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PIKE ELECTRIC CORP - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[September 05, 2012]

PIKE ELECTRIC CORP - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and related notes thereto in "Item 8-Financial Statements and Supplementary Data" 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 "Risk Factors." Overview Pike Electric Corporation, headquartered in Mount Airy, North Carolina, is one of the largest providers of energy solutions for investor-owned, municipal and co-operative electric utilities in the United States. Since our founding in 1945, we have evolved from our roots as a specialty non-unionized contractor for electric utilities focused on the distribution sector in the Southeastern United States to a national, leading turnkey energy solutions provider with diverse capabilities servicing over 300 investor-owned, municipal and co-operative electric utilities, including American Electric Power Company, Inc., Dominion Resources, Inc., Duke Energy Corporation, Duquesne Light Company, E.On AG, Florida Power & Light Company, PacifiCorp, Progress Energy, Inc., South Carolina Electric & Gas Company, and The Southern Company. Leveraging our core competencies as a company primarily focused on providing a broad range of electric infrastructure services principally for utilities customers, we believe our experienced management team has positioned us to benefit from the substantial long term growth drivers in our industry.

Services Over the past four years, we have reshaped our business platform and territory significantly from being a distribution construction company based primarily in the Southeastern United States to a national energy solutions provider. We have done this organically and through strategic acquisitions of companies with complementary service offerings and geographic footprints. Our comprehensive suite of energy solutions now includes siting, permitting, engineering, design, installation, maintenance and repair of power delivery systems, including renewable energy projects. 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 transmission and distribution construction projects, powerlines, substations and renewable energy installations. Our engineering and design capabilities include designing, providing EPC services, owner engineering, project management, multi-entity coordination, grid integration, electrical BOP and system planning for individual or turnkey powerline, substation and renewable energy projects. Our construction and maintenance capabilities include substation, distribution (underground and overhead) and transmission with voltages up to 345 kV. We are also 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 workforce for unaffected customers.

25-------------------------------------------------------------------------------- Table of Contents Our comprehensive suite of energy solutions now includes facilities planning and siting, permitting, engineering, design, installation, maintenance and repair of power delivery systems, including renewable energy projects, all as further described in the table below: Service Revenue Category Description Planning & Siting Engineering and Substation Our planning and siting process leverages technology and the collection of environmental, regulatory, economic, cultural, land use and scientific data to facilitate successful right-of-way negotiations, licensing and permitting for powerlines, substations and electrical generation facilities.


We also provide NERC reliability studies and renewable generation interconnection studies.

Engineering & Design Engineering and Substation We provide design, EPC, owner engineer, project management, material procurement, multi-entity coordination, grid integration, BOP, training, consulting, DOT projects, and Thermal Rate solutions for individual or turnkey powerline, substation and renewable energy projects. We also provide engineering and design services for the communication industry for wireline and wireless communication infrastructure with the acquisition of UCS on July 2, 2012.

Transmission and Overhead Distribution and We provide overhead and Distribution Other, Underground underground powerline Construction Distribution and construction, upgrade, Transmission inspection, and extension services (predominately single-pole and H-frame wood, concrete or steel poles) for distribution networks and transmission lines with voltages up to 345 kV, energized maintenance work for voltages up to 500 kV.

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, concrete encased duct and manhole installation, to the construction of complete underground distribution facilities.

Substation Engineering and Substation We provide substation Construction construction and service up to 500 kV.

Substation services include: construction of new substations, existing substation upgrades, relay testing, transformer maintenance and hauling, foundations, commissioning, emergency outage response and Smart Grid component installation. We also specialize in relay metering and control solutions.

Renewables Depending on project, can We provide a total energy be any type of core solution platform, including revenue preliminary studies, planning, siting and permitting, engineering and design, construction, procurement, testing and commissioning, and grid interconnection.

Storm Restoration Storm Restoration Services Storm restoration involves the Services 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.

26 -------------------------------------------------------------------------------- Table of Contents While storm restoration services can generate significant revenues, their unpredictability is demonstrated by comparing our revenues from those services in the last five fiscal years which have ranged from 8.9% to 24.9% of total revenues. During periods with significant storm restoration work, we generally see man-hours diverted from core work, which decreases core revenues. The table below sets forth our revenues by category of service for the periods indicated: Percentage Storm Percentage Fiscal Core of Total Restoration of Total Total Year Revenues Revenues Revenues Revenues Revenues (in millions) (in millions) (in millions) 2008 $ 502.6 91.1 % $ 49.4 8.9 % $ 552.0 2009 $ 460.6 75.1 % $ 152.9 24.9 % $ 613.5 2010 $ 457.5 90.7 % $ 46.6 9.3 % $ 504.1 2011 $ 529.3 89.1 % $ 64.5 10.9 % $ 593.8 2012 $ 614.6 89.7 % $ 70.6 10.3 % $ 685.2 Seasonality and Fluctuations of Results Our services are performed outdoors and, as a result, our results of operations can be subject to seasonal variations due to weather conditions. These seasonal variations affect both our construction and storm restoration services. Extended periods of rain can negatively affect the deployment of our construction crews, particularly with respect to underground work. During the winter months, demand for construction work is generally lower due to inclement weather. In addition, demand for construction work generally increases during the spring months due to improved weather conditions and is typically the highest during the summer months due to better weather conditions. Due to the unpredictable nature of storms, the level of our storm restoration revenues fluctuates from period to period.

Inflation Due to relatively low levels of inflation experienced in recent years, inflation has not had a significant effect on our results. However, we have experienced fuel cost volatility during recent fiscal years.

Basis of Reporting Revenues. We derive our revenues from one reportable segment through two service categories - core services and storm restoration services. Our core services include siting, permitting, engineering, design, installation, maintenance and repair of power delivery systems, including renewable energy projects. Our storm restoration services involve the rapid deployment of our highly-trained crews and related equipment to restore power on transmission and distribution systems during crisis situations, such as hurricanes, ice storms or wind storms.

Approximately 80% of our services, including the majority of our core services and a majority of our storm restoration services, are provided under MSAs, which are based on a price per hour worked or a price per unit of service. Revenues generated on an hourly basis are determined based on actual labor and equipment time completed and on materials billed to our customers. Revenue based on hours worked is recognized as hours are completed. We recognize revenue on unit-based services as the units are completed. The remaining 20% of our annual revenues are from fixed-price agreements. The mix of hourly and per unit revenues changes during periods of high storm restoration services, as these services are all billed on an hourly basis. Revenues for longer duration fixed-price contracts are recognized using the percentage-of-completion method, measured by the percentage of costs incurred to date to total estimated costs for each contract.

Cost of Operations. Our cost of operations consists primarily of compensation and benefits to employees, insurance, fuel, specialty equipment, rental, operating and maintenance expenses relating to vehicles and equipment, materials and tools and supplies. Our cost of operations also includes depreciation, primarily relating to our vehicles and heavy equipment.

27-------------------------------------------------------------------------------- Table of Contents General and Administrative Expenses. General and administrative expenses include costs not directly associated with performing work for our customers. These costs consist primarily of compensation and related benefits of management and administrative personnel, facilities expenses, professional fees and administrative overhead.

Interest Expense. In addition to cash interest expense, interest expense includes amortization of deferred loan costs, deferred compensation accretion and the write-off of unamortized deferred loan costs resulting from prepayments of debt.

Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based on our 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 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, 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. We believe the following to be our most important accounting policies, including those that use significant judgments and estimates in the preparation of our consolidated financial statements.

Revenue Recognition. Revenues from service arrangements are recognized when services are performed. We recognize revenue from hourly services based on actual labor and equipment time completed and on materials when billable to our customers. We recognize revenue on unit-based services as the units are completed. We recognize the full amount of any estimated loss on these projects if estimated costs to complete the remaining units for the project exceed the revenue to be received from such units.

Revenues for fixed-price contracts are recognized using the percentage-of-completion method, measured by the percentage of costs incurred to date to total estimated costs for each contract. Contract costs include all direct material, labor and subcontract costs, as well as indirect costs related to contract performance, such as indirect labor, tools, repairs and depreciation. The cost estimation process is based on the professional knowledge and experience of our engineers, project managers, field construction supervisors, operations management and financial professionals. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is accrued.

The current asset "Costs and estimated earnings in excess of billings on uncompleted contracts" represents revenues recognized in excess of amounts billed. The current liability "Billings in excess of costs and estimated earnings on uncompleted contracts" represents billings in excess of revenues recognized.

Allowance for Doubtful Accounts. We provide an allowance for doubtful accounts that represents an estimate of uncollectible accounts receivable. The determination of the allowance includes certain judgments and estimates including our customers' willingness or ability to pay and our ongoing relationship with the customer. In certain instances, primarily relating to storm restoration work and other high-volume billing situations, billed amounts may differ from ultimately collected amounts. We incorporate our historical experience with our customers into the estimation of the allowance for doubtful accounts. These amounts are continuously monitored as additional information is obtained. Accounts receivable are primarily due from customers located within the United States. Any material change in our customers' business or cash flows would affect our ability to collect amounts due.

Property and Equipment. We capitalize property and equipment as permitted or required by applicable accounting standards, including replacements and improvements when costs incurred for those purposes extend the useful life of the asset. We charge maintenance and repairs to expense as incurred.

Depreciation on capital assets is computed using the straight-line method based on the useful lives of the assets, which range from 3 to 39 years. Our management makes assumptions regarding future conditions in determining estimated useful lives and potential salvage values. These assumptions impact the amount of depreciation expense recognized in the period and any gain or loss once the asset is disposed.

28 -------------------------------------------------------------------------------- Table of Contents We review our property and equipment for impairment when events or changes in business conditions indicate the carrying value of the assets may not be recoverable, as required by U.S. GAAP. An impairment of assets classified as "held and used" exists if the sum of the undiscounted estimated future cash flows expected is less than the carrying value of the assets. If this measurement indicates a possible impairment, we compare the estimated fair value of the asset to the net book value to measure the impairment charge, if any. If the criteria for classifying an asset as "held for sale" have been met, we record the asset at the lower of carrying value or fair value, less estimated selling costs. We continually evaluate the depreciable lives and salvage values of our equipment.

Valuation of Goodwill and Other Intangible Assets. We test our goodwill for impairment annually or more frequently if events or circumstances indicate impairment may exist. Examples of such events or circumstances could include a significant change in business climate or a loss of significant customers. We complete our annual analysis of our reporting units as of the first day of our fourth fiscal quarter. For purposes of our fiscal 2012 analysis, we had three reporting units - non-union construction, union construction, and engineering.

In evaluating reporting units, we first consider our operating segment and related components in accordance with U.S. GAAP. We allocate goodwill to the reporting units that are expected to benefit from the synergies of the business combinations generating the goodwill. We apply a two-step fair value-based test to assess goodwill for impairment. The first step compares the fair values of the reporting units to their carrying amounts, including goodwill. If the carrying amount of any reporting unit exceeds its fair value, the second step is then performed. The second step compares the carrying amount of the reporting unit's goodwill to the implied fair value of the goodwill. If the implied fair value of the goodwill is less than the carrying amount, an impairment loss would be recorded.

We determine the fair value of our reporting units based on a combination of the income approach, using a discounted cash flow model, and a market approach, which considers comparable companies and transactions. Under the income approach, the discounted cash flow model determines fair value based on the present value of projected cash flows over a specific projection period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate which reflects our best estimate of the weighted average cost of capital of a market participant, and is adjusted for appropriate risk factors. We perform sensitivity tests with respect to growth rates and discount rates used in the income approach. Under the market approach, valuation multiples are derived based on a selection of comparable companies and acquisition transactions, and applied to projected operating data for each reporting unit to arrive at an indication of fair value.

For our fiscal 2012 annual impairment analysis, we weighted the income and market approaches 70% and 30%, respectively. The income approach was given a higher weight because it has a more direct correlation to the specific economics of the reporting units than the market approach which is based on multiples of companies that, although comparable, may not have the exact same risk factors as our reporting units. The analysis indicated that, as of the first day of our fourth fiscal quarter, the fair values of each of our reporting units exceeded their respective carrying values in excess of 10%. For our analysis, we also considered various elements of an implied control premium in assessing the reasonableness of the reconciliation of the summation of the fair values of the invested capital of our three reporting units (with appropriate consideration of the interest bearing debt) to our overall market capitalization and our net book value. This analysis included (i) the current control premium being paid for companies with a similar market capitalization and within similar industries and (ii) certain synergies that a market participant buyer could realize, such as the elimination of potentially redundant costs. Based on these analyses, management determined that the resulting control premium implied in the annual impairment analysis was between 15% and 25% which was within a reasonable range of current market conditions.

In addition to goodwill, we identify and value other intangible assets that we acquire in business combinations, such as customer arrangements, customer relationships and non-compete agreements, that arise from contractual or other legal rights or that are capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged. The fair value of identified intangible assets is based upon an estimate of the future economic benefits expected to result from ownership, which represents the amount at which the assets could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. For customers with whom we have an existing relationship prior to the date of the transaction, we utilize assumptions that a marketplace participant would consider in estimating the fair value of customer relationships that an acquired entity had with our pre-existing customers in accordance with U.S. GAAP.

29-------------------------------------------------------------------------------- Table of Contents Intangible assets with definite lives are amortized over their estimated useful lives and are also reviewed for impairment if events or changes in circumstances indicate that their carrying amount may not be realizable. We have no intangibles with indefinite lives other than goodwill.

Inherent in valuation determinations related to goodwill and other intangible assets are significant judgments and estimates, including assumptions about our future revenue, profitability and cash flows, our operational plans, current economic indicators and market valuations. To the extent these assumptions are incorrect or there are declines in our business outlook, impairment charges may be recorded in future periods.

Insurance and Claims Accruals. In the ordinary course of our business, we are subject to individual workers' compensation, vehicle, general liability and health insurance claims for which we are partially self-insured. We maintain commercial insurance for individual workers' compensation and vehicle and general liability claims exceeding $1.0 million. We also maintain commercial insurance for health insurance claims exceeding $500,000 per person on an annual basis. We determine the amount of our loss reserves and loss adjustment expenses for self-insured claims based on analyses prepared quarterly that use both company-specific and industry data, as well as general economic information. Our estimates for insurance loss exposures require us to monitor and evaluate our insurance claims throughout their life cycles. Using this data and our assumptions about the emerging trends, we estimate the size of ultimate claims.

Our most significant assumptions in forming our estimates include the trend in loss costs; the expected consistency with prior year claims of the frequency and severity of claims incurred but not yet reported, changes in the timing of the reporting of losses from the loss date to the notification date, and expected costs to settle unpaid claims. We also monitor the reasonableness of the judgments made in the prior year's estimates and adjust current year assumptions based on that analysis.

While the final outcome of claims may vary from estimates due to the type and severity of the injury, costs of medical claims and uncertainties surrounding the litigation process, we believe that none of these items, when finally resolved, will have a material adverse effect on our financial condition or liquidity. However, should a number of these items occur in the same period, it could have a material adverse effect on the results of operations in a particular quarter or fiscal year.

Stock-Based Compensation. In accordance with U.S. GAAP, we recognize the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). We measure the cost of employee services received in exchange for an award based on the grant-date fair value of the award.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The risk-free interest rate is based on the U.S. Treasury rate for the expected term of the option at the time of grant. As of July 1, 2010, we began to use our historical volatility as a basis for our expected volatility. Prior to that, we had limited trading history beginning July 27, 2005 and had based our expected volatility on the average long-term historical volatilities of peer companies. We are using the "simplified method" to calculate the expected terms of the options as allowed under U.S. GAAP, which represents the period of time that options granted are expected to be outstanding. Forfeitures are estimated based on certain historical data. We will continue to use this method until we have sufficient historical exercise experience to give us confidence that our calculations based on such experience will be reliable. It is our current intent not to issue dividends and none are contemplated when estimating fair value for our option awards.

30-------------------------------------------------------------------------------- Table of Contents Results of Operations The following table sets forth selected statement of operations data as percentages of revenues for the periods indicated (dollars in millions): Year Ended June 30, 2012 2011 2010 Revenues: Core revenues $ 614.6 89.7 % $ 529.3 89.1 % $ 457.5 90.7 % Storm restoration revenues 70.6 10.3 % 64.5 10.9 % 46.6 9.3 % Total revenues 685.2 100.0 % 593.8 100.0 % 504.1 100.0 % Cost of operations 593.5 86.6 % 525.9 88.6 % 456.3 90.5 % Gross profit 91.7 13.4 % 67.9 11.4 % 47.8 9.5 % General and administrative expenses 66.2 9.7 % 57.6 9.7 % 52.0 10.3 % (Gain) loss on sale and impairment of property and equipment (0.6 ) -0.1 % 0.8 0.1 % 1.3 0.3 % Restructuring expenses - - - - 8.9 1.8 % Income (loss) from operations 26.1 3.8 % 9.5 1.6 % (14.4 ) -2.9 % Interest expense and other 7.2 1.0 % 6.6 1.1 % 7.6 1.5 % Income (loss) before income tax 18.9 2.8 % 2.9 0.5 % (22.0 ) -4.4 % Income tax expense (benefit) 8.0 1.2 % 1.5 0.3 % (8.5 ) -1.7 % Net income (loss) $ 10.9 1.6 % $ 1.4 0.2 % $ (13.5 ) -2.7 % Year Ended June 30, 2012 Compared to Year Ended June 30, 2011 Revenues. Revenues increased 15.4%, or $91.4 million, to $685.2 million for the year ended June 30, 2012 from $593.8 million for the year ended June 30, 2011.

Our core revenues increased 16.1% to $614.6 million for the year ended June 30, 2012 from $529.3 million in the prior year. Our acquisition of Pine Valley on August 1, 2011 provided $18.9 million in core revenues for the year ended June 30, 2012. Our project in Tanzania, which began construction in July 2011, provided $10.1 million in core revenue for the year ended June 30, 2012.

The following table contains supplemental information on core revenue and percentage changes by category for the periods indicated: Year Ended June 30, Category of Core Revenue 2012 2011 % Change Distribution and other $ 418.8 $ 333.3 25.7 % Transmission 72.5 78.2 -7.3 % Engineering and substation 123.3 117.8 4.7 % Total $ 614.6 $ 529.3 16.1 % • Distribution and Other Revenues. Our combined revenues for overhead and underground distribution services increased 25.7% from the prior year period, primarily due to a general increase in demand for overhead distribution maintenance, the addition of Pine Valley ($14.4 million), and our Tanzania project ($10.1 million). This growth rate was affected by our decision to divert distribution crews to respond to increased storm activity from Hurricane Irene and a large Northeast snow storm that occurred during the year ended June 30, 2012. The majority of our distribution services are provided to investor-owned, municipal and co-operative utilities under MSAs. Services provided under these MSAs include both overhead and underground powerline distribution services. Our underground distribution services continue to be adversely affected by a weak market for new residential housing. 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. MSAs enable us to easily increase or decrease staffing for a customer without exhaustive contract negotiations.

31 -------------------------------------------------------------------------------- Table of Contents • Transmission Revenues. Transmission revenues decreased 7.3% from the prior year period. Our transmission project pipeline remains strong but the timing of certain projects negatively impacted the year over year comparison. In addition, we had reductions in material procurement service revenues totaling $2.7 million during the year ended June 30, 2012. We did start construction activity on the SCE&G EPC project during 2012 and expect this project will continue through 2018. The addition of Pine Valley contributed $0.3 million in transmission revenues during the year ended June 30, 2012.

• Engineering and Substation Revenues. Engineering and substation revenues increased 4.7% from the prior year, primarily due to the started engineering activity on the SCE&G EPC project and the addition of Pine Valley ($4.2 million). This increase was partially offset by a decrease in material procurement service revenues which decreased from $50.0 million in the prior year, primarily for the VC Summer nuclear substation project, to $37.5 million for the year ended June 30, 2012. Engineering and substation revenues may fluctuate, especially on a quarterly basis, due to the timing of material procurement service revenues. Also, revenues from the year ended June 30, 2011 were negatively impacted by a $2.0 million reduction of costs and estimated earnings in excess of billings on uncompleted contracts that related to prior periods (see Note 2 of the Notes to Consolidated Financial Statements).

Our storm restoration revenues are highly volatile and unpredictable. For the year ended June 30, 2012, storm restoration revenues totaled $70.6 million compared to $64.5 million for the year ended June 30, 2011. The increase was primarily attributable to more severe damages caused by Hurricane Irene, which occurred along the East coast during August 2011, and a large snow storm that occurred in the Northeast during November 2011.

Gross Profit. Gross profit increased 35.1% to $91.7 million for the year ended June 30, 2012 from $67.9 million for the year ended June 30, 2011. Gross profit as a percentage of revenues increased to 13.4% for the year ended June 30, 2012 from 11.4% for the prior year. Greater volume of core services and the increase in storm restoration revenues favorably contributed to our increased gross profit in the current year. The increased gross profit percentage also reflects the positive impact from a decrease of $11.1 million in material procurement service revenues during the year ended June 30, 2012. The gross profit on material procurement services, in the current market, are generally lower than our other services and currently range from 0% to 5% as a percentage of revenues.

We experienced volatility in our mark-to-market adjustment on our diesel hedging program that caused a $2.5 million increase in our cost of operations during the year ended June 30, 2012. As a percentage of revenues, fuel costs increased to 4.9% for the year ended June 30, 2012 from 4.3% in the prior year. Gross profit for the year ended June 30, 2011 was negatively impacted by a $2.0 million reduction of costs and estimated earnings in excess of billings on uncompleted contracts that related to prior periods (see Note 2 of the Notes to Consolidated Financial Statements).

General and Administrative Expenses. General and administrative expenses increased 14.9% to $66.2 million for the year ended June 30, 2012 from $57.6 million for the year ended June 30, 2011. As a percentage of revenues, general and administrative expenses remained unchanged at 9.7% for the years ended June 30, 2012 and 2011. The increase in general and administrative expenses was primarily due to approximately $2.0 million of overhead costs related to Pine Valley, which was acquired on August 1, 2011, $0.3 million related to the Tanzania project, which began construction in July 2011, $1.5 million in compensation, benefits, recruiting and travel to support Klondyke's geographic expansion and revenue growth, $0.6 million in professional fees related to the UCS acquisition process, $1.1 million related to increased professional fees for accounting and project consulting as we continue to integrate acquired companies, including the system conversion for Pine Valley, $0.7 million for intangible asset amortization and IT related system depreciation and $1.0 million for accrued incentive and other bonuses.

Interest Expense and Other, Net. Interest expense and other, net increased 9.1% to $7.2 million for the year ended June 30, 2012 from $6.6 million for the year ended June 30, 2011. This increase was primarily due to the write-off of $1.7 million of unamortized deferred loan costs as additional interest expense related to the prior credit facility. The increase was partially offset by lower deferred loan cost amortization under the existing revolving credit facility. On August 24, 2011, we entered into a $200.0 million revolving credit facility that replaced our prior credit facility. See Note 7 of the Notes to Consolidated Financial Statements for additional details of the existing revolving credit facility.

32 -------------------------------------------------------------------------------- Table of Contents Income Tax Expense. Income tax expense was $8.0 million and $1.5 million for the years ended June 30, 2012 and June 30, 2011, respectively. Effective income tax rates of 42.3% and 52.8% for the years ended June 30, 2012 and June 30, 2011, respectively, varied from the statutory federal income tax rate of 35% due to several factors, including state income and gross margin taxes, changes in permanent differences primarily related to acquisition costs from the UCS acquisition and Internal Revenue Code Section 199 deduction for 2012, Internal Revenue Code Section 162(m) deduction limitations for compensation and meals and entertainment, and the relative size of our consolidated income before income taxes.

Year Ended June 30, 2011 Compared to Year Ended June 30, 2010 Revenues. Revenues increased 17.8%, or $89.7 million, to $593.8 million for the fiscal year ended June 30, 2011 from $504.1 million for the fiscal year ended June 30, 2010. The increase was attributable to a $17.9 million increase in storm restoration revenues and a $71.8 million increase in core revenues.

For the fiscal year ended June 30, 2011, storm restoration revenues totaled $64.5 million compared to $46.6 million for the year ended June 30, 2010. The increase was attributable to significant tornadoes in the Southeast during April 2011. Our storm restoration revenues are highly volatile and unpredictable.

Our core revenues increased to $529.3 million for fiscal 2011 from $457.5 million for fiscal 2010. Our acquisition of Klondyke on June 30, 2010 provided $28.1 million in core revenues for fiscal 2011. We recognized approximately $56.4 million in material procurement revenues for fiscal 2011 compared to approximately $19.3 million in the prior year. The material revenues above require estimates, as certain material procurement services are provided as a portion of larger fixed-price projects, in which we recognize project revenues using the percentage-of-completion method.

Year Ended June 30, Category of Core Revenue 2011 2010 % Change Distribution and other $ 333.3 $ 312.3 6.7 % Transmission 78.2 68.8 13.7 % Engineering and substation 117.8 76.4 54.2 % Total $ 529.3 $ 457.5 15.7 % Distribution and other revenues increased 6.7% from prior year. Since our low point of demand distribution in February 2010, we have experienced a gradual increase in work from our investor-owned utilities. Some of this growth was diverted as we used our distribution crews to respond to increased storm activity primarily during our fourth quarter of 2011. The majority of our distribution services are provided to investor-owned, municipal and co-operative utilities under 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 increase 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 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 Klondyke acquisition also contributed to the growth in this distribution and other revenue ($10.9 million).

Transmission revenues increased 13.7% from the prior year, primarily due to the timing of certain projects that have started in the southeast United States, increased material procurement revenues ($5.2 million) and the addition of Klondyke ($4.7 million).

33 -------------------------------------------------------------------------------- Table of Contents Engineering and substation revenues increased 54.2% from the prior year, primarily due to material procurement services ($50.0 million), including the VC Summer switchyard project, along with the acquisition of Klondyke ($12.5 million).

Gross Profit. Gross profit increased 42.1% to $67.9 million for the fiscal year ended June 30, 2011 from $47.8 million for the fiscal year ended June 30, 2010.

Gross profit as a percentage of revenues increased to 11.4% for the fiscal year ended June 30, 2011 from 9.5% for the fiscal year ended June 30, 2010. Gross profit increased for the fiscal year ended June 30, 2011 due to significant storm work in the fourth quarter that provided higher margins and more business volume, including the overhead distribution business, which provided improved leverage to fixed costs. In addition, gross profit for fiscal 2010 was negatively impacted by $3.3 million in environmental charges.

General and Administrative Expenses. General and administrative expenses increased 10.8% to $57.6 million for the fiscal year ended June 30, 2011 from $52.0 million for the fiscal year ended June 30, 2010. As a percentage of revenues, general and administrative expenses decreased to 9.7% from 10.3%. The increase in general and administrative expenses was primarily due to the approximately $3.6 million of general and administrative costs related to Klondyke, which was acquired on June 30, 2010 and incentive bonuses totaling approximately $3.1 million for the fiscal year ended June 30, 2011.

International and domestic business development activities also contributed to the increase in general and administrative expenses.

Loss on Sale and Impairment of Property and Equipment. Loss on sale and impairment of property and equipment was $0.8 million for the fiscal year ended June 30, 2011 compared to $1.3 million for the fiscal year ended June 30, 2010.

The level of losses was affected by several factors, including the timing of the continued replenishment of aging, damaged or excess fleet equipment, and conditions in the market for used equipment. We continually evaluate the depreciable lives and salvage values of our equipment.

Interest Expense and Other, Net. Interest expense and other, net decreased 13.2% to $6.6 million for the fiscal year ended June 30, 2011 from $7.6 million for the fiscal year ended June 30, 2010. This decrease was primarily due to reduced settlement costs related to interest rate swaps and reduced debt balances, partially offset by increased write-offs of deferred loan costs. See Note 8 of the Notes to Consolidated Financial Statements for full details of derivative instruments, including interest rate swaps.

Income Tax Benefit or Expense. The income tax expense was $1.5 million for the fiscal year ended June 30, 2011 compared to income tax benefit of $8.6 million for the fiscal year ended June 30, 2010. The effective tax rate was 52.7% and 38.9% for the fiscal years ended June 30, 2011 and June 30, 2010, respectively.

The income tax expense (benefit) recorded in the consolidated financial statements fluctuates between years due to a variety of factors, including state income taxes, changes in permanent differences primarily related to Internal Revenue Code Section 162(m) deduction limitations for compensation and meals and entertainment, and the relative size of our consolidated income (loss) before income taxes.

Liquidity and Capital Resources Our primary cash needs have been working capital, capital expenditures, payments under our credit facility and acquisitions. Our primary source of cash for fiscal 2012, 2011 and 2010 was cash provided by operations.

We need working capital to support seasonal variations in our business, primarily due to the impact of weather conditions on the electric infrastructure and the corresponding spending by our customers on electric service and repairs.

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 credit facility and cash on hand to satisfy normal cash needs during these periods.

On August 24, 2011, we replaced our prior credit facility with a new $200.0 million revolving credit facility. As of such date, we had $115.0 million in borrowings and $61.9 million of availability under this facility (after giving effect to outstanding standby letters of credit of $23.1 million).

34-------------------------------------------------------------------------------- Table of Contents On June 27, 2012, we exercised the accordion feature of the new revolving credit facility and entered into a commitment increase agreement with our lenders thereby increasing the lenders' commitments by $75.0 million, from $200.0 million to $275.0 million. The increased commitments will be used to support our general corporate purposes, including funding the UCS acquisition completed on July 2, 2012.

As of June 30, 2012, our cash totaled $1.6 million, we had $123.0 million of borrowings outstanding and $139.2 million of availability under our $275.0 million revolving credit facility (after giving effect to outstanding standby letters of credit of $12.8 million). Our borrowing availability is subject to, and potentially limited by, our compliance with the covenants of our credit facility, which are discussed below.

Our revolving credit facility requires us to maintain: (i) a leverage ratio, which is the ratio of total debt to adjusted EBITDA (as defined in our revolving credit facility; measured on a trailing four-quarter basis), of no more than 3.75 to 1.0 as of the last day of each fiscal quarter, declining to 3.50 on June 30, 2012 and declining to 3.00 on June 30, 2013 and thereafter, and (ii) a consolidated fixed charge coverage ratio (as defined in the revolving credit facility) of at least 1.25 to 1. At June 30, 2012, we were in compliance with such covenants with a fixed charge coverage and leverage ratio of 2.55 and 1.79, respectively.

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 revolving credit facility will be adequate to meet our ordinary course liquidity needs for the foreseeable future. However, our ability to satisfy our obligations or to fund planned capital expenditures will depend on our future performance, which to a certain extent is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control. In addition, if we fail to comply with the covenants contained in our revolving credit facility, we may be unable to access funds upon which we depend for letters of credit and other short-term borrowings. This would have a negative impact on our liquidity and require us to obtain alternative short-term financing. We also believe that if we pursue any material acquisitions in the foreseeable future we may need to finance this activity through additional equity or debt financing.

Changes in Cash Flows: 2012 Compared to 2011 Year Ended June 30, 2012 2011 (in millions) Net cash provided by operating activities $ 25.7 $ 22.2 Net cash used in investing activities $ (45.5 ) $ (16.5 ) Net cash provided by (used in) financing activities $ 21.1 $ (16.5 ) Net cash provided by operating activities increased to $25.7 million for the fiscal year ended June 30, 2012 from $22.2 million for the fiscal year ended June 30, 2011. We had net income of $10.9 million for the fiscal year ended June 30, 2012 compared to a net income of $1.4 million for the fiscal year ended June 30, 2011 and a decrease of $18.6 million in accounts receivable related to storm work. This was partially offset by upward trends for core accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts primarily related to started construction and engineering activity on the SCE&G EPC project and system and procedural issues on the side of two of our investor owned utility customers.

We received a refund from the commercial insurance carrier that administers our partially self-insured individual workers' compensation, vehicle and general liability insurance programs for retrospective premium payment adjustments of $3.5 million in August 2011, which is included in net cash provided by operating activities for the year ended June 30, 2012. The refund is included in changes in insurance and claims accruals. Retrospective adjustments have historically been prepared annually on a "paid-loss" basis by our commercial insurance carrier. The last retrospective premium payment adjustment from our commercial insurance carrier required us to make payments totaling approximately $5.2 million that were paid from February 2011 through May 2011.

35-------------------------------------------------------------------------------- Table of Contents Net cash used in investing activities increased to $45.5 million for the fiscal year ended June 30, 2012 from $16.5 million for the fiscal year ended June 30, 2011. This increase is primarily due to cash used for the acquisition of Pine Valley in August 2011 totaling $16.8 million (net of cash acquired totaling $0.5 million), and increased capital expenditures. Capital expenditures for both periods consisted primarily of purchases of vehicles and equipment used to service our customers.

Net cash provided by financing activities was $21.1 million for the fiscal year ended June 30, 2012 compared to net cash used in financing activities of $16.5 million for the fiscal year ended June 30, 2011. On August 24, 2011, we entered into a $200.0 million revolving credit facility that replaced our prior credit facility of which $113.0 million was outstanding under our prior credit facility and accrued interest totaling $0.3 million was paid off at that time. Total costs associated with the existing revolving credit facility were approximately $1.8 million which are being capitalized and amortized over the term of the agreement using the effective interest method. Prior to the replacement of our prior credit facility, we had borrowed $14.0 million, including $10.0 million used to finance the Pine Valley acquisition during the fiscal year ended June 30, 2012. We also had additional borrowings under our existing revolving credit facility totaling $10.0 million related to the increases in accounts receivable and costs and estimated in excess of billings during fiscal 2012. In addition, we incurred $0.8 million of costs associated with the exercise of the accordion feature of our revolving credit facility on June 27, 2012. These costs are also being capitalized and amortized over the term of the agreement using the effective interest method.

Changes in Cash Flows: 2011 Compared to 2010 Year Ended June 30, 2011 2010 (in millions) Net cash provided by operating activities $ 22.2 $ 21.0 Net cash used in investing activities $ (16.5 ) $ (25.1 ) Net cash used in financing activities $ (16.5 ) $ (28.6 ) Net cash provided by operating activities increased to $22.2 million for the fiscal year ended June 30, 2011 from $21.0 million for the fiscal year ended June 30, 2010. We had net income of $1.4 million for the fiscal year ended June 30, 2011 compared to a net loss of $13.5 million for the fiscal year ended June 30, 2010. This was partially offset by a large increase in accounts receivable for the fiscal year ended June 30, 2011 related to additional storm work of approximately $19.0 million and non-cash restructuring charges totaling approximately $7.9 million recorded for the fiscal year ended June 30, 2010.

We paid the commercial insurance carrier that administers our partially self-insured individual workers' compensation, vehicle and general liability insurance programs retrospective premium payment adjustments of $5.2 million in four equal, monthly installments that began in February 2011. Net cash provided by operating activities includes payments of $5.2million of retrospective insurance premium payments to the commercial insurance carrier for the year ended June 30, 2011. These payments are included in changes in insurance and claims accruals. Retrospective adjustments have historically been prepared annually on a "paid-loss" basis by our commercial insurance carrier. The last retrospective premium payment adjustment from our commercial insurance carrier resulted in a refund to Pike of approximately $0.2 million that was received during December 2009.

Net cash used in investing activities decreased to $16.5 million for the fiscal year ended June 30, 2011 from $25.1 million for the fiscal year ended June 30, 2010. This decrease was primarily due to the acquisition of Klondyke during fiscal 2010. Our cash used for acquisitions during fiscal 2011 and 2010 was $0.1 million and $15.2 million, respectively. This decrease was partially offset by less equipment sales and increased capital expenditures during fiscal 2011.

Capital expenditures for both years consisted primarily of purchases of vehicles and equipment used to service our customers.

Net cash used in financing activities was $16.5 million for the fiscal year ended June 30, 2011 compared to net cash provided by financing activities of $28.6 million for the fiscal year ended June 30, 2010. Financing activities for the fiscal year ended June 30, 2011 included $15.5 million of term loan payments and $1.0 million of fees associated with an amendment to our senior credit facility. Our cash used in financing activities during the fiscal year ended June 30, 2010 included $26.0 million of term loan payments and $2.8 million of fees associated with the July 29, 2009 closing of our senior credit facility.

36 -------------------------------------------------------------------------------- Table of Contents Capital Expenditures We routinely invest in vehicles, equipment and technology. The timing and volume of such capital expenditures in the future will be affected by the addition of new customers or expansion of existing customer relationships. Capital expenditures were $33.9 million, $19.1 million and $17.7 million for fiscal 2012, 2011 and 2010, respectively. Capital expenditures for all periods consisted primarily of purchases of vehicles and equipment used to service our customers. As of June 30, 2012, we had no material outstanding commitments for capital expenditures. We expect capital expenditures to range from $35.0 million to $40.0 million for the year ending June 30, 2013, which could vary depending on the addition of new customers or increased work on existing customer relationships. We intend to fund those expenditures primarily from operating cash flow and available cash and cash equivalents.

EBITDA U.S. GAAP Reconciliation EBITDA is a non-U.S.GAAP financial measure that represents the sum of net income (loss), income tax expense (benefit), interest expense, depreciation and amortization. EBITDA is used internally when evaluating our operating performance and allows investors to make a more meaningful comparison between our core business operating results on a consistent basis over different periods of time, as well as with those of other similar companies. Management believes that EBITDA, when viewed with our results under U.S. GAAP and the accompanying reconciliation, provides additional information that is useful for evaluating the operating performance of our business without regard to potential distortions. Additionally, management believes that EBITDA permits investors to gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced. However, EBITDA has limitations and should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP, such as net income (loss) or cash flow from operating activities, as indicators of operating performance or liquidity. This non-U.S. GAAP measure excludes certain cash expenses that we are obligated to make. In addition, other companies in our industry may calculate this non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure. The table below provides a reconciliation between net income and EBITDA.

Year Ended June 30, 2012 2011 (in millions) Net income $ 10.9 $ 1.4 Adjustments: Interest expense 7.3 6.6 Income tax expense 8.0 1.5 Depreciation and amortization 38.3 38.1 EBITDA $ 64.5 $ 47.6 EBITDA increased $16.9 million to $64.5 million for the year ended June 30, 2012 from $47.6 million for the year ended June 30, 2011.

Credit Facility On August 24, 2011, we replaced our prior credit facility with a new $200.0 million revolving credit facility. As of such date, we had $115.0 million in borrowings and $61.9 million of availability under this facility (after giving effect to outstanding standby letters of credit of $23.1 million).

On June 27, 2012, we exercised the accordion feature of the new revolving credit facility and entered into a commitment increase agreement with our lenders thereby increasing the lenders' commitments by $75 million, from $200.0 million to $275.0 million. The increased commitments will be used to support our general corporate purposes, including funding the UCS acquisition completed on July 2, 2012.

37 -------------------------------------------------------------------------------- Table of Contents As of June 30, 2012, we had $123.0 million of borrowings outstanding and $139.2 million of availability under our $275.0 million revolving credit facility (after giving effect to outstanding standby letters of credit of $12.8 million). The obligations under our revolving credit facility are unconditionally guaranteed by us and each of our existing and subsequently acquired or organized domestic and first-tier foreign subsidiaries and secured on a first-priority basis by security interests (subject to permitted liens) in substantially all assets owned by us and each of our subsidiaries, subject to limited exceptions.

Our new revolving credit facility contains a number of other affirmative and restrictive covenants including limitations on dissolutions, sales of assets, investments, indebtedness and liens. Our credit facility requires us to maintain: (i) a leverage ratio, which is the ratio of total debt to adjusted EBITDA (as defined in our senior credit facility; measured on a trailing four-quarter basis), of no more than 3.75 to 1.0 as of the last day of each fiscal quarter, declining to 3.50 on June 30, 2012 and declining to 3.00 on June 30, 2013 and thereafter, and (ii) a consolidated fixed charge coverage ratio (as defined in the revolving credit facility) of at least 1.25 to 1.0. At June 30, 2012, we were in compliance with such covenants with a fixed charge coverage and leverage ratio of 2.55 and 1.79, respectively.

Contractual Obligations and Other Commitments As of June 30, 2012, our contractual obligations and other commitments were as follows: Payment Obligationsby Fiscal Year Ended June 30, Total 2013 2014 2015 2016 2017 Thereafter (in millions) Long-term debt obligations (1) $ 123.0 $ - $ - $ - $ 123.0 $ - $ - Interest payment obligations (2) 12.6 4.0 4.0 4.0 0.6 - - Operating lease obligations 42.3 9.7 9.0 7.5 6.4 4.7 5.0 Purchase obligations (3) 38.2 38.2 - - - - - Deferred compensation (4) 6.6 - - - - - 6.6 Total $ 222.7 $ 51.9 $ 13.0 $ 11.5 $ 130.0 $ 4.7 $ 11.6 (1) Includes only obligations to pay principal, not interest expense.

(2) Represents estimated interest payments to be made on our variable rate debt.

All interest payments assume that principal payments are made as originally scheduled. Interest rates utilized to determine interest payments for variable rate debt are based upon our current term loan interest rate and include the impact of our interest rate swaps. For more information, see Note 7 of the Notes to Consolidated Financial Statements.

(3) Represents purchase obligations related to materials and subcontractor services for customer contracts.

(4) For a description of the deferred compensation obligation, see Note 16 of the Notes to Consolidated Financial Statements.

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, including sales-leaseback arrangements, 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.

Leases In the ordinary course of business, we enter into non-cancelable operating leases for certain of our facility, vehicle and equipment needs. These leases allow us to conserve cash by paying a monthly lease rental fee for use of the related facilities, vehicles and equipment rather than purchasing them. The terms of these agreements vary from lease to lease, including with renewal options and escalation clauses. We may decide to cancel or terminate a lease before the end of its term, in which case we are typically liable to the lessor for the remaining lease payments under the term of the lease.

38-------------------------------------------------------------------------------- Table of Contents 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.

We use the revolving credit facility to issue letters of credit. As of June 30, 2012, we had $12.8 million of standby letters of credit issued under our revolving credit facility primarily for insurance and bonding purposes. Our ability to obtain letters of credit under the revolving credit facility is conditioned on our continued compliance with its affirmative and negative covenants.

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 June 30, 2012, we had $130.1 million in surety bonds outstanding. 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.

Recent Accounting Pronouncements Presentation of Comprehensive Income In June 2011, the Financial Accounting Standards Board ("FASB") amended its guidance on the presentation of comprehensive income. Under the amended guidance, an entity has the option to present comprehensive income in either one continuous statement or two consecutive financial statements. A single statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income. In a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The option under current guidance that permits the presentation of components of other comprehensive income as part of the statement of changes in stockholders' equity has been eliminated.

The amendment becomes effective retrospectively for our interim period ending September 30, 2012. Early adoption is permitted. We do not expect that this guidance will have an impact on our financial position, results of operations or cash flows as it is disclosure-only in nature.

Accounting for Goodwill and Intangible Assets In September 2011, the FASB issued guidance related to testing goodwill for impairment which amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If this is the case, a more detailed two-step goodwill impairment test will need to be performed which is used to identify potential goodwill impairments and to measure the amount of goodwill impairment losses to be recognized, if any. The amendment will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The amendment becomes effective for our interim period ending September 30, 2012. We do not expect the adoption of this amendment to have a material impact on our financial statements.

39-------------------------------------------------------------------------------- Table of Contents In December 2010, the FASB amended its guidance on goodwill and other intangible assets. The amendment modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if there are qualitative factors indicating that it is more likely than not that a goodwill impairment exists. The qualitative factors are consistent with the existing guidance which requires goodwill of a reporting unit to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This amendment was effective for our interim period ended March 31, 2012. The amendment did not have an impact on our financial position, results of operations or cash flows as we do not have any reporting units with zero or negative carrying amounts.

Accounting for Business Combinations In December 2010, the FASB issued an accounting standards update for business combinations. This standards update specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010 (July 1, 2011 for us).

This new guidance was adopted during the interim period ended September 30, 2011 and utilized for the acquisition of Pine Valley. The adoption did not have a significant impact on our consolidated financial statements.

Disclosures for Fair Value Measurements In May 2011, the FASB amended its guidance to converge fair value measurement and disclosure guidance about fair value measurement under U.S. GAAP with International Financial Reporting Standards ("IFRS"). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board. The amendment changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the amendment to result in a change in the application of the requirements in the current authoritative guidance. The amendment becomes effective prospectively for our interim period ending September 30, 2012. Early adoption is not permitted. We do not expect the amendment to have a material impact on our financial position, results of operations or cash flows.

In January 2010, the FASB issued authoritative guidance for fair value measurements. This guidance now requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and also to describe the reasons for these transfers. This authoritative guidance also requires enhanced disclosure of activity in Level 3 fair value measurements. The guidance for Level 1 and Level 2 fair value measurements was effective for our interim reporting period ended March 31, 2010. The implementation did not have an impact on our financial position, results of operations or cash flows as it is disclosure-only in nature. The guidance for Level 3 fair value measurements disclosures became effective for our interim reporting period ending December 31, 2011 and the implementation did not have an impact on our financial position, results of operations or cash flows.

Disclosures about Offsetting Assets and Liabilities In December 2011, the FASB issued an accounting standards update regarding disclosures about offsetting assets and liabilities, which requires entities to disclose information about offsetting and related arrangements of financial instruments and derivative instruments. The guidance is effective for us beginning July 1, 2013 and is to be applied retrospectively. The adoption of this guidance, which is related to disclosure only, is not expected to have a material impact on our financial position, results of operations or cash flows.

40 -------------------------------------------------------------------------------- Table of Contents FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains statements that are intended to be "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on current expectations, estimates, forecasts and projections about us and the industry in which we operate and management's beliefs and assumptions. Such statements include, in particular, statements about our plans, strategies and prospects under the headings "Business - Overview," "- Industry Overview," "- Our Growth Strategy," "- Competitive Strengths," "- Competition," "- Customers," "- Equipment," "- Government Regulation," "- Environmental Matters," and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Words such as "may," "should," "expect," "anticipate," "intend," "plan," "predict," "potential," "continue," "believe," "seek," "estimate," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict.

Such risks include, without limitation, those identified under the heading "Risk Factors." Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. These forward-looking statements include, but are not limited to, statements relating to: • our belief that there are significant growth opportunities for our business and the services we provide due to the required future investment in transmission and distribution infrastructure, the expanded development of energy sources and the increased outsourcing of infrastructure services; • our belief that our acquisitions of Klondyke and Pine Valley will allow us to continue to expand our EPC services in the Western United States and better compete in markets with unionized workforces; • our belief that there is significant demand for first or second generation build-out of electricity infrastructure in developing countries; • our belief that the markets in developing countries present opportunities for companies, such as ourselves, with scale, sophistication and size to utilize their skills and equipment in productive and profitable projects; • our expectation that we will benefit from the development of new sources of electric power generation; • our belief that growth in our markets will be driven by bundling services and marketing these offerings to our large and extensive customer base and new customers and that by offering these services on a turnkey basis, we enable our customers to achieve economies and efficiencies over separate unbundled services, which should ultimately lead to an expansion of our market share across our existing customer base and provide us the credibility to secure additional opportunities from new customers; • our belief that the United States electric power system and network reliability will require significant future upkeep given the postponement of maintenance spending in recent years due to the difficult economic conditions, that such upkeep will drive demand for our services and that our leading position in the markets we service will enable us to capitalize on increases in demand for our services; • our belief that our existing and potential customers desire a deeper range of service offerings on an ever-increasing scale and that our broad platform of service offerings will enable us to acquire additional market share and further penetrate our existing markets; • our belief that our broad platform of service offerings will be attractive to local and regional firms looking to consolidate with a larger company offering a more diversified and complete set of services; • our belief that our reputation and experience combined with our broad range of services allows us to opportunistically bid on attractive international projects and that there will be large and financially attractive projects to pursue in international markets over the next few years as developing regions, including Africa, install or develop their electric infrastructure; 41 -------------------------------------------------------------------------------- Table of Contents • our belief that we have a unique and strong competitive position in the markets in which we operate resulting from a number of factors including: (i) our position as a leading provider of energy solutions; (ii) our attractive, contiguous presence in key geographic markets; (iii) our long-standing relationships across a high-quality customer base; (iv) our outsourced services-based business model; (v) our position as a recognized leader in storm restoration capabilities; and (vi) our experienced operations management team with extensive relationships; • our belief that we are one of only a few companies offering a broad spectrum of energy solutions that our current and prospective customers increasingly demand; • our belief that our management team's deep industry knowledge, field experience and relationships extend our operating capabilities, improve the quality of our services, facilitate access to clients and enhance our strong reputation in the industry; • our belief that a majority of utility infrastructure services are still conducted in-house and that our customers, especially investor-owned electric utilities, will expand outsourcing of utility infrastructure services over time; • our expectation that a substantial portion of our total revenues will continue to be derived from a limited group of customers given the composition of the investor-owned, municipal and co-operative utilities in our geographic market; • our belief that we have a favorable competitive position in our markets due in large part to our ability to execute with respect to the following factors: (i) diversified services, including the ability to offer turnkey EPC project services; (ii) experienced management and employees; (iii) customer relationships and industry reputation; (iv) responsiveness in emergency restoration situations; (v) availability of fleet and specialty equipment; (vi) adequate financial resources and bonding capacity; (vii) geographic breadth and presence in customer markets; (viii) pricing of services, particularly under MSA constraints; and (ix) safety concerns of our crews, customers and the general public; • our belief that we are in material compliance with applicable regulatory requirements and have all material licenses required to conduct our operations; • our expectation that costs to maintain environmental compliance and/or to address environmental issues will not have a material adverse effect on our results of operations, cash flows or financial condition; • our belief that our customized, well-maintained and extensive fleet and experienced crews provide us with a competitive advantage in our ability to service our customers and respond rapidly to storm restoration opportunities; • our intention to continue to retain any future earnings rather than paying dividends; • 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 operations, financial position, or cash flows; • our belief 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 expectation that the 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 revolving credit facility will be adequate to meet our ordinary course liquidity needs for the foreseeable future and that if we pursue any material acquisitions in the foreseeable future we may need to finance this activity through additional equity or debt financing; 42 -------------------------------------------------------------------------------- Table of Contents • our expectation that our capital expenditures will range from $35.0 million to $40.0 million for the year ending June 30, 2013, which could vary depending on the addition of new customers or increased work on existing new relationships, and our intention to fund those expenditures from operating cash flow and available cash and cash equivalents; • 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 expectation that certain recent accounting pronouncements will have no material effect on our consolidated financial statements; • our expectation that the goodwill recognized in our acquisition of Klondyke and Pine Valley will be amortizable for tax purposes; • our expectation that our ability to satisfy our obligations or to fund planned capital expenditures will depend on our future performance and our belief that this is subject to a certain extent on general economic, financial, competitive, legislative, regulatory and other factors beyond our control; • the possibility that if we fail to comply with the covenants contained in our revolving credit facility, we may be unable to access funds upon which we depend for letters of credit and other short-term borrowings and that this would have a negative impact on our liquidity and require us to obtain alternative short-term financing; and • our expectation that our gross profit and operating income (loss) would be negatively affected if diesel prices rise due to additional costs that may not be fully recovered through increases in prices to customers.

Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after we file this Annual Report on Form 10-K, whether as a result of new information, future events or otherwise.

43 -------------------------------------------------------------------------------- Table of Contents

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