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 January 26, 2008
		OR
o		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 0-5423

DYCOM INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Florida		59-1277135
(State of incorporation)		(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

Securities registered pursuant to Section 12(b) of the Act:

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 o

     

 

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 o     No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock Common stock, par value of $0.33 1/3		Outstanding shares March 4, 2008 40,702,575

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			36
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			54
Item 4.		Controls and Procedures			54
		PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			55
Item 1A.		Risk Factors			56
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			56
Item 4.		Submission of Matters to a Vote of Security Holders			57
Item 6.		Exhibits			57
Signatures					58
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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

		January 26,				July 28,
		2008				2007
		(dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and equivalents		$	27,259			$	18,862
Accounts receivable, net			128,770				146,864
Costs and estimated earnings in excess of billings			79,092				95,392
Deferred tax assets, net			19,448				15,478
Income taxes receivable			9,170				—
Inventories			9,538				8,268
Other current assets			12,416				7,266
Current assets of discontinued operations			255				307
Total current assets			285,948				292,437
Property and equipment, net			174,251				164,544
Goodwill			250,518				250,830
Intangible assets, net			66,494				70,122
Other			11,207				11,831
Total non-current assets			502,470				497,327
TOTAL		$	788,418			$	789,764
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	25,674			$	30,375
Current portion of debt			2,883				3,301
Billings in excess of costs and estimated earnings			1,067				712
Accrued self-insured claims			29,774				26,902
Income taxes payable			—				1,947
Other accrued liabilities			60,042				63,076
Current liabilities of discontinued operations			1,126				939
Total current liabilities			120,566				127,252
LONG-TERM DEBT			152,119				163,509
ACCRUED SELF-INSURED CLAIMS			35,624				33,085
DEFERRED TAX LIABILITIES, net non-current			16,767				19,316
OTHER LIABILITIES			8,178				1,322
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS			565				649
Total liabilities			333,819				345,133
COMMITMENTS AND CONTINGENCIES, Notes 11, 12, 16 and 17
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $1.00 per share:
1,000,000 shares authorized: no shares issued and outstanding			—				—
Common stock, par value $0.33 1/3 per share:
150,000,000 shares authorized: 41,017,399 and 41,005,106 issued and outstanding, respectively			13,672				13,668
Additional paid-in capital			192,069				191,837
Accumulated other comprehensive income			210				75
Retained earnings			248,648				239,051
Total stockholders’ equity			454,599				444,631
TOTAL		$	788,418			$	789,764

See notes to the condensed consolidated financial statements.

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

		For the Three Months Ended
		January 26, 2008				January 27, 2007
		(dollars in thousands, except per share amounts)
REVENUES:
Contract revenues		$	284,758			$	258,293
EXPENSES:
Costs of earned revenues, excluding depreciation and amortization			247,906				210,771
General and administrative (including stock-based compensation expense of $1.0 million and $1.6 million, respectively)			22,315				21,395
Depreciation and amortization			16,910				14,142
Total			287,131				246,308
Interest income			171				234
Interest expense			(3,566	)			(3,953	)
Other income, net			798				1,129
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			(4,970	)			9,395
PROVISION (BENEFIT) FOR INCOME TAXES:
Current			618				2,591
Deferred			(2,455	)			1,156
Total			(1,837	)			3,747
INCOME (LOSS) FROM CONTINUING OPERATIONS			(3,133	)			5,648
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX			(93	)			(63	)
NET INCOME (LOSS)		$	(3,226	)		$	5,585
EARNINGS (LOSS) PER COMMON SHARE — BASIC:
Income (loss) from continuing operations		$	(0.08	)		$	0.14
Loss from discontinued operations			—				—
Net income (loss)		$	(0.08	)		$	0.14
EARNINGS (LOSS) PER COMMON SHARE — DILUTED:
Income (loss) from continuing operations		$	(0.08	)		$	0.14
Loss from discontinued operations			—				—
Net income (loss)		$	(0.08	)		$	0.14
SHARES USED IN COMPUTING EARNINGS (LOSS) PER COMMON SHARE:
Basic			40,799,664				40,295,932
Diluted			40,799,664				40,599,162

See notes to the condensed consolidated financial statements.

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

		For the Six Months Ended
		January 26, 2008				January 27, 2007
		(dollars in thousands, except per share amounts)
REVENUES:
Contract revenues		$	614,430			$	528,846
EXPENSES:
Costs of earned revenues, excluding depreciation and amortization			509,218				428,536
General and administrative (including stock-based compensation expense of $3.2 million and $3.3 million, respectively)			47,923				43,074
Depreciation and amortization			32,957				26,637
Total			590,098				498,247
Interest income			381				627
Interest expense			(7,122	)			(7,710	)
Other income, net			2,370				1,624
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			19,961				25,140
PROVISION (BENEFIT) FOR INCOME TAXES:
Current			12,811				9,731
Deferred			(4,974	)			235
Total			7,837				9,966
INCOME FROM CONTINUING OPERATIONS			12,124				15,174
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX			(422	)			(29	)
NET INCOME		$	11,702			$	15,145
EARNINGS PER COMMON SHARE — BASIC:
Income from continuing operations		$	0.30			$	0.38
Loss from discontinued operations			(0.01	)			—
Net income		$	0.29			$	0.38
EARNINGS PER COMMON SHARE — DILUTED:
Income from continuing operations		$	0.30			$	0.37
Loss from discontinued operations			(0.01	)			—
Net income		$	0.28			$	0.37
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic			40,759,267				40,253,498
Diluted			41,073,223				40,553,092
Earnings per share amounts may not add due to rounding.

See notes to the condensed consolidated financial statements.

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

		For the Six Months Ended
		January 26, 2008				January 27, 2007
		(dollars in thousands)
OPERATING ACTIVITIES:
Net income		$	11,702			$	15,145
Adjustments to reconcile net cash inflow from operating activities:
Depreciation and amortization			32,957				27,276
Bad debts recovery, net			(118	)			(244	)
Gain on sale of fixed assets and other			(2,204	)			(1,453	)
Deferred income tax benefit			(4,963	)			(132	)
Stock-based compensation expense			3,164				3,339
Amortization of debt issuance costs			400				376
Excess tax benefit from share-based awards			(479	)			(8	)
Change in operating assets and liabilities, net of acquisitions:
(Increase) decrease in operating assets:
Accounts receivable, net			18,149				29,593
Costs and estimated earnings in excess of billings, net			16,655				224
Other current assets			(6,414	)			(1,953	)
Other assets			723				885
Increase (decrease) in operating liabilities:
Accounts payable			(3,144	)			(2,210	)
Accrued self-insured claims and other liabilities			2,431				(3,753	)
Income taxes payable			(5,969	)			(3,146	)
Net cash provided by operating activities			62,890				63,939
INVESTING ACTIVITIES:
Restricted cash			(369	)			(556	)
Capital expenditures			(42,221	)			(35,227	)
Proceeds from sale of assets			2,948				2,326
Cash paid for acquisitions			—				(56,323	)
Net cash used in investing activities			(39,642	)			(89,780	)
FINANCING ACTIVITIES:
Proceeds from long-term debt			15,000				80,000
Principal payments on long-term debt			(26,809	)			(66,576	)
Repurchases of common stock			(2,754	)			—
Excess tax benefit from share-based awards			479				8
Restricted stock tax withholdings			(2,081	)			(1,098	)
Exercise of stock options and other			1,314				684
Net cash (used in) provided by financing activities			(14,851	)			13,018
Net increase (decrease) in cash and equivalents			8,397				(12,823	)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD			18,862				27,268
CASH AND EQUIVALENTS AT END OF PERIOD		$	27,259			$	14,445
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest		$	6,349			$	7,404
Income taxes		$	17,934			$	13,877
Purchases of capital assets included in accounts payable or other accrued liabilities at period end		$	2,595			$	5,726

See notes to the condensed consolidated financial statements

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

     Dycom Industries, Inc. (“Dycom” or the “Company”) is a leading provider of specialty contracting services throughout the United States. 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 utilities and others. Additionally, Dycom provides services on a limited basis in Canada.

     The 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. The accompanying condensed consolidated balance sheets of the Company and the related condensed consolidated statements of operations and cash flows for each of the three and six month periods reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three and six months ended January 26, 2008 are not necessarily indicative of the results that may be expected for the entire year. For a fuller understanding of the Company and its financial statements, the Company recommends reading these condensed consolidated financial statements in conjunction with the Company’s audited financial statements for the year ended July 28, 2007 included in the Company’s 2007 Annual Report on Form 10- K, filed with the Securities and Exchange Commission (“SEC”) on September 7, 2007.

     In September 2006, the Company acquired the outstanding common stock of Cable Express Holding Company (“Cable Express”). In January 2007, the Company acquired certain assets of a cable television operator. In March 2007, the Company acquired certain assets and assumed certain liabilities of Cavo Communications, Inc. (“Cavo”). The operating results of the businesses acquired by the Company are included in the accompanying condensed consolidated financial statements from their respective acquisition dates.

     Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. For the Company, key estimates include those for the recognition of revenue for costs and estimated earnings in excess of billings, allowance for doubtful accounts, accrued self-insured claims, the fair value of goodwill and intangible assets, asset lives used in computing depreciation and amortization, including amortization of intangible assets, and accounting for performance-based stock awards, income taxes and contingencies, including legal matters. While the Company believes that such estimates are fair when considered in conjunction with the condensed consolidated financial position and results of operations taken as a whole, actual results could differ from those estimates and such differences may be material to the financial statements.

     Restricted Cash — As of January 26, 2008 and July 28, 2007, the Company had approximately $4.9 million and $4.5 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 from investing activities in the condensed consolidated statements of cash flows.

     Goodwill and Intangible Assets — The Company accounts for goodwill in accordance with Statements of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” The Company’s reporting units and related intangible assets are tested annually during the fourth fiscal quarter of each year in accordance with SFAS No. 142 in order to determine whether their carrying value exceeds their fair market value. Should this be the case, the value of the reporting unit’s goodwill or indefinite-lived intangibles may be impaired and written down. Goodwill and other indefinite-lived intangible assets are also tested for impairment on an interim basis if an event occurs or circumstances change between annual tests that would more likely than not reduce the fair value below the carrying value. If the Company determines the fair value of the goodwill or other identifiable intangible assets is less than the carrying value, an impairment loss is recognized in an amount equal to the difference. Impairment losses, if any, are reflected in operating income or loss in the consolidated statements of operations.

     In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviews finite-lived intangible assets for impairment whenever an event occurs or circumstances change which indicates that the carrying amount of such assets may not be fully recoverable. Recoverability is determined based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. An impairment loss is measured by comparing the fair value of the asset to its carrying value. If the Company determines the fair value of the asset is less than the carrying value, an impairment loss is incurred in an amount equal to the difference. Impairment losses, if any, are reflected in operating income or loss in the consolidated statements of operations.

     The Company uses judgment in assessing goodwill and intangible assets for impairment. Estimates of fair value are based on the Company’s projection of revenues, operating costs, and cash flows considering historical and anticipated future results, general economic and market conditions as well as the impact of planned business or operational strategies. The valuations employ a combination of present value techniques to measure fair value and reflect market factors. Changes in the Company’s judgments and projections could result in a significantly different estimate of the fair value and could result in an impairment.

     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. In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a two-step process for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The first step involves evaluation of a tax position to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step involves measuring the benefit to recognize in the financial

statements for those tax positions that meet the more likely than not recognition threshold. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. In May 2007, the FASB issued FASB Staff Position (“FSP”) No. 48-1, “Definition of Settlement in FASB Interpretation No. 48.” This FSP amends FIN 48 to provide guidance that a Company may recognize a previously unrecognized tax benefit if the tax position is effectively (as opposed to “ultimately”) settled through examination, negotiation, or litigation. The Company adopted the provisions of FIN 48 on July 29, 2007, the first day of fiscal 2008. See Note 12 for further discussion regarding the adoption of the Interpretation.

     Comprehensive Income (Loss) — During the three and six months ended January 26, 2008 and January 27, 2007, the Company did not have any material changes in its equity resulting from non-owner sources and, accordingly, comprehensive income (loss) approximated the net income (loss) amounts presented for the respective periods in the accompanying condensed consolidated statements of operations.

     Multiemployer Defined Benefit Pension Plan — A subsidiary acquired in fiscal 2007 participates in a multiemployer defined benefit pension plan that covers certain of its employees. The subsidiary makes periodic contributions to the plan to meet the benefit obligations. During the three months ended January 26, 2008 and January 27, 2007, the subsidiary contributed approximately $0.9 million and $0.7 million to the plan, respectively. During the six months ended January 26, 2008 and January 27, 2007, the subsidiary contributed approximately $1.9 million and $1.0 million to the plan, respectively.

     Recently Issued Accounting Pronouncements — In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will be effective for the Company for any acquisition completed subsequent to July 26, 2009 (fiscal 2010). The Company is currently evaluating the impact of SFAS No. 141(R).

     In December 2007, the FASB issued SFAS No. 160, “Non-Controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement will be effective for the Company at the beginning of the third quarter of fiscal 2009 and is not expected to have a material effect on the Company’s results of operations, financial position, or cash flows.

     In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). This statement, which is expected to expand fair value measurement criteria, permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 will be effective for the Company at the beginning of fiscal 2009. The Company is currently evaluating the impact of SFAS No. 159.

     In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans — an Amendment of FASB Statements No. 87, 88, 106 and 132(R).” This standard requires the recognition of the funded status of defined benefit pension and other postretirement benefit plans as an asset or liability in the year in which they occur. Furthermore, it requires changes in the funded status of these plans to be recognized through “accumulated other comprehensive income,” as a separate component of stockholders’ equity, and provides for additional annual disclosure. SFAS No. 158 is effective for fiscal years ending after December 15, 2008 and is not expected to have a material effect on the Company’s results of operations, financial position, or cash flows.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” which defines fair value, establishes a measurement framework and expands disclosure requirements. SFAS No. 157 applies to assets and liabilities that are required to be recorded at fair value pursuant to other accounting standards. SFAS No. 157 will be effective for the Company at the beginning of fiscal 2009. In December 2007, the FASB released a proposed FASB Staff Position (FSP FAS 157-2- Effective Date of FASB Statement No. 157 ) which delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) until the beginning of fiscal 2010. The Company is currently evaluating the impact SFAS No. 157 will have on its non-financial assets and non-financial liabilities.

2. Discontinued Operations

     During fiscal 2007, a wholly-owned subsidiary of the Company, Apex Digital, LLC (“Apex”) notified its primary customer of its intention to cease performing installation services in accordance with its contractual rights. Effective December 2006, this customer, a satellite broadcast provider, transitioned its installation service requirements to others and Apex ceased providing these services. As a result, the Company has discontinued the operations of Apex and presented its results separately in the accompanying condensed consolidated financial statements for all periods presented. The summary comparative financial results of the discontinued operations were as follows:

		For the Three Months Ended								For the Six Months Ended
		January 26, 2008				January 27, 2007				January 26, 2008				January 27, 2007
		(dollars in thousands)
Contract revenues of discontinued operations		$	—			$	2,410			$	—			$	10,033
Loss of discontinued operations before income taxes		$	(156	)		$	(105	)		$	(695	)		$	(48	)
Loss of discontinued operations, net of tax		$	(93	)		$	(63	)		$	(422	)		$	(29	)

     The following table represents the assets and the liabilities of the discontinued operations:

		January 26, 2008				July 28, 2007
		(dollars in thousands)
Accounts receivable, net		$	56			$	56
Deferred tax assets, net			198				244
Other current assets			1				7
Current assets of discontinued operations		$	255			$	307
Accounts payable		$	43			$	114
Accrued liabilities			1,083				825
Total current liabilities of discontinued operations		$	1,126			$	939
Other accrued liabilities and deferred taxes		$	565			$	649
Non-current liabilities of discontinued operations		$	565			$	649

3. Computation of Earnings (Loss) Per Share

     The following is a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share computation as required by SFAS No. 128, “Earnings Per Share.” Basic earnings per share is computed based on the weighted average number of shares outstanding during the period, excluding unvested restricted shares and restricted share units. Diluted earnings per share includes the weighted average common shares outstanding for the period plus dilutive potential common shares, including unvested restricted shares and restricted share units. Performance vesting restricted shares and restricted share units are only included in diluted earnings per share calculations for the period if all the necessary performance conditions are satisfied and their impact is not anti-dilutive. For the three months ended January 26, 2008, all common stock equivalents related to stock options, restricted shares, and restricted share units are excluded from the diluted earnings per share calculation as their effect would be anti-dilutive due to the Company’s net loss for the three months ended January 26, 2008.

		For the Three Months Ended								For the Six Months Ended
		January 26, 2008				January 27, 2007				January 26, 2008				January 27, 2007
		(dollars in thousands, except per share amounts)
Numerator:
Income (loss) from continuing operations		$	(3,133	)		$	5,648			$	12,124			$	15,174
Loss from discontinued operations, net of tax			(93	)			(63	)			(422	)			(29	)
Net income (loss)		$	(3,226	)		$	5,585			$	11,702			$	15,145
Denominator:
Basic
Weighted-average number of common shares — Basic			40,799,664				40,295,932				40,759,267				40,253,498
Diluted
Weighted-average number of common shares — Basic			40,799,664				40,295,932				40,759,267				40,253,498
Potential common stock arising from stock options, restricted shares and restricted share units			—				303,230				313,956				299,594
Weighted-average number of common shares — Diluted			40,799,664				40,599,162				41,073,223				40,553,092
Antidilutive weighted shares excluded from the calculation of earnings (loss) per share			2,897,883				2,307,605				1,157,679				2,333,325
EARNINGS (LOSS) PER COMMON SHARE — BASIC:
Income (loss) from continuing operations		$	(0.08	)		$	0.14			$	0.30			$	0.38
Loss from discontinued operations			—				—				(0.01	)			—
Net income (loss)		$	(0.08	)		$	0.14			$	0.29			$	0.38
EARNINGS (LOSS) PER COMMON SHARE — DILUTED:
Income (loss) from continuing operations		$	(0.08	)		$	0.14			$	0.30			$	0.37
Loss from discontinued operations			—				—				(0.01	)			—
Net income (loss)		$	(0.08	)		$	0.14			$	0.28			$	0.37

Earnings per share amounts may not add due to rounding.

4. Acquisitions

     In September 2006, the Company acquired the outstanding common stock of Cable Express for a purchase price of approximately $55.2 million and assumed $9.2 million in capital lease obligations. The purchase price included transaction fees of approximately $0.5 million and $6.2 million placed in escrow. The escrowed amount was established to satisfy potential indemnification obligations of the sellers pursuant to the acquisition agreement. Of the $6.2 million escrowed, approximately $1.6 million remains to be released to the sellers in September 2008, so long as the amount is not subject to any claims. Cable Express provides specialty contracting services for leading cable multiple system operators. These services include the installation and maintenance of customer premise equipment, including set top boxes and cable modems. The Company borrowed $50.0 million under its revolving credit agreement to fund this acquisition.

     The purchase price of Cable Express has been allocated to the tangible and intangible assets acquired and the liabilities assumed, including capital leases, on the basis of their respective fair values on the acquisition date. Purchase price in excess of fair value of the net tangible and identifiable intangible assets acquired has been allocated to goodwill. Goodwill of approximately $0.8 million related to the Cable Express acquisition is expected to be deductible for tax purposes. The Company determined the fair values of the identifiable intangible assets based primarily on historical data, estimated discounted future cash flows, and expected royalty rates for trademarks and tradenames.

     The allocation of purchase price for Cable Express is as follows (dollars in thousands):

Assets:
Accounts receivable, net		$	8,050
Costs and estimated earnings in excess of billings			1,377
Other current assets			3,630
Property and equipment			12,440
Goodwill			34,636
Intangible assets — customer relationships			22,800
Intangible assets — tradenames			1,100
Other assets			139
Total assets			84,172
Liabilities:
Accounts payable			893
Accrued liabilities			9,262
Notes payable			82
Capital leases payable			9,197
Deferred tax liability, net non-current			9,529
Total liabilities			28,963
Net assets acquired		$	55,209

     The operating results of Cable Express are included in the accompanying condensed consolidated financial statements since its acquisition date. The following unaudited pro forma information presents the Company’s condensed consolidated results of operations as if the Cable Express acquisition had occurred on July 30, 2006, the first day of the Company’s 2007 fiscal year. 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. Approximately $4.8 million of non-recurring charges incurred by Cable Express are included in the pro forma amounts for the six months ended January 27, 2007. The non-recurring charges were incurred prior to the acquisition and primarily related to stock-based compensation expense and acquisition related bonuses. The unaudited pro forma results are as follows:

  

		For the Six Months Ended
		January 27, 2007
		(dollars in thousands, except
		per share amounts)
Total revenues		$	539,745
Income from continuing operations before income taxes		$	20,466
Income from continuing operations		$	12,365
Net income		$	12,335
Earnings per share from continuing operations:
Basic		$	0.31
Diluted		$	0.30
Earnings per share:
Basic		$	0.31
Diluted		$	0.30

     In January 2007, the Company acquired certain assets of a cable television operator for approximately $1.1 million. In March 2007, the Company acquired certain assets and assumed certain liabilities, including $0.9 million in capital lease obligations, of Cavo for a purchase price of $5.5 million. Cavo provides specialty contracting services for leading cable multiple system operators. These services include the installation and maintenance of customer premise equipment, including set top boxes and cable modems. The purchase price allocation for Cavo is preliminary as the Company continues to assess the valuation of the acquired assets and liabilities. These two acquisitions were not material to the Company’s revenue, results of operations or financial position.

5. Accounts Receivable

     Accounts receivable consist of the following:

		January 26, 2008				July 28, 2007
		(dollars in thousands)
Contract billings		$	126,794			$	144,835
Retainage			2,025				2,249
Other receivables			811				766
Total			129,630				147,850
Less: allowance for doubtful accounts			860				986
Accounts receivable, net		$	128,770			$	146,864

     The allowance for doubtful accounts changed as follows:

		For the Three Months Ended								For the Six Months Ended
		January 26, 2008				January 27, 2007				January 26, 2008				January 27, 2007
		(dollars in thousands)
Allowance for doubtful accounts at beginning of period		$	979			$	1,874			$	986			$	1,964
Bad debt recovery, net			(183	)			(124	)			(118	)			(244	)
Amounts (charged against) credited to the allowance			64				(712	)			(8	)			(682	)
Allowance for doubtful accounts at end of period		$	860			$	1,038			$	860			$	1,038

     As of January 26, 2008, the Company expected to collect all retainage balances within the next twelve months. Additionally, the Company believes that none of its significant customers were experiencing significant financial difficulty as of January 26, 2008.

6. Costs and Estimated Earnings on Contracts in Excess of Billings

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

		January 26, 2008				July 28, 2007
		(dollars in thousands)
Costs incurred on contracts in progress		$	66,574			$	76,316
Estimated to date earnings			12,518				19,076
Total costs and estimated earnings			79,092				95,392
Less: billings to date			1,067				712
		$	78,025			$	94,680
Included in the accompanying condensed consolidated balance sheets under the captions:
Costs and estimated earnings in excess of billings		$	79,092			$	95,392
Billings in excess of costs and estimated earnings			(1,067	)			(712	)
		$	78,025			$	94,680

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

7. Property and Equipment

     Property and equipment, including amounts for assets subject to capital leases, consists of the following:

		January 26, 2008				July 28, 2007
		(dollars in thousands)
Land		$	2,953			$	2,953
Buildings			9,554				9,232
Leasehold improvements			2,381				2,104
Vehicles			211,982				198,256
Furniture and fixtures			37,529				34,580
Equipment and machinery			134,650				122,951
Total			399,049				370,076
Less accumulated depreciation			224,798				205,532
Property and equipment, net		$	174,251			$	164,544

     Depreciation expense and repairs and maintenance, including amounts for assets subject to capital leases, were as follows (dollars in thousands):

		For the Three Months Ended								For the Six Months Ended
		January 26, 2008				January 27, 2007				January 26, 2008				January 27, 2007
		(dollars in thousands)
Depreciation expense		$	15,112			$	12,403			$	29,329			$	23,441
Repairs and maintenance expense		$	5,152			$	4,940			$	10,708			$	10,147

8. Goodwill and Intangible Assets

     The Company’s goodwill and intangible assets consist of the following:

		Useful Life
		In Years				January 26, 2008				July 28, 2007
						(dollars in thousands)
Goodwill			N/A			$	250,518			$	250,830
Intangible Assets:
Carrying amount
Covenants not to compete			5-7			$	800			$	800
UtiliQuest tradename		Indefinite					4,700				4,700
Tradenames			4-15				2,925				2,925
Customer relationships			5-15				77,539				77,539
							85,964				85,964
Accumulated amortization:
Covenants not to compete							667				587
Tradenames							918				527
Customer relationships							17,885				14,728
							19,470				15,842
Net Intangible Assets						$	66,494			$	70,122

     The $0.3 million decrease in goodwill during the six months ended January 26, 2008 is a result of the adoption of FIN 48. See Note 12 for further discussion regarding the adoption of FIN 48.

     For finite-lived intangible assets, amortization expense for the three months ended January 26, 2008 and January 27, 2007 was $1.8 million and $1.7 million, respectively. For finite-lived intangible assets, amortization expense for the six months ended January 26, 2008 and January 27, 2007 was $3.6 million and $3.2 million, respectively. Amortization for the Company’s customer relationships is recognized on an accelerated basis related to the expected economic benefit of the intangible asset. Amortization for the Company’s other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life of the intangible assets.

     No impairment of goodwill or other intangible assets occurred at any of the Company’s reporting units during fiscal 2007. During the latter part of the second quarter of fiscal 2008, the Company experienced lower operating results compared to management’s expectations at several reporting units. The operating results were impacted by a significant decline in customer spending during January 2008. This decline in customer spending was a product of a noticeable softening in the intensity with which a broad range of customers executed near term spending plans. This was evidenced by the delayed approval of calendar 2008 budgets for certain customers, the pace with which approved budgets were executed during January, overall volumes of available work, and in certain instances, customer specific delays. This decline was not the consequence of any noteworthy customer project cancellations.

     The Company’s goodwill resides in multiple reporting units. The profitability of individual reporting units may periodically suffer from downturns in customer demand and other factors which result 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 within a limited number of customers and the level of overall economic activity. Individual reporting units may be relatively more impacted than the Company as a whole. During times of economic slowdown, the Company’s customers may reduce their capital expenditures and defer or cancel pending projects. As a result, demand for the services of one or more of the reporting units could decline during periods of economic downturns which could adversely affect the Company’s operations, cash flows and liquidity.

     While the estimated fair value of all of the reporting units exceeded their carrying value for the annual goodwill impairment test conducted in fiscal 2007, the estimated fair value of several reporting units exceeded their carrying value by a margin of less than 25%. The goodwill balances of these reporting units may have an increased likelihood of impairment if a sustained downturn in customer demand were to occur and the Company’s long-term outlook for their cash flows was adversely impacted. Furthermore, changes in the long-term outlook may result in changes to other valuation assumptions. The reporting units that have material goodwill balances and an estimated fair value in excess of carrying value by a margin of less than 25% are Nichols Construction (“Nichols”), Stevens Communications (“Stevens”), Cable Express and UtiliQuest. Nichols, with a goodwill balance of $5.7 million, provides construction and maintenance services primarily to regional telephone companies and utilities in the Mid-Atlantic United States. Stevens, with a goodwill balance of $8.3 million, provides construction and maintenance services primarily to cable television multiple system operators in the Southeastern United States. Nichols and Stevens have a concentration of revenues from a limited number of customers and have recently experienced lower demand from these customers. The Company’s Cable Express reporting unit, with a goodwill balance of $34.6 million, was acquired in fiscal 2007 and its fair value closely approximated the carrying value during fiscal 2007 due to the recent acquisition date. Cable Express serves cable television multiple system operators and has a concentration of revenues from a limited number of customers. Changes in customer spending levels and demand due to the cyclical nature of the business may result in a relatively greater impact on the profitability of these reporting units than the Company as a whole.

     The UtiliQuest reporting unit, with a goodwill balance of $75.4, provides services to a broad range of customers including utilities and telecommunication providers in over 20 states throughout the United States. These services are required prior to underground excavation and are influenced by overall economic activity. Demand for these services could decline during periods of economic downturns which could adversely affect the operations and cashflows of the reporting unit. Additionally, the UtiliQuest reporting unit was impacted by the $7.6 million charge for the wage and hour litigation described in Note 17 during the quarter ended January 26, 2008 and by increased professional fees related to this matter.

     As of January 26, 2008, the Company believes the operating results recently experienced by the Company’s reporting units do not currently change their long-term outlooks and opportunities. However, if the expected future cash flows and other fair value assumptions related to the Company’s impairment analysis for one or more of these reporting units are adversely impacted by a significant decline in customer demand over an extended period of time, goodwill at the Company’s reporting units may become impaired and would need to be written down to an amount considered recoverable. As of January 26, 2008, the Company believes the goodwill and other indefinite-lived intangible asset is recoverable for all of the reporting units; however, there can be no assurances that they will not be impaired in future periods.

     Certain of the Company’s reporting units also have other intangible assets including tradenames and customer relationship intangibles. As of January 26, 2008, management believes that the carrying amount of the intangible assets is 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 asset may become impaired.

9. Accrued Self-Insured Claims

     The Company 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. The following table summarizes the Company’s primary insurance coverage and annual retention amounts which are applicable in all of the states in which the Company operates, except with respect to workers’ compensation insurance in three states in which the Company chooses to participate in a state fund (dollars in thousands):

Loss Retention — Per Occurrence (a):
Workers’ compensation liability claims		$	1,000
Automobile liability claims		$	1,000	(b)
General liability claims, except UtiliQuest, LLC		$	250	(b)
General liability claims for UtiliQuest, LLC		$	2,000	(b)
Employee health plan claims (per participant per annum)		$	250
Stop Loss and Umbrella Coverage (b):
Aggregate stop loss coverage for workers’ compensation, automobile and general liability claims		$	55,000	(c)
Umbrella liability coverage for automobile, general liability, and employer’s liability claims		$	95,000

     Accrued self-insured claims consist of the following:

		January 26, 2008				July 28, 2007
Amounts expected to be paid within one year:
Accrued auto, general liability and workers’ compensation		$	15,315			$	13,748
Accrued employee group health			3,844				3,678
Accrued damage claims			10,615				9,476
			29,774				26,902
Amounts expected to be paid beyond one year:
Accrued auto, general liability and workers’ compensation			30,920				25,217
Accrued damage claims			4,704				7,868
			35,624				33,085
Total accrued self-insured claims		$	65,398			$	59,987

10. Other Accrued Liabilities

     Other accrued liabilities consist of the following:

 

		January 26, 2008				July 28, 2007
		(dollars in thousands)
Accrued payroll and related taxes		$	24,889			$	27,870
Accrued employee benefit and bonus costs			3,325				9,293
Accrued construction costs			8,413				10,272
Interest payable			3,700				3,587
Other			19,715				12,054
Total other accrued liabilities		$	60,042			$	63,076

11. Debt

     The Company’s debt consists of the following:

		January 26, 2008				July 28, 2007
		(dollars in thousands)
Senior subordinated notes		$	150,000			$	150,000
Borrowings under the bank credit agreement			—				10,000
Capital leases			5,002				6,792
Notes payable			—				18
			155,002				166,810
Less: current portion			2,883				3,301
Long-term debt		$	152,119			$	163,509

     In October 2005, Dycom Investments, Inc., a wholly-owned subsidiary of the Company, issued $150.0 million principal amount of 8.125% senior subordinated notes (“Notes”) due October 2015. Interest is due semi-annually on April 15th and October 15th of each year. The indenture governing the Notes contains covenants that restrict the Company’s ability to: make certain payments, including the payment of dividends; redeem or repurchase capital stock of the Company; incur additional indebtedness and issue preferred stock; make investments; create liens; enter into sale and leaseback transactions; merge or consolidate with another entity; sell assets; and enter into transactions with affiliates. As of January 26, 2008, the Company was in compliance with all covenants and conditions under the indenture governing the Notes.

     The Company’s Credit Agreement provides for a revolving line of credit that will expire in December 2009 with an aggregate capacity of $300.0 million. The Credit Agreement requires the Company to (i) maintain a condensed consolidated leverage ratio of not greater than 3.00 to 1.0 as measured at the end of each fiscal quarter, (ii) maintain an interest coverage ratio of not less than 2.75 to 1.00, as measured at the end of each fiscal quarter and (iii) maintain condensed consolidated tangible net worth as calculated at the end of each fiscal quarter, of not less than $50.0 million plus 50% of condensed consolidated net income (if positive) from September 8, 2005 to the date of computation plus 75% of the equity issuances made from September 8, 2005 to the date of computation (other than equity issuances made after November 16, 2007 pursuant to employee stock option programs in an amount not to exceed $20.0 million during the term of the Credit Agreement). As of January 26, 2008, the Company had no outstanding borrowings and $45.1 million of outstanding letters of credit issued under the Credit Agreement. The outstanding letters of credit are primarily issued to insurance companies as part of the Company’s self-insurance program and bear interest at 1.375% per annum. At January 26, 2008, the Company had additional borrowing availability of $224.8 million under the most restrictive covenants of the Credit Agreement and was in compliance with all financial covenants and conditions.

     The Company has $5.0 million in capital lease obligations as of January 26, 2008. The capital lease obligations were assumed in connection with the fiscal 2007 acquisitions of Cable Express and Cavo. The capital leases include obligations for certain vehicles and computer equipment and expire at various dates through fiscal year 2011.

12. Income Taxes

     The Company adopted FIN 48 on July 29, 2007, the first day of fiscal 2008. As a result of adoption, retained earnings decreased by approximately $2.1 million. The adoption also resulted in the reclassification of accruals for uncertain tax positions from income taxes payable to other accrued liabilities and other liabilities in the accompanying condensed consolidated balance sheet. After recognizing these impacts upon adoption, the total amount of unrecognized tax benefits was approximately $6.6 million. As of January 26, 2008, the total amount of unrecognized tax benefits is $6.8 million. If it is subsequently determined this amount is not required, approximately $6.2 million would reduce the Company’s effective tax rate and $0.6 million would reduce goodwill during the periods recognized.

     The Company files income tax returns in the U.S. federal jurisdiction, multiple state jurisdictions, and in Canada. The Company is no longer subject to U.S. federal, state and local income tax examinations for years up through 2002. The Company’s U.S. federal filings for the fiscal years 2003 and 2004 are under examination by the Internal Revenue Service and that process is anticipated to be completed by the end of calendar 2008. Management believes its provision for income taxes is adequate; however, any material assessment could adversely affect the Company’s results of operations, cash flows and liquidity. 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. Based on these interpretations, management believes it is reasonably possible that unrecognized tax benefits of up to $2.5 million and accrued interest of up to $0.9 million will decrease in the next twelve months primarily as a result of audit settlements and the expiration of statutes of limitations in certain jurisdictions.

     The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses. As of the date of adoption of FIN 48, the Company accrued approximately $1.2 million in interest related to its uncertain tax positions. During fiscal 2008, the Company recognized approximately $0.2 million and $0.4 million in interest expense in the accompanying condensed consolidated statements of operations for the three and six month periods ended January 26, 2008, respectively.

13. Other Income, net

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

		For the Three Months Ended								For the Six Months Ended
		January 26, 2008				January 27, 2007				January 26, 2008				January 27, 2007
		(dollars in thousands)
Gain on sale of fixed assets		$	828			$	974			$	2,204			$	1,344
Miscellaneous income (loss)			(30	)			155				166				280
Total other income, net		$	798			$	1,129			$	2,370			$	1,624

14. Capital Stock

     On August 28, 2007, the Company’s Board of Directors authorized the repurchase of up to $15 million of its common stock over an eighteen months period in open market or private transactions. The Company repurchased 94,000 shares during the six months ended January 26, 2008 at an average price per share of $29.27. As of January 26, 2008, $12.2 million of the authorized amount remains for the repurchase of common stock. Subsequent to January 26, 2008, the Company repurchased 315,800 shares at an average price of $11.37 per share. As of March 4, 2008, $8.6 million of the authorized amount remains for the repurchase of common stock.

15. Stock-Based Awards

     The Company’s stock-based award plans comprise the following (collectively, “the Plans”):

	•		the 1991 Incentive Stock Option Plan (“1991 Plan”)
	•		the Arguss Communications, Inc. 1991 Stock Option Plan (“1991 Arguss Plan”)
	•		the 1998 Incentive Stock Option Plan (“1998 Plan”)
	•		the 2001 Directors Stock Option Plan (“2001 Directors Plan”)
	•		the 2002 Directors Restricted Stock Plan (“2002 Directors Plan”)
	•		the 2003 Long-term Incentive Plan (“2003 Plan”)
	•		the 2007 Non-Employee Directors Equity Plan (“2007 Directors Plan”)

     The outstanding options under the 1991 Plan, the 1991 Arguss Plan, the 1998 Plan, and the 2003 Plan are fully vested. Outstanding options granted under the 2001 Directors Plan and 2007 Directors Plan, vest and become exercisable ratably over a four-year period, beginning on the date of the grant. Under the 2003 Plan, time vesting restricted shares and units that are outstanding vest ratably over a period of four years. Under the 2003 Plan, performance vesting restricted shares and units that are outstanding vest over a three year period from grant date, if certain annual and three year Company performance goals are achieved. The Company’s policy is to issue new shares to satisfy equity awards under the Plans. Under the terms of the current plans, stock options are granted at the closing price on the date of the grant and are exercisable over a period of up to ten years.

     On November 20, 2007, the Company’s shareholders approved the 2007 Directors Plan. Subsequent to that date no further grants will be made under the Company’s 2001 Directors Plan and the 2002 Directors Plan. As under the 2001 Directors Plan and the 2002 Directors Plan, the 2007 Directors Plan provides for equity grants to non-employee directors upon their initial election or appointment to the Board of Directors and for annual equity grants to continuing non-employee directors. Additionally, to the extent that a non-employee director does not beneficially own 7,500 shares of Company common stock, the plan requires a portion of such directors annual fees to be paid in the form of restricted stock or restricted stock units. As of January 26, 2008, there were 259,212 shares available for issuance under the 2007 Directors Plan.

     The following table lists the number of shares available and outstanding under each plan as of January 26, 2008, including restricted performance shares and units that will be issued under outstanding awards if certain performance goals are met:

										Unvested Restricted
						Outstanding Stock				Shares and Units				Shares Available
		Plan Expiration				Options				Outstanding				for Grant
1991 Plan		Expired					45,000				—				—
1991 Arguss Plan (a)		N/A					58,687				—				—
2001 Directors Plan (a)		2011					66,501				—				—
2002 Directors Plan (a)		2012					—				8,030				—
1998 Plan (b)		2008					1,418,828				—				776,764
2003 Plan		2013					787,947				1,246,946				1,451,615
2007 Directors Plan		2017					30,000				10,788				259,212
							2,406,963				1,265,764				2,487,591

     The following tables summarize the stock-based awards outstanding at January 26, 2008:

										Weighted Average				Aggregate Intrinsic
		Shares Subject to				Weighted Average				Remaining				Value (in
		Options				Exercise Price				Contractual Life				thousands)
Options outstanding			2,406,963			$	29.90				4.7			$	3,164
Options exercisable			2,350,212			$	30.02				4.6			$	3,111
						Weighted				Weighted Average				Aggregate
		Restricted				Average Grant				Remaining				Intrinsic Value
		Shares/Units				Price				Vesting Period				(in thousands)
Unvested time vesting shares/units			143,733			$	24.28				2.7			$	3,345
Unvested performance vesting shares/units			1,122,031			$	24.51				1.5			$	26,110

     The aggregate intrinsic value for stock options and restricted shares and units in the preceding tables are based on the Company’s closing stock price of $23.27 on January 26, 2008. These amounts represent the total intrinsic value that would have been received by the holders of the stock-based awards had the awards been exercised and sold as of that date, before any applicable taxes.

     The following table summarizes the stock-based awards activity during the six months ended January 26, 2008:

										Unvested Time Restricted								Unvested Performance Restricted
		Stock Options								Shares/Units								Shares/Units
						Weighted
						Average								Weighted Average								Weighted Average
		Shares				Exercise Price				Shares/Units				Grant Price				Shares/Units				Grant Price
Outstanding as of July 28, 2007			2,494,343			$	29.78				156,766			$	23.37				781,932			$	21.57
Granted			30,000			$	27.80				56,060			$	27.40				551,016			$	27.60
Options Exercised/ Shares and Units Vested			(62,128	)		$	21.15				(69,093	)		$	24.73				(184,901	)		$	21.67
Forfeited or cancelled			(55,252	)		$	33.10				—			$	—				(26,016	)		$	21.78
Outstanding as of January 26, 2008			2,406,963			$	29.90				143,733			$	24.28				1,122,031			$	24.51

     The performance vesting restricted shares and units in the above table represent the maximum number of awards which may vest under the outstanding grants assuming that all performance criteria are met.

     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 compensation expense and the related tax benefit recognized related to stock options, restricted stock and restricted units for the three and six months ended January 26, 2008 and January 27, 2007 is as follows:

		For the Three Months Ended								For the Six Months Ended
		January 26, 2008				January 27, 2007				January 26, 2008				January 27, 2007
		(dollars in thousands)
Stock-based compensation expense		$	1,024			$	1,600			$	3,164			$	3,339
Tax benefit recognized			(395	)			(637	)			(1,218	)			(1,232	)

     The Company recognizes compensation expense for performance based awards only if management determines it is probable that the performance criteria for the awards will be met. The total amount of compensation to be ultimately recognized will be based on the number of awards that actually vest. During the current quarter, management determined that it was not probable that the performance criteria of certain of the stock-based awards would be achieved for the fiscal 2008 performance period and as a result no stock-based compensation expense was recognized on these awards during the six month period ended January 26, 2008. Accordingly, the amount of compensation expense recognized during the three and six month periods ended January 26, 2008 will not be representative of future stock-based compensation expense.

     Under the Plans, the maximum total unrecognized compensation expense and weighted-average period over which the expense would be recognized subsequent to January 26, 2008 is shown below. For performance based awards, the unrecognized compensation cost is based upon the maximum amount of restricted stock and units that can be earned under outstanding awards. If the performance goals are not met, no compensation expense will be recognized for these shares/units and compensation expense previously recognized will be reversed.

		Unrecognized
		Compensation				Weighted-Average
		Expense				Period
		(in thousands)				(in years)
Stock options		$	726				3.0
Unvested time vesting shares/units		$	3,221				2.7
Unvested performance vesting shares/units		$	26,764				1.5

     During the six months ended January 26, 2008 and January 27, 2007, the Company received cash of $1.3 million and $0.7 million, respectively, from the exercise of stock options. During the six months ended January 26, 2008 and January 27, 2007, the Company realized a tax benefit from the exercise of stock options and vesting of restricted stock and restricted stock units of approximately $2.8 million and $1.6 million, respectively.

16. Related Party Transactions

     The Company leases administrative offices from entities related to officers of certain of our subsidiaries. The total expense under these arrangements was $0.4 million and $0.3 million for the three month periods ended January 26, 2008 and January 27, 2007, respectively. The total expense under these arrangements was $0.7 million for each of the six month periods ended January 26, 2008 and January 27, 2007. Additionally, the Company paid approximately $0.1 million and $0.3 million for the three and six months ended January 26, 2008, respectively, and $0.2 million and $0.3 million for the three and six months ended January 27, 2007, respectively, in subcontracting services to entities related to officers of certain of its subsidiaries.

17. Commitments and Contingencies

Legal Proceedings.

     During fiscal 2007, the Company was contacted by counsel representing current and former employees alleging violations of the Fair Labor Standards Act and state wage and hour laws at its UtiliQuest, LLC, S.T.S., LLC and Locating, Inc. subsidiaries. The claims included periods dating primarily from September 2003 through January 31, 2007 and cover a number of states where these subsidiaries conducted business. During the quarter ended January 26, 2008, these subsidiaries reached an agreement to settle these claims through a structured mediation process. While the subsidiaries deny allegations underlying the dispute, they have agreed to the mediated settlement to avoid additional legal fees, the uncertainty of a jury trial and the management time that would have been devoted to litigation. The gross settlement of $10.0 million is subject to court approval and represents the maximum payout, assuming 100% opt-in by all potential members of the purported class. The minimum payment under the settlement agreement is approximately $3.1 million, primarily consisting of the amount to be paid to the plaintiffs’ attorneys. The eventual opt-in percentage and accordingly the actual payments to class members are difficult to predict. The Company expects actual payments to be less than the gross settlement amount based on the calculated pay-out amount for individual members within the purported class. Accordingly, the Company has estimated the liability for the pending settlement at $7.6 million and has recorded a pre-tax charge for this amount during the quarter ended January 26, 2008. The actual payments could differ from our estimate.

     Additionally, in December 2006, two former employees of Apex, a wholly-owned subsidiary that was discontinued during the quarter ended January 27, 2007, commenced a lawsuit against the subsidiary in Illinois State Court. The lawsuit alleges that Apex violated certain minimum wage laws under the Fair Labor Standards Act and related state laws by failing to comply with applicable minimum wage and overtime pay requirements. The plaintiffs seek damages and costs. They also seek to certify, and eventually notify, a class consisting of former employees who, since December 2004, have worked for Apex. On January 30, 2007 the case was removed to the United States District Court for the Northern District of Illinois. In July 2007, plaintiffs amended the complaint to include the Company as a defendant. 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. This lawsuit may be expensive to defend and/or settle and may adversely affect the Company’s financial condition and results of discontinued operations or cash flows, regardless of whether any of the foregoing allegations are valid or whether the Company is ultimately determined to be liable.

     From time to time, the Company and its subsidiaries are also party to various claims and legal proceedings in the normal course of business. It is the opinion of the Company’s management, based on information available at this time, that none of such pending normal course of business claims or legal proceedings will have a material effect on the Company’s condensed consolidated financial statements.

Performance Bonds and Guarantees.

     The Company has obligations under performance 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 obligations under contract. As of January 26, 2008, the Company had $52.8 million of outstanding performance bonds. As of January 26, 2008, no events have occurred in which the customers have exercised their rights under the performance bonds.

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

18. 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 utilities and others. These services are provided by the Company’s various subsidiaries throughout the United States and, on a limited basis, in Canada. All of the Company’s subsidiaries have been aggregated into one reporting segment due to their similar economic characteristics, products and production methods, and distribution methods. The following table presents information regarding revenues by type of customer:

		For the Three Months Ended								For the Six Months Ended
		January 26, 2008				January 27, 2007				January 26, 2008				January 27, 2007
		(dollars in thousands)
Telecommunications		$	215,590			$	196,728			$	461,215			$	388,655
Utility line locating			48,928				46,549				107,272				101,976
Electric utilities and other construction and maintenance			20,240				15,016				45,943				38,215
Total contract revenues		$	284,758			$	258,293			$	614,430			$	528,846

     One of the Company’s subsidiaries earned revenues from contracts in Canada of approximately $0.5 million and $2.1 million during the three and six months ended January 26, 2008, respectively, and $0.2 million and $1.1 million during the three and six months ended January 27, 2007. The Company had no material long-lived assets in the Canadian operations at January 26, 2008 and July 28, 2007.

19. Supplemental Consolidating Financial Statements

     During fiscal 2006, the Company completed an offering of $150.0 million of 8.125% senior subordinated notes (see Note 11). The Notes were issued by Dycom Investments, Inc. (“Issuer’’), a wholly owned subsidiary of the Company. The following consolidating financial statements present, in separate columns, financial information for (i) Dycom Industries, Inc. (“Parent’’) on a parent only basis, (ii) the Issuer, (iii) the guarantor subsidiaries for the Notes on a combined basis, (iv) other non-guarantor subsidiaries on a combined basis, (v) the eliminations and reclassifications necessary to arrive at the information for the Company on a condensed consolidated basis, and (vi) the Company on a condensed consolidated basis. The consolidating financial statements are presented on 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.

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

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
JANUARY 26, 2008

														Non-
										Subsidiary				Guarantor				Eliminations and				Dycom
		Parent				Issuer				Guarantors				Subsidiaries				Reclassifications				Consolidated
		(dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and equivalents		$	—			$	—			$	25,392			$	1,867			$	—			$	27,259
Accounts receivable, net			5				—				128,206				559				—				128,770
Costs and estimated earnings in excess of billings			—				—				79,020				72				—				79,092
Deferred tax assets, net			904				—				18,422				122				—				19,448
Inventories			—				—				9,494				44				—				9,538
Income taxes receivable			9,170				—				—				—				—				9,170
Other current assets			7,595				—				4,670				151				—				12,416
Current assets of discontinued operations			—				—				255				—				—				255
Total current assets			17,674				—				265,459				2,815				—				285,948
Property and equipment, net			11,172				—				157,305				6,098				(324	)			174,251
Goodwill			—				—				250,518				—				—				250,518
Intangible assets, net			—				—				66,494				—				—				66,494
Deferred tax assets, net non-current			1,468				—				—				—				(1,468	)			—
Investment in subsidiaries			759,822				1,122,968				—				—				(1,882,790	)			—
Intercompany receivables			—				—				539,447				—				(539,447	)			—
Other			4,060				3,775				3,361				11				—				11,207
Total non-current assets			776,522				1,126,743				1,017,125				6,109				(2,424,029	)			502,470
TOTAL		$	794,196			$	1,126,743			$	1,282,584			$	8,924			$	(2,424,029	)		$	788,418
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	2,131			$	—			$	23,482			$	61			$	—			$	25,674
Current portion of debt			—				—				2,883				—				—				2,883
Billings in excess of costs and estimated earnings			—				—				1,067				—				—				1,067
Accrued self-insured claims			750				—				28,722				302				—				29,774
Other accrued liabilities			4,020				3,546				51,836				640				—				60,042
Current liabilities of discontinued operations			—				—				1,126				—				—				1,126
Total current liabilities			6,901				3,546				109,116				1,003				—				120,566
LONG-TERM DEBT			—				150,000				2,119				—				—				152,119
ACCRUED SELF-INSURED CLAIMS			944				—				34,168				512				—				35,624
DEFERRED TAX LIABILITIES, net non-current			—				—				18,109				126				(1,468	)			16,767
INTERCOMPANY PAYABLES			323,585				213,375				—				2,612				(539,572	)			—
OTHER LIABILITIES			8,167				—				11				—				—				8,178
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS			—				—				565				—				—				565
Total liabilities			339,597				366,921				164,088				4,253				(541,040	)			333,819
Total stockholders’ equity			454,599				759,822				1,118,496				4,671				(1,882,989	)			454,599
TOTAL		$	794,196			$	1,126,743			$	1,282,584			$	8,924			$	(2,424,029	)		$	788,418