Edgar Filing: DYCOM INDUSTRIES INC

DY Q1 FY 2015 10Q

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 25, 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 ¨	Non-accelerated filer ¨	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 34,058,785 shares of common stock with a par value of $0.33 1/3 outstanding at November 24, 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	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Exhibits	37
Signatures		38

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	October 25, 2014			July 26, 2014
	(Dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	16,459		$	20,672
Accounts receivable, net	296,832			272,741
Costs and estimated earnings in excess of billings	256,951			230,569
Inventories	47,003			49,095
Deferred tax assets, net	21,022			19,932
Other current assets	14,467			12,727
Total current assets	652,734			605,736

PROPERTY AND EQUIPMENT, NET	206,139			205,413
GOODWILL	269,465			269,088
INTANGIBLE ASSETS, NET	117,824			116,116
OTHER	15,995			16,001
TOTAL NON-CURRENT ASSETS	609,423			606,618
TOTAL ASSETS	$	1,262,157		$	1,212,354

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	66,422		$	63,318
Current portion of debt	11,719			10,938
Billings in excess of costs and estimated earnings	14,027			13,882
Accrued insurance claims	33,525			32,260
Other accrued liabilities	86,905			76,134
Total current liabilities	212,598			196,532

LONG-TERM DEBT (including debt premium of $3.1 million and $3.2 million at October 25, 2014 and July 26, 2014, respectively)	455,640			446,863
ACCRUED INSURANCE CLAIMS	36,189			33,782
DEFERRED TAX LIABILITIES, NET NON-CURRENT	43,018			45,361
OTHER LIABILITIES	5,211			4,882
Total liabilities	752,656			727,420

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: 34,057,679 and 33,990,589 issued and outstanding, respectively	11,353			11,330
Additional paid-in capital	135,824			131,819
Accumulated other comprehensive (loss) income	(426		)	(158		)
Retained earnings	362,750			341,943
Total stockholders' equity	509,501			484,934
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,262,157		$	1,212,354

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 25, 2014			October 26, 2013
	(Dollars in thousands, except per share amounts)
REVENUES:
Contract revenues	$	510,389		$	512,720

EXPENSES:
Costs of earned revenues, excluding depreciation and amortization	403,468			410,119
General and administrative (including stock-based compensation expense of $3.9 million and $3.5 million, respectively)	44,696			43,075
Depreciation and amortization	22,930			23,552
Total	471,094			476,746

Interest expense, net	(6,749		)	(6,886		)
Other income, net	1,795			2,012
INCOME BEFORE INCOME TAXES	34,341			31,100

PROVISION (BENEFIT) FOR INCOME TAXES:
Current	16,999			12,327
Deferred	(3,465		)	113
Total	13,534			12,440

NET INCOME	$	20,807		$	18,660

EARNINGS PER COMMON SHARE:
Basic earnings per common share	$	0.61		$	0.56

Diluted earnings per common share	$	0.59		$	0.54

SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic	34,010,147			33,423,678

Diluted	35,117,673			34,638,998

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 25, 2014			October 26, 2013
	(Dollars in thousands)
NET INCOME	$	20,807		$	18,660
Foreign currency translation losses	(268		)	(60		)
COMPREHENSIVE INCOME	$	20,539		$	18,600

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 25, 2014			October 26, 2013
	(Dollars in thousands)
OPERATING ACTIVITIES:
Net income	$	20,807		$	18,660
Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of acquisitions:
Depreciation and amortization	22,930			23,552
Bad debt expense, net	83			186
Gain on sale of fixed assets	(1,523		)	(1,865		)
Deferred income tax (benefit) provision	(3,465		)	113
Stock-based compensation	3,890			3,506
Amortization of premium on long-term debt	(97		)	(91		)
Amortization of debt issuance costs and other	494			465
Excess tax benefit from share-based awards	(210		)	(656		)
Change in operating assets and liabilities:
Accounts receivable, net	(22,016		)	(52,397		)
Costs and estimated earnings in excess of billings, net	(26,237		)	(17,202		)
Other current assets and inventory	(1,608		)	(8,740		)
Other assets	(159		)	(430		)
Income taxes receivable/payable	10,233			8,101
Accounts payable	1,151			871
Accrued liabilities, insurance claims, and other liabilities	6,632			7,234
Net cash provided by (used in) operating activities	10,905			(18,693		)

INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired	(8,371		)	—
Capital expenditures	(18,028		)	(30,288		)
Proceeds from sale of assets	1,698			2,465
Changes in restricted cash	(541		)	(305		)
Net cash used in investing activities	(25,242		)	(28,128		)

FINANCING ACTIVITIES:
Proceeds from borrowings on senior Credit Agreement	132,000			164,000
Principal payments on senior Credit Agreement, including Term Loan	(122,344		)	(131,563		)
Exercise of stock options	567			10,124
Restricted stock tax withholdings	(309		)	(609		)
Excess tax benefit from share-based awards	210			656
Net cash provided by financing activities	10,124			42,608

Net decrease in cash and equivalents	(4,213		)	(4,213		)

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	20,672			18,607

CASH AND EQUIVALENTS AT END OF PERIOD	$	16,459		$	14,394

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

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest	$	1,369	$	1,517
Income taxes	$	6,796	$	4,311
Purchases of capital assets included in accounts payable or other accrued liabilities at period end	$	3,924	$	3,384

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. The Company's 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.

The accompanying unaudited condensed consolidated financial statements include the results of Dycom and its subsidiaries, all of which are wholly-owned. All intercompany accounts and transactions have been eliminated and the financial statements reflect all adjustments, consisting of only normal recurring accruals that are, in the opinion of management, necessary for a fair presentation of such statements. These financial statements 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. 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 26, 2014 included in the Company's Annual Report on Form 10-K for the year ended July 26, 2014, filed with the SEC on September 9, 2014.

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. The Company operates 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 $4.7 million and $3.3 million during the three months ended October 25, 2014 and October 26, 2013 respectively. The Company had no material long-lived assets in Canada at October 25, 2014 or July 26, 2014.

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

Significant Accounting Policies & Estimates

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 26, 2014.

Restricted Cash – As of October 25, 2014 and July 26, 2014, the Company had approximately $4.5 million and $4.0 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 – 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 October 25, 2014 and July 26, 2014. See Note 10, Debt, for further information regarding the fair

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value of the 2021 Notes. The Company's cash and equivalents are based on quoted market prices in active markets for identical assets (Level 1) as of October 25, 2014 and July 26, 2014. During the three months ended October 25, 2014 and October 26, 2013, the Company had no material non-recurring fair value measurements of assets or liabilities subsequent to their initial recognition.

Recently Issued Accounting Pronouncements

Accounting Standards Not Yet Adopted

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 beginning in 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 adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), ("ASU 2014-09"). ASU 2014-09 requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 requires entities to disclose both qualitative and quantitative information that enables users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including disclosure of significant judgments affecting the recognition of revenue. ASU 2014-09 will be effective for the Company beginning in fiscal 2018 and interim reporting periods within that year, using either the retrospective or cumulative effect transition method. Early adoption is not permitted. The Company is currently evaluating the effect of the adoption of this guidance on the consolidated financial statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of one year after the date that the financial statements are issued. If such conditions or events exist, an entity should disclose that there is substantial doubt about the entity’s ability to continue as a going concern for a period of one year after the date that the financial statements are issued. Disclosure should include the principal conditions or events that raise substantial doubt, management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, and management’s plans that are intended to mitigate those conditions or events. ASU 2014-15 will be effective for the Company beginning in fiscal 2017 and interim reporting periods within that year. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.

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
	October 25, 2014		October 26, 2013
	(Dollars in thousands, except per share amounts)
Net income available to common stockholders (numerator)	$	20,807	$	18,660

Weighted-average number of common shares (denominator)	34,010,147		33,423,678

Basic earnings per common share	$	0.61	$	0.56

Weighted-average number of common shares	34,010,147		33,423,678
Potential common stock arising from stock options, and unvested restricted share units	1,107,526		1,215,320
Total shares-diluted (denominator)	35,117,673		34,638,998

Diluted earnings per common share	$	0.59	$	0.54

Anti-dilutive weighted shares excluded from the calculation of earnings per share	570,749		547,154

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3. Acquisitions

Fiscal 2015 - During the first quarter of fiscal 2015, the Company acquired Hewitt Power & Communications, Inc. ("Hewitt") for $8.0 million, net of cash acquired. Hewitt provides specialty contracting services primarily for telecommunications providers in the Southeastern United States. The preliminary purchase price allocation includes $5.8 million to a customer relationship intangible and the remaining to property and equipment and working capital items.

Fiscal 2014 - During the third quarter of fiscal 2014, the Company acquired a telecommunications specialty construction contractor in Canada for $0.7 million. The Company also acquired Watts Brothers Cable Construction, Inc. ("Watts Brothers") for $16.4 million during the fourth quarter of fiscal 2014. Watts Brothers provides specialty contracting services primarily for telecommunications providers in the Midwest and Southeastern United States. During the three months ended October 25, 2014, the Company paid $0.3 million in working capital adjustments. The preliminary purchase price allocation includes $1.6 million to goodwill, $8.5 million to a customer relationship intangible, $3.7 million to property and equipment and the remaining to working capital items.

Purchase price allocations of businesses acquired during fiscal 2014 and fiscal 2015 are preliminary and will be completed during fiscal 2015 when the valuations are finalized for intangible assets and other amounts.

4. Accounts Receivable

Accounts receivable consists of the following:



	October 25, 2014			July 26, 2014
	(Dollars in thousands)
Contract billings	$	279,204		$	258,254
Retainage and other receivables	18,458			15,323
Total	297,662			273,577
Less: allowance for doubtful accounts	(830		)	(836		)
Accounts receivable, net	$	296,832		$	272,741

The Company grants credit under normal payment terms, generally without collateral, to its customers. The Company expects to collect the outstanding balance of accounts receivable, net, including retainage and amounts on which we have filed construction liens, within the next twelve months. Except as described below, there were no material accounts receivable amounts representing claims or other similar items subject to uncertainty as of October 25, 2014 or July 26, 2014.

With respect to certain accounts receivable balances, the Company has statutory lien rights that may assist in its collection efforts. As of October 25, 2014, the Company's accounts receivable include approximately $20.1 million for past due balances from a customer on a rural project funded primarily by the Rural Utilities Service agency of the United States Department of Agriculture (the “RUS”) under the American Recovery and Reinvestment Act of 2009. The loan made by the RUS is secured by certain assets of the customer. The Company has stopped work on the project. The Company has filed construction liens with respect to work on the project representing approximately $17.7 million of the accounts receivable balance. In addition, other creditors have also filed construction liens against the customer. In July 2014, the Company was included in an action taken by another creditor that has filed a construction lien on one parcel of property owned by the customer to foreclose the lien on that parcel. In the event the customer does not pay the balances owed, the amount the Company collects through the enforcement of its liens or other actions will depend on the value realized on the assets underlying the liens as well as the amount owed to, and priority of, other creditors.

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 25, 2014 and October 26, 2013, write-offs to the allowance for doubtful accounts, net of recoveries, were not material.

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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. Contracts in progress are as follows:



	October 25, 2014			July 26, 2014
	(Dollars in thousands)
Costs incurred on contracts in progress	$	232,709		$	234,766
Estimated to date earnings	61,859			57,335
Total costs and estimated earnings	294,568			292,101
Less: billings to date	(51,644		)	(75,414		)
	$	242,924		$	216,687
Included in the accompanying condensed consolidated balance sheets under the captions:
Costs and estimated earnings in excess of billings	$	256,951		$	230,569
Billings in excess of costs and estimated earnings	(14,027		)	(13,882		)
	$	242,924		$	216,687

As of October 25, 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 October 25, 2014 or July 26, 2014.

6. Property and Equipment

Property and equipment consists of the following:



	Estimated Useful Lives	October 25, 2014			July 26, 2014
	(Years)	(Dollars in thousands)
Land	—	$	3,408		$	3,408
Buildings	10-35	11,598			11,589
Leasehold improvements	1-10	5,602			5,335
Vehicles	1-5	286,831			279,631
Computer hardware and software	3-10	77,004			73,349
Office furniture and equipment	2-7	7,873			7,790
Equipment and machinery	1-10	180,723			177,608
Total		573,039			558,710
Less: accumulated depreciation		(366,900		)	(353,297		)
Property and equipment, net		$	206,139		$	205,413

Depreciation expense and repairs and maintenance are as follows:



	For the Three Months Ended
	October 25, 2014		October 26, 2013
	(Dollars in thousands)
Depreciation expense	$	18,841	$	18,401
Repairs and maintenance expense	$	5,484	$	5,994

7. Goodwill and Intangible Assets

Goodwill

The Company's goodwill balance was $269.5 million and $269.1 million as of October 25, 2014 and July 26, 2014, respectively. The increase in goodwill during fiscal 2015 is a result of preliminary purchase price allocation adjustments associated with businesses acquired during the fourth quarter of fiscal 2014, including the final working capital adjustment. Changes in the carrying amount of goodwill for fiscal 2015 are as follows:

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	Goodwill		Accumulated Impairment Losses			Total
	(Dollars in thousands)
Balance as of July 26, 2014	$	464,855	$	(195,767	)	$	269,088
Purchase price allocation adjustments	377		—			377
Balance as of October 25, 2014	$	465,232	$	(195,767	)	$	269,465

The full amount of goodwill related to businesses acquired during fiscal 2014 is expected to be deductible for tax purposes. 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.

As a result of the fiscal 2014 annual impairment analysis, the Company concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit. During fiscal 2014, the Company performed qualitative assessments on reporting units that comprise less than 20% of its consolidated goodwill balance. The qualitative assessments indicated that it was more likely than not that the fair value exceeded carrying value for those reporting units. For the remaining reporting units, the Company performed the first step of the quantitative analysis described in ASC Topic 350, Intangibles-Goodwill and Other. The key valuation assumptions contributing to the fair value estimates of the Company's reporting units were (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 units; (b) terminal value based on terminal growth rates ranging from 1.5% to 3.0%; and (c) seven expected years of cash flow before the terminal value for each annual test.

In the fiscal 2014 impairment analysis, the fair value for three of the reporting units acquired in fiscal 2013 exceeded their carrying value by less than 25% each. The goodwill balances for these reporting units were $10.6 million, $4.8 million and $3.6 million. Recent operating performance, along with assumptions for specific customer and industry opportunities, were considered in the key assumptions used during the fiscal 2014 impairment analysis. Management has determined the goodwill balance of these reporting units may have an increased likelihood of impairment if a prolonged downturn in customer demand were to occur, or if the reporting units 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 management which could result in a change to the reporting units' estimates include the outcome of customer requests for proposals and subsequent awards, strategies of competitors, labor market conditions and levels of overall economic activity, including construction and housing activity. As of October 25, 2014, the Company believes the goodwill is recoverable for all of the reporting units; however, there can be no assurances that the goodwill will not be impaired in future periods.

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Intangible Assets

The Company's intangible assets consist of the following:



	October 25, 2014		July 26, 2014
	(Dollars in thousands)
Carrying amount:
Customer relationships	$	179,391	$	173,594
Contract backlog	13,546		15,285
Trade names	8,200		8,200
UtiliQuest trade name	4,700		4,700
Non-compete agreements	400		400
	206,237		202,179
Accumulated amortization:
Customer relationships	72,483		69,048
Contract backlog	12,063		13,490
Trade names	3,683		3,361
Non-compete agreements	184		164
	88,413		86,063
Net Intangible Assets	$	117,824	$	116,116

The carrying amount of customer relationships increased $5.8 million during fiscal 2015 as a result of the preliminary allocation of the purchase price of Hewitt. 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 $5.2 million for the three months ended October 25, 2014 and October 26, 2013, respectively.

Estimated total amortization expense for the remainder of fiscal 2015 and each of the five succeeding fiscal years and thereafter is as follows:



Period		Amount
		(Dollars in thousands)
Nine months ending July 25, 2015		$12,317
2016		$15,782
2017		$14,308
2018		$12,148
2019		$9,757
2020		$8,842
Thereafter		$39,970
Total		$113,124

As of October 25, 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 could be impaired.

8. Accrued Insurance Claims

Within its insurance program 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 damages relating to underground facility locating services. With respect to losses occurring in fiscal 2015, 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 two states in

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which the Company participates in a state-sponsored insurance fund. Aggregate stop loss coverage for automobile liability, general liability and workers’ compensation claims is $59.5 million for fiscal 2015.

The Company is party to a stop-loss agreement for losses under its employee group 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 $69.7 million and $66.0 million at October 25, 2014 and July 26, 2014, respectively, of which, $36.2 million and $33.8 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:



	October 25, 2014		July 26, 2014
	(Dollars in thousands)
Accrued payroll and related taxes	$	19,421	$	18,429
Accrued employee benefit and incentive plan costs	9,360		17,677
Accrued construction costs	23,529		20,689
Accrued interest and related bank fees	5,821		872
Income taxes payable	13,369		5,223
Other current liabilities	15,405		13,244
Total other accrued liabilities	$	86,905	$	76,134

10. Debt

The Company’s outstanding indebtedness consists of the following:



	October 25, 2014			July 26, 2014
	(Dollars in thousands)
Senior Credit Agreement - Revolving facility (matures December 2017)	$	75,000		$	63,000
Senior Credit Agreement - Term Loan (matures December 2017)	111,719			114,063
7.125% senior subordinated notes due 2021	277,500			277,500
Long-term debt premium on 7.125% senior subordinated notes (amortizes to interest expense through January 2021)	3,140			3,238
	467,359			457,801
Less: current portion	(11,719		)	(10,938		)
Long-term debt	$	455,640		$	446,863

Senior Subordinated Notes Due 2021

As of October 25, 2014 and July 26, 2014, 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, the 2021 Notes had a debt premium of $3.1 million and $3.2 million as of October 25, 2014 and July 26, 2014, respectively.

The 2021 Notes are guaranteed by the Issuer's parent company and substantially all of the Company's subsidiaries. For additional information regarding these guarantees see Note 18, 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 its 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 25, 2014 was approximately $290.7 million based on quoted market prices, compared to a $280.6 million carrying value (including the debt premium of $3.1 million). As

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of July 26, 2014, the fair value of the 2021 Notes was $297.6 million compared to a carrying value of $280.7 million (including the debt premium of $3.2 million).

Senior Credit Agreement

Dycom Industries, Inc. and certain of its subsidiaries, are party to a credit agreement (the "Credit Agreement") with various lenders. The Credit Agreement matures in December 2017 and provides for a $275 million revolving facility and a $125 million term loan (the "Term Loan"). Borrowings under the Credit Agreement can be used to refinance certain indebtedness, to provide general working capital, and for other general corporate purposes.

The Company had outstanding revolver borrowings under the Credit Agreement of $75.0 million and $63.0 million as of October 25, 2014 and July 26, 2014, respectively, which accrued interest at a weighted average rate of approximately 2.27% per annum and 2.55% per annum as of October 25, 2014 and July 26, 2014, respectively. Additionally, the Company had $111.7 million and $114.1 million of outstanding principal amount under the Term Loan as of October 25, 2014 and July 26, 2014, respectively, which accrued interest at 2.15% per annum, as of both October 25, 2014 and July 26, 2014.

The Credit Agreement contains a sublimit of $150 million for the issuance of letters of credit. Standby letters of credit of approximately $54.3 million and $49.4 million, issued as part of the Company's insurance program, were outstanding under the Credit Agreement as of October 25, 2014 and July 26, 2014, respectively. Interest on outstanding standby letters of credit accrued at 2.0% per annum at both October 25, 2014 and July 26, 2014. The unused facility fee was 0.35% of unutilized commitments at both October 25, 2014 and July 26, 2014.

At October 25, 2014 and July 26, 2014, the Company was in compliance with the financial covenants of the Credit Agreement and had additional borrowing availability of $145.7 million and $162.6 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 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company’s effective income tax rate differs from the statutory rate for the tax jurisdictions where it operates primarily as the result of the impact of state income taxes, 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 the 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. There were immaterial amounts of pre-tax income related to Canadian operations for the three months ended October 25, 2014 and October 26, 2013. 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. Income tax receivables totaling less than $0.1 million and $2.2 million are included in other current assets as of October 25, 2014 and July 26, 2014, respectively. Income tax payables totaling $13.4 million and $5.2 million are included within other accrued liabilities as of October 25, 2014 and July 26, 2014, respectively.

As of both October 25, 2014 and July 26, 2014, the Company had total unrecognized tax benefits of $2.4 million that 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 for the payment of interest and penalties accrued at both October 25, 2014 and July 26, 2014. Interest expense related to unrecognized tax benefits was immaterial during the three months ended October 25, 2014 and October 26, 2013.

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12. Other Income, Net

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



	For the Three Months Ended
	October 25, 2014		October 26, 2013
	(Dollars in thousands)
Gain on sale of fixed assets	$	1,523	$	1,865
Miscellaneous income, net	272		147
Total other income, net	$	1,795	$	2,012

13. Capital Stock

During fiscal 2014, the Company repurchased 360,900 shares of its common stock in open market transactions, at an average price of $27.71 per share, for approximately $10.0 million under its share repurchase program. All shares repurchased have been subsequently canceled. No shares were repurchased during the first quarter of fiscal 2015. As of October 25, 2014, approximately $30.0 million of the $40.0 million authorized on August 27, 2013 remained authorized for repurchases through February 2015.

During the three months ended October 25, 2014 and October 26, 2013, the Company withheld 10,931 shares and 19,468 shares, respectively, of shares issued with respect to restricted units that vested during the periods, totaling $0.3 million and $0.6 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.

14. Stock-Based Awards

The Company has certain stock-based compensation plans which provide for the grants of stock-based 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. 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. For performance share units ("Performance RSUs"), 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. Accordingly, the amount of compensation expense recognized during any fiscal year may not be representative of future stock-based compensation expense.

Stock-based compensation expense and the related tax benefit recognized related to stock options and restricted share units during the three months ended October 25, 2014 and October 26, 2013 are as follows:



	For the Three Months Ended
	October 25, 2014		October 26, 2013
	(Dollars in thousands)
Stock-based compensation	$	3,890	$	3,506
Tax benefit recognized in the statement of operations	$	1,464	$	1,299

As of October 25, 2014, unrecognized compensation expense related to stock options, time-based restricted share units ("RSUs") and target Performance RSUs was $2.7 million, $5.8 million and $9.7 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, 2.4 years and 1.5 years, respectively, which is based on the average remaining service periods of the awards. As of October 25, 2014, the Company may recognize an additional $4.5 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.

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Stock Options

The following table summarizes stock option award activity during the three months ended October 25, 2014:



	Stock Options
	Shares		Weighted Average Exercise Price

Outstanding as of July 26, 2014	2,044,893		$	18.68
Granted	—		$	—
Options exercised	(39,525	)	$	14.35
Forfeited or canceled	(5,966	)	$	27.80
Outstanding as of October 25, 2014	1,999,402		$	18.74

Exercisable options as of October 25, 2014	1,531,775		$	18.89

RSUs and Performance RSUs

The following table summarizes RSU and Performance RSU activity during the three months ended October 25, 2014:



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

Outstanding as of July 26, 2014	398,931		$	20.61	1,190,184		$	21.73
Granted	984		$	28.44	68,418		$	28.84
Share units vested	(984	)	$	28.44	(37,512	)	$	19.83
Forfeited or canceled	(291	)	$	19.26	(323,687	)	$	19.79
Outstanding as of October 25, 2014	398,640		$	20.61	897,403		$	23.05

The granted Performance RSUs in the above table is comprised of 34,209 target shares and 34,209 supplemental shares granted to officers. Approximately 312,163 Performance RSUs outstanding as of July 26, 2014, including 48,313 target shares and 263,850 supplemental shares, were canceled during the first quarter of fiscal 2015 as a result of the fiscal 2014 performance criteria not being fully met. The total amount of Performance RSUs outstanding as of October 25, 2014 is comprised of 690,342 target shares and 207,061 supplemental shares.

15. 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 $0.4 million and $0.6 million for the three months ended October 25, 2014 and October 26, 2013, respectively. Additionally, amounts paid for subcontracting services and materials to entities related to officers of certain of the Company’s subsidiaries were $0.5 million and $0.7 million during the three months ended October 25, 2014 and October 26, 2013, respectively. The Company believes that all related party transactions have been conducted on an arms-length basis and the terms are similar to those that would be available to other third parties.

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16. Concentration of Credit Risk

The Company’s customer base is highly concentrated, with its top five customers in each period accounting for approximately 59.4% and 57.2% of its total revenues during the three months ended October 25, 2014 and October 26, 2013, respectively. Customers whose revenues exceeded 10% of total revenue during the three months ended October 25, 2014 or October 26, 2013 are as follows:



	For the Three Months Ended
	October 25, 2014	October 26, 2013
AT&T Inc.	21.2%	17.5%
CenturyLink, Inc.	13.1%	15.5%
Comcast Corporation	12.8%	10.5%

Customers representing 10% or more of combined amounts of trade accounts receivable and costs and estimated earnings in excess of billings, net as of October 25, 2014 or July 26, 2014 had the following outstanding balances and the related percentage of the Company’s total outstanding balances:



	October 25, 2014				July 26, 2014
	Amount		% of Total		Amount		% of Total
			(Dollars in millions)
AT&T Inc.	$	100.3	18.5	%	$	87.6	17.9	%
CenturyLink, Inc.	$	58.2	10.8	%	$	48.2	9.8	%
Comcast Corporation	$	57.1	10.6	%	$	48.9	9.9	%

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. In July 2014, the plaintiff’s attorney and UtiliQuest entered into a memorandum of understanding pursuant to which the parties agreed to the terms of a proposed settlement of the lawsuit. On November 12, 2014, the Court entered an order of preliminary approval of the proposed settlement. A final approval hearing is scheduled for February 2015. As of October 25, 2014 and July 26, 2014, $0.6 million was included in other accrued liabilities with respect to the settlement.

The Company has filed construction liens with respect to approximately $17.7 million for past due balances from a customer on a rural project funded primarily by the Rural Utilities Service agency of the United States Department of Agriculture (the “RUS”) under the American Recovery and Reinvestment Act of 2009. In April 2014, R&R Taylor Construction, Inc. ("R&R"), a construction company, filed suit against this customer alleging that the customer failed to pay for construction services and materials. In its lawsuit, the construction company seeks to foreclose on its construction lien and, ultimately, to foreclose on the parcel of land itself. Pauley Construction, Inc. (“Pauley”), a wholly-owned subsidiary of the Company, had performed work on this parcel as part of its work on the rural project described above. Pauley has filed a construction lien on the parcel with respect to past due accounts receivable relating to this project. In July 2014, R&R amended its lawsuit to include Pauley, alleging that its lien has priority over Pauley’s construction lien. Pauley has filed an answer to this amended complaint in the Montana Eighteenth Judicial District Court, a counterclaim against the construction company and a cross-claim against the customer, alleging that Pauley’s lien is superior to all other liens on such parcel of land. It is too early to evaluate the likelihood of an outcome to this matter. The Company intends to vigorously defend itself against this lawsuit as part of ongoing efforts to collect the past due amount from this customer.

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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.

Within 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 damages relating to underground facility locating services, 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.

Commitments

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 25, 2014 and July 26, 2014, the Company had $443.9 million and $446.8 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 October 25, 2014 and July 26, 2014, the Company had $54.3 million and $49.4 million, respectively, of outstanding standby letters of credit issued under the Credit Agreement.

Multi-Employer Benefit Plans - The Company contributes to several multi-employer defined benefit pension plans under the terms of collective bargaining agreements that cover certain employees represented by unions. The risks of participating in a multi-employer 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 other participating employers; (b) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be inherited by the remaining participating employers; and (c) if the Company stops 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 25, 2014 or July 26, 2014.

18. Supplemental Consolidating Financial Statements

On October 25, 2014 and July 26, 2014, 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.

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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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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) OCTOBER 25, 2014

	Parent		Issuer		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations and Reclassifications			Dycom Consolidated
	(Dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	—	$	—	$	15,801	$	658	$	—		$	16,459
Accounts receivable, net	—		—		293,310		3,522		—			296,832
Costs and estimated earnings in excess of billings	—		—		255,062		1,889		—			256,951
Inventories	—		—		47,003		—		—			47,003
Deferred tax assets, net	4,001		—		17,017		177		(173		)	21,022
Other current assets	7,434		2		6,605		426		—			14,467
Total current assets	11,435		2		634,798		6,672		(173		)	652,734

PROPERTY AND EQUIPMENT, NET	17,743		—		170,707		17,689		—			206,139
GOODWILL	—		—		269,465		—		—			269,465
INTANGIBLE ASSETS, NET	—		—		117,226		598		—			117,824
DEFERRED TAX ASSETS, NET NON-CURRENT	403		—		4,294		35		(4,732		)	—
INVESTMENT IN SUBSIDIARIES	830,423		1,565,469		1,681		—		(2,397,573		)	—
INTERCOMPANY RECEIVABLES	—		—		612,828		—		(612,828		)	—
OTHER	7,967		5,465		2,420		143		—			15,995
TOTAL NON-CURRENT ASSETS	856,536		1,570,934		1,178,621		18,465		(3,015,133		)	609,423
TOTAL ASSETS	$	867,971	$	1,570,936	$	1,813,419	$	25,137	$	(3,015,306	)	$	1,262,157

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,159	$	—	$	63,901	$	1,362	$	—		$	66,422
Current portion of debt	11,719		—		—		—		—			11,719
Billings in excess of costs and estimated earnings	—		—		14,027		—		—			14,027
Accrued insurance claims	565		—		32,900		60		—			33,525
Deferred tax liabilities	—		80		64		29		(173		)	—
Other accrued liabilities	20,437		5,492		58,909		2,067		—			86,905
Total current liabilities	33,880		5,572		169,801		3,518		(173		)	212,598

LONG-TERM DEBT	175,000		280,640		—		—		—			455,640
ACCRUED INSURANCE CLAIMS	707		—		35,424		58		—			36,189
DEFERRED TAX LIABILITIES, NET NON-CURRENT	—		432		46,865		453		(4,732		)	43,018
INTERCOMPANY PAYABLES	145,716		453,869		—		13,243		(612,828		)	—
OTHER LIABILITIES	3,167		—		2,039		5		—			5,211
Total liabilities	358,470		740,513		254,129		17,277		(617,733		)	752,656
Total stockholders' equity	509,501		830,423		1,559,290		7,860		(2,397,573		)	509,501
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	867,971	$	1,570,936	$	1,813,419	$	25,137	$	(3,015,306	)	$	1,262,157

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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET JULY 26, 2014

	Parent		Issuer		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations and Reclassifications			Dycom Consolidated
	(Dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	—	$	—	$	19,739	$	933	$	—		$	20,672
Accounts receivable, net	—		—		269,760		2,981		—			272,741
Costs and estimated earnings in excess of billings	—		—		228,541		2,028		—			230,569
Inventories	—		—		49,095		—		—			49,095
Deferred tax assets, net	3,822		—		16,193		87		(170		)	19,932
Other current assets	4,956		16		7,237		518		—			12,727
Total current assets	8,778		16		590,565		6,547		(170		)	605,736

PROPERTY AND EQUIPMENT, NET	18,108		—		171,158		16,147		—			205,413
GOODWILL	—		—		269,088		—		—			269,088
INTANGIBLE ASSETS, NET	—		—		115,483		633		—			116,116
DEFERRED TAX ASSETS, NET NON-CURRENT	182		—		3,884		15		(4,081		)	—
INVESTMENT IN SUBSIDIARIES	809,617		1,540,338		1,621		—		(2,351,576		)	—
INTERCOMPANY RECEIVABLES	—		—		628,443		—		(628,443		)	—
OTHER	7,748		5,636		2,466		151		—			16,001
TOTAL NON-CURRENT ASSETS	835,655		1,545,974		1,192,143		16,946		(2,984,100		)	606,618
TOTAL ASSETS	$	844,433	$	1,545,990	$	1,782,708	$	23,493	$	(2,984,270	)	$	1,212,354

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,083	$	—	$	58,970	$	1,265	$	—		$	63,318
Current portion of debt	10,938		—		—		—		—			10,938
Billings in excess of costs and estimated earnings	—		—		13,882		—		—			13,882
Accrued insurance claims	612		—		31,599		49		—			32,260
Deferred tax liabilities	—		80		66		24		(170		)	—
Other accrued liabilities	12,668		566		61,284		1,616		—			76,134
Total current liabilities	27,301		646		165,801		2,954		(170		)	196,532

LONG-TERM DEBT	166,125		280,738		—		—		—			446,863
ACCRUED INSURANCE CLAIMS	778		—		32,959		45		—			33,782
DEFERRED TAX LIABILITIES, NET NON-CURRENT	—		432		48,593		417		(4,081		)	45,361
INTERCOMPANY PAYABLES	162,127		454,557		—		11,759		(628,443		)	—
OTHER LIABILITIES	3,168		—		1,711		3		—			4,882
Total liabilities	359,499		736,373		249,064		15,178		(632,694		)	727,420
Total stockholders' equity	484,934		809,617		1,533,644		8,315		(2,351,576		)	484,934
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	844,433	$	1,545,990	$	1,782,708	$	23,493	$	(2,984,270	)	$	1,212,354

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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED OCTOBER 25, 2014 (Dollars in thousands)

	Parent			Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Dycom Consolidated
Contract revenues	$	—		$	—		$	505,689		$	4,700		$	—		$	510,389
Costs of earned revenues, excluding depreciation and amortization	—			—			400,091			3,377			—			403,468
General and administrative	12,833			100			28,168			3,595			—			44,696
Depreciation and amortization	1,239			—			20,581			1,110			—			22,930
Intercompany charges (income), net	(15,822		)	—			16,408			(586		)	—			—
Interest expense, net	(1,750		)	(4,999		)	—			—			—			(6,749		)
Other income, net	—			—			1,779			16			—			1,795
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES	—			(5,099		)	42,220			(2,780		)	—			34,341
PROVISION (BENEFIT) FOR INCOME TAXES	—			(2,010		)	16,640			(1,096		)	—			13,534
NET INCOME (LOSS) BEFORE EQUITY IN EARNINGS (LOSSES) OF SUBSIDIARIES	—			(3,089		)	25,580			(1,684		)	—			20,807
EQUITY IN EARNINGS (LOSSES) OF SUBSIDIARIES	20,807			23,896			(139		)	—			(44,564		)	—
NET INCOME (LOSS)	$	20,807		$	20,807		$	25,441		$	(1,684	)	$	(44,564	)	$	20,807
Foreign currency translation loss, net of tax	(268		)	(268		)	—			(268		)	536			(268		)
COMPREHENSIVE INCOME (LOSS)	$	20,539		$	20,539		$	25,441		$	(1,952	)	$	(44,028	)	$	20,539

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED OCTOBER 26, 2013 (Dollars in thousands)

	Parent			Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Dycom Consolidated
Contract revenues	$	—		$	—		$	509,430		$	3,290		$	—		$	512,720
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		)	—			—
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, net of tax	(60		)	(60		)	—			(60		)	120			(60		)
COMPREHENSIVE INCOME (LOSS)	$	18,600		$	18,600		$	23,400		$	(1,667	)	$	(40,333	)	$	18,600

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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED OCTOBER 25, 2014 (Dollars in thousands)

	Parent			Issuer			Subsidiary Guarantor			Non- Guarantor Subsidiaries			Elim-inations			Dycom Consolidated
Net cash provided by (used in) operating activities	$	(5,233	)	$	1,924		$	14,666		$	(452	)	$	—		$	10,905
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired	—			—			(8,371		)	—			—			(8,371		)
Capital expenditures	(1,597		)	—			(14,861		)	(1,570		)	—			(18,028		)
Proceeds from sale of assets	—			—			1,698			—			—			1,698
Return of capital from subsidiaries	—			891			—			—			(891		)	—
Investment in subsidiaries	—			(2,125		)	(200		)	—			2,325			—
Changes in restricted cash	(541		)	—			—			—			—			(541		)
Net cash used in investing activities	(2,138		)	(1,234		)	(21,734		)	(1,570		)	1,434			(25,242		)
Cash flows from financing activities:
Borrowings on senior Credit Agreement	132,000			—			—			—			—			132,000
Principal payments on senior Credit Agreement	(122,344		)	—			—			—			—			(122,344		)
Exercise of stock options	567			—			—			—			—			567
Restricted stock tax withholdings	(309		)	—			—			—			—			(309		)
Excess tax benefit from share-based awards	210			—			—			—			—			210
Intercompany funding	(2,753		)	(690		)	3,130			1,747			(1,434		)	—
Net cash provided by (used in) financing activities	7,371			(690		)	3,130			1,747			(1,434		)	10,124
Net decrease in cash and equivalents	—			—			(3,938		)	(275		)	—			(4,213		)
CASH AT BEGINNING OF PERIOD	—			—			19,739			933			—			20,672
CASH AND EQUIVALENTS AT END OF PERIOD	$	—		$	—		$	15,801		$	658		$	—		$	16,459