | 33,699 | 33,106 | 33,747 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Table of Contents
PIKE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net (loss) income |
$ | (7,408 | ) | $ | 20,840 | |||
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities: |
||||||||
Depreciation and amortization |
18,298 | 18,820 | ||||||
Non-cash interest expense |
961 | 767 | ||||||
Deferred income taxes |
(4,896 | ) | (1,283 | ) | ||||
Loss on sale and impairment of property and equipment |
962 | 854 | ||||||
Restructuring expenses, non-cash |
7,899 | | ||||||
Equity compensation expense |
2,306 | 1,497 | ||||||
Excess tax expense (benefit) from stock-based compensation |
43 | (168 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable and costs and estimated earnings in
excess
of billings on uncompleted contracts |
(13,409 | ) | (11,388 | ) | ||||
Inventories, prepaid expenses and other |
610 | (1,989 | ) | |||||
Insurance and claim accruals |
(1,215 | ) | 469 | |||||
Accounts payable and other |
(3,722 | ) | (1,648 | ) | ||||
Deferred compensation |
(1,402 | ) | (3,710 | ) | ||||
Net cash (used in) provided by operating activities |
(973 | ) | 23,061 | |||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(9,337 | ) | (10,432 | ) | ||||
Business acquisitions, net |
| (22,635 | ) | |||||
Net proceeds from sale of property and equipment |
2,235 | 3,649 | ||||||
Net cash used in investing activities |
(7,102 | ) | (29,418 | ) | ||||
Cash flows from financing activities: |
||||||||
Borrowings under revolving credit facility |
| 84,705 | ||||||
Repayments under revolving credit facility |
| (84,705 | ) | |||||
Stock option and employee stock purchase activity, net |
(44 | ) | 423 | |||||
Excess tax (expense) benefit from stock-based compensation |
(43 | ) | 168 | |||||
Deferred loan costs |
(2,792 | ) | | |||||
Net cash (used in) provided by financing activities |
(2,879 | ) | 591 | |||||
Net decrease in cash and cash equivalents |
(10,954 | ) | (5,766 | ) | ||||
Cash and cash equivalents beginning of year |
43,820 | 11,357 | ||||||
Cash and cash equivalents end of period |
$ | 32,866 | $ | 5,591 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents
PIKE ELECTRIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended December 31, 2009 and 2008
(In thousands, except per share amounts)
1. Basis of Presentation
The accompanying condensed consolidated financial statements of Pike Electric Corporation and
its wholly-owned subsidiaries (Pike, Pike Electric, we, us, and our) are unaudited and
have been prepared in accordance with United States generally accepted accounting principles (U.S.
GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
U.S. GAAP for complete financial statements. In the opinion of management these financial
statements include all adjustments (consisting of normal recurring adjustments) that are considered
necessary for a fair presentation of financial position, results of operations and cash flows for
the interim periods presented. The operating results for interim periods are not necessarily
indicative of results to be expected for a full year or future interim periods. The balance sheet
at June 30, 2009 has been derived from our audited financial statements but does not include all of
the information and footnotes required by U.S. GAAP for complete financial statements. Certain
amounts reported previously have been reclassified to conform to the current year presentation.
These financial statements should be read in conjunction with our financial statements and related
notes included in our report on Form 10-K for the year ended June 30, 2009.
2. Business
Pike Electric is headquartered in Mount Airy, North Carolina and is one of the largest
providers of energy solutions for investor-owned, municipal and co-operative utilities throughout
the United States. Our comprehensive services include siting, permitting, engineering, design,
installation, maintenance and repair of power delivery systems, including renewable energy
projects. We operate in one reportable segment and we do not have operations or assets outside the
United States.
We monitor revenue by two categories of services: core and storm restoration. We use this
breakdown because core services represent ongoing service revenues, most of which are generated by
our customers recurring maintenance needs, and storm restoration revenues represent additional
revenue opportunities that depend on weather conditions.
The table below sets forth our revenues by category of service for the periods indicated:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||||||
Core services |
$ | 117,230 | 86.7 | % | $ | 133,695 | 92.5 | % | $ | 241,944 | 92.2 | % | $ | 241,532 | 73.2 | % | ||||||||||||||||
Storm restoration
services |
17,968 | 13.3 | % | 10,891 | 7.5 | % | 20,474 | 7.8 | % | 88,561 | 26.8 | % | ||||||||||||||||||||
Total |
$ | 135,198 | 100.0 | % | $ | 144,586 | 100.0 | % | $ | 262,418 | 100.0 | % | $ | 330,093 | 100.0 | % | ||||||||||||||||
3. Acquisition of Energy Delivery Services
On September 1, 2008, we acquired substantially all of the assets of Shaw Energy Delivery
Services, Inc. (EDS) for $22,632 in cash, including transaction costs, plus the assumption of
certain operating liabilities. This acquisition enabled Pike to expand its operations into
engineering, design, procurement and construction management services and expand its geographic
presence through engineering offices in the Southwest, Pacific Northwest, Northeast and
Mid-Atlantic markets. In addition, the acquisition added talented workforce and equipment for
transmission projects up to 345 kilovolt with substation construction capabilities and an
operational team focused on renewable energy projects.
4
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The financial results of the operations of EDS have been included in our consolidated
financial statements since the date of the acquisition. The following unaudited pro forma
statement of income data gives effect to the
acquisition of EDS as if it had occurred on July 1, 2008. The pro forma results are not
necessarily indicative of what actually would have occurred had the acquisition been in effect for
the periods presented.
Six months ended | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
Revenues |
$ | 262,418 | $ | 348,141 | ||||
Net (loss) income |
$ | (7,408 | ) | $ | 20,351 | |||
Basic (loss) earnings per common share |
$ | (0.22 | ) | $ | 0.62 | |||
Diluted (loss) earnings per common share |
$ | (0.22 | ) | $ | 0.60 | |||
4. Restructuring Expenses
During the three months ended December 31, 2009, we initiated plans to implement cost
restructuring measures in our distribution operations and support services. The cost restructuring
initiatives included reductions in headcount, pay levels and employee benefits in distribution
operations and support services, and the disposition of excess fleet assets. We have made these
changes in order to improve our efficiency and to better align our costs with the current operating
environment.
We recorded a pre-tax restructuring charge related to these measures of $8,924 for our fiscal
quarter ended December 31, 2009, comprised of $1,025 for severance and other termination benefits
and a $7,899 non-cash writedown of fleet and other fixed assets to be disposed. The following
table summarizes the restructuring activity during the three months ended December 31, 2009:
One-Time | ||||||||||||
Employee | ||||||||||||
Termination | Fixed Asset | |||||||||||
Description | Benefits | Writedowns | Total | |||||||||
Accrued restructuring balance as of
September 30, 2009 |
$ | | $ | | $ | | ||||||
Costs incurred and charged to expense |
1,025 | 7,899 | 8,924 | |||||||||
Cash payments |
(166 | ) | | (166 | ) | |||||||
Non-cash settlement |
| (7,899 | ) | (7,899 | ) | |||||||
Accrued restructuring balance as of
December 31, 2009 |
$ | 859 | $ | | $ | 859 | ||||||
While substantially all of the cost restructuring initiatives noted above were implemented by
the end of our fiscal quarter ended December 31, 2009, the disposition of assets will continue over
the next year. As of December 31, 2009 we had received $543 in proceeds from the sale of assets
written down in connection with the restructuring. The carrying value of the remaining assets to
be disposed of in connection with the restructuring was $4,852 at December 31, 2009 and was
included within assets held for sale in the condensed consolidated balance sheets.
We anticipate that substantially all termination benefits associated with the headcount
reductions will be paid by June 30, 2010. At December 31, 2009, the unpaid severance charges of
$859 were included within accrued compensation in the condensed consolidated balance sheets.
5
Table of Contents
5. Credit Facility
On July 29, 2009, we entered into an amended and restated secured bank credit agreement
(Amended Credit Agreement), which replaced our prior credit facility (Original Credit
Facility). The Amended Credit Agreement: (i) extended the maturity of the revolving facility from
July 1, 2010 to July 1, 2012; (ii) increased availability under the revolving facility from $90,000
to $115,000; (iii) increased the interest rate on the revolving facility by 2.0%;
(iv) increased the aggregate dollar limits on our ability to invest in joint ventures,
transfer assets to foreign subsidiaries, make earn-out payments, use unsecured debt, lease
equipment, repurchase debt, pay dividends and repurchase equity; and (v) increased the letter of
credit limit from $50,000 to $90,000, with the addition of an additional $25,000 cash
collateralized letter of credit facility at our option. The financial covenants in the credit
facility remained unchanged in the Amended Credit Agreement.
We paid and capitalized $2,851 of fees related to the Amended Credit Agreement that are being
amortized on a straight-line basis as part of interest expense over the remaining term of the
revolving facility. During the three months ended September 30, 2009, we immediately recognized
expense for $112 in deferred loan costs associated with the Original Credit Facility, which was
related to costs assigned to parties not involved in the amended revolving facility. We continue
to amortize, over the remaining term of the related debt using the effective-interest method,
$13,071 in deferred loan costs related to the Original Credit Facility. At December 31, 2009,
accumulated amortization related to deferred loan costs was $11,924.
In addition to the revolving facility, the Amended Credit Agreement includes a $300,000 term
loan due July 1, 2012 and a $150,000 term loan due December 10, 2012, of which we had $140,500
outstanding at December 31, 2009. The Amended Credit Agreement is secured by substantially all of
our assets and contains a number of affirmative and restrictive covenants, including limitations on
mergers, consolidations and dissolutions, sales of assets, investments and acquisitions,
indebtedness, liens and restricted payments, and a requirement to maintain certain financial
ratios. Pursuant to the terms of the Amended Credit Agreement, we may prepay any loans under the
agreement in whole or in part without penalty.
The term loans bear interest at a variable rate at our option of either (a) the Alternate Base
Rate, defined as the greater of the Prime Rate or the Federal Funds Effective Rate plus 0.50%, plus
a margin ranging from 0.50% to 0.75% or (b) LIBOR plus a margin ranging from 1.50% to 1.75%. The
margins are applied based on our leverage ratio, which is computed quarterly. At December 31,
2009, the LIBOR margin was 1.50%. At December 31, 2009, our interest rate for both term loans was
1.75%.
Advances made under the revolving facility bear interest at a variable rate at our election of
either (a) the Alternate Base Rate as defined, plus a margin ranging from 2.50% to 3.00% or (b)
LIBOR plus a margin ranging from 3.50% to 4.00%. The margins are applied based on our leverage
ratio, which is computed quarterly. At December 31, 2009, the LIBOR margin was 3.50%. The
borrowing availability under the revolving credit facility was $90,360 as of December 31, 2009
(after giving effect to outstanding standby letters of credit of $24,640). We are subject to a
commitment fee of 0.75% and letter of credit fees between 3.75% and 4.25% based on our leverage
ratio.
6. Stock-Based Compensation
Compensation expense related to stock-based compensation plans was $1,222 and $860 for the
three months ended December 31, 2009 and December 31, 2008, respectively, and $2,306 and $1,497 for
the six months ended December 31, 2009 and December 31, 2008, respectively. The income tax benefit
recognized for stock-based compensation arrangements was $423 and $336 for the three months ended
December 31, 2009 and December 31, 2008, respectively, and $901 and $585 for the six months ended
December 31, 2009 and December 31, 2008, respectively.
7. Property and Equipment
Amounts reported as loss on sale and impairment of property and equipment relate primarily to
aging, damaged or excess fleet equipment. Assets held for sale are recorded at the lower of
carrying value or fair value, less selling costs. Substantially all of the assets
held for sale at December 31, 2009 are expected to be sold over
the next twelve months.
6
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8. (Loss) Earnings Per Share
The following table sets forth the calculations of basic and diluted (loss) earnings per
share:
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Basic: |
||||||||||||||||
Net (loss) income |
$ | (4,703 | ) | $ | 2,571 | $ | (7,408 | ) | $ | 20,840 | ||||||
Weighted average common shares |
33,134 | 33,012 | 33,106 | 32,999 | ||||||||||||
Basic (loss) earnings per share |
$ | (0.14 | ) | $ | 0.08 | $ | (0.22 | ) | $ | 0.63 | ||||||
Diluted: |
||||||||||||||||
Net (loss) income |
$ | (4,703 | ) | $ | 2,571 | $ | (7,408 | ) | $ | 20,840 | ||||||
Weighted average common shares |
33,134 | 33,012 | 33,106 | 32,999 | ||||||||||||
Potential common stock arising from stock
options and restricted stock |
| 687 | | 748 | ||||||||||||
Weighted average common shares diluted |
33,134 | 33,699 | 33,106 | 33,747 | ||||||||||||
Diluted (loss) earnings per share |
$ | (0.14 | ) | $ | 0.08 | $ | (0.22 | ) | $ | 0.62 | ||||||
All outstanding options and restricted stock awards were excluded from the calculation of
diluted earnings per share for the three and six months ended December 31, 2009 because their
effect would have been anti-dilutive. Outstanding options and restricted stock awards equivalent
to 1,656 and 1,406 shares of common stock were excluded from the calculation of diluted earnings
per share for the three and six months ended December 31, 2008 because their effect would have been
anti-dilutive.
9. Fair Value
Fair value rules currently apply to all financial assets and liabilities and for certain
nonfinancial assets and liabilities that are required to be recognized or disclosed at fair value.
For this purpose, fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Valuation techniques used to measure fair value must maximize the use of
observable inputs and minimize the use of unobservable inputs.
U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include:
| Level 1 Valuations based on quoted prices in active markets for identical instruments that we are able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. | ||
| Level 2 Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. | ||
| Level 3 Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
As of December 31, 2009, we held certain items that are required to be measured at fair value
on a recurring basis. These items consisted of diesel fuel derivative instruments, which are used
to hedge a portion of our diesel fuel costs. These derivative instruments currently consist of
swaps only. See Note 11 for further information on our derivative instruments and hedging
activities.
7
Table of Contents
Our diesel fuel derivative instruments consist of over-the-counter contracts, which are not
traded on a public exchange. The fair values for our diesel fuel swaps are based on current
settlement values and represent the estimated amount we would have received or paid upon
termination of these agreements. The fair values are derived using pricing models that rely on
market observable inputs such as yield curves and commodity forward prices, and therefore are
classified as Level 2. We also consider counterparty credit risk in our determination of all
estimated fair values. We have consistently applied these valuation techniques in all periods
presented.
At December 31, 2009, both the carrying amounts and fair values for our diesel fuel swaps were
as follows:
December 31, | ||||||||||||||||
Description | 2009 | Level 1 | Level 2 | Level 3 | ||||||||||||
Diesel fuel swap agreements |
$ | 381 | $ | | $ | 381 | $ | | ||||||||
Total |
$ | 381 | $ | | $ | 381 | $ | |||||||||
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable
approximate fair values due to the short-term nature of these instruments. The carrying value of
our debt approximates fair value based on the market-determined, variable interest rates.
Assets and liabilities that are measured at fair value on a nonrecurring basis include
reporting units valued in connection with annual and interim goodwill impairment testing, assets
held for sale, and termination benefits to be paid in connection with our restructuring plans (Note
4). For goodwill impairment testing we rely primarily on a discounted cash flow approach, using
Level 3 inputs. This approach requires significant estimates and judgmental factors, including
revenue growth rates, terminal values, and weighted average cost of capital, which is used to
discount future cash flows. Assets held for sale are valued using Level 2 inputs, primarily
observed prices for similar assets in the used equipment market. Liabilities measured and recorded
for termination benefits are based on the estimated ultimate payment amounts, which approximate
fair value as determined using Level 3 inputs.
10. Income Taxes
Effective income tax rates of 38.2% and 39.2% for the three months ended December 31, 2009 and
December 31, 2008, respectively, and 38.1% and 37.8% for the six months ended December 31, 2009 and
December 31, 2008, respectively, varied from the statutory federal income tax rate of 35% primarily
as a result of the effect of state income taxes.
11. Derivative Instruments and Hedging Activities
All derivative instruments are recorded on the consolidated balance sheets at their respective
fair values under U.S. GAAP. Changes in fair value are recognized either in earnings or other
comprehensive income (loss) (OCI), depending on whether the transaction qualifies for hedge
accounting and, if so, the nature of the underlying exposure being hedged and how effective the
derivatives are at offsetting price movements in the underlying exposure. The effective portions
recorded in OCI are recognized in the statement of operations when the hedged item affects
earnings.
We have used certain derivative instruments to enhance our ability to manage risk relating to
diesel fuel and interest rate exposure. Derivative instruments are not entered into for trading or
speculative purposes. We document all relationships between derivative instruments and related
items, as well as our risk-management objectives and strategies for undertaking various derivative
transactions.
Interest Rate Risk
We are exposed to market risk related to changes in interest rates on borrowings under our
senior credit facility, which bears interest based on LIBOR, plus an applicable margin dependent
upon our leverage ratio. We have used derivative financial instruments to manage exposure to
fluctuations in interest rates on our senior credit facility.
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Effective December 2007, we entered into two interest rate swap agreements with a total
notional amount of $100,000 to help manage a portion of our interest risk related to our
floating-rate debt. Under both swap agreements, we paid a fixed rate of 3.99% and received a rate
equivalent to the thirty-day LIBOR, adjusted monthly. The interest rate swaps qualified for hedge
accounting and were designated as cash flow hedges. As determined in accordance with U.S. GAAP,
there was no hedge ineffectiveness for the interest rate swaps for the three and six months ended
December 31, 2009 and 2008, respectively. The interest rate swaps expired in December 2009.
Diesel Fuel Risk
We have a large fleet of vehicles and equipment that primarily uses diesel fuel. As a result,
we have market risk for changes in diesel fuel prices. If diesel prices rise, our gross profit and
operating earnings would be negatively affected due to additional costs that may not be fully
recovered through increases in prices to customers.
We periodically enter into diesel fuel swaps to decrease our price volatility. As of December
31, 2009, we had hedged 32% of our next 12 months of projected diesel fuel purchases at prices
ranging from $2.40 to $3.07 per gallon. We are currently not utilizing hedge accounting for any
active diesel fuel derivatives.
Balance Sheet and Statement of Operations Information
The fair value of derivatives at December 31, 2009 and June 30, 2009 is summarized in the
following table:
Asset Derivatives | Liability Derivatives | |||||||||||||||||||
Fair Value | Fair Value | Fair Value | Fair Value | |||||||||||||||||
at Dec. 31, | at June 30, | at Dec. 31, | at June 30, | |||||||||||||||||
Balance Sheet Location | 2009 | 2009 | 2009 | 2009 | ||||||||||||||||
Derivatives designated as hedging
instruments under U.S. GAAP: |
||||||||||||||||||||
Interest rate swaps |
Accrued expenses and other | $ | | $ | | $ | | $ | 1,821 | |||||||||||
Total derivatives designated as
hedging instruments under SFAS 133 |
$ | | $ | | $ | | $ | 1,821 | ||||||||||||
Derivatives not designated as hedging
instruments under U.S. GAAP: |
||||||||||||||||||||
Diesel fuel swaps (gross) (1) |
Prepaid expenses and other | $ | 384 | $ | | $ | 3 | $ | | |||||||||||
Diesel fuel swaps (gross) (1) |
Accrued expenses and other | | 259 | | 572 | |||||||||||||||
Total derivatives not designated as
hedging instruments under SFAS 133 |
$ | 384 | $ | 259 | $ | 3 | $ | 572 | ||||||||||||
Total derivatives |
$ | 384 | $ | 259 | $ | 3 | $ | 2,393 | ||||||||||||
(1) | The fair values of asset and liability derivatives with the same counterparty are netted on the balance sheet. |
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The effects of derivative instruments, net of tax, on the condensed consolidated
statements of operations for the three and six months ended December 31, 2009 and 2008 are
summarized in the following tables:
Derivatives designated as cash flow hedging instruments under U.S. GAAP:
Amount of Loss | ||||||||||||||||||
Amount of Gain | Location of Loss | Reclassified from | ||||||||||||||||
Recognized in OCI | Reclassified from | Accumulated OCI into | ||||||||||||||||
For the Three Months Ended | (Effective Portion) | Accumulated OCI into | Earnings | |||||||||||||||
December 31, | 2009 | 2008 | Earnings | 2009 | 2008 | |||||||||||||
Interest rate swaps |
$ | | $ | 1,279 | Interest expense | $ | (494 | ) | $ | (216 | ) | |||||||
Totals |
$ | | $ | 1,279 | $ | (494 | ) | $ | (216 | ) | ||||||||
For the Six Months Ended
December 31, |
2009 | 2008 | 2009 | 2008 | ||||||||||||||
Interest rate swaps |
$ | | $ | 1,140 | Interest expense | $ | (1,068 | ) | $ | (446 | ) | |||||||
Totals |
$ | | $ | 1,140 | $ | (1,068 | ) | $ | (446 | ) | ||||||||
Derivatives not designated as cash flow hedging instruments under U.S. GAAP:
Location of Gain | Amount of Gain (Loss) | |||||||||
For the Three Months Ended | (Loss) Recognized | Recognized in Earnings | ||||||||
December 31, | in Earnings | 2009 | 2008 | |||||||
Diesel fuel swaps |
Cost of operations | $ | 199 | $ | (812 | ) | ||||
Total |
$ | 199 | $ | (812 | ) | |||||
For the Six Months Ended
December 31, |
2009 | 2008 | ||||||||
Diesel fuel swaps |
Cost of operations | $ | 423 | $ | (971 | ) | ||||
Total |
$ | 423 | $ | (971 | ) | |||||
For the three and six months ended December 31, 2009 and 2008, there were no reclassifications
to earnings due to hedged firm commitments no longer deemed probable or due to hedged forecasted
transactions that had not occurred by the end of the originally specified time period.
12. Comprehensive (Loss) Income
The components of comprehensive (loss) income were as follows for the periods presented:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net (loss) income |
$ | (4,703 | ) | $ | 2,571 | $ | (7,408 | ) | $ | 20,840 | ||||||
Change in fair value of
interest rate cash flow
hedges, net of income taxes
of $342 and $89, respectively |
576 | (1,279 | ) | 1,109 | (1,140 | ) | ||||||||||
Comprehensive (loss) income |
$ | (4,127 | ) | $ | 1,292 | $ | (6,299 | ) | $ | 19,700 | ||||||
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13. Recent Accounting Pronouncements
FASB Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board (FASB) issued new guidance concerning
the organization of authoritative guidance under U.S. GAAP. This new guidance created the FASB
Accounting Standards Codification (Codification). The Codification has become the source of
authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules
and interpretive releases of the Securities and Exchange Commission (SEC) under authority of
federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The
Codification became effective for us in our first quarter of fiscal 2010. As the Codification is
not intended to change or alter existing U.S. GAAP, it did not have any impact on our consolidated
financial statements. On its effective date, the Codification superseded all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not
included in the Codification will become non-authoritative.
Accounting for Business Combinations
We adopted new U.S. GAAP guidance related to business combinations beginning in our first
quarter of fiscal 2010. The adoption of the new guidance did not have an immediate significant
impact on our consolidated financial statements. However, it will impact the accounting for any
future business combinations and it will impact the resolution of certain tax contingencies and
adjustments to valuation allowances related to business combinations, which previously were
adjusted to goodwill, but will now be adjusted to income tax expense, regardless of the date of the
original business combination. This guidance defines the acquirer as the entity that obtains
control of one or more businesses in the business combination, establishes the acquisition date as
the date that the acquirer achieves control and requires the acquirer to recognize the assets
acquired, liabilities assumed and any noncontrolling interest at their fair values as of the
acquisition date. In addition, this guidance requires expensing of acquisition-related and
restructure-related costs, remeasurement of earn-out provisions at fair value, measurement of
equity securities issued for purchase at the date of close of the transaction and non-expensing of
in-process research and development related intangibles.
Determination of the Useful Life of Intangible Assets
We adopted new U.S. GAAP guidance concerning the determination of the useful life of
intangible assets beginning in our first quarter of fiscal 2010. The adoption of the new guidance
did not have a significant impact on our consolidated financial statements. The new guidance
amends the factors that are to be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset. The new guidance is intended to
improve the consistency between the useful life of a recognized intangible asset and the period of
expected cash flows originally used to measure the fair value of the intangible asset under U.S.
GAAP.
Measuring Liabilities at Fair Value
In August 2009, the FASB released new guidance concerning measuring liabilities at fair value.
The new guidance provides clarification that in circumstances in which a quoted price in an active
market for the identical liability is not available, a reporting entity is required to measure fair
value using certain valuation techniques. Additionally, it clarifies that a reporting entity is
not required to adjust the fair value of a liability for the existence of a restriction that
prevents the transfer of the liability. This new guidance was effective for our second quarter of
fiscal 2010 and did not have a significant impact on our consolidated financial statements.
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14. Commitments and Contingencies
Legal Proceedings
We are from time to time a party to various lawsuits, claims and other legal proceedings that
arise in the ordinary course of business. These actions typically seek, among other things: (a)
compensation for alleged personal injury, workers compensation, employment discrimination, breach
of contract or property damage, (b) punitive damages, civil penalties or other damages, or (c)
injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we
accrue reserves when it is probable that a liability has been incurred and the amount of loss can
be reasonably estimated. We do not believe that any of these proceedings, individually or in the
aggregate, would be expected to have a material adverse effect on our results of operations,
financial position or cash flows.
Performance Bonds and Parent Guarantees
In the ordinary course of business, we are required by certain customers to post surety or
performance bonds in connection with services that we provide to them. These bonds provide a
guarantee to the customer that we will perform under the terms of a contract and that we will pay
subcontractors and vendors. If we fail to perform under a contract or to pay subcontractors and
vendors, the customer may demand that the surety make payments or provide services under the bond.
We must reimburse the surety for any expenses or outlays it incurs. As of December 31, 2009, we
had $100,269 in surety bonds outstanding, and we also had provided collateral in the form of
letters of credit to sureties in the amount of $2,000. To date, we have not been required to make
any reimbursements to our sureties for bond-related costs. We believe that it is unlikely that we
will have to fund significant claims under our surety arrangements in the foreseeable future. Pike
Electric Corporation, from time to time, guarantees the obligations of its wholly owned
subsidiaries, including obligations under certain contracts with customers.
Indemnities
We generally indemnify our customers for the services we provide under our contracts, as well
as other specified liabilities, which may subject us to indemnity claims and liabilities and
related litigation. As of December 31, 2009, we were not aware of circumstances that would lead to
future indemnity claims against us for material amounts in connection with these indemnity
obligations.
15. Subsequent Events
We
have evaluated subsequent events for recognition or disclosure through February 8, 2010,
the date these condensed consolidated financial statements were issued, and have determined that no
material subsequent events occurred after the balance sheet date but prior to the issuance date.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed consolidated financial
statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our
Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (SEC) on
September 1, 2009 and is available on the SECs website at www.sec.gov. The discussion below
contains forward-looking statements that are based upon our current expectations and are subject to
uncertainty and changes in circumstances. Actual results may differ materially from these
expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including
those identified in Uncertainty of Forward-Looking Statements and Information below in this Item
2 and Risk Factors in Item 1A of Part II of this Quarterly Report.
Introduction
Pike Electric is headquartered in Mount Airy, North Carolina and is one of the largest
providers of energy solutions for investor-owned, municipal and co-operative utilities in the
United States. Our comprehensive services include siting, permitting, engineering, design,
installation, maintenance and repair of power delivery systems, including renewable energy
projects. We operate in one reportable segment and we do not have operations or assets outside the
United States.
Historically, we were a specialty contractor for utilities focused on distribution powerline
maintenance and construction. We have repositioned Pike to be an energy solutions company focused
on providing a diverse service offering to our customers for their outsourcing needs. We continue
to develop our diverse service offerings and remain focused on distribution services which still
provide the majority of our revenues.
Our service offering now includes the following:
Service | Description | |
Planning & Siting | Our planning and siting process
leverages technology and the
collection of environmental,
cultural, land use and scientific
data to facilitate successful
right-of-way negotiations and
permitting for powerlines,
substations, pipelines and renewable
energy installations. |
|
Engineering & Design | We provide design, engineering,
procurement and construction
(EPC), owner engineer, project
management, multi-entity
coordination, grid integration,
balance-of-plant and Thermal Rate
solutions for individual or turn-key
powerline, substation and renewable
energy projects. |
|
Construction | We provide overhead and underground
powerline construction, upgrade and
extension services (predominately
single-pole and H-frame wood,
concrete or steel poles) for
distribution networks and
transmission lines with voltages up
to 345kV (kV), energized
maintenance work for voltages up to
500kV and substation construction
and service. Overhead services consist of construction, repair and maintenance of wire and components in energized overhead electric distribution and transmission systems. Underground services range from simple residential installations, directional boring, duct bank and manhole installation, to the construction of complete underground distribution facilities. Substation services include construction or new substations, existing substation upgrades, relay testing, commissioning, emergency outage response and Smart Grid component installation. |
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Service | Description | |
Renewables | We provide a total energy solution
platform, including preliminary
studies, planning, siting and
permitting, engineering and design,
construction, procurement and grid
interconnection. |
|
Storm Restoration Services | Storm restoration involves the
repair or reconstruction of any part
of a distribution or sub-500 kV
transmission network, including
substations, power lines, utility
poles or other components, damaged
during snow, ice or wind storms,
flash floods, hurricanes, tornadoes
or other natural disasters. We are a
recognized leader in storm
restoration, due to our ability to
rapidly mobilize thousands of
existing employees and equipment
within 24 hours, while maintaining a
functional force for unaffected
customers. |
Although storm restoration services can generate significant revenues, their unpredictability
is demonstrated by comparing our revenues from those services in the last five full fiscal years
which have ranged from 8.9% to 25.5% of total revenues. During periods with significant storm
restoration work, we generally see man-hours diverted from core work, which decreases core services
revenues. The table below sets forth our revenues by category of service for the periods indicated
(dollars in millions):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||||||
Core services |
$ | 117.2 | 86.7 | % | $ | 133.7 | 92.5 | % | $ | 241.9 | 92.2 | % | $ | 241.5 | 73.2 | % | ||||||||||||||||
Storm restoration services |
18.0 | 13.3 | % | 10.9 | 7.5 | % | 20.5 | 7.8 | % | 88.6 | 26.8 | % | ||||||||||||||||||||
Total |
$ | 135.2 | 100.0 | % | $ | 144.6 | 100.0 | % | $ | 262.4 | 100.0 | % | $ | 330.1 | 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 Managements Discussion and Analysis of Financial Condition and
Results of Operations Critical Accounting Policies included in our Annual Report on Form 10-K
for the year ended June 30, 2009 for further information regarding our critical accounting policies
and estimates.
Operational and Other Factors
We are subject to various operational and other factors that can affect our business and
results of operations. To mitigate the effects of these factors, we focus on elements of our
business we can control, including excellent customer service, safety, employee development and
cost control. The statements in this section are based on our current expectations. See
Uncertainty of Forward-Looking Statements and Information. Certain of these operational and
other factors that affect our business include the following:
| General economic conditions and unsuccessful public utility rate cases may impact utility maintenance expenditures going forward, and certain of our customers powerline maintenance projects may be temporarily deferred. We have experienced a reduction of utility distribution maintenance spending over the past two years and this reduction has materially impacted our distribution revenues and profit margins. |
| When we add new customers and arrangements, we generally experience an increase in costs, including the costs of training and outfitting our crews and spending on equipment and specialized tools and supplies. Once the crews and equipment are fully utilized, our margins generally increase over the life of the arrangement. |
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| Industry-wide costs for workers compensation, medical and general liability insurance 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 vast majority of our equipment and vehicles. Due to decreased demand for our distribution services in recent periods, the percentage of underutilized equipment has increased. We had intended on retaining most of the underutilized equipment for future needs. However, given current market conditions we have decided instead to dispose of a large portion of this equipment, resulting in an impairment charge being recorded in the second quarter of fiscal 2010. See Restructuring Expenses discussion below. We intend to retain a portion of the underutilized equipment to provide for flexibility in fleet management and for future growth. However, if demand for our distribution services continues to decline, we may face additional fixed asset impairment charges. |
| We have a large fleet of vehicles and equipment that primarily use diesel fuel. Fuel costs have been extremely volatile in recent years. We have implemented bulk purchasing in certain areas to lower our fuel costs. We utilize diesel fuel swaps and fixed-price arrangements and plan to enter into additional diesel fuel derivative instruments and fixed-price arrangements in the future. |
Results of Operations
The following table sets forth selected statements of operations data as approximate
percentages of revenues for the periods indicated:
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues: |
||||||||||||||||
Core services |
86.7 | % | 92.5 | % | 92.2 | % | 73.2 | % | ||||||||
Storm restoration services |
13.3 | % | 7.5 | % | 7.8 | % | 26.8 | % | ||||||||
Total |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of operations |
87.5 | % | 87.2 | % | 89.1 | % | 80.8 | % | ||||||||
Gross profit |
12.5 | % | 12.8 | % | 10.9 | % | 19.2 | % | ||||||||
General and administrative expenses |
9.7 | % | 7.7 | % | 10.0 | % | 7.4 | % | ||||||||
Loss on sale of property and equipment |
0.2 | % | 0.5 | % | 0.4 | % | 0.3 | % | ||||||||
Restructuring expense |
6.6 | % | 0.0 | % | 3.4 | % | 0.0 | % | ||||||||
(Loss) income from operations |
-4.0 | % | 4.6 | % | -2.9 | % | 11.5 | % | ||||||||
Interest expense and other, net |
1.6 | % | 1.7 | % | 1.7 | % | 1.4 | % | ||||||||
(Loss) income before income taxes |
-5.6 | % | 2.9 | % | -4.6 | % | 10.1 | % | ||||||||
Income tax (benefit) expense |
-2.1 | % | 1.1 | % | -1.8 | % | 3.8 | % | ||||||||
Net (loss) income |
-3.5 | % | 1.8 | % | -2.8 | % | 6.3 | % | ||||||||
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Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008
Revenues. Revenues decreased 6.5%, or $9.4 million, to $135.2 million for the three months
ended December 31, 2009 from $144.6 million for the three months ended December 31, 2008. The
decrease was attributable to a $16.5 million decrease in core revenues, partially offset by a
$7.1 million increase in storm restoration revenues.
Our storm restoration revenues increased 65.0% to $18.0 million for the three months ended
December 31, 2009 from $10.9 million for the same period in the prior year. Storm restoration work
during both periods primarily included various winter storm events. Our storm restoration revenues
are highly volatile and unpredictable.
Our core revenues decreased 12.3% to $117.2 million for the three months ended December 31,
2009 from $133.7 million for the same period in the prior year. We continue to see year-over-year
growth in engineering, substation and transmission due to our efforts to expose more of our
traditional distribution construction customers to our new service lines. In addition, we are more
active in fixed price bid projects and turn-key EPC projects. EPC projects include engineering,
material procurement and construction services. Material procurement services are included in our
revenues when materials are procured and the material costs are included in our costs of
operations. Our distribution business continues to face challenges due to lower utility spending
in our service territory. An increase in storm restoration revenues also contributed to a decline
in overhead distribution specifically, as our storm restoration efforts require us to redeploy
crews from our core overhead work. The following table contains information on revenue and
percentage changes by category for the periods indicated:
Three Months Ended | ||||||||||||
December 31, | ||||||||||||
Category of Core Revenue | 2009 | 2008 | % Change | |||||||||
Overhead distribution and other |
$ | 63.1 | $ | 78.2 | -19.3 | % | ||||||
Underground distribution |
15.3 | 26.0 | -41.1 | % | ||||||||
Transmission |
17.3 | 14.6 | 18.5 | % | ||||||||
Engineering and substation |
21.5 | 14.9 | 44.2 | % | ||||||||
Total |
$ | 117.2 | $ | 133.7 | -12.3 | % | ||||||
The majority of our distribution services are provided to investor-owned, municipal and
co-operative utilities under master service agreements (MSAs). Services provided under these
MSAs include both overhead and underground powerline distribution services. Our MSAs do not
guarantee a minimum volume of work. The MSAs provide a framework for core and storm restoration
pricing and provide an outline of the service territory in which we will work or the percentage of
overall outsourced distribution work we will provide for the customer. Our MSAs also provide a
platform for multi-year relationships with our customers. We can easily ramp up staffing for a
customer without exhaustive contract negotiations and the MSAs also allow our customers to reduce
staffing needs.
Our underground distribution services continue to be impacted by a weak market for new
residential housing. We began experiencing a decline in underground distribution service revenue
in our first fiscal quarter of 2008. Many residential developments utilize underground
distribution powerlines for aesthetic reasons and the underground powerlines can be put in place
with required cable, phone or gas lines. Continued challenging economic conditions and tight
credit markets have also caused our customers to reduce overhead distribution maintenance spending.
Our customers face difficulty in obtaining capital for capital projects and are faced with
declining power usage from residential and commercial customers. Reducing maintenance expenditures
is an action taken by our customers to improve short-term cash flow and operating results. We
believe that a significant amount of pent-up demand is building and power system reliability is
being challenged. We remain well positioned to benefit from a reacceleration in maintenance
spending, which will remain dependent to a large extent on the health of the economy. 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.
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Gross Profit. Gross profit decreased 8.1% to $16.9 million for the three months ended December
31, 2009 from $18.4 million for the three months ended December 31, 2008. Gross profit as a
percentage of revenues decreased to 12.5% for the three months ended December 31, 2009 from 12.8%
for the three months ended December 31, 2008. Our gross profit was negatively impacted by the
following:
| Distribution margins. Due to the decline in overall distribution demand, we experienced compressed margins during the quarter due to the following: (i) increased level of idle equipment, (ii) decreased distribution productivity due to the types of projects being outsourced by our customers, (iii) higher average wage rates as we have retained our most experienced workers and (iv) increased overhead as a percentage of revenue. Idle equipment and overhead costs are in the process of being realigned with our current revenue levels (see restructuring expense discussion below). |
| Lower gross profit margin material procurement services. Material procurement services offered primarily in the engineering, substation and transmission businesses generate lower gross profit margins compared to other core services. We recognized approximately $8.7 million in material procurement revenues for the quarter ended December 31, 2009 compared to approximately $2.8 million for the same period in the prior year. |
| Environmental matter. We recognized $1.8 million of costs for the three months ended December 31, 2009 related to the cleanup of certain petroleum-related products on an owned property in Marietta, Georgia. Although the contamination was only recently discovered, we believe the contamination occurred before we purchased the property. We have committed the necessary resources to remediate this contamination in a timely and appropriate manner, and based on the physical investigation and technical data received to date do not expect to recognize further expense related to this matter. |
Partially offsetting those negative impacts were the following:
| A higher 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 fuel expense as a percentage of revenue. Fuel expense decreased to 3.9% of total revenues for the three months ended December 31, 2009 compared to 5.9% for the same period in the prior year. Fuel pricing was favorable for the three months ended December 31, 2009 compared to the same period in the prior year. Also, for the three months ended December 31, 2008, we incurred a $1.3 million non-cash, mark-to-market charge related to our diesel fuel swaps as well as $0.4 million in swap cash settlement charges. In comparison, we recorded a $0.2 million non-cash, mark-to-market credit related to our diesel fuel swaps and had virtually neutral cash settlements for the three months ended December 31, 2009. |
General and Administrative Expenses. General and administrative expenses increased 17.6%
to $13.1 million for the three months ended December 31, 2009 from $11.2 million for the three
months ended December 31, 2008. As a percentage of revenues, general and administrative expenses
increased to 9.7% for the three months ended December 31, 2009 from 7.7% for the same period in the
prior year. The increase in general and administrative expenses was primarily attributable to a
$1.4 million reversal of incentive compensation expense recorded in the second quarter of fiscal
2009 attributable to the forfeiture of incentive compensation by senior management.
Loss on Sale and Impairment of Property and Equipment. Loss on sale and impairment of property
and equipment was $0.3 million for the three months ended December 31, 2009 compared to $0.6
million for the three months ended December 31, 2008. The level of losses is affected by several
factors, including the timing of the continued replenishment of aging, damaged or excess fleet
equipment, and conditions in the market for used equipment. We continually evaluate the
depreciable lives and salvage values of our equipment.
Restructuring Expenses. During the three months ended December 31, 2009, we initiated plans
to implement cost restructuring measures in our distribution operations and support services. The
cost restructuring initiatives included reductions in headcount, pay levels and employee benefits
in distribution operations and support services, and the disposition of excess fleet assets. We
have made these changes in order to improve our efficiency and to better align our costs with the
current operating environment.
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We recorded a pre-tax restructuring charge related to these measures of $8.9 million
($5.4 million or $0.16 per diluted share on an after-tax basis) for our fiscal quarter ended
December 31, 2009, comprised of $1.0 million for severance and other termination benefits and a
$7.9 million non-cash writedown of fleet and other fixed assets to be disposed.
While substantially all of the cost restructuring initiatives noted above were implemented by
the end of our fiscal quarter ended December 31, 2009, the disposition of assets will continue over
the next twelve months. As of December 31, 2009 we had received $0.5 million in proceeds from the sale of
assets written down in connection with the restructuring. The carrying value of the remaining
assets to be disposed of in connection with the restructuring was $4.9 million at December 31, 2009
and was included within assets held for sale in the condensed consolidated balance sheets.
We anticipate that substantially all termination benefits associated with the headcount
reductions will be paid by June 30, 2010. At December 31, 2009, the unpaid severance charges of
$0.9 million were included within accrued compensation in the condensed consolidated balance
sheets. We currently expect these restructuring measures to result in annual savings of $16.4
million.
Interest Expense and Other, Net. Interest expense and other, net decreased 9.7% to
$2.2 million for the quarter ended December 31, 2009 from $2.4 million for the quarter ended
December 31, 2008. This decrease was primarily due to lower interest rates, partially offset by
increased settlement costs related to interest rates swaps. These interest rate swaps expired in
December 2009.
Income Tax Benefit or Expense. The income tax benefit was $2.9 million for the three months
ended December 31, 2009 compared to income tax expense of $1.7 million for the three months ended
December 31, 2008. The effective tax rate was 38.2% and 39.2% for the three months ended December
31, 2009 and December 31, 2008, respectively.
Six Months Ended December 31, 2009 Compared to Six Months Ended December 31, 2008
Revenues. Revenues decreased 20.5%, or $67.7 million, to $262.4 million for the six months
ended December 31, 2009 from $330.1 million for the six months ended December 31, 2008. The
decrease was attributable to a $68.1 million decrease in storm restoration revenues, partially
offset by a $0.4 million increase in core revenues.
Our storm restoration revenues are highly volatile and unpredictable. For the six months
ended December 31, 2009, storm revenues totaled $20.5 million. In contrast, primarily due to
damages caused by Hurricanes Gustav and Ike, storm revenues totaled $88.6 million for the six
months ended December 31, 2008.
Our core revenues increased marginally to $241.9 million for the six months ended December 31,
2009 from $241.5 million for the same period in the prior year. The following table contains
information on revenue and percentage changes by category for the periods indicated (engineering
and substation construction revenues are related to the September 1, 2008 acquisition of Shaw
Energy Delivery Services, Inc.):
Six Months Ended | ||||||||||||
December 31, | ||||||||||||
Category of Core Revenue | 2009 | 2008 | % Change | |||||||||
Overhead distribution and other |
$ | 133.9 | $ | 148.5 | -9.9 | % | ||||||
Underground distribution |
32.3 | 53.3 | -39.4 | % | ||||||||
Transmission |
35.4 | 21.5 | 64.8 | % | ||||||||
Engineering and substation |
40.4 | 18.2 | 121.5 | % | ||||||||
Total |
$ | 241.9 | $ | 241.5 | 0.2 | % | ||||||
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Gross Profit. Gross profit decreased 54.8% to $28.6 million for the six months ended December
31, 2009 from $63.4 million for the six months ended December 31, 2008. Gross profit as a
percentage of revenues decreased to 10.9% for the six months ended December 31, 2009 from 19.2% for
the six months ended December 31, 2008. Our gross profit was impacted negatively by the following:
| A significantly 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. |
| Distribution margins. Due to the decline in overall distribution demand, we experienced compressed margins due to the following: (i) increased level of idle equipment, (ii) decreased distribution productivity due to the types of projects being outsourced by our customers, (iii) higher average wage rates as we have retained our most experienced workers and (iv) increased overhead as a percentage of revenue. Idle equipment and overhead costs are in the process of being realigned with our current revenue levels (see restructuring expense discussion below). |
| Lower gross profit margin material procurement services. Material procurement services offered primarily in the engineering, substation and transmission businesses generate lower gross profit margins compared to other core services. We recognized approximately $13.6 million in material procurement for the six months ended December 31, 2009 compared to approximately $3.2 million for the same period in the prior year. |
| Environmental matter. We recognized $1.8 million of costs for the three months ended December 31, 2009 related to the cleanup of certain petroleum-related products on an owned property in Marietta, Georgia. Although the contamination was only recently discovered, we believe the contamination occurred before we purchased the property. We have committed the necessary resources to remediate this contamination in a timely and appropriate manner, and based on the physical investigation and technical data received to date do not expect to recognize further expense related to this matter. |
Partially offsetting those negative impacts was the following:
| Lower fuel expense as a percentage of revenue. Fuel expense decreased to 4.1% of total revenues for the six months ended December 31, 2009 compared to 6.1% for the same period in the prior year as fuel costs have moderated significantly since the record highs reached during the summer of 2008. |
General and Administrative Expenses. General and administrative expenses increased 7.3% to
$26.3 million for the six months ended December 31, 2009 from $24.5 million for the six months
ended December 31, 2008. As a percentage of revenues, general and administrative expenses
increased to 10.0% from 7.4%. The increase in general and administrative expenses was primarily
due to increased stock-based compensation expense, increased professional fees and increased
depreciation expense related to recent software and office equipment additions, partially offset by
decreased cash incentive compensation expense.
Loss on Sale and Impairment of Property and Equipment. Loss on sale and impairment of property
and equipment was $1.0 million for the six months ended December 31, 2009 compared to $0.9 million
for the six months ended December 31, 2008. The level of losses is affected by several factors,
including the timing of the continued replenishment of aging, damaged or excess fleet equipment,
and conditions in the market for used equipment. We continually evaluate the depreciable lives and
salvage values of our equipment.
Restructuring Expenses. During the second quarter ended December 31, 2009, we initiated plans
to implement cost restructuring measures in our distribution operations and support services. The
cost restructuring initiatives included reductions in headcount, pay levels and employee benefits
in distribution operations and support services, and the disposition of excess fleet assets. We
have made these changes in order to improve our efficiency and to better align our costs with the
current operating environment.
We recorded a pre-tax restructuring charge related to these measures of $8.9 million ($5.4
million or $0.16 per diluted share on an after-tax basis) for the six months ended December 31,
2009, comprised of $1.0 million for severance and other termination benefits and a $7.9 million
non-cash writedown of fleet and other fixed assets to be disposed.
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While substantially all of the cost restructuring initiatives noted above were
implemented by the end of our fiscal quarter ended December 31, 2009, the disposition of assets
will continue over the next twelve months. As of December 31, 2009 we had received $0.5 million in proceeds
from the sale of assets written down in connection with the restructuring. The carrying value of
the remaining assets to be disposed of in connection with the restructuring was $4.9 million at
December 31, 2009 and was included within assets held for sale in the condensed consolidated
balance sheets.
We anticipate that substantially all termination benefits associated with the headcount
reductions will be paid by June 30, 2010. At December 31, 2009, the unpaid severance charges of
$0.9 million were included within accrued compensation in the condensed consolidated balance
sheets. We currently expect these restructuring measures to result in annual savings of $16.4
million.
Interest Expense and Other, Net. Interest expense and other, net decreased 2.0% to
$4.5 million for the six months ended December 31, 2009 from $4.6 million for the six months ended
December 31, 2008. This decrease was primarily due to lower interest rates, partially offset by
increased settlement costs related to interest rates swaps and increased amortization of deferred
loan costs related to the extension of our revolving credit facility. Our interest rate swaps
expired in December 2009.
Income Tax Benefit or Expense. The income tax benefit was $4.6 million for the six months
ended December 31, 2009 compared to income tax expense of $12.7 million for the six months ended
December 31, 2008. The effective tax rate was 38.1% and 37.8% for the six months ended December
31, 2009 and December 31, 2008, respectively.
Liquidity and Capital Resources
Our primary cash needs have been for working capital and capital expenditures. We need
working capital to support seasonal variations in our business, primarily due to the impact of
weather conditions on the electric infrastructure and the corresponding spending by our customers
on electric service and repairs. The increased service activity during storm restoration events
temporarily causes an excess of customer billings over customer collections, leading to increased
accounts receivable during those periods. In the past, we have utilized borrowings under the
revolving portion of our senior credit facility to satisfy normal cash needs during these periods.
As of December 31, 2009, our cash totaled $32.9 million and we had $90.4 million available
under the $115.0 million revolving portion of our senior credit facility (after giving effect to
the outstanding balance of $24.6 million of standby letters of credit).
To date, recent distress in the financial markets has not had a significant impact on our
financial position. We consider our cash investment policies to be conservative in that we
maintain a diverse portfolio of what we believe to be high-quality cash investments with short-term
maturities. Accordingly, we do not anticipate that the current volatility in the capital markets
will have a material impact on the principal amounts of our cash investments.
We believe that our cash flow from operations, available cash and cash equivalents, and
borrowings available under our senior credit facility will be adequate to meet our ordinary course
liquidity needs for the foreseeable future. Our ability to satisfy our obligations or to fund
planned capital expenditures will depend on our future performance, which to a certain extent is
subject to general economic, financial, competitive, legislative, regulatory and other factors
beyond our control.
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Changes in Cash Flows:
Six Months Ended | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
(In millions) | ||||||||
Net cash (used in) provided by operating activities |
$ | (1.0 | ) | $ | 23.1 | |||
Net cash used in investing activities |
$ | (7.1 | ) | $ | (29.4 | ) | ||
Net cash (used in) provided by financing activities |
$ | (2.9 | ) | $ | 0.6 |
Net cash used in operating activities was $1.0 million for the six months ended December 31,
2009 compared to cash provided by operations of $23.1 million for the six months ended December 31,
2008. The decrease in cash flows from operating activities was primarily due to the significant
change in net (loss)/income between the two time periods. We had a net loss of $7.4 million for
the six months ended December 31, 2009 compared to net income of $20.8 million for the six months
ended December 31, 2008. Primarily due to storm restoration events that occurred during December
2009, our accounts receivable balance increased by $10.8 million during the second quarter of
fiscal 2010. Storm billings for the month of December 2009 totaled approximately $16.4 million,
substantially all of which remained in accounts receivable at December 31, 2009. Our customers
have historically been financially stable and creditworthy and we believe that we will continue to
collect our AR in normal time parameters, which are typically slightly extended for storm
restoration services.
Net cash used in investing activities decreased to $7.1 million for the six months ended
December 31, 2009 from $29.4 million for the six months ended December 31, 2008. Capital
expenditures for both periods consisted primarily of purchases of vehicles and equipment used to
service our customers and software purchases for both the implementation of our human resource and
payroll system and toward the implementation of our job cost reporting and billings system. The
decrease in cash used in investing activities was primarily due to the purchase of EDS during the
six months ended December 31, 2008.
Net cash used in financing activities was $2.9 million for the six months ended December 31,
2009 compared to net cash provided by financing activities of $0.6 million for the six months ended
December 31, 2008. Our cash used in financing activities during the six months ended December 31,
2009 primarily related to $2.8 million of fees associated with the July 29, 2009 closing of our
amended and restated credit agreement.
Senior Credit Facility
On July 29, 2009, we entered into an amended and restated credit agreement that replaced our
existing credit facility. The amended credit agreement: (i) extended the maturity of the revolving
facility from July 1, 2010 to July 1, 2012; (ii) increased availability under the revolving
facility from $90.0 million to $115.0 million; (iii) increased the interest rate on the revolving
facility by 2.0%; (iv) increased the aggregate dollar limits on our ability to invest in joint
ventures, transfer assets to foreign subsidiaries, make earn-out payments, use unsecured debt,
lease equipment, repurchase debt, pay dividends and repurchase equity; and (v) increased the letter
of credit limit from $50.0 million to $90.0 million, with the addition of an additional $25.0
million cash collateralized letter of credit facility at our option. The financial covenants in the
credit facility remained unchanged in the restated credit agreement.
As of December 31, 2009, we had $140.5 million of term loans outstanding under our amended
credit agreement. As of December 31, 2009, our borrowing availability under the $115.0 million
revolving portion of our amended credit agreement was $90.4 million (after giving effect to the
outstanding balance of $24.6 million of outstanding standby letters of credit). The obligations
under our amended credit agreement are unconditionally guaranteed by us and each of our existing
and subsequently acquired or organized subsidiaries (other than Pike Electric, Inc., which is the
borrower under the facility) and secured on a first-priority basis by security interests (subject
to permitted liens) in substantially all assets owned by us, Pike Electric, Inc. and each of our
other domestic subsidiaries, subject to limited exceptions.
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Our amended credit agreement contains a number of affirmative and restrictive covenants
including limitations on mergers, consolidations and dissolutions, sales of assets, investments and
acquisitions, indebtedness, liens and other restricted payments. Among these covenants, our
amended credit agreement includes a requirement that we maintain: (i) a leverage ratio (as defined
in the senior credit facility; measured on a trailing four-quarter basis) of no more than 3.25 to
1.0 as of the last day of each fiscal quarter, with declining ratios at June 30 each year, down to
2.25 on June 30, 2012, and (ii) a cash interest coverage ratio (as defined in the senior credit
facility; measured on a trailing four-quarter basis) of at least 3.5 to 1.0 as of the last day of
each fiscal quarter. The amended credit agreement also contains an excess cash provision which
could require us to make debt payments, if the leverage ratio is 2.0 or higher at June 30 of each
year, based on a defined calculation. As of December 31, 2009, we were in compliance with all of
our debt covenants, including those noted above, with a leverage ratio of 2.20 to 1.00 and a cash
interest coverage ratio of 9.00 to 1.00.
Concentration of Credit Risk
We are subject to concentrations of credit risk related primarily to our cash and cash
equivalents and accounts receivable. We maintain substantially all of our cash investments with
what we believe to be high credit quality financial institutions. We grant credit under normal
payment terms, generally without collateral, to our customers, which include electric power
companies, governmental entities, general contractors and builders, owners and managers of
commercial and industrial properties located in the United States. Consequently, we are subject to
potential credit risk related to changes in business and economic factors throughout the United
States. However, we generally have certain statutory lien rights with respect to services
provided.
Legal Proceedings
We are from time to time a party to various lawsuits, claims and other legal proceedings that
arise in the ordinary course of business. These actions typically seek, among other things: (a)
compensation for alleged personal injury, workers compensation, employment discrimination, breach
of contract, or property damage, (b) punitive damages, civil penalties or other damages, or (c)
injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we
accrue reserves when it is probable that a liability has been incurred and the amount of loss can
be reasonably estimated. We do not believe that any of these proceedings, individually or in the
aggregate, would be expected to have a material adverse effect on our results of operations,
financial position or cash flows.
Off-Balance Sheet Arrangements
As is common in our industry, we have entered into certain off-balance sheet arrangements in
the ordinary course of business that result in risks not directly reflected in our balance sheets.
Our significant off-balance sheet transactions include liabilities associated with non-cancelable
operating leases, letter of credit obligations, and surety guarantees entered into in the normal
course of business. We have not engaged in any off-balance sheet financing arrangements through
special purpose entities.
Letters of Credit
Certain of our vendors require letters of credit to ensure reimbursement for amounts they are
disbursing on our behalf. In addition, from time to time some customers require us to post letters
of credit to ensure payment to our subcontractors and vendors under those contracts and to
guarantee performance under our contracts. Such letters of credit are generally issued by a bank
or similar financial institution. The letter of credit commits the issuer to pay specified amounts
to the holder of the letter of credit if the holder claims that we have failed to perform specified
actions. If this were to occur, we would be required to reimburse the issuer of the letter of
credit. Depending on the circumstances of such a reimbursement, we may also have to record a
charge to earnings for the reimbursement. We do not believe that it is likely that any material
claims will be made under a letter of credit in the foreseeable future. As of December 31, 2009,
we had $24.6 million of standby letters of credit issued under our senior credit facility primarily
for insurance and bonding purposes.
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Performance Bonds and Parent Guarantees
In the ordinary course of business, we are required by certain customers to post surety or
performance bonds in connection with services that we provide to them. These bonds provide a
guarantee to the customer that we will perform under the terms of a contract and that we will pay
subcontractors and vendors. If we fail to perform under a contract or to pay subcontractors and
vendors, the customer may demand that the surety make payments or provide services under the bond.
We must reimburse the surety for any expenses or outlays it incurs. As of December 31, 2009, we
had $101.3 million in surety bonds outstanding, and we also had provided collateral in the form of
a letter of credit to sureties in the amount of $2.0 million, which is included in the total
letters of credit outstanding above. To date, we have not been required to make any reimbursements
to our sureties for bond-related costs. We believe that it is unlikely that we will have to fund
significant claims under our surety arrangements in the foreseeable future.
Pike Electric Corporation, from time to time, guarantees the obligations of its wholly-owned
subsidiaries, including obligations under certain contracts with customers.
Seasonality; Fluctuations of Results
Because our services are performed outdoors, our results of operations can be subject to
seasonal variations due to weather conditions. These seasonal variations affect both our core and
storm restoration services. Extended periods of rain affect the deployment of our core crews,
particularly with respect to underground work. During the winter months, demand for core work is
generally lower due to inclement weather. In addition, demand for core work generally increases
during the spring months due to improved weather conditions and is typically the highest during the
summer due to better weather conditions. Due to the unpredictable nature of storms, the level of
our storm restoration revenues fluctuates from period to period.
Recent Accounting Pronouncements
See Note 13, Recent Accounting Pronouncements, to our Notes to Condensed Consolidated
Financial Statements in Item 1 of this Quarterly Report for a description of recent accounting
pronouncements, including the expected dates of adoption and estimated effects, if any, on our
consolidated financial statements.
Uncertainty of Forward-Looking Statements and Information
This Quarterly Report on Form 10-Q, as well as information included in future filings by Pike
Electric Corporation with the Securities and Exchange Commission and information contained in
written material, press releases and oral statements issued by or on behalf of the Company,
contains, or may contain, certain forward-looking statements under Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements include information relating to, among other matters, our future prospects,
developments and business strategies for our operations. These forward-looking statements are
based on current expectations, estimates, forecasts and projections about our company and the
industry in which we operate and managements beliefs and assumptions. Words such as may,
will, should, estimate, expect, anticipate, intend, plan, predict, potential,
project, continue, believe, seek, variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements include, among others,
statements relating to:
| our belief that the lawsuits, claims or other proceedings to which we are subject in the ordinary course of business will not have a material adverse effect on our results of operation or financial position; |
| our belief that a significant amount of pent-up demand is building and power system reliability is being challenged and that we remain well positioned to benefit from a reacceleration in maintenance spending, which will remain dependent to a large extent on the health of the economy; |
| our belief that 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; |
| our belief that we maintain substantially all of cash investments in high credit quality financial institutions; |
| our belief that our cash investment policies are conservative and that we maintain a diverse portfolio of high-quality cash investments; |
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| our expectation that current volatility in the capital markets will not have a material impact on the principal amounts of our cash investments; |
| our belief that our cash flow from operations, available cash and cash equivalents, and borrowings available under our credit facility will be adequate to meet our ordinary course liquidity needs for the foreseeable future; |
| our belief that it is unlikely that any material claims will be made under a letter of credit in the foreseeable future; |
| our belief that it is unlikely that we will have to fund significant claims under our surety arrangements in the foreseeable future; |
| our belief that contamination at our owned property in Marietta, Georgia occurred before we purchased the property but was only recently discovered and that we will incur no further expense related to this matter; |
| our expectation that certain recent accounting pronouncements will have no material effect on our consolidated financial statements; |
| our expectation that our restructuring measures will result in annual savings of $16.4 million; |
| our expectation that substantially all termination benefits associated with our headcount reductions will be paid by June 30, 2010; and |
| our expectation that substantially all the assets held for sale at December 31, 2009 will be sold over the next twelve months. |
These statements are based on certain assumptions and analyses made by us in light of our
experience and perception of historical trends, current conditions, expected future developments
and other factors we believe are appropriate under the circumstances, and involve risks and
uncertainties that may cause actual future activities and results of operations to be materially
different from historical or anticipated results. Factors that could impact those differences or
adversely affect future periods include, but are not limited to, the factors set forth in Item 1A.
Risk Factors of our Annual Report on Form 10-K for the year ended June 30, 2009.
Caution should be taken not to place undue reliance on our forward-looking statements, which
reflect the expectations of management of Pike Electric only as of the time such statements are
made. We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
For quantitative and qualitative disclosures about our market risks, see Item 7A of our Annual
Report on Form 10-K for the fiscal year ended June 30, 2009.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management has established and maintains a system of disclosure controls and procedures
that are designed to provide reasonable assurance that information required to be disclosed by us
in the reports that we file or submit under the Exchange Act, such as this quarterly report, is
recorded, processed, summarized and reported within the time periods specified in the SECs rules
and forms. The disclosure controls and procedures are also designed to provide reasonable assurance
that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
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As of the end of the period covered by this quarterly report, we evaluated the effectiveness
of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of
the Exchange Act. This evaluation was carried out under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this
evaluation, these officers have concluded that, as of December 31, 2009, our disclosure controls
and procedures were effective to provide reasonable assurance of achieving their objectives.
Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter
ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Design and Operation of Control Systems
Our management, including the Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls and procedures or our internal control over financial reporting
will prevent or detect all errors and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control systems objectives
will be met. The design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty and breakdowns
can occur because of simple errors or mistakes. Controls can be circumvented by the individual acts
of some persons, by collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of compliance with policies or procedures.
PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
We are from time to time a party to various lawsuits, claims and other legal proceedings that
arise in the ordinary course of business. These actions typically seek, among other things, (a)
compensation for alleged personal injury, workers compensation, employment discrimination, breach
of contract, or property damages, (b) punitive damages, civil penalties or other damages, or (c)
injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we
record reserves when it is probable a liability has been incurred and the amount of loss can be
reasonably estimated. We do not believe that any of these proceedings, individually or in the
aggregate, would be expected to have a material adverse effect on our results of operations,
financial position or cash flows.
Item 1A. | Risk Factors |
There have been no material changes from the risk factors disclosed in Part I, Item 1A, of
our Annual Report on Form 10-K for the fiscal year ended June 30, 2009.
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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 2, 2009.
The following matters were submitted to a vote of the shareholders with the results shown below:
(b) 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 |
31,427,752 | 462,969 | ||||||
Charles W. Bayless |
26,925,038 | 4,965,683 | ||||||
Adam B. Godfrey |
31,486,212 | 404,509 | ||||||
James R. Helvey, III |
26,923,633 | 4,967,088 | ||||||
Robert D. Lindsay |
31,488,883 | 401,838 | ||||||
Daniel J. Sullivan |
26,916,104 | 4,974,617 | ||||||
Louis F. Terhar |
26,921,754 | 4,968,967 |
(c) The stockholders ratified the appointment of Ernst & Young LLP as our independent
registered public accounting firm for the fiscal year ending June 30, 2010.
Votes For | Votes Against | Abstained | Broker Non-Votes | |||
31,845,636
|
37,576 | 7,509 | None |
Item 6. | Exhibits |
Exhibit | Description | |||
3.1 | Certificate of Incorporation of Pike Electric Corporation
(Incorporated by reference to Exhibit 3.1 on our Registration
Statement on Form S-1/A filed July 11, 2005) |
|||
3.2 | Amended and Restated Bylaws of Pike Electric Corporation, as of
April 30, 2009 (Incorporated by reference to Exhibit 3.1 on our
Form 8-K filed May 5, 2009) |
|||
31.1 | Certification of Periodic Report by Chief Executive Officer
pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (filed herewith) |
|||
31.2 | Certification of Periodic Report by Chief Financial Officer
pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (filed herewith) |
|||
32.1 | Certification of Periodic Report by Chief Executive Officer and
Chief Financial Officer pursuant to U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PIKE ELECTRIC CORPORATION (Registrant) |
||||
Date: February 8, 2010 | By: | /s/ J. Eric Pike | ||
J. Eric Pike | ||||
Chairman, Chief Executive Officer and President | ||||
Date: February 8, 2010 | By: | /s/ Anthony K. Slater | ||
Anthony K. Slater | ||||
Executive Vice President and Chief Financial Officer |
27