Edgar Filing: DYCOM INDUSTRIES INC

DY Q1 2014 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 26, 2013



	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________

Commission File Number 001-10613

DYCOM INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)



Florida		59-1277135
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11770 US Highway 1, Suite 101, Palm Beach Gardens, Florida		33408
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (561) 627-7171

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 x No ¨

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 x No ¨

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



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a 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 ¨ No x

There were 33,755,060 shares of common stock with a par value of $0.33 1/3 outstanding at November 22, 2013.

DYCOM INDUSTRIES, INC. TABLE OF CONTENTS

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	40
Signatures		41

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

	October 26, 2013		July 27, 2013
	(Dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	14,394	$	18,607
Accounts receivable, net	304,412		252,202
Costs and estimated earnings in excess of billings	221,110		204,349
Inventories	39,273		35,999
Deferred tax assets, net	17,718		16,853
Income taxes receivable	2,231		2,516
Other current assets	16,192		10,608
Total current assets	615,330		541,134

PROPERTY AND EQUIPMENT, NET	203,916		202,703
GOODWILL	267,810		267,810
INTANGIBLE ASSETS, NET	120,021		125,275
OTHER	17,199		17,286
TOTAL NON-CURRENT ASSETS	608,946		613,074
TOTAL ASSETS	$	1,224,276	$	1,154,208

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	68,926	$	77,954
Current portion of debt	8,594		7,813
Billings in excess of costs and estimated earnings	13,347		13,788
Accrued insurance claims	31,528		29,069
Other accrued liabilities	79,453		71,191
Total current liabilities	201,848		199,815

LONG-TERM DEBT (including debt premium of $3.5 million and $3.6 million, respectively)	475,735		444,169
ACCRUED INSURANCE CLAIMS	30,114		27,250
DEFERRED TAX LIABILITIES, NET NON-CURRENT	49,603		48,612
OTHER LIABILITIES	5,992		6,001
Total liabilities	763,292		725,847

COMMITMENTS AND CONTINGENCIES, Notes 10, 11, and 17

STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00 per share: 1,000,000 shares authorized: no shares issued and outstanding	—		—
Common stock, par value $0.33 1/3 per share: 150,000,000 shares authorized: 33,743,879 and 33,264,117 issued and outstanding, respectively	11,248		11,088
Additional paid-in capital	129,068		115,205
Accumulated other comprehensive income	43		103
Retained earnings	320,625		301,965
Total stockholders' equity	460,984		428,361
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,224,276	$	1,154,208

See notes to the condensed consolidated financial statements.

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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	For the Three Months Ended
	October 26, 2013			October 27, 2012
	(Dollars in thousands, except per share amounts)
REVENUES:
Contract revenues	$	512,720		$	323,286

EXPENSES:
Costs of earned revenues, excluding depreciation and amortization	410,119			257,066
General and administrative (including stock-based compensation expense of $3.5 million and $2.3 million, respectively)	43,075			28,824
Depreciation and amortization	23,552			15,311
Total	476,746			301,201

Interest expense, net	(6,886		)	(4,197		)
Other income, net	2,012			1,614
INCOME BEFORE INCOME TAXES	31,100			19,502

PROVISION (BENEFIT) FOR INCOME TAXES:
Current	12,327			8,858
Deferred	113			(1,217		)
Total	12,440			7,641

NET INCOME	$	18,660		$	11,861

EARNINGS PER COMMON SHARE:
Basic earnings per common share	$	0.56		$	0.36

Diluted earnings per common share	$	0.54		$	0.35

SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic	33,423,678			33,089,959

Diluted	34,638,998			33,721,070

See notes to the condensed consolidated financial statements.

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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	For the Three Months Ended
	October 26, 2013			October 27, 2012
	(Dollars in thousands)
NET INCOME	$	18,660		$	11,861
Foreign currency translation (losses) gains	(60		)	2
COMPREHENSIVE INCOME	$	18,600		$	11,863

See notes to the condensed consolidated financial statements.

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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	For the Three Months Ended
	October 26, 2013			October 27, 2012
	(Dollars in thousands)
OPERATING ACTIVITIES:
Net income	$	18,660		$	11,861
Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of acquisitions:
Depreciation and amortization	23,552			15,311
Bad debt expense, net	186			9
Gain on sale of fixed assets	(1,865		)	(1,581		)
Deferred income tax provision (benefit)	113			(1,217		)
Stock-based compensation	3,506			2,266
Amortization of premium on long-term debt	(91		)	—
Amortization of debt issuance costs and other	465			329
Excess tax benefit from share-based awards	(656		)	(64		)
Change in operating assets and liabilities:
Accounts receivable, net	(52,397		)	(12,015		)
Costs and estimated earnings in excess of billings, net	(17,202		)	8,838
Other current assets and inventory	(8,740		)	(3,509		)
Other assets	(430		)	(62		)
Income taxes receivable/payable	8,101			8,773
Accounts payable	871			3,879
Accrued liabilities, insurance claims, and other liabilities	7,234			(5,102		)
Net cash (used in) provided by operating activities	(18,693		)	27,716

INVESTING ACTIVITIES:
Capital expenditures	(30,288		)	(12,523		)
Proceeds from sale of assets	2,465			2,006
Changes in restricted cash	(305		)	—
Net cash used in investing activities	(28,128		)	(10,517		)

FINANCING ACTIVITIES:
Proceeds from borrowings on senior Credit Agreement	164,000			—
Principal payments on senior Credit Agreement, including Term Loan	(131,563		)	—
Repurchases of common stock	—			(15,203		)
Exercise of stock options	10,124			166
Restricted stock tax withholdings	(609		)	(62		)
Excess tax benefit from share-based awards	656			64
Principal payments on capital lease obligations	—			(19		)
Net cash provided by (used in) financing activities	42,608			(15,054		)

Net (decrease) increase in cash and equivalents	(4,213		)	2,145

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	18,607			52,581

CASH AND EQUIVALENTS AT END OF PERIOD	$	14,394		$	54,726

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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest	$	1,517	$	489
Income taxes	$	4,311	$	85

Purchases of capital assets included in accounts payable or other accrued liabilities at period end	$	3,384	$	2,364

See notes to the condensed consolidated financial statements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Accounting Policies

Basis of Presentation - Dycom Industries, Inc. ("Dycom" or the "Company") is a leading provider of specialty contracting services throughout the United States and in Canada. These services include engineering, construction, maintenance and installation services to telecommunications providers, underground facility locating services to various utilities, including telecommunications providers, and other construction and maintenance services to electric and gas utilities and others.

The accompanying unaudited condensed consolidated financial statements of Dycom and its subsidiaries, all of which are wholly-owned, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The condensed consolidated financial statements and accompanying notes reflect all adjustments, consisting of only normal recurring accruals that are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three months ended October 26, 2013 are not necessarily indicative of the results expected for the full year or for any future period. The information included in these condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report and the Company's audited financial statements for the year ended July 27, 2013 included in the Company's 2013 Annual Report on Form 10-K, filed with the SEC on September 13, 2013.

The condensed consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries. All significant transactions and balances between the Company and its subsidiaries have been eliminated in consolidation.

All of the Company's operating segments have been aggregated into one reporting segment due to their similar economic characteristics, customers, service distribution methods, and the nature of their services and production processes. The Company's services are provided by its various subsidiaries throughout the United States and in Canada. Revenues from services provided in Canada were approximately $3.3 million and $3.9 million during the three months ended October 26, 2013 and October 27, 2012, respectively. The Company had no material long-lived assets in the Canadian operations at October 26, 2013 or July 27, 2013.

Acquisitions - On December 3, 2012, the Company acquired substantially all of the telecommunications infrastructure services subsidiaries of Quanta Services, Inc. Additionally, during the fourth quarter of fiscal 2013, the Company acquired Sage Telecommunications Corp of Colorado, LLC (“Sage”) and certain assets of a tower construction and maintenance company. The results of operations of the businesses acquired are included in the accompanying condensed consolidated financial statements from their dates of acquisition.

Accounting Period - The Company uses a fiscal year ending on the last Saturday in July.

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. For the Company, key estimates include: recognition of revenue for costs and estimated earnings in excess of billings, accrued insurance claims, provision for income taxes, accruals for legal matters and other contingencies, the fair value of reporting units for goodwill impairment analysis, the assessment of impairment of intangibles and other long-lived assets, preliminary purchase price allocations of businesses acquired, stock-based compensation expense for performance-based stock awards, asset lives used in computing depreciation and amortization, and allowance for doubtful accounts. At the time they are made, the Company believes that such estimates are fair when considered in conjunction with the consolidated financial position and results of operations taken as a whole. However, actual results could differ from those estimates and such differences may be material to the financial statements.

Significant Accounting Policies

There were no material changes to the Company’s significant accounting policies and critical accounting estimates during the three months ended October 26, 2013. For a complete discussion of the Company’s significant accounting policies, refer to Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended July 27, 2013.

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Restricted Cash - As of October 26, 2013 and July 27, 2013, the Company had approximately $4.0 million and $3.7 million, respectively, in restricted cash which is held as collateral in support of the Company's insurance obligations. Restricted cash is included in other current assets and other assets in the condensed consolidated balance sheets and changes in restricted cash are reported in cash flows used in investing activities in the condensed consolidated statements of cash flows.

Fair Value of Financial Instruments - ASC Topic 820, Fair Value Measurements and Disclosures ("ASC Topic 820") defines and establishes a measurement framework for fair value and expands disclosure requirements. ASC Topic 820 requires that assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: (1) Level 1 - Quoted market prices in active markets for identical assets or liabilities; (2) Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data; and (3) Level 3 - Unobservable inputs not corroborated by market data which require the reporting entity's own assumptions. The Company's financial instruments consist primarily of cash and equivalents, restricted cash, accounts receivables, income taxes receivable and payable, accounts payable and certain accrued expenses, and long-term debt. The carrying amounts of these items approximate fair value due to their short maturity, except for the Company's outstanding 7.125% senior subordinated notes due 2021 (the "2021 Notes") which are categorized as Level 2 as of October 26, 2013 and July 27, 2013, based on observable market-based inputs. See Note 10, Debt, for further information regarding the fair value of the 2021 Notes. The Company's cash and equivalents are categorized as Level 1 as of October 26, 2013 and July 27, 2013, based on quoted market prices in active markets for identical assets. During the three months ended October 26, 2013 and October 27, 2012, the Company had no non-recurring fair value measurements of assets or liabilities subsequent to their initial recognition.

Recently Issued Accounting Pronouncements

Adoption of New Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment ("ASU 2012-02"). ASU 2012-02 permits an entity to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired prior to any determination as to whether it is necessary to perform the quantitative impairment test required by ASC Topic 350. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company adopted ASU 2012-02 in fiscal 2014. The adoption of this guidance did not have a material effect on the Company's condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

In February 2013, the FASB issued Accounting Standards Update No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force) (“ASU 2013-04”). ASU 2013-04 provides guidance related to the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. ASU 2013-04 also requires an entity to disclose the nature and amount of the obligation. ASU 2013-05 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013, with retrospective application required for all periods presented. The adoption of this guidance is not expected to have a material effect on the Company's condensed consolidated financial statements.

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). ASU 2013-11 provides guidance on the financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance requires an unrecognized tax benefit, or a portion of it, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent the net operating loss carryforward, a similar tax loss, or a tax credit carryforward under the tax law of the applicable jurisdiction is not available at the reporting date to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning

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after December 15, 2013. The Company is currently evaluating the potential impact of ASU 2013-11 on its condensed consolidated financial statements.

2. Computation of Earnings Per Common Share

The following is a reconciliation of the numerator and denominator of the basic and diluted earnings per common share computation as required by ASC Topic 260, Earnings Per Share.



	For the Three Months Ended
	October 26, 2013		October 27, 2012
	(Dollars in thousands, except per share amounts)
Net income available to common stockholders (numerator)	$	18,660	$	11,861

Weighted-average number of common shares (denominator)	33,423,678		33,089,959

Basic earnings per common share	$	0.56	$	0.36

Weighted-average number of common shares	33,423,678		33,089,959
Potential common stock arising from stock options, and unvested restricted share units	1,215,320		631,111
Total shares-diluted (denominator)	34,638,998		33,721,070

Diluted earnings per common share	$	0.54	$	0.35

Anti-dilutive weighted shares excluded from the calculation of earnings per share	547,154		1,940,101

3. Acquisitions

On December 3, 2012, Dycom acquired substantially all of the telecommunications infrastructure services subsidiaries (the "Acquired Subsidiaries") of Quanta Services, Inc. for the sum of $275.0 million in cash, an adjustment of approximately $40.4 million for working capital received in excess of a target amount, and approximately $3.7 million for other specified items. The acquisition was funded through a combination of borrowings under a new $400 million credit facility and cash on hand. On December 12, 2012, Dycom's wholly-owned subsidiary, Dycom Investments, Inc., issued $90.0 million of 7.125% senior subordinated notes due 2021 and used the net proceeds to repay approximately $90.0 million of the credit facility borrowings. See Note 10, Debt, for further information regarding the Company's debt financing.

The Acquired Subsidiaries provide specialty contracting services, including engineering, construction, maintenance and installation services to telecommunications providers, and other construction and maintenance services to electric and gas utilities and others. Principal business facilities are located in Arizona, California, Florida, Georgia, Minnesota, New York, Pennsylvania, and Washington. On a combined basis, Dycom's businesses serve hundreds of individual customers through operation in all 50 states, the District of Columbia, and in Canada.

During the fourth quarter of fiscal 2013, the Company acquired Sage Telecommunications Corp of Colorado, LLC ("Sage") and certain assets of a tower construction and maintenance company for a total of $11.3 million, net of cash acquired. Goodwill of $5.0 million resulting from these acquisitions are expected to be deductible for tax purposes. Sage provides telecommunications construction and project management services primarily for cable operators in the Western United States. These acquisitions were not material to the Company.

The purchase prices of the businesses acquired have been allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their fair values on the respective dates of acquisition. Purchase price in excess of fair value of the separately identifiable assets acquired and the liabilities assumed have been allocated to goodwill. Purchase price allocations are based on information regarding the fair value of assets acquired and liabilities assumed as of the dates of acquisition. Management determined the fair values used in the purchase price allocations for intangible assets based on historical data, estimated discounted future cash flows, contract backlog amounts, if applicable, and expected royalty rates for

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trademarks and trade names as well as certain other assumptions. For the Acquired Subsidiaries, the fair values used in the purchase price allocation for intangible assets were determined with the assistance of an independent valuation specialist. The valuation of assets acquired and liabilities assumed requires a number of judgments and is subject to revision as additional information about the fair value of assets and liabilities becomes available. The allocation of the purchase price of the Acquired Subsidiaries was completed during the fourth quarter of fiscal 2013. Purchase price allocations of businesses acquired during the fourth quarter of fiscal 2013 are preliminary and are expected to be completed during fiscal 2014 when the valuations for intangible assets and other amounts are finalized. Additional information, which existed as of the acquisition dates but was unknown by the Company, may become known to the Company during the remainder of the measurement period, a period not to exceed twelve months from the acquisition date. Adjustments in the purchase price allocations may require an adjustment of the amounts allocated to goodwill.

The purchase price of the Acquired Subsidiaries is allocated as follows and reflects the elimination of intercompany balances (dollars in millions):



Assets
Cash and equivalents	$	0.2
Accounts receivable, net	112.2
Costs and estimated earnings in excess of billings	61.5
Inventories	9.0
Other current assets	1.6
Property and equipment	33.3
Goodwill	87.9
Intangibles - customer relationships	70.3
Intangibles - backlog	15.3
Intangibles - trade names	5.0
Other assets	2.3
Total assets	398.6

Liabilities
Accounts payable	42.1
Billings in excess of costs and estimated earnings	10.3
Accrued and other liabilities	27.1
Total liabilities	79.5

Net Assets Acquired	$	319.1

Goodwill of $87.9 million and amortizing intangible assets of $90.6 million related to the acquisition is expected to be deductible for tax purposes. See Note 7, Goodwill and Intangible Assets, for further information on amortization and estimated useful lives of intangible assets acquired.

The results of operations of businesses acquired have been included in the condensed consolidated statements of operations since the respective dates of acquisition. For the three months ended October 26, 2013 the Acquired Subsidiaries earned revenues of $150.3 million, recognized intangible amortization expense of $3.4 million, and their net income, inclusive of charges allocated for management costs, was $4.2 million.

The following unaudited pro forma information presents the Company's consolidated results of operations as if the acquisition of the Acquired Subsidiaries had occurred on July 31, 2011, the first day of the Company's 2012 fiscal year. The pro forma results include certain adjustments, including depreciation and amortization expense based on the estimated fair value of the assets acquired, interest and debt amortization expense related to the Company's debt financing of the transaction, and the income tax impact of these adjustments. Pro forma earnings during the three months ended October 27, 2012 have been adjusted to reflect the impact of amortization and depreciation as if the acquisition had occurred on July 31, 2011. This includes the impact of amortization expense, including customer relationships and contract backlog which is being recognized on an accelerated basis related to the expected economic benefit, and depreciation expense which is recognized over the estimated useful lives of the related property and equipment. The unaudited pro forma information is not necessarily indicative of the results of operations of the combined companies had the acquisition occurred at the beginning of the periods presented nor is it indicative of future results.

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	For the Three Months Ended
	October 27, 2012
	(Dollars in thousands, except per share amounts)
Pro forma contract revenues	$	499,666
Pro forma income before income taxes	$	36,205
Pro forma net income	$	22,019

Pro forma earnings per share:
Basic	$	0.67
Diluted	$	0.65

4. Accounts Receivable

Accounts receivable consists of the following:



	October 26, 2013			July 27, 2013
	(Dollars in thousands)
Contract billings	$	291,083		$	239,498
Retainage and other receivables	13,601			12,833
Total	304,684			252,331
Less: allowance for doubtful accounts	(272		)	(129		)
Accounts receivable, net	$	304,412		$	252,202

As of October 26, 2013, the Company expected to collect all retainage balances within the next twelve months. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the failure of its customers to make required payments. During the three months ended October 26, 2013 and October 27, 2012, write-offs, net of recoveries, to the allowance for doubtful accounts were immaterial.

5. Costs and Estimated Earnings in Excess of Billings

Costs and estimated earnings in excess of billings, net, consists of the following:



	October 26, 2013			July 27, 2013
	(Dollars in thousands)
Costs incurred on contracts in progress	$	220,475		$	208,250
Estimated to date earnings	53,473			49,150
Total costs and estimated earnings	273,948			257,400
Less: billings to date	(66,185		)	(66,839		)
	$	207,763		$	190,561
Included in the accompanying condensed consolidated balance sheets under the captions:
Costs and estimated earnings in excess of billings	$	221,110		$	204,349
Billings in excess of costs and estimated earnings	(13,347		)	(13,788		)
	$	207,763		$	190,561

The above amounts include revenue for services from contracts based both on the units-of-delivery and the cost-to-cost measures of the percentage of completion method.

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6. Property and Equipment

Property and equipment consists of the following:



	General Useful Lives	October 26, 2013			July 27, 2013
	(Years)	(Dollars in thousands)
Land	—	$	3,479		$	3,479
Buildings	10-35	11,511			11,449
Leasehold improvements	1-15	5,273			5,154
Vehicles	1-5	264,023			258,211
Computer hardware and software	3-10	66,961			64,191
Office furniture and equipment	2-7	8,155			7,915
Equipment and machinery	1-10	176,344			171,742
Total		535,746			522,141
Less: accumulated depreciation		(331,830		)	(319,438		)
Property and equipment, net		$	203,916		$	202,703

Depreciation expense and repairs and maintenance were as follows:



	For the Three Months Ended
	October 26, 2013		October 27, 2012
	(Dollars in thousands)
Depreciation expense	$	18,401	$	13,720
Repairs and maintenance expense	$	5,994	$	3,811

7. Goodwill and Intangible Assets

Goodwill

The Company's goodwill balance was $267.8 million as of October 26, 2013 and July 27, 2013. Accordingly, there were no changes in the carrying amount of goodwill for the three months ended October 26, 2013. The Company's goodwill resides in multiple reporting units. The profitability of individual reporting units may suffer periodically from downturns in customer demand and other factors resulting from the cyclical nature of the Company's business, the high level of competition existing within the Company's industry, the concentration of the Company's revenues from a limited number of customers, and the level of overall economic activity. During times of slowing economic conditions, the Company's customers may reduce capital expenditures and defer or cancel pending projects. Individual reporting units may be more impacted by these factors than the Company as a whole. As a result, demand for the services of one or more of the Company's reporting units could decline, resulting in an impairment of goodwill or intangible assets. The reporting units goodwill and other related indefinite-lived intangible assets are assessed annually as of the first day of the fourth fiscal quarter of each year in accordance with ASC Topic 350, Intangibles – Goodwill and Other, in order to determine whether their carrying value exceeds their fair value. The inputs used for fair value measurements of the reporting units and other related indefinite-lived intangible assets are the lowest level (Level 3) inputs.

As a result of the fiscal 2013 annual impairment analysis, the Company concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit. However, the UtiliQuest reporting unit, having a goodwill balance of approximately $35.6 million and an indefinite-lived trade name of $4.7 million, has been at lower operating levels as compared to historical periods. The fair value of the UtiliQuest reporting unit exceeded its carrying value by approximately 20%. The UtiliQuest reporting unit provides services to a broad range of customers, including utilities and telecommunication providers. These services are required prior to underground excavation and are influenced by overall economic activity, including construction activity. The goodwill balance of this reporting unit may have an increased likelihood of impairment if a downturn in customer demand were to occur, or if the reporting unit were not able to execute against customer opportunities, and the long-term outlook for their cash flows were adversely impacted. Furthermore, changes in the long-term outlook for this reporting unit may result in changes to other valuation assumptions.

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As of October 26, 2013, the Company believes the goodwill and indefinite-lived intangible asset is recoverable for all of its reporting units; however, there can be no assurances that the goodwill and indefinite-lived intangible asset will not be impaired in future periods.

Intangible Assets

The Company's intangible assets consist of the following:



	Weighted Average Remaining Useful Lives	October 26, 2013		July 27, 2013
	(Years)	(Dollars in thousands)
Carrying amount:
Customer relationships	12.1	$	164,394	$	164,497
Contract backlog	2.3	15,285		15,285
Trade names	4.8	8,200		8,200
UtiliQuest trade name	—	4,700		4,700
Non-compete agreements	4.1	400		400
		192,979		193,082
Accumulated amortization:
Customer relationships		59,454		56,219
Contract backlog		11,006		9,433
Trade names		2,394		2,071
Non-compete agreements		104		84
Net Intangible Assets		$	120,021	$	125,275

Amortization of the Company's intangible assets of customer relationships and contract backlog is recognized on an accelerated basis as a function of the expected economic benefit. As a result, the weighted average remaining useful lives for these intangible assets is not representative of the average period in which the amortization expense will be recognized. Amortization for the Company's other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life of the intangible asset. Amortization expense for finite-lived intangible assets for the three months ended October 26, 2013 and October 27, 2012 was $5.2 million and $1.6 million, respectively.

Estimated total amortization expense for the remainder of fiscal 2014 and each of the five succeeding fiscal years is as follows:



Period		Amount
		(Dollars in thousands)
Nine months ending July 26, 2014		$12,963
2015		$15,027
2016		$14,276
2017		$12,885
2018		$10,697
2019		$8,395
Thereafter		$41,078

As of October 26, 2013, the Company believes that the carrying amounts of its intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment and the assets may be impaired.

8. Accrued Insurance Claims

The Company retains the risk of loss, up to certain limits, for claims relating to automobile liability, general liability, workers’ compensation, employee group health, and locate damages. With respect to losses occurring in fiscal 2014, the Company retains the risk of loss up to $1.0 million on a per occurrence basis for automobile liability, general liability and workers’ compensation. These retention amounts are applicable to all of the states in which the Company operates, except with

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respect to workers’ compensation insurance in three states in which the Company participates in a state-sponsored insurance fund. Aggregate stop loss coverage for automobile liability, general liability and workers’ compensation claims is $56.3 million for fiscal 2014. The risk of loss for insured claims of the Acquired Subsidiaries outstanding, or incurred but not reported, as of the date of acquisition has been retained by Quanta Services, Inc.

The Company is party to a stop-loss agreement for losses under its employee health plan. The Company retains the risk of loss, on an annual basis, of the first $250,000 of claims per participant. In addition, the Company retains the risk of loss for the first $550,000 of claim amounts that aggregate across all participants having claims that exceed $250,000.

Accrued insurance claims consist of the following:



	October 26, 2013		July 27, 2013
	(Dollars in thousands)
Amounts expected to be paid within one year:
Accrued auto, general liability and workers' compensation	$	20,824	$	19,328
Accrued employee group health	3,596		3,710
Accrued damage claims	7,108		6,031
	31,528		29,069
Amounts expected to be paid beyond one year:
Accrued auto, general liability and workers' compensation	27,877		25,245
Accrued damage claims	2,237		2,005
	30,114		27,250
Total accrued insurance claims	$	61,642	$	56,319

9. Other Accrued Liabilities

Other accrued liabilities consist of the following:



	October 26, 2013		July 27, 2013
	(Dollars in thousands)
Accrued payroll and related taxes	$	20,616	$	19,940
Accrued employee benefit and incentive plan costs	9,483		15,325
Accrued construction costs	22,001		20,883
Accrued interest and related bank fees	5,883		937
Other current liabilities	21,470		14,106
Total other accrued liabilities	$	79,453	$	71,191

Other current liabilities within the above table includes income taxes payable of $9.1 million and $2.3 million as of October 26, 2013 and July 27, 2013, respectively.

10. Debt

The Company’s outstanding indebtedness consists of the following:



	October 26, 2013			July 27, 2013
	(Dollars in thousands)
Borrowings on senior Credit Agreement (matures December 2017)	$	83,000		$	49,000
Senior Credit Agreement Term Loan (matures December 2017)	120,313			121,875
7.125% senior subordinated notes (matures January 2021)	277,500			277,500
Long-term debt premium on 7.125% senior subordinated notes (amortizes to interest expense through January 2021)	3,516			3,607
	484,329			451,982
Less: current portion	(8,594		)	(7,813		)
Long-term debt	$	475,735		$	444,169

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Senior Subordinated Notes Due 2021

On October 26, 2013 and July 27, 2013, Dycom Investments, Inc. (the "Issuer"), a wholly-owned subsidiary of the Company, had outstanding an aggregate principal amount of $277.5 million of 7.125% senior subordinated notes due 2021 that were issued under an indenture dated January 21, 2011 (the "Indenture"). In addition, a debt premium of $3.5 million and $3.6 million existed as of October 26, 2013 and July 27, 2013, respectively. The debt premium was recognized upon the December 2012 issuance of $90.0 million in aggregate principal amount of the 7.125% senior subordinated notes at 104.25% of the principal amount. The net proceeds of this $90.0 million issuance were used to repay a portion of the borrowings under the Company's credit facility. Holders of all $277.5 million aggregate principal amount of the 2021 Notes vote as one series under the Indenture.

The 2021 Notes are guaranteed by Dycom and substantially all of the Company's subsidiaries. The Indenture contains covenants that limit, among other things, the ability of the Company and its subsidiaries to incur additional debt and issue preferred stock, make certain restricted payments, consummate specified asset sales, enter into transactions with affiliates, incur liens, impose restrictions on the ability of the Company's subsidiaries to pay dividends or make payments to the Company and its restricted subsidiaries, merge or consolidate with another person, and dispose of all or substantially all of its assets.

The Company determined that the fair value of the 2021 Notes as of October 26, 2013 was approximately $293.8 million, based on quoted market prices, compared to a $281.0 million carrying value (including the debt premium of $3.5 million). As of July 27, 2013, the fair value of the 2021 Notes was $292.4 million compared to a carrying value of $281.1 million (including the debt premium of $3.6 million).

Senior Credit Agreement

Dycom Industries, Inc. and certain of its subsidiaries are party to a credit agreement with various lenders (the "Credit Agreement") which matures in December 2017. The Credit Agreement provides for a $125 million term loan (the "Term Loan") and a $275 million revolving facility. The Credit Agreement contains a sublimit of $150 million for the issuance of letters of credit. Subject to certain conditions, the Credit Agreement provides for the ability to enter into one or more incremental facilities, either by increasing the revolving commitments under the Credit Agreement and/or in the form of term loans, in an aggregate amount not to exceed $100 million. Borrowings under the Credit Agreement are guaranteed by substantially all of Dycom's subsidiaries and secured by the stock of each wholly-owned, domestic subsidiary (subject to specified exceptions) and can be used to refinance certain indebtedness, to provide general working capital, and for other general corporate purposes.

The Company had outstanding borrowings under the Credit Agreement of $83.0 million and $49.0 million as of October 26, 2013 and July 27, 2013, respectively. Borrowings under the Credit Agreement accrued interest at a weighted average rate of approximately 2.38% per annum and 2.19% per annum as of October 26, 2013 and July 27, 2013, respectively. As of October 26, 2013 and July 27, 2013, the Company had $120.3 million and $121.9 million, respectively, of outstanding principal amount under the Term Loan, which accrued interest at 2.17% and 2.19% per annum, respectively. The Term Loan is subject to principal amortization payable in equal quarterly installments.

Standby letters of credit of approximately $49.7 million and $46.7 million were outstanding under the Credit Agreement as of October 26, 2013 and July 27, 2013, respectively. The outstanding letters of credit are issued as part of the Company's insurance program. Interest on outstanding standby letters of credit accrued at 2.0% per annum at both October 26, 2013 and July 27, 2013, respectively. Unutilized commitments were at rates per annum of 0.35% at both October 26, 2013 and July 27, 2013.

At October 26, 2013 and July 27, 2013, the Company was in compliance with the financial covenants of the Credit Agreement and had additional borrowing availability of $142.3 million and $179.3 million, respectively, as determined by the most restrictive covenants of the Credit Agreement.

11. Income Taxes

The Company accounts for income taxes under the asset and liability method. This approach recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their carrying amounts in the financial statements. The Company’s effective income tax rate differs from the statutory rate for the tax jurisdictions in which it operates primarily as the result of the impact of non-deductible and non-taxable items and tax credits recognized in relation to pre-tax results. Measurement of certain aspects of the Company’s tax positions are based on interpretations of tax regulations, federal and state case law and applicable statutes.

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The Company files income tax returns in the U.S. federal jurisdiction, multiple state jurisdictions and in Canada. With limited exceptions, the Company is no longer subject to U.S. federal and most state and local income tax examinations for fiscal years ended 2009 and prior. The Company believes its provision for income taxes is adequate; however, any assessment would affect the Company’s results of operations and cash flows.

At both October 26, 2013 and July 27, 2013, the Company had total unrecognized tax benefits of $2.3 million which would reduce the Company’s effective tax rate during future periods if it is subsequently determined that those liabilities were not required. The Company had approximately $0.8 million accrued for the payment of interest and penalties at both October 26, 2013 and July 27, 2013. The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses. Interest expense related to unrecognized tax benefits was immaterial for the three months ended October 26, 2013 and October 27, 2012.

12. Other Income, Net

The components of other income, net, are as follows:



	For the Three Months Ended
	October 26, 2013		October 27, 2012
	(Dollars in thousands)
Gain on sale of fixed assets	$	1,865	$	1,581
Miscellaneous income, net	147		33
Total other income, net	$	2,012	$	1,614

13. Multi-Employer Benefit Plans

Certain of the Company's subsidiaries, including certain of the Acquired Subsidiaries, participate in multi-employer benefit pension plans under the terms of collective-bargaining agreements. The Company's contributions were $0.8 million and $0.7 million during the three months ended October 26, 2013 and October 27, 2012, respectively. The increase in contributions during the three months ended October 26, 2013 is related to contributions from the Acquired Subsidiaries. The risks of participating in a multi-employer defined benefit pension plan are different from single-employer plans in the following aspects: (a) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of any other participating employers; (b) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may become obligations of the remaining participating employers; and (c) if the Company chooses to stop participating in the multi-employer plan, the Company may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability. The Company has not incurred withdrawal liabilities related to the plans as of October 26, 2013 or July 27, 2013.

14. Capital Stock

On August 27, 2013, the Board of Directors authorized $40.0 million to repurchase shares of the Company's outstanding common stock over the subsequent eighteen months in open market or private transactions. No shares were repurchased during the first quarter of fiscal 2014. As of October 26, 2013, the full $40.0 million authorization remained available for repurchases through February 2015. Pursuant to a previous repurchase authorization, the Company made the following repurchases:



Three Months Ended	Number of Shares Repurchased	Total Consideration (Dollars in thousands)		Average Price Per Share
Fiscal 2012	597,700	$	12,960	$	21.68
Fiscal 2013	1,047,000	$	15,203	$	14.52

All shares repurchased have been canceled.

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15. Stock-Based Awards

The Company has certain stock-based compensation plans which provide for the grants of equity awards, including stock options, restricted shares, performance shares, restricted share units, performance share units, and stock appreciation rights.

Compensation expense for stock-based awards is based on the fair value at the measurement date and is included in general and administrative expenses in the condensed consolidated statements of operations. Stock-based compensation expense and the related tax benefit recognized related to stock options and restricted share units during the three months ended October 26, 2013 and October 27, 2012 were as follows:



	For the Three Months Ended
	October 26, 2013		October 27, 2012
	(Dollars in thousands)
Stock-based compensation	$	3,506	$	2,266
Tax benefit recognized in the statement of operations	$	1,299	$	765

Compensation expense previously recognized with respect to performance share units will be reversed to the extent that performance goals are not met. As of October 26, 2013, unrecognized compensation expense related to stock options, time-based restricted share units ("RSUs") and target performance share units ("Performance RSUs") was $4.3 million, $6.1 million and $7.9 million, respectively. This expense will be recognized over a weighted-average period of 1.9 years, 2.9 years and 1.5 years, respectively, which is based on the average remaining service periods of the awards. As of October 26, 2013, the Company may recognize an additional $8.2 million in compensation expense related to Performance RSUs if the maximum amount of restricted share units are earned based on certain performance goals being met.

Stock Options - The following table summarizes stock option award activity during the three months ended October 26, 2013:



	Stock Options
	Shares		Weighted Average Exercise Price

Outstanding as of July 27, 2013	2,769,132		$	18.27
Options exercised	(454,216	)	$	22.29
Outstanding as of October 26, 2013	2,314,916		$	17.48

Exercisable options as of October 26, 2013	1,424,099		$	19.70

RSUs and Performance RSUs - The following table summarizes RSU and Performance RSU activity during the three months ended October 26, 2013:



	Restricted Stock
	RSUs				Performance RSUs
	Share Units		Weighted Average Grant Price		Share Units		Weighted Average Grant Price

Outstanding as of July 27, 2013	463,318		$	17.78	1,315,138		$	18.44
Granted	1,035		$	25.99	65,154		$	30.55
Share units vested	(1,035	)	$	25.99	(43,979	)	$	14.75
Forfeited or canceled	—		$	—	(265,461	)	$	18.36
Outstanding as of October 26, 2013	463,318		$	17.78	1,070,852		$	19.35

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The granted Performance RSUs in the above table is comprised of 32,577 target shares and 32,577 supplemental shares. Approximately 265,000 Performance RSUs outstanding as of July 27, 2013 were canceled during the three months ended October 26, 2013 as a result of the fiscal 2013 performance criteria for attaining supplemental shares not being met. The total amount of Performance RSUs outstanding as of October 26, 2013 is comprised of 646,167 target shares and 424,685 supplemental shares.

16. Related Party Transactions

The Company leases administrative offices from entities related to officers of certain of the Company’s subsidiaries. The total expense under these arrangements for the three months ended October 26, 2013 and October 27, 2012 was $0.6 million and $0.3 million, respectively. Amounts paid for subcontracting services to entities related to officers of certain of the Company’s subsidiaries were immaterial during the three months ended October 26, 2013 and October 27, 2012.

17. Commitments and Contingencies

In October 2012, a former employee of UtiliQuest, LLC ("UtiliQuest"), a wholly-owned subsidiary of the Company, commenced a lawsuit against UtiliQuest in the Superior Court of California. The lawsuit alleges that UtiliQuest violated the California Labor Code, the California Business & Professions Code and the Labor Code Private Attorneys General Act of 2004 by failing to pay for all hours worked (including overtime) and failing to provide meal breaks and accurate wage statements. The plaintiff seeks unspecified damages and other relief on behalf of himself and a putative class of current and former employees of UtiliQuest who worked as locators in the State of California in the four years preceding the filing date of the lawsuit. In January 2013, UtiliQuest removed the case to the United States District Court for the Northern District of California and the plaintiff subsequently filed a Motion to Remand the case back to the California Superior Court. In April 2013, the parties exchanged initial disclosures and in July 2013, the District Court granted plaintiff's Motion to Remand. UtiliQuest filed its second removal of the case to the District Court in October 2013, and plaintiff is again seeking remand back to state court. UtiliQuest also filed a Motion for Summary Judgment in October 2013, the decision on which has been stayed by the District Court until it rules on plaintiff’s Motion to Remand. It is too early to evaluate the likelihood of an outcome to this matter or estimate the amount or range of potential loss, if any. The Company intends to vigorously defend itself against this lawsuit.

From time to time, the Company and its subsidiaries are parties to various other claims and legal proceedings. It is the opinion of management, based on information available at this time, that such other pending claims or proceedings will not have a material effect on its financial statements.

As part of the Company's insurance program, it retains the risk of loss, up to certain limits, for claims related to automobile liability, general liability, workers' compensation, employee group health, and locate damages, and the Company has established reserves that it believes to be adequate based on current evaluations and experience with these types of claims. For these claims, the effect on the Company's financial statements is generally limited to the amount needed to satisfy insurance deductibles or retentions.

Performance Bonds and Guarantees

The Company has obligations under performance and other surety contract bonds related to certain of its customer contracts. Performance bonds generally provide the Company’s customer with the right to obtain payment and/or performance from the issuer of the bond if the Company fails to perform its contractual obligations. As of October 26, 2013 and July 27, 2013, the Company had $435.3 million and $446.5 million of outstanding performance and other surety contract bonds, respectively. No events have occurred in which the customers have exercised their rights under the bonds.

The Company has periodically guaranteed certain obligations of its subsidiaries, including obligations in connection with obtaining state contractor licenses and leasing real property and equipment.

Letters of Credit

The Company has standby letters of credit issued under its Credit Agreement as part of its insurance program. These standby letters of credit collateralize the Company’s obligations to its insurance carriers in connection with the settlement of potential claims. As of October 26, 2013 and July 27, 2013, the Company had $49.7 million and $46.7 million, respectively, of outstanding standby letters of credit issued under the Credit Agreement.

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18. Concentration of Credit Risk

The Company’s customer base is highly concentrated, with its top five customers in each of the three months ended October 26, 2013 and October 27, 2012, accounting for approximately 57.2% and 59.6% of its total revenues, respectively. Revenues from four of the top five customers exceeded 10% of total revenue during the three months ended October 26, 2013 or October 27, 2012:



	For the Three Months Ended
	October 26, 2013	October 27, 2012
AT&T Inc. ("AT&T")	17.5%	13.5%
CenturyLink, Inc. ("CenturyLink")	15.5%	13.7%
Comcast Corporation ("Comcast")	10.5%	12.7%
Verizon Communications, Inc. ("Verizon")	8.4%	10.2%

The Company believes that none of its significant customers was experiencing financial difficulties that would materially impact the collectability of the Company’s trade accounts receivable and costs in excess of billings as of October 26, 2013. Customers representing 10% or more of combined amounts of trade accounts receivable and costs and estimated earnings in excess of billings as of October 26, 2013 or July 27, 2013 had the following outstanding balances and the related percentage of the Company’s total outstanding balances:



	October 26, 2013				July 27, 2013
	Amount		% of Total		Amount		% of Total
			(Dollars in millions)
AT&T	$	69.0	13.1	%	$	57.4	12.6	%
CenturyLink	$	66.5	12.6	%	$	62.6	13.7	%
Verizon	$	54.8	10.4	%	$	33.4	7.3	%
Windstream Corporation	$	51.4	9.8	%	$	59.4	13.0	%

19. Supplemental Consolidating Financial Statements

As of October 26, 2013 and July 27, 2013, the outstanding aggregate principal amount of the 2021 Notes was $277.5 million. The 2021 Notes were issued by Dycom Investments, Inc., a wholly-owned subsidiary of the Company. The following consolidating financial statements present, in separate columns, financial information for (i) Dycom Industries, Inc. ("Parent") on a parent only basis, (ii) Dycom Investments, Inc. (the "Issuer"), (iii) the guarantor subsidiaries for the 2021 Notes on a combined basis, (iv) other non-guarantor subsidiaries on a combined basis, (v) the eliminations and reclassifications necessary to arrive at the information for the Company on a consolidated basis, and (vi) the Company on a consolidated basis. The consolidating financial statements are presented in accordance with the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the Company’s share of subsidiaries’ cumulative results of operations, capital contributions, distributions and other equity changes. Intercompany charges (income) between the Parent and subsidiaries are recognized in the consolidating financial statements during the period incurred and the settlement of intercompany balances is reflected in the consolidating statement of cash flows based on the nature of the underlying transactions.

Each guarantor and non-guarantor subsidiary is wholly-owned, directly or indirectly, by the Issuer and the Parent. The Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and Parent. There are no contractual restrictions limiting transfers of cash from guarantor and non-guarantor subsidiaries to Issuer or Parent, within the meaning of Rule 3-10 of Regulation S-X.

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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) OCTOBER 26, 2013

	Parent		Issuer		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations and Reclassifications			Dycom Consolidated
	(Dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	—	$	—	$	13,631	$	763	$	—		$	14,394
Accounts receivable, net	—		—		303,178		1,234		—			304,412
Costs and estimated earnings in excess of billings	—		—		218,997		2,113		—			221,110
Inventories	—		—		39,273		—		—			39,273
Deferred tax assets, net	2,434		—		16,573		96		(1,385		)	17,718
Income taxes receivable	2,231		—		—		—		—			2,231
Other current assets	8,446		55		7,189		502		—			16,192
Total current assets	13,111		55		598,841		4,708		(1,385		)	615,330

PROPERTY AND EQUIPMENT, NET	14,666		—		173,353		15,897		—			203,916
GOODWILL	—		—		267,810		—		—			267,810
INTANGIBLE ASSETS, NET	—		—		120,021		—		—			120,021
DEFERRED TAX ASSETS, NET NON-CURRENT	84		—		4,224		162		(4,470		)	—
INVESTMENT IN SUBSIDIARIES	788,300		1,494,353		—		—		(2,282,653		)	—
INTERCOMPANY RECEIVABLES	—		—		571,013		—		(571,013		)	—
OTHER	8,883		6,153		2,073		90		—			17,199
TOTAL NON-CURRENT ASSETS	811,933		1,500,506		1,138,494		16,149		(2,858,136		)	608,946
TOTAL ASSETS	$	825,044	$	1,500,561	$	1,737,335	$	20,857	$	(2,859,521	)	$	1,224,276

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,639	$	—	$	64,623	$	664	$	—		$	68,926
Current portion of debt	8,594		—		—		—		—			8,594
Billings in excess of costs and estimated earnings	—		—		13,347		—		—			13,347
Accrued insurance claims	618		—		30,829		81		—			31,528
Deferred tax liabilities	—		155		89		1,141		(1,385		)	—
Other accrued liabilities	15,986		5,560		56,596		1,311		—			79,453
Total current liabilities	28,837		5,715		165,484		3,197		(1,385		)	201,848

LONG-TERM DEBT	194,719		281,016		—		—		—			475,735
ACCRUED INSURANCE CLAIMS	738		—		29,290		86		—			30,114
DEFERRED TAX LIABILITIES, NET NON-CURRENT	—		427		53,119		527		(4,470		)	49,603
INTERCOMPANY PAYABLES	136,610		425,103		—		9,300		(571,013		)	—
OTHER LIABILITIES	3,156		—		2,832		4		—			5,992
Total liabilities	364,060		712,261		250,725		13,114		(576,868		)	763,292
Total stockholders' equity	460,984		788,300		1,486,610		7,743		(2,282,653		)	460,984
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	825,044	$	1,500,561	$	1,737,335	$	20,857	$	(2,859,521	)	$	1,224,276

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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET JULY 27, 2013

	Parent		Issuer		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations and Reclassifications			Dycom Consolidated
	(Dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	—	$	—	$	18,166	$	441	$	—		$	18,607
Accounts receivable, net	—		—		249,533		2,669		—			252,202
Costs and estimated earnings in excess of billings	—		—		202,651		1,698		—			204,349
Inventories	—		—		35,999		—		—			35,999
Deferred tax assets, net	2,285		—		15,873		121		(1,426		)	16,853
Income taxes receivable	2,516		—		—		—		—			2,516
Other current assets	2,563		10		7,583		452		—			10,608
Total current assets	7,364		10		529,805		5,381		(1,426		)	541,134

PROPERTY AND EQUIPMENT, NET	13,779		—		173,254		15,670		—			202,703
GOODWILL	—		—		267,810		—		—			267,810
INTANGIBLE ASSETS, NET	—		—		125,275		—		—			125,275
DEFERRED TAX ASSETS, NET NON-CURRENT	691		—		4,104		66		(4,861		)	—
INVESTMENT IN SUBSIDIARIES	769,639		1,472,559		—		—		(2,242,198		)	—
INTERCOMPANY RECEIVABLES	—		—		618,524		—		(618,524		)	—
OTHER	8,739		6,331		2,133		83		—			17,286
TOTAL NON-CURRENT ASSETS	792,848		1,478,890		1,191,100		15,819		(2,865,583		)	613,074
TOTAL ASSETS	$	800,212	$	1,478,900	$	1,720,905	$	21,200	$	(2,867,009	)	$	1,154,208

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	2,042	$	—	$	75,012	$	900	$	—		$	77,954
Current portion of debt	7,813		—		—		—		—			7,813
Billings in excess of costs and estimated earnings	—		—		13,788		—		—			13,788
Accrued insurance claims	619		—		28,342		108		—			29,069
Deferred tax liabilities	—		155		140		1,131		(1,426		)	—
Other accrued liabilities	9,151		1,321		59,374		1,345		—			71,191
Total current liabilities	19,625		1,476		176,656		3,484		(1,426		)	199,815

LONG-TERM DEBT	163,062		281,107		—		—		—			444,169
ACCRUED INSURANCE CLAIMS	726		—		26,426		98		—			27,250
DEFERRED TAX LIABILITIES, NET NON-CURRENT	—		427		52,436		610		(4,861		)	48,612
INTERCOMPANY PAYABLES	185,296		426,251		—		6,977		(618,524		)	—
OTHER LIABILITIES	3,142		—		2,855		4		—			6,001
Total liabilities	371,851		709,261		258,373		11,173		(624,811		)	725,847
Total stockholders' equity	428,361		769,639		1,462,532		10,027		(2,242,198		)	428,361
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	800,212	$	1,478,900	$	1,720,905	$	21,200	$	(2,867,009	)	$	1,154,208

Table of Contents

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED OCTOBER 26, 2013

	Parent			Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations and Reclassifications			Dycom Consolidated
	(Dollars in thousands)
REVENUES:
Contract revenues	$	—		$	—		$	509,430		$	3,290		$	—		$	512,720

EXPENSES:
Costs of earned revenues, excluding depreciation and amortization	—			—			407,695			2,424			—			410,119
General and administrative	11,237			226			28,945			2,667			—			43,075
Depreciation and amortization	854			—			21,621			1,077			—			23,552
Intercompany charges (income), net	(13,976		)	—			14,110			(134		)	—			—
Total	(1,885		)	226			472,371			6,034			—			476,746

Interest expense, net	(1,888		)	(4,994		)	(4		)	—			—			(6,886		)
Other income, net	3			—			1,945			64			—			2,012

INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES	—			(5,220		)	39,000			(2,680		)	—			31,100

PROVISION (BENEFIT) FOR INCOME TAXES	—			(2,087		)	15,600			(1,073		)	—			12,440

NET INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF SUBSIDIARIES	—			(3,133		)	23,400			(1,607		)	—			18,660

EQUITY IN EARNINGS OF SUBSIDIARIES	18,660			21,793			—			—			(40,453		)	—

NET INCOME (LOSS)	$	18,660		$	18,660		$	23,400		$	(1,607	)	$	(40,453	)	$	18,660

Foreign currency translation loss	(60		)	(60		)	—			(60		)	120			(60		)
COMPREHENSIVE INCOME (LOSS)	$	18,600		$	18,600		$	23,400		$	(1,667	)	$	(40,333	)	$	18,600

Table of Contents

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED OCTOBER 27, 2012

	Parent			Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations and Reclassifications		Dycom Consolidated
	(Dollars in thousands)
REVENUES:
Contract revenues	$	—		$	—		$	319,025		$	4,261		$	—	$	323,286

EXPENSES:
Costs of earned revenues, excluding depreciation and amortization	—			—			253,544			3,522			—		257,066
General and administrative	8,409			146			17,616			2,653			—		28,824
Depreciation and amortization	740			—			13,286			1,285			—		15,311
Intercompany charges (income), net	(9,925		)	—			10,272			(347		)	—		—
Total	(776		)	146			294,718			7,113			—		301,201

Interest income (expense), net	(776		)	(3,420		)	(1		)	—			—		(4,197		)
Other income, net	—			—			1,565			49