Edgar Filing: DYCOM INDUSTRIES INC

DY Q3 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 April 26, 2014



	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 33,948,314 shares of common stock with a par value of $0.33 1/3 outstanding at May 20, 2014.

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	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 6.	Exhibits	41
Signatures		42

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

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

	April 26, 2014			July 27, 2013
	(Dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	18,722		$	18,607
Accounts receivable, net	233,276			252,202
Costs and estimated earnings in excess of billings	198,581			204,349
Inventories	42,512			35,999
Deferred tax assets, net	17,156			16,853
Income taxes receivable	12,287			2,516
Other current assets	18,656			10,608
Total current assets	541,190			541,134

PROPERTY AND EQUIPMENT, NET	205,703			202,703
GOODWILL	267,810			267,810
INTANGIBLE ASSETS, NET	111,819			125,275
OTHER	16,254			17,286
TOTAL NON-CURRENT ASSETS	601,586			613,074
TOTAL ASSETS	$	1,142,776		$	1,154,208

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	62,985		$	77,954
Current portion of debt	10,156			7,813
Billings in excess of costs and estimated earnings	13,401			13,788
Accrued insurance claims	32,567			29,069
Other accrued liabilities	69,758			71,191
Total current liabilities	188,867			199,815

LONG-TERM DEBT (including debt premium of $3.3 million and $3.6 million, respectively)	403,082			444,169
ACCRUED INSURANCE CLAIMS	32,027			27,250
DEFERRED TAX LIABILITIES, NET NON-CURRENT	47,915			48,612
OTHER LIABILITIES	5,960			6,001
Total liabilities	677,851			725,847

COMMITMENTS AND CONTINGENCIES, Note 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: 33,942,748 and 33,264,117 issued and outstanding, respectively	11,314			11,088
Additional paid-in capital	128,387			115,205
Accumulated other comprehensive (loss) income	(229		)	103
Retained earnings	325,453			301,965
Total stockholders' equity	464,925			428,361
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,142,776		$	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
	April 26, 2014			April 27, 2013
	(Dollars in thousands, except per share amounts)
REVENUES:
Contract revenues	$	426,284		$	437,367

EXPENSES:
Costs of earned revenues, excluding depreciation and amortization	350,352			357,664
General and administrative (including stock-based compensation expense of $2.7 million and $2.5 million, respectively)	39,162			38,205
Depreciation and amortization	22,726			24,531
Total	412,240			420,400

Interest expense, net	(6,563		)	(6,637		)
Other income, net	5,593			1,477
INCOME BEFORE INCOME TAXES	13,074			11,807

PROVISION (BENEFIT) FOR INCOME TAXES:
Current	7,094			7,246
Deferred	(1,915		)	(2,638		)
Total	5,179			4,608

NET INCOME	$	7,895		$	7,199

EARNINGS PER COMMON SHARE:
Basic earnings per common share	$	0.23		$	0.22

Diluted earnings per common share	$	0.23		$	0.21

SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic	33,860,832			33,033,740

Diluted	34,763,035			33,842,150

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 Nine Months Ended
	April 26, 2014			April 27, 2013
	(Dollars in thousands, except per share amounts)
REVENUES:
Contract revenues	$	1,329,522		$	1,129,980

EXPENSES:
Costs of earned revenues, excluding depreciation and amortization	1,087,824			916,247
General and administrative (including stock-based compensation expense of $9.7 million and $7.3 million, respectively)	120,799			105,857
Depreciation and amortization	69,713			60,660
Total	1,278,336			1,082,764

Interest expense, net	(20,249		)	(16,582		)
Other income, net	8,200			3,519
INCOME BEFORE INCOME TAXES	39,137			34,153

PROVISION (BENEFIT) FOR INCOME TAXES:
Current	16,666			17,589
Deferred	(1,017		)	(3,958		)
Total	15,649			13,631

NET INCOME	$	23,488		$	20,522

EARNINGS PER COMMON SHARE:
Basic earnings per common share	$	0.70		$	0.62

Diluted earnings per common share	$	0.68		$	0.61

SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic	33,707,957			32,968,897

Diluted	34,767,400			33,684,974

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						For the Nine Months Ended
	April 26, 2014			April 27, 2013			April 26, 2014			April 27, 2013
	(Dollars in thousands)
NET INCOME	$	7,895		$	7,199		$	23,488		$	20,522
Foreign currency translation losses	(46		)	(21		)	(332		)	(8		)
COMPREHENSIVE INCOME	$	7,849		$	7,178		$	23,156		$	20,514

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 Nine Months Ended
	April 26, 2014			April 27, 2013
	(Dollars in thousands)
OPERATING ACTIVITIES:
Net income	$	23,488		$	20,522
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions:
Depreciation and amortization	69,713			60,660
Bad debt expense, net	519			51
Gain on sale of fixed assets	(7,904		)	(3,867		)
Deferred income tax provision (benefit)	(1,017		)	(3,958		)
Stock-based compensation	9,721			7,275
Write-off of deferred financing costs	—			321
Amortization of premium on long-term debt	(275		)	(131		)
Amortization of debt issuance costs and other	1,428			1,192
Excess tax benefit from share-based awards	(2,837		)	(758		)
Change in operating assets and liabilities:
Accounts receivable, net	18,406			20,885
Costs and estimated earnings in excess of billings, net	5,381			4,880
Other current assets and inventory	(13,242		)	(2,490		)
Other assets	(646		)	43
Income taxes receivable/payable	(8,827		)	5,420
Accounts payable	(5,506		)	(11,572		)
Accrued liabilities, insurance claims, and other liabilities	9,089			(7,146		)
Net cash provided by operating activities	97,491			91,327

INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired	(700		)	(318,984		)
Capital expenditures	(70,585		)	(45,743		)
Proceeds from sale of assets	9,425			4,467
Changes in restricted cash	(305		)	(31		)
Net cash used in investing activities	(62,165		)	(360,291		)

FINANCING ACTIVITIES:
Proceeds from issuance of 7.125% senior subordinated notes due 2021 (including $3.8 million premium on fiscal 2013 issuance)	—			93,825
Proceeds from borrowings on senior Credit Agreement	337,000			310,500
Proceeds from Term Loan on senior Credit Agreement	—			125,000
Principal payments on senior Credit Agreement, including Term Loan	(375,469		)	(276,063		)
Debt issuance costs	—			(6,739		)
Repurchases of common stock	(9,999		)	(15,203		)
Exercise of stock options	14,010			3,511
Restricted stock tax withholdings	(3,590		)	(885		)
Excess tax benefit from share-based awards	2,837			758
Principal payments on capital lease obligations	—			(74		)
Net cash (used in) provided by financing activities	(35,211		)	234,630

Net increase (decrease) in cash and equivalents	115			(34,334		)

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

CASH AND EQUIVALENTS AT END OF PERIOD	$	18,722		$	18,247

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

	For the Nine Months Ended
	April 26, 2014		April 27, 2013
	(Dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest	$	14,160	$	10,122
Income taxes	$	26,106	$	12,149

Purchases of capital assets included in accounts payable or other accrued liabilities at period end	$	4,328	$	2,626

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. and its wholly-owned subsidiaries (collectively, "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 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. Operating results for the interim period are not necessarily indicative of the results expected for any other interim period or for the full fiscal year. These condensed consolidated financial statements and accompanying notes 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 include the accounts of the Company. All significant transactions and balances between Dycom Industries, Inc. and its subsidiaries have been eliminated.

Segment Information - The Company operates in one reportable segment as a specialty contractor, providing 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 Company operates on a decentralized basis through its operating segments, each of which consists of a legal subsidiary (or in limited cases, the combination of two or more subsidiaries). Management of the operating segments report to the Company's Chief Operating Officer who reports to the Chief Executive Officer, the chief operating decision maker. All of the Company's operating segments have been aggregated into one reportable segment due to their similar economic characteristics, nature of services and production processes, type of customers, and service distribution methods. The Company's services are provided by its operating segments throughout the United States and in Canada. Revenues from services provided in Canada were approximately $2.5 million and $7.9 million during the three and nine months ended April 26, 2014, respectively, and $3.3 million and $9.7 million during the three and nine months ended April 27, 2013, respectively. The Company had no material long-lived assets in Canada at April 26, 2014 or July 27, 2013.

Significant Acquisitions - On December 3, 2012, the Company acquired substantially all of the telecommunications infrastructure services subsidiaries of Quanta Services, Inc. The results of operations of these subsidiaries are included in the accompanying condensed consolidated financial statements from the date of acquisition. See Note 3, Acquisitions, for further information regarding the Company's acquisitions.

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

Significant Accounting Policies & Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. 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 materially from those estimates. There have been no material changes to the Company's significant accounting policies and critical accounting estimates described in the Company's Annual Report on Form 10-K for the year ended July 27, 2013.

Restricted Cash - As of April 26, 2014 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.

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Fair Value of Financial Instruments - 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 based on observable market-based inputs (Level 2) as of April 26, 2014 and July 27, 2013. See Note 10, Debt, for further information regarding the fair value of the 2021 Notes. The Company's cash and equivalents as of April 26, 2014 and July 27, 2013 are based on quoted market prices in active markets for identical assets (Level 1). During the three and nine months ended April 26, 2014 and April 27, 2013, 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 entities first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test pursuant to Accounting Standards Codification ("ASC") Subtopic 350-30. If the entity determines that it is more likely than not that such asset is not impaired based on its qualitative assessment, no further testing is required. The Company adopted ASU 2012-02 in fiscal 2014 and it 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. ASU 2013-04 will be effective for the Company's fiscal years beginning fiscal 2015 and interim reporting periods within that year. 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 is intended to end inconsistent practices regarding the presentation of unrecognized tax benefits when a net operating loss, a similar tax loss or a tax credit carryforward is available to reduce the taxable income or tax payable that would result from the dis-allowance of a tax position. ASU 2013-11 will be effective for the Company's fiscal years beginning fiscal 2015 and interim periods within that year. The adoption of this guidance is not expected to have a material effect on the Company's condensed consolidated financial statements.

In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08"). ASU 2014-08 changes the criteria for reporting discontinued operations. In accordance with ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. ASU 2014-08 also requires expanded disclosures about the assets, liabilities, income, and expenses of discontinued operations as well as disclosure of the pre-tax income rising from a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. ASU 2014-08 will be effective for the Company's fiscal years beginning fiscal 2016 and interim reporting periods within that year. Early adoption is permitted only for disposals that have not been reported in financial statement previously issued or available for issuance. The Company is currently evaluating the effect of the adoption of this guidance on the condensed consolidated financial statements.

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2. Computation of Earnings Per Common Share

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



	For the Three Months Ended				For the Nine Months Ended
	April 26, 2014		April 27, 2013		April 26, 2014		April 27, 2013
	(Dollars in thousands, except per share amounts)
Net income available to common stockholders (numerator)	$	7,895	$	7,199	$	23,488	$	20,522

Weighted-average number of common shares (denominator)	33,860,832		33,033,740		33,707,957		32,968,897

Basic earnings per common share	$	0.23	$	0.22	$	0.70	$	0.62

Weighted-average number of common shares	33,860,832		33,033,740		33,707,957		32,968,897
Potential common stock arising from stock options, and unvested restricted share units	902,203		808,410		1,059,443		716,077
Total shares-diluted (denominator)	34,763,035		33,842,150		34,767,400		33,684,974

Diluted earnings per common share	$	0.23	$	0.21	$	0.68	$	0.61

Anti-dilutive weighted shares excluded from the calculation of earnings per share	576,257		1,309,752		570,859		1,338,523

3. Acquisitions

Fiscal 2014 - During the third quarter of fiscal 2014, the Company acquired a telecommunications specialty construction contractor in Canada for $0.7 million. The acquisition was not material to the Company.

Fiscal 2013 - 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 Investments, Inc., a wholly-owned subsidiary of the Company, 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.

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 combined total of $11.3 million, net of cash acquired. 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 these 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 trademarks and trade names as well as certain other assumptions. The valuation of assets acquired and liabilities assumed

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requires a number of judgments and is subject to revision as additional information about the fair value of assets and liabilities becomes available. For the Acquired Subsidiaries, the fair values used in the purchase price allocation for intangible assets were determined by management with the assistance of an independent valuation specialist. 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 and the third quarter of fiscal 2014 are preliminary and as such are expected to be completed during the fourth quarter of 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 Acquired Subsidiaries 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 are included in the accompanying condensed consolidated financial statements from their dates of acquisition. For the three and nine months ended April 26, 2014 the Acquired Subsidiaries earned revenues of $99.1 million and $355.6 million, respectively, and recognized intangible amortization expense of $2.5 million and $9.0 million, respectively. Inclusive of charges allocated for management costs, the Acquired Subsidiaries had net income of less than $0.1 million and approximately $4.1 million for the three and nine months ended April 26, 2014, respectively. For the three months ended April 27, 2013 and the year-to-date fiscal 2013 period subsequent to acquisition, the Acquired Subsidiaries earned revenues of $122.9 million and $198.8 million, respectively, and recognized intangible amortization expense of $5.5 million and $8.8 million, respectively. The fiscal 2013 net income, inclusive of charges allocated for management costs, was immaterial.

Pro forma contract revenues, income before taxes, and net income were $1.358 billion, $60.5 million, and $36.3 million, respectively, for the nine months ended April 27, 2013, resulting in basic and diluted pro forma earnings per share of $1.10 and $1.08, respectively. This 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 and includes certain adjustments, including depreciation and amortization expense based on the estimated fair value of the assets acquired, interest expense related to the Company's debt financing of the transaction, and the income tax impact of these adjustments. Pro forma earnings during the nine months ended April 27, 2013 have been adjusted to reflect amortization and depreciation as if the acquisition had occurred on July 31, 2011. This includes the impact of amortization expense, including

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customer relationships and contract backlog which is being recognized on an accelerated basis related to the expected economic benefit. Pro forma results also reflect 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.

4. Accounts Receivable

Accounts receivable consists of the following:



	April 26, 2014			July 27, 2013
	(Dollars in thousands)
Contract billings	$	220,425		$	239,498
Retainage and other receivables	13,322			12,833
Total	233,747			252,331
Less: allowance for doubtful accounts	(471		)	(129		)
Accounts receivable, net	$	233,276		$	252,202

The Company grants credit under normal payment terms, generally without collateral, to its customers. With respect to certain customers, the Company has statutory lien rights which may expedite its collection efforts. As of April 26, 2014, the Company had liens recorded of approximately $17.7 million for past due accounts receivable for a customer on certain rural projects funded in part by the American Recovery and Reinvestment Act of 2009. There were no material accounts receivable amounts representing claims or other similar items subject to uncertainty as of April 26, 2014 or July 27, 2013. The Company expects to collect the outstanding balance of accounts receivable, net, including retainage and amounts supplemented with liens, 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 and nine months ended April 26, 2014 and April 27, 2013, write-offs to the allowance for doubtful accounts, net of recoveries, were not material.

5. Costs and Estimated Earnings in Excess of Billings

Costs and estimated earnings in excess of billings ("CIEB") includes revenue for services from contracts based both on the units-of-delivery and the cost-to-cost measures of the percentage of completion method and consists of the following:



	April 26, 2014			July 27, 2013
	(Dollars in thousands)
Costs incurred on contracts in progress	$	197,659		$	208,250
Estimated to date earnings	45,831			49,150
Total costs and estimated earnings	243,490			257,400
Less: billings to date	(58,310		)	(66,839		)
	$	185,180		$	190,561
Included in the accompanying condensed consolidated balance sheets under the captions:
Costs and estimated earnings in excess of billings	$	198,581		$	204,349
Billings in excess of costs and estimated earnings	(13,401		)	(13,788		)
	$	185,180		$	190,561

As of April 26, 2014, the Company expects that substantially all of its CIEB will be billed to customers and collected in the normal course of business within the next twelve months. Additionally, there were no material CIEB amounts representing claims or other similar items subject to uncertainty as of April 26, 2014 or July 27, 2013.

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6. Property and Equipment

Property and equipment consists of the following:



	General Useful Lives	April 26, 2014			July 27, 2013
	(Years)	(Dollars in thousands)
Land	—	$	3,409		$	3,479
Buildings	10-35	11,577			11,449
Leasehold improvements	1-15	5,305			5,154
Vehicles	1-5	274,265			258,211
Computer hardware and software	3-10	75,402			64,191
Office furniture and equipment	2-7	7,944			7,915
Equipment and machinery	1-10	176,395			171,742
Total		554,297			522,141
Less: accumulated depreciation		(348,594		)	(319,438		)
Property and equipment, net		$	205,703		$	202,703

Depreciation expense and repairs and maintenance were as follows:



	For the Three Months Ended				For the Nine Months Ended
	April 26, 2014		April 27, 2013		April 26, 2014		April 27, 2013
	(Dollars in thousands)
Depreciation expense	$	18,602	$	17,477	$	55,660	$	47,065
Repairs and maintenance expense	$	5,158	$	5,616	$	16,397	$	13,804

7. Goodwill and Intangible Assets

Goodwill

The Company's goodwill and other indefinite-lived intangible assets are assessed annually for impairment as of the first day of the fourth fiscal quarter of each year, or more frequently if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value. 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, including in particular construction and housing 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 inputs used for fair value measurements of the reporting units and other related indefinite-lived intangible assets are the lowest level (Level 3) inputs. There were no changes in the carrying amount of goodwill for the nine months ended April 26, 2014.

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. Key fair value assumptions used in the fiscal 2013 impairment analysis of the UtiliQuest reporting unit included (a) a discount rate of 11.5% based on the Company's best estimate of the weighted average cost of capital adjusted for risks associated with the reporting unit; (b) terminal value based on a terminal growth rate of 2.0%; and (c) seven expected years of cash flow before the terminal value. Recent operating performance, along with assumptions for specific customer and industry opportunities, were considered in the key assumptions used during the fiscal 2013 impairment analysis. The Company determined during the fiscal 2013 impairment assessment that the fair value of the UtiliQuest reporting unit exceeded its carrying value by approximately 20%. Management has determined 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 may result in changes to other valuation assumptions. Factors monitored by the Company which could result in a change to the reporting unit’s estimates include the outcome of customer

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requests for proposals and subsequent awards, strategies of competitors, labor market conditions and levels of overall economic activity, including construction and housing activity. During the nine months ended April 26, 2014, there were no events that caused a material reduction in the estimated fair value of the reporting unit. As of April 26, 2014, 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:



	April 26, 2014		July 27, 2013
	(Dollars in thousands)
Gross amount:
Customer relationships	$	165,094	$	164,497
Contract backlog	15,285		15,285
Trade names	8,200		8,200
UtiliQuest trade name	4,700		4,700
Non-compete agreements	400		400
	193,679		193,082
Accumulated amortization:
Customer relationships	65,795		56,219
Contract backlog	12,883		9,433
Trade names	3,038		2,071
Non-compete agreements	144		84
Net Intangible Assets	$	111,819	$	125,275

Amortization of the Company's customer relationships and contract backlog intangible assets is recognized on an accelerated basis as a function of the expected economic benefit. 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 was $4.1 million and $7.1 million for the three months ended April 26, 2014 and April 27, 2013, respectively, and $14.1 million and $13.6 million for the nine months ended April 26, 2014 and April 27, 2013, 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)
Three months ending July 26, 2014		$4,128
2015		$15,167
2016		$14,446
2017		$12,998
2018		$10,837
2019		$8,465
Thereafter		$41,078

As of April 26, 2014, 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 respect to workers’ compensation insurance in three states in which the Company participates in a state-sponsored insurance

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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 outstanding insured claims of the Acquired Subsidiaries, or claims 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.

The liability for total accrued insurance claims and related processing costs was $64.6 million and $56.3 million at April 26, 2014 and July 27, 2013, respectively, of which, $32.0 million and $27.3 million, respectively, is reflected within non-current liabilities in the condensed consolidated financial statements.

9. Other Accrued Liabilities

Other accrued liabilities consist of the following:



	April 26, 2014		July 27, 2013
	(Dollars in thousands)
Accrued payroll and related taxes	$	16,834	$	19,940
Accrued employee benefit and incentive plan costs	12,808		15,325
Accrued construction costs	20,762		20,883
Accrued interest and related bank fees	5,795		937
Other current liabilities	13,559		14,106
Total other accrued liabilities	$	69,758	$	71,191

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

10. Debt

The Company’s outstanding indebtedness consists of the following:



	April 26, 2014			July 27, 2013
	(Dollars in thousands)
Borrowings on senior Credit Agreement (matures December 2017)	$	16,000		$	49,000
Senior Credit Agreement Term Loan (matures December 2017)	116,406			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)	3,332			3,607
	413,238			451,982
Less: current portion	(10,156		)	(7,813		)
Long-term debt	$	403,082		$	444,169

Senior Subordinated Notes Due 2021

On April 26, 2014 and July 27, 2013, Dycom Investments, Inc., 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, the 2021 Notes had a debt premium of $3.3 million and $3.6 million as of April 26, 2014 and July 27, 2013, respectively.

The 2021 Notes are guaranteed by Dycom and substantially all of the Company's subsidiaries. For additional information regarding these guarantees see Note 19, Supplemental Consolidating Financial Statements. The Indenture contains covenants that limit, among other things, the Company's ability 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.

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The Company determined that the fair value of the 2021 Notes as of April 26, 2014 was approximately $298.0 million, based on quoted market prices, compared to a $280.8 million carrying value (including the debt premium of $3.3 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 $275 million revolving facility and a $125 million term loan (the "Term Loan"). The Company had outstanding revolver borrowings under the Credit Agreement of $16.0 million and $49.0 million as of April 26, 2014 and July 27, 2013, respectively. Revolving borrowings under the Credit Agreement accrued interest at a weighted average rate of approximately 3.46% per annum and 2.19% per annum as of April 26, 2014 and July 27, 2013, respectively. As of April 26, 2014 and July 27, 2013, the Company had $116.4 million and $121.9 million, respectively, of outstanding principal amount under the Term Loan, which accrued interest at 2.15% and 2.19% per annum, respectively. 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.

Standby letters of credit of approximately $49.6 million and $46.7 million, issued as part of the Company's insurance program, were outstanding under the Credit Agreement as of April 26, 2014 and July 27, 2013, respectively. Interest on outstanding standby letters of credit accrued at 2.0% per annum at both April 26, 2014 and July 27, 2013, respectively. Unutilized commitments were at rates per annum of 0.35% at both April 26, 2014 and July 27, 2013.

At April 26, 2014 and July 27, 2013, the Company was in compliance with the financial covenants of the Credit Agreement and had additional borrowing availability of $209.4 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. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Measurement of certain aspects of the Company’s tax positions is based on interpretations of tax regulations, federal and state case law and applicable statutes.

The Company is subject to federal income taxes in the United States, as well as income taxes of multiple state jurisdictions and in Canada. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian income tax examinations for fiscal years ended 2010 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 April 26, 2014 and July 27, 2013, the Company had total unrecognized tax benefits of $2.3 million that, if recognized, would favorably effect the Company’s effective tax rate. Interest expense related to unrecognized tax benefits was immaterial for the three and nine months ended April 26, 2014 and April 27, 2013. The Company had approximately $0.9 million and $0.8 million accrued for the payment of interest and penalties at April 26, 2014 and July 27, 2013, respectively.

12. Other Income, Net

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



	For the Three Months Ended				For the Nine Months Ended
	April 26, 2014		April 27, 2013		April 26, 2014		April 27, 2013
	(Dollars in thousands)
Gain on sale of fixed assets	$	5,469	$	1,459	$	7,904	$	3,867
Miscellaneous income (expense), net	124		18		296		(27		)
Write-off of deferred financing costs	—		—		—		(321		)
Total other income, net	$	5,593	$	1,477	$	8,200	$	3,519

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The Company recognized $0.3 million in write-off of deferred financing costs during the nine months ended April 27, 2013 in connection with the replacement of its prior credit agreement.

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 $2.6 million for the three and nine months ended April 26, 2014 and April 27, 2013, respectively. 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 April 26, 2014 or July 27, 2013.

14. Capital Stock

Share Repurchase Programs

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. During fiscal 2013 and the nine months ended April 26, 2014, the Company made the following repurchases pursuant to its current and previously authorized share repurchase programs:



Fiscal Period	Number of Shares Repurchased	Total Consideration (Dollars in thousands)		Average Price Per Share
Fiscal 2013	1,047,000	$	15,203	$	14.52
Nine Months Ended April 26, 2014	360,900	$	9,999	$	27.71

All of the shares repurchased during fiscal 2014 were purchased during the second fiscal quarter. All shares repurchased have been canceled. As of April 26, 2014, $30.0 million remained available for repurchases through February 2015.

Shares for Tax Withholding

During the nine months ended April 26, 2014 and April 27, 2013, the Company withheld 130,195 shares and 47,277 shares, respectively, of restricted units that vested during the periods, totaling $3.6 million and $0.9 million, respectively, in order to meet payroll tax withholdings obligations that arose on the vesting of restricted units. All shares withheld have been canceled. The shares withheld for tax withholdings do not reduce the Company’s total share repurchase authority.

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. For performance share units ("Performance RSUs"), the total amount of stock-based compensation expense ultimately recognized is based on the number of awards that actually vest and fluctuates as a result of performance criteria for performance-based awards, as well as the vesting period of all stock-based awards. The Company evaluates compensation expense quarterly and recognizes expense for performance-based awards only if management determines it is probable that the performance criteria for the awards will be met. Compensation expense previously recognized with respect to performance share units will be reversed to the extent that performance goals are not met. Stock-based compensation expense and the related tax benefit recognized related to stock options and restricted share units during the three and nine months ended April 26, 2014 and April 27, 2013 were as follows:

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	For the Three Months Ended						For the Nine Months Ended
	April 26, 2014			April 27, 2013			April 26, 2014			April 27, 2013
	(Dollars in thousands)
Stock-based compensation	$	2,671		$	2,513		$	9,721		$	7,275
Tax (benefit) recognized in the statement of operations	$	(1,071	)	$	(931	)	$	(3,736	)	$	(2,779	)

As of April 26, 2014, unrecognized compensation expense related to stock options, time-based restricted share units ("RSUs") and target Performance RSUs was $4.2 million, $7.2 million and $12.9 million, respectively, based on the Company's estimate of performance goal achievement. This expense will be recognized over a weighted-average period of 2.2 years, 2.8 years and 1.6 years, respectively, which is based on the average remaining service periods of the awards. As of April 26, 2014, the Company may recognize an additional $9.7 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 nine months ended April 26, 2014:



	Stock Options
	Shares		Weighted Average Exercise Price

Outstanding as of July 27, 2013	2,769,132		$	18.27
Granted	89,956		$	27.50
Options exercised	(767,552	)	$	18.25
Forfeited or canceled	(5,949	)	$	22.86
Outstanding as of April 26, 2014	2,085,587		$	18.66

Exercisable options as of April 26, 2014	1,615,544		$	18.77

RSUs and Performance RSUs - The following table summarizes RSU and Performance RSU activity during the nine months ended April 26, 2014:



	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	94,456		$	27.36	429,485		$	27.66
Share units vested	(137,333	)	$	16.19	(265,025	)	$	18.35
Forfeited or canceled	(5,844	)	$	19.26	(281,995	)	$	18.55
Outstanding as of April 26, 2014	414,597		$	20.47	1,197,603		$	21.73

The granted Performance RSUs in the above table is comprised of 373,465 target shares, granted to officers and employees, and 56,020 supplemental shares, granted to officers. Approximately 265,000 Performance RSUs outstanding as of July 27, 2013 were canceled during the first quarter of fiscal 2014 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 April 26, 2014 is comprised of 754,752 target shares and 442,851 supplemental shares.

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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 was $0.6 million and $0.5 million for the three months ended April 26, 2014 and April 27, 2013, respectively, and $1.7 million and $1.3 million for the nine months ended April 26, 2014 and April 27, 2013, respectively. Amounts paid for subcontracting services and related material expense to entities related to officers of certain of the Company’s subsidiaries was $0.4 million and $0.1 million during the three months ended April 26, 2014 and April 27, 2013, respectively, and $1.0 million and $0.4 million during the nine months ended April 26, 2014 and April 27, 2013, respectively.

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. On January 8, 2014, the District Court remanded the matter back to the California Superior Court. 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 is party 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 April 26, 2014 and July 27, 2013, the Company had $415.7 million and $446.5 million of outstanding performance and other surety contract bonds, respectively. There has been no material impact on the Company's financial statements as a result of customers exercising 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 April 26, 2014 and July 27, 2013, the Company had $49.6 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 accounting for approximately 58.5% and 58.6% of its total revenues during the nine months ended April 26, 2014 and April 27, 2013, respectively. Revenues from three of the top five customers exceeded 10% of total revenue during the three or nine months ended April 26, 2014 or April 27, 2013:



	For the Three Months Ended		For the Nine Months Ended
	April 26, 2014	April 27, 2013	April 26, 2014	April 27, 2013
AT&T Inc. ("AT&T")	20.8%	17.4%	18.9%	15.0%
CenturyLink, Inc. ("CenturyLink")	12.8%	14.3%	14.3%	14.3%
Comcast Corporation ("Comcast")	12.1%	10.1%	11.5%	11.2%

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 April 26, 2014 and July 27, 2013. Customers representing 10% or more of combined amounts of trade accounts receivable and costs and estimated earnings in excess of billings as of April 26, 2014 or July 27, 2013 had the following outstanding balances and the related percentage of the Company’s total outstanding balances:



	April 26, 2014				July 27, 2013
	Amount		% of Total		Amount		% of Total
			(Dollars in millions)
AT&T	$	73.8	17.1	%	$	57.4	12.6	%
CenturyLink	$	46.4	10.7	%	$	62.6	13.7	%
Windstream Corporation	$	34.5	8.0	%	$	59.4	13.0	%

19. Supplemental Consolidating Financial Statements

On April 26, 2014 and July 27, 2013, Dycom Investments, Inc. (the "Issuer") had outstanding an aggregate principal amount of $277.5 million of 2021 Notes. The 2021 Notes are guaranteed by Dycom Industries, Inc. (the "Parent") and substantially all of the Company's subsidiaries. Each guarantor and non-guarantor subsidiary is 100% owned, directly or indirectly, by the Issuer and the Parent. The 2021 Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and Parent. The Indenture contains certain release provisions for the guarantor subsidiaries and the Parent. With respect to the guarantor subsidiaries, these provisions include release upon (i) the sale or other disposition of all or substantially all of the assets of a guarantor or a sale or other disposition of all of the capital stock of a guarantor, in each case, to a person that is not the Issuer, the Parent or a restricted subsidiary of the Parent, (ii) the designation of a restricted subsidiary that is a guarantor as an unrestricted subsidiary, (iii) the legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture, and (iv) the release of a guarantor of its guarantee of any credit facility. The Parent may not be released from its guarantee under any circumstances, except in the event of legal or covenant defeasance of the Notes or of satisfaction and discharge of the Indenture or pursuant to a provision of the Indenture which limits the Parent’s liability under its guarantee in order to prevent a fraudulent conveyance. 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.

The following consolidating financial statements present, in separate columns, financial information for (i) the Parent on a parent only basis, (ii) the Issuer, (iii) the guarantor subsidiaries 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.

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CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) APRIL 26, 2014 (Dollars in thousands)

	Parent		Issuer		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Dycom Consolidated
ASSETS
Cash and equivalents	$	—	$	—	$	18,009	$	713	$	—		$	18,722
Accounts receivable, net	—		—		231,574		1,702		—			233,276
Costs and estimated earnings in excess of billings	—		—		197,150		1,431		—			198,581
Inventories	—		—		42,512		—		—			42,512
Deferred tax assets, net	2,993		—		14,386		91		(314		)	17,156
Income taxes receivable	12,287		—		—		—		—			12,287
Other current assets	5,995		33		12,137		491		—			18,656
Total current assets	21,275		33		515,768		4,428		(314		)	541,190
PROPERTY AND EQUIPMENT, NET	17,696		—		173,061		14,946		—			205,703
GOODWILL	—		—		267,810		—		—			267,810
INTANGIBLE ASSETS, NET	—		—		111,151		668		—			111,819
DEFERRED TAX ASSETS, NET NON-CURRENT	240		—		4,042		211		(4,493		)	—
INVESTMENT IN SUBSIDIARIES	793,127		1,518,317		954		—		(2,312,398		)	—
INTERCOMPANY RECEIVABLES	—		—		680,660		—		(680,660		)	—
OTHER	8,165		5,800		2,114		175		—			16,254
TOTAL NON-CURRENT ASSETS	819,228		1,524,117		1,239,792		16,000		(2,997,551		)	601,586
TOTAL ASSETS	$	840,503	$	1,524,150	$	1,755,560	$	20,428	$	(2,997,865	)	$	1,142,776

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	2,953	$	—	$	59,103	$	929	$	—		$	62,985
Current portion of debt	10,156		—		—		—		—			10,156
Billings in excess of costs and estimated earnings	—		—		13,401		—		—			13,401
Accrued insurance claims	634		—		31,865		68		—			32,567
Deferred tax liabilities	—		155		131		28		(314		)	—
Other accrued liabilities	7,390		5,525		55,034		1,809		—			69,758
Total current liabilities	21,133		5,680		159,534		2,834		(314		)	188,867
LONG-TERM DEBT	122,250		280,832		—		—		—			403,082
ACCRUED INSURANCE CLAIMS	750		—		31,210		67		—			32,027
DEFERRED TAX LIABILITIES, NET NON-CURRENT	—		427		51,342		639		(4,493		)	47,915
INTERCOMPANY PAYABLES	228,239		444,084		—		8,337		(680,660		)	—
OTHER LIABILITIES	3,206		—		2,753		1		—			5,960
Total liabilities	375,578		731,023		244,839		11,878		(685,467		)	677,851
Total stockholders' equity	464,925		793,127		1,510,721		8,550		(2,312,398		)	464,925
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	840,503	$	1,524,150	$	1,755,560	$	20,428	$	(2,997,865	)	$	1,142,776

Table of Contents

CONDENSED CONSOLIDATED BALANCE SHEET JULY 27, 2013 (Dollars in thousands)

	Parent		Issuer		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations and Reclassifications			Dycom Consolidated
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
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

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED APRIL 26, 2014 (Dollars in thousands)

	Parent			Issuer			Subsidiary Guarantors		Non- Guarantor Subsidiaries			Eliminations			Dycom Consolidated
Contract revenues	$	—		$	—		$	423,853	$	2,431		$	—		$	426,284
Costs of earned revenues, excluding depreciation and amortization	—			—			348,602		1,750			—			350,352
General and administrative	9,878			211			26,308		2,765			—			39,162
Depreciation and amortization	1,164			—			20,506		1,056			—			22,726
Intercompany charges (income), net	(12,608		)	—			12,669		(61		)	—			—
Interest expense, net	(1,566		)	(4,997		)	—		—			—			(6,563		)
Other income, net	—			—			5,554		39			—			5,593
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES	—			(5,208		)	21,322		(3,040		)	—			13,074
PROVISION (BENEFIT) FOR INCOME TAXES	—			(2,063		)	8,447		(1,205		)	—			5,179
NET INCOME (LOSS) BEFORE EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES	—			(3,145		)	12,875		(1,835		)	—			7,895
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES	7,895			11,040			70		—			(19,005		)	—
NET INCOME (LOSS)	$	7,895		$	7,895		$	12,945	$	(1,835	)	$	(19,005	)	$	7,895
Foreign currency translation loss	(46		)	(46		)	—		(46		)	92			(46		)
COMPREHENSIVE INCOME (LOSS)	$	7,849		$	7,849		$	12,945	$	(1,881	)	$	(18,913	)	$	7,849

FOR THE NINE MONTHS ENDED APRIL 26, 2014 (Dollars in thousands)

	Parent			Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations		Dycom Consolidated
Contract revenues	$	—		$	—		$	1,321,684		$	7,838		$	—	$	1,329,522
Costs of earned revenues, excluding depreciation and amortization	—			—			1,081,975			5,849			—		1,087,824
General and administrative	31,398			651			80,574			8,176			—		120,799
Depreciation and amortization	3,058			—			63,357			3,298			—		69,713
Intercompany charges (income), net	(39,713		)	—			40,049			(336		)	—		—
Interest expense, net	(5,260		)	(14,985		)	(4		)	—			—		(20,249		)
Other income, net	3			—			8,130			67			—		8,200
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES	—			(15,636		)	63,855			(9,082		)	—		39,137
PROVISION (BENEFIT) FOR INCOME TAXES	—			(6,252		)	25,533