UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 27, 2007

o		OR 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:

Title of each class		Name of each exchange on which registered
Common Stock, par value $0.33 1/3 per share		New York Stock Exchange

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

None

(Title of Class)

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

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

Large Accelerated Filer x      Accelerated Filer o      Non-Accelerated Filer o

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 1, 2007 40,657,784

 

 

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 Operation			31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			43
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			43
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 4. Submission of Matters to a Vote of Security Holders			44
Item 6. Exhibits			45
Signatures			45
EX-31.1 Section 302 CEO Certification
EX-31.2 Section 302 CFO Certification
EX-32.1 Section 906 CEO Certification
EX-32.2 Section 906 CFO Certification

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

		January 27,				July 29,
		2007				2006
		(dollars in thousands, except per share amounts)
ASSETS
CURRENT ASSETS:
Cash and equivalents		$	14,445			$	27,268
Accounts receivable, net			120,052				143,099
Costs and estimated earnings in excess of billings			80,886				79,546
Deferred tax assets, net			14,216				12,793
Inventories			8,350				7,095
Other current assets			12,646				9,311
Current assets of discontinued operations			6,152				5,196
Total current assets			256,747				284,308
Property and equipment, net			154,354				125,393
Goodwill			249,468				216,194
Intangible assets, net			69,645				48,939
Other			13,371				13,928
Non-current assets of discontinued operations			121				1,253
Total non-current assets			486,959				405,707
TOTAL		$	743,706			$	690,015
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	26,668			$	25,715
Current portion of debt			3,343				5,169
Billings in excess of costs and estimated earnings			584				397
Accrued self-insured claims			28,410				25,886
Income taxes payable			1,198				4,979
Other accrued liabilities			45,871				44,337
Current liabilities of discontinued operations			5,047				5,311
Total current liabilities			111,121				111,794
LONG-TERM DEBT			174,517				150,009
ACCRUED SELF-INSURED CLAIMS			30,689				30,770
DEFERRED TAX LIABILITIES, net non-current			17,357				6,576
OTHER LIABILITIES			1,310				289
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS			1,283				1,122
Total liabilities			336,277				300,560
COMMITMENTS AND CONTINGENCIES, Notes 11, 15 and 16
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: 40,645,635 and 40,612,059 issued and outstanding, respectively			13,548				13,536
Additional paid-in capital			181,594				178,760
Accumulated other comprehensive loss			(24	)			(8	)
Retained earnings			212,311				197,167
Total stockholders’ equity			407,429				389,455
TOTAL		$	743,706			$	690,015

See notes to condensed consolidated financial statements.

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

		For the Three Months Ended
		January 27, 2007				January 28, 2006
		(dollars in thousands, except per
		share amounts)
REVENUES:
Contract revenues		$	258,293			$	237,091
EXPENSES:
Costs of earned revenues, excluding depreciation			210,771				196,994
General and administrative (including stock-based compensation expense of $1.6 million and $0.9 million, respectively)			21,395				18,552
Depreciation and amortization			14,142				11,776
Total			246,308				227,322
Interest income			234				523
Interest expense			(3,953	)			(4,007	)
Other income, net			1,129				240
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			9,395				6,525
PROVISION FOR INCOME TAXES:
Current			2,591				1,581
Deferred			1,156				1,073
Total			3,747				2,654
INCOME FROM CONTINUING OPERATIONS			5,648				3,871
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX			(63	)			—
NET INCOME		$	5,585			$	3,871
EARNINGS PER COMMON SHARE — BASIC:
Income from continuing operations		$	0.14			$	0.10
Loss from discontinued operations			—				—
Net income		$	0.14			$	0.10
EARNINGS PER COMMON SHARE — DILUTED:
Income from continuing operations		$	0.14			$	0.10
Loss from discontinued operations			—				—
Net income		$	0.14			$	0.10
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic			40,295,932				40,058,234
Diluted			40,599,162				40,274,160

See notes to condensed consolidated financial statements.

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

		For the Six Months Ended
		January 27, 2007				January 28, 2006
		(dollars in thousands, except per share amounts)
REVENUES:
Contract revenues		$	528,846			$	490,733
EXPENSES:
Costs of earned revenues, excluding depreciation			428,536				404,272
General and administrative (including stock-based compensation expense of $3.3 million and $1.9 million, respectively)			43,074				37,377
Depreciation and amortization			26,637				22,817
Total			498,247				464,466
Interest income			627				1,212
Interest expense			(7,710	)			(4,873	)
Other income, net			1,624				1,325
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			25,140				23,931
PROVISION (BENEFIT) FOR INCOME TAXES:
Current			9,731				9,552
Deferred			235				(12	)
Total			9,966				9,540
INCOME FROM CONTINUING OPERATIONS			15,174				14,391
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX			(29	)			202
NET INCOME		$	15,145			$	14,593
EARNINGS PER COMMON SHARE — BASIC:
Income from continuing operations		$	0.38			$	0.33
Income (loss) from discontinued operations			—				0.01
Net income		$	0.38			$	0.34
EARNINGS PER COMMON SHARE — DILUTED:
Income from continuing operations		$	0.37			$	0.33
Income (loss) from discontinued operations			—				—
Net income		$	0.37			$	0.33
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic			40,253,498				43,533,157
Diluted			40,553,092				43,738,518

See notes to condensed consolidated financial statements.

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

		For the Six Months Ended
		January 27, 2007				January 28, 2006
		(dollars in thousands)
OPERATING ACTIVITIES:
Net income		$	15,145			$	14,593
Adjustments to reconcile net cash inflow from operating activities:
Depreciation and amortization			27,276				23,548
Bad debts recovery, net			(244	)			(410	)
Gain on sale of fixed assets			(1,453	)			(1,050	)
Deferred income tax benefit			(132	)			(248	)
Stock-based compensation expense			3,339				1,888
Amortization of debt issuance costs			376				308
Excess tax benefit from share-based awards			(8	)			(31	)
Change in operating assets and liabilities, net of acquisitions:
(Increase) decrease in operating assets:
Accounts receivable, net			29,593				17,605
Costs and estimated earnings in excess of billings, net			224				(639	)
Other current assets			(1,953	)			(4,072	)
Other assets			885				576
Increase (decrease) in operating liabilities:
Accounts payable			(2,210	)			(5,111	)
Accrued self-insured claims and other liabilities .			(3,753	)			2,686
Income taxes payables			(3,146	)			(12,079	)
Net cash provided by operating activities			63,939				37,564
INVESTING ACTIVITIES:
Restricted cash			(556	)			(291	)
Capital expenditures			(35,227	)			(24,784	)
Proceeds from sale of assets			2,326				1,259
Purchase of short-term investments			—				(79,985	)
Proceeds from the sale of short-term investments			—				79,985
Cash paid for acquisitions, net of cash acquired			(56,323	)			(65,391	)
Net cash used in investing activities			(89,780	)			(89,207	)
FINANCING ACTIVITIES:
Debt issuance costs			—				(4,565	)
Proceeds from long-term debt			80,000				248,000
Principal payments on long-term debt			(66,576	)			(68,215	)
Repurchases of common stock			—				(185,962	)
Excess tax benefit from share-based awards			8				31
Restricted stock tax withholdings			(1,098	)			(232	)
Exercise of stock options and other			684				1,963
Net cash provided by (used in) financing activities			13,018				(8,980	)
Net decrease in cash and equivalents			(12,823	)			(60,623	)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD			27,268				83,062
CASH AND EQUIVALENTS AT END OF PERIOD		$	14,445			$	22,439

See notes to condensed consolidated financial statements.

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

		For the Six Months Ended
		January 27, 2007				January 28, 2006
		(dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest		$	7,404			$	679
Income taxes		$	13,877			$	22,484
Purchases of capital assets included in accounts payable or other accrued liabilities at period end		$	5,726			$	1,976
Accrued costs for debt issuance and tender offer included in accounts payable and accrued liabilities at period end		$	—			$	451

See notes to condensed consolidated financial statements.

NOTES TO 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 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 are unaudited and include the results of Dycom and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions, including intercompany accounts and transactions of discontinued operations, 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 month periods ended January 27, 2007 are not necessarily indicative of the results that may be expected for the entire year. For a better 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 29, 2006 included in the Company’s 2006 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on September 8, 2006.

     The condensed consolidated balance sheet, condensed consolidated statement of operations, and the related disclosures have been revised for all periods presented to report discontinued operations of one of the Company’s wholly-owned subsidiaries. See Note 2 for a further discussion of the discontinued operations.

     In September 2006, the Company acquired the outstanding common stock of Cable Express Holding Company (“Cable Express”). In December 2005, the Company acquired the outstanding common stock of Prince Telecom Holdings, Inc. (“Prince”). The operating results of these above acquisitions 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 income taxes, contingencies and litigation. 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 27, 2007 and July 29, 2006, the Company had approximately $4.5 million and $3.9 million, respectively, in restricted cash which is held as collateral in support of projected workers’ compensation, automobile and general liability 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.

     Multiemployer Defined Benefit Pension Plan — A recently acquired subsidiary 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 and six month periods ended January 27, 2007, the subsidiary contributed approximately $0.7 million and $1.0 million, respectively, to the plan.

     Comprehensive Income — During the three and six months ended January 27, 2007 and January 28, 2006, the Company did not have any material changes in its equity resulting from non-owner sources and, accordingly, comprehensive income approximated the net income amounts presented for the respective periods in the accompanying condensed consolidated statements of operations.

     Taxes Collected from Customers- In June 2006, the Financial Accounting Standards Board (“FASB”) ratified Emerging Issue Task Force (“EITF”) No. 06-3 “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement.” EITF No. 06-3 addresses the income statement presentation of any tax collected from customers and remitted to a government authority and provides that the presentation of taxes on either a gross basis or a net basis is an accounting

policy decision that should be disclosed pursuant to Accounting Principles Board (“APB”) Opinion No. 22 “Disclosure of Accounting Policies.” The Company’s policy is to present sales and other taxes collected from its customers on a net basis.

     Recently Issued Accounting Pronouncements

     In June 2006, the FASB issued Interpretation (“FIN”) No. 48 “Accounting for Uncertainty in Income Taxes”, an interpretation of FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a recognition threshold and measurement attribute of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of FIN 48.

     In September 2006, the FASB issued Statement of Financial Accounting Standards (“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 is effective at the beginning 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 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 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, permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 will be effective for us at the beginning of fiscal 2009. The Company is currently evaluating the impact of SFAS No. 159.

     In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires the combined use of a balance sheet approach and an income statement approach in evaluating whether either approach results in an error that is material in light of relevant quantitative and qualitative factors. The Company must begin to apply the provisions of SAB 108 no later than its fiscal 2007 annual financial statements. The Company is currently evaluating the impact of SAB 108.

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 February 2007 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 the 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 27,				January 28,				January 27,				January 28,
		2007				2006				2005				2004
						(dollars in thousands)
Contract revenues of discontinued operations		$	2,410			$	7,050			$	10,033			$	14,306 .
Income (loss) of discontinued operations before income taxes		$	(105	)		$	2			$	(48	)		$	337
Income (loss) of discontinued operations, net of taxes		$	(63	)		$	—			$	(29	)		$	202

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

		January 27,				July 29,
		2007				2006
		(dollars in thousands)
Accounts receivable, net		$	5,532			$	3,807
Deferred tax assets, net			568				430
Inventories			—				886
Other current assets			52				73
Current assets of discontinued operations		$	6,152			$	5,196
Property and equipment, net		$	121			$	1,253
Total long-term assets of discontinued operations		$	121			$	1,253
Accounts payable		$	3,299			$	3,338
Accrued liabilities			1,748				1,973
Total current liabilities of discontinued operations		$	5,047			$	5,311
Other accrued liabilities		$	1,283			$	1,122
Total non-current liabilities of discontinued operations		$	1,283			$	1,122

3. Computation of Earnings Per Share

     The following is a reconciliation of the numerator and denominator of the basic and diluted earnings 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 share 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 time and performance vesting restricted shares and restricted share units. Performance vesting restricted shares and restricted share units are included in diluted earnings per share calculations if all the necessary performance conditions are satisfied by the end of the period. Common stock equivalents related to stock options are excluded from diluted earnings per share calculations if their effect would be anti-dilutive.

		For the Three Months Ended								For the Six Months Ended
		January 27,				January 28,				January 27,				January 28,
		2007				2006				2007				2006
		(dollars in thousands, except per share amounts)
Numerator:
Income from continuing operations		$	5,648			$	3,871			$	15,174			$	14,391
Income (loss) from discontinued operations			(63	)			—				(29	)			202
Net income		$	5,585			$	3,871			$	15,145			$	14,593
Denominator:
Basic
Weighted-average number of common shares — Basic			40,295,932				40,058,234				40,253,498				43,533,157
Diluted
Weighted-average number of common shares — Basic			40,295,932				40,058,234				40,253,498				43,533,157
Potential common stock arising from stock options, restricted shares and restricted share units			303,230				215,926				299,594				205,361
Weighted-average number of common shares — Diluted			40,599,162				40,274,160				40,553,092				43,738,518
Antidilutive weighted shares excluded from the calculation of earnings per share			2,307,605				2,675,205				2,333,325				2,709,957
EARNINGS PER COMMON SHARE — BASIC:
Income from continuing operations		$	0.14			$	0.10			$	0.38			$	0.33
Income (loss) from discontinued operations			—				—				—				0.01
Net income		$	0.14			$	0.10			$	0.38			$	0.34
EARNINGS PER COMMON SHARE — DILUTED:
Income from continuing operations		$	0.14			$	0.10			$	0.37			$	0.33
Income (loss) from discontinued operations			—				—				—				—
Net income		$	0.14			$	0.10			$	0.37			$	0.33

4. Acquisitions

     In September 2006, the Company acquired the outstanding common stock of Cable Express for a purchase price of approximately $55.2 million including transaction fees of approximately $0.5 million and $6.2 million placed in escrow. The escrowed amount is available to satisfy potential indemnification obligations of the sellers pursuant to the acquisition agreement. Of the $6.2 million escrowed, $4.6 million will be released to the sellers 12 months after closing, while the remaining $1.6 million will be released to the sellers after 24 months, so long as in either instance the amounts are 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 $300.0 million unsecured revolving credit agreement (“Credit Agreement”) to fund this acquisition.

     In December 2005, the Company acquired the outstanding common stock of Prince for a purchase price of approximately $65.4 million including transaction fees of approximately $0.3 million and $5.6 million placed in escrow. The escrowed amount is available to satisfy potential indemnification obligations of the sellers pursuant to the acquisition agreement. Of the $5.6 million escrowed, $3.9 million was released to the sellers during the quarter ended January 27, 2007, while the remaining $1.7 million will be released to the sellers in December 2007, so long as the amounts are not subject to any claims. Prince 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 $65.0 million under its Credit Agreement to fund this acquisition.

     The Company accounted for the above acquisitions using the purchase method of accounting. Accordingly, the purchase price 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.

     Management determined the fair values used in the purchase price allocations for identifiable intangible assets based on historical data, estimated discounted future cash flows, and expected royalty rates for trademarks and tradenames among other information. The fair values were determined with the assistance of an independent valuation specialist. Goodwill of approximately $0.8 million and $3.0 million related to the Cable Express and Prince acquisitions, respectively, is expected to be deductible for tax purposes. The purchase price allocation for Cable Express is preliminary as the Company continues to assess the valuation of the acquired assets and liabilities. The purchase price of the acquisitions has been allocated as follows (dollars in thousands):

Assets:		Cable Express				Prince
Accounts receivable, net		$	7,359			$	13,291
Costs and estimated earnings in excess of billings			1,377				1,831
Other current assets			2,753				6,091
Property and equipment			12,428				5,806
Goodwill			33,275				38,489
Intangible assets — customer relationships			22,800				18,400
Intangible assets — tradenames			1,100				1,500
Other assets			153				557
Total assets			81,245				85,965
Liabilities:
Accounts payable			1,071				2,125
Accrued liabilities			6,192				9,495
Notes and capital leases — short term			3,085				4,743
Notes and capital leases — long term			6,195				—
Deferred tax liability, net non-current			9,479				4,211
Total liabilities			26,022				20,574
Net assets acquired		$	55,223			$	65,391

     The operating results of the above acquisitions are included in the accompanying condensed consolidated financial statements from their respective acquisition dates. The following unaudited pro forma information presents the Company’s condensed consolidated results of operations as if the Cable Express and Prince acquisitions had occurred on July 31, 2005, the first day of the Company’s 2006 fiscal year. The unaudited pro forma information is not necessarily indicative of the results of operations of the combined companies had these acquisitions 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. Approximately $6.2 million of non-recurring charges incurred by Prince are included in the pro forma amounts for the three and six months ended January 28, 2006. The non-recurring charges were incurred prior to the acquisitions and primarily related to stock-based compensation expense and acquisition related bonuses. The unaudited pro forma results are as follows:

		For the Three Months Ended								For the Six Months Ended
		January 27,				January 28,				January 27,				January 28,
		2007				2006				2007				2006
		(dollars in thousands, except per share data)
Total revenues		$	258,293			$	267,392			$	539,745			$	567,631
Income (loss) from continuing operations before income taxes		$	9,395			$	(796	)		$	20,466			$	18,215
Income (loss) from continuing operations		$	5,648			$	(470	)		$	12,365			$	11,014
Net earnings (loss) per share from continuing operations:
Basic		$	0.14			$	(0.01	)		$	0.31			$	0.25
Diluted		$	0.14			$	(0.01	)		$	0.30			$	0.25

     In January 2007, the Company acquired certain assets of a cable television operator for approximately $1.1 million. The purchase and its operating results are not material to the Company’s results of operations, financial position, or cash flows.

5. Accounts Receivable

     Accounts receivable consist of the following:

		January 27, 2007				July 29, 2006
		(dollars in thousands)
Contract billings		$	118,269			$	141,948
Retainage			1,910				2,304
Other receivables			911				811
Total			121,090				145,063
Less allowance for doubtful accounts			1,038				1,964
Accounts receivable, net		$	120,052			$	143,099

     The allowance for doubtful accounts changed as follows:

		For the Three Months Ended								For the Six Months Ended
		January 27,				January 28,				January 27,				January 28,
		2007				2006				2007				2006
		(dollars in thousands)
Allowance for doubtful accounts at beginning of period		$	1,874			$	2,465			$	1,964			$	2,845
Allowance for doubtful account balances from acquisitions			—				7				—				7
Bad debt expense (recovery), net			(124	)			(453	)			(244	)			(410	)
Amounts charged against the allowance			(712	)			(275	)			(682	)			(698	)
Allowance for doubtful accounts at end of period		$	1,038			$	1,744			$	1,038			$	1,744

     As of January 27, 2007, 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 27, 2007.

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 27, 2007				July 29, 2006
		(dollars in thousands)
Costs incurred on contracts in progress		$	65,977			$	63,850
Estimated to date earnings			14,909				15,696
Total costs and estimated earnings			80,886				79,546
Less billings to date			584				397
		$	80,302			$	79,149
Included in the accompanying condensed consolidated balance sheets under the captions:
Costs and estimated earnings in excess of billings		$	80,886			$	79,546
Billings in excess of costs and estimated earnings			(584	)			(397	)
		$	80,302			$	79,149

     The Company primarily recognizes revenue for services from contracts that are based on units of delivery or cost-to-cost measures of the percentage of completion method. The above amounts aggregate these contracts.

7. Property and Equipment

     Property and equipment consists of the following:

		January 27, 2007				July 29, 2006
		(dollars in thousands)
Land		$	3,953			$	3,953
Buildings			9,292				9,292
Leasehold improvements			2,326				2,062
Vehicles			186,072				155,171
Furniture and fixtures			34,632				28,945
Equipment and machinery			121,528				112,473
Total			357,803				311,896
Less accumulated depreciation			203,449				186,503
Property and equipment, net		$	154,354			$	125,393

     Depreciation expense and repairs and maintenance expense, 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 27, 2007				January 28, 2006				January 27, 2007				January 28, 2006
		(dollars in thousands)
Depreciation expense		$	12,403			$	10,737			$	23,441			$	20,942
Repairs and maintenance expense		$	4,940			$	4,344			$	10,147			$	8,868

8. Goodwill and Intangible Assets

     As of January 27, 2007, the Company had $249.5 million of goodwill, $4.7 million of indefinite-lived intangible assets and $64.9 million of finite-lived intangible assets, net of accumulated amortization. As of July 29, 2006, the Company had $216.2 million of goodwill, $4.7 million of indefinite-lived intangible assets and $44.2 million of finite-lived intangible assets, net of accumulated amortization. The carrying value of goodwill increased by approximately $33.3 million during fiscal 2007 as a result of the acquisition of Cable Express.

     The Company conducted its annual goodwill impairment test during the fourth quarter of fiscal 2006 and the results indicated that the estimated fair value of each of the Company’s reporting units exceeded their carrying value. However, two of the reporting units tested, one having a goodwill balance of approximately $23.1 million and the other having a goodwill balance of approximately $8.3 million, have experienced lower demand from the customers they serve compared to historical levels. This decline is primarily the result of reduced spending by cable providers to upgrade their networks. As of January 27, 2007, the Company believes the goodwill is recoverable; however, there can be no assurances that the goodwill will not be impaired in future periods.

     The Company’s intangible assets consist of the following:

		Useful Life
		In Years				January 27, 2007				July 29, 2006
						(dollars in thousands)
Carrying amount:
Covenants not to compete			5-7			$	800			$	1,189
UtiliQuest tradename		Indefinite					4,700				4,700
Tradenames			4-15				2,925				1,825
Customer relationships			5-15				73,461				50,660
Backlog			4				—				953
							81,886				59,327
Accumulated amortization:
Covenants not to compete							507				816
Tradenames							412				306
Customer relationships							11,322				8,313
Backlog							—				953
							12,241				10,388
Net						$	69,645			$	48,939

     For finite-lived intangible assets, amortization expense for the three months ended January 27, 2007 and January 28, 2006 was $1.7 million and $1.0 million, respectively. For finite-lived intangible assets, amortization expense for the six months ended January 27, 2007 and January 28, 2006 was $3.2 million and $1.9 million, respectively. The customer relationships and trade names of Cable Express totaling $22.8 million and $1.1 million, respectively, each have an estimated useful life of 15 years. 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.

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 retention amounts for fiscal years 2007 and 2006, including coverage amounts assumed by the Company for recently acquired entities. The retention amounts are applicable in substantially all of the states in which the Company operates.

		Dycom
		Fiscal
		2006-2007				Prince				Cable Express
						(in thousands)
Loss Retention — Per Occurrence:
Workers’ compensation liability claims		$	1,000				(b	)			(c	)
Automobile liability claims		$	1,000				(b	)			(c	)
General liability claims (a)		$	250			$	50			$	25
Employee health plan claims (per participant per annum)		$	200				(b	)		$	75
Additional retention for automobile liability and general liability and damage claims (includes an aggregate stop loss layer of $10 million)		$	2,000-$5,000
Stop Loss and Umbrella Coverage:
Aggregate stop loss coverage for workers’ compensation, automobile and general liability claims		$	38,800
Umbrella liability coverage for automobile, general liability, and employer’s liability claims		$	95,000			$	10,000			$	7,000

Accrued self-insured claims consist of the following:

		January 27, 2007				July 29, 2006
		(dollars in thousands)
Amounts expected to be paid within one year:
Accrued auto, general liability and workers’ compensation		$	16,660			$	14,038
Accrued employee group health			3,577				2,991
Accrued damage claims			8,173				8,857
			28,410				25,886
Amounts expected to be paid beyond one year:
Accrued auto, general liability and workers’ compensation			22,711				22,410
Accrued damage claims			7,978				8,360
			30,689				30,770
Total accrued self-insured claims		$	59,099			$	56,656

10. Other Accrued Liabilities

     Other accrued liabilities consist of the following:

		January 27, 2007				July 29, 2006
		(dollars in thousands)
Accrued payroll and related taxes		$	24,529			$	21,059
Accrued employee bonus and benefit costs			3,551				6,423
Accrued construction costs			6,167				5,971
Interest payable			3,562				3,632
Other			8,062				7,252
Total other accrued liabilities		$	45,871			$	44,337

11. Debt

     The Company’s debt consists of the following:

		January 27, 2007				July 29, 2006
		(dollars in thousands)
Senior subordinated notes		$	150,000			$	150,000
Borrowings under Credit Agreement			20,000				—
Capital leases			7,796				500
Notes payable			64				4,678
			177,860				155,178
Less: current portion			3,343				5,169
Long-term debt		$	174,517			$	150,009

     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. As of January 27, 2007, the Company was in compliance with all covenants and conditions under the indenture governing the Notes.

     As of January 27, 2007, the Company had $20.0 million of outstanding borrowings due December 2009 and $46.5 million of outstanding letters of credit issued under the Credit Agreement. The outstanding borrowings under the Credit Agreement primarily arose in connection with the acquisition of Cable Express in September 2006 (see Note 4). As of January 27, 2007 these borrowings bear interest at 8.5% per annum. The outstanding letters of credit are primarily issued to insurance companies as part of the Company’s self-insurance program. At January 27, 2007, the Company had borrowing availability of $143.4 million under the Credit Agreement and was in compliance with all financial covenants and conditions.

     The Company has $7.8 million in capital lease obligations as of January 27, 2007. The capital lease obligations were assumed in connection with the fiscal 2006 and 2007 acquisitions of Prince and Cable Express, respectively. The capital leases include obligations for certain vehicles and computer equipment and expire at various dates through fiscal year 2011. A note payable in the amount of $3.6 million bearing interest at 6% was repaid during the quarter ended January 27, 2007. This note payable had been assumed in connection with the fiscal 2004 acquisition of UtiliQuest.

12. Other income, net

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

		For the Three Months Ended								For the Six Months Ended
		January 27,				January 28,				January 27,				January 28,
		2007				2006				2007				2006
						(dollars in thousands)
Gain on sale of fixed assets		$	974			$	127			$	1,344			$	1,005
Miscellaneous income			155				113				280				320
Total other income, net		$	1,129			$	240			$	1,624			$	1,325

13. Capital Stock

     On September 12, 2005, the Company announced that its Board of Directors had approved the repurchase of up to 9.5 million outstanding shares of the Company’s common stock, at a price per share of not less than $18.50 and not greater than $21.00 through a “Dutch Auction” tender offer. The final number of shares purchased under the tender offer, which expired on October 11, 2005, was 8.76 million shares. These shares were purchased at a price of $21.00 per share for an aggregate purchase price of $186.2 million, including fees and expenses. The Company cancelled these shares in the period repurchased. The tender offer was funded with proceeds from the issuance of senior subordinated notes having an aggregate principal balance of $150.0 million, borrowings of $33.0 million from the Credit Agreement, and cash on hand.

14. Stock-Based Awards

     The Company’s stock-based award plans are comprised of the 1991 Incentive Stock Option Plan (“1991 Plan”), the Arguss Communications, Inc. 1991 Stock Option Plan (“1991 Arguss Plan”), the 1994 Directors Stock Option Plan (“1994 Directors 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”), and the 2003 Long-term Incentive Plan (“2003 Plan”), collectively (“the Plans”). The outstanding options under the 1991 Plan, the 1994 Directors Plan, the 1991 Arguss Plan, the 1998 Plan, and the 2003 Plan are fully vested. The options under the 2001 Directors Plan, vest and become exercisable ratably over a four-year period, beginning on the date of the grant. 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 October 17, 2006, the Compensation Committee of the Board of Directors approved an amendment to the 2003 Plan to increase the aggregate number of shares available for issuance by 2,000,000 shares. On November 21, 2006, the Dycom shareholders approved the amendment. Under the Company’s 2002 Directors Plan, the Company has authorized 100,000 shares of the Company’s common stock for issuance to non-employee directors. The non-employee directors are required to receive a pre-determined percentage of their annual retainer fees in restricted shares of the Company’s common stock based on the number of Dycom’s shares they own. The number of restricted shares to be granted under the 2002 Directors Plan is based on the fair market value of a share of common stock on the date such annual retainer fees are payable. As of January 27, 2007, 17,760 shares had been issued under the 2002 Directors Plan at a weighted average market price of $20.51 per share.

     The following table lists the number of shares available and outstanding under each plan as of January 27, 2007, including restricted performance shares and units that will be issued under outstanding awards if certain three year cumulative performance goals are met:

										Unvested
						Outstanding				Restricted				Shares
		Plan				Stock				Shares and				Available for
		Expiration				Options				Units				Grant
1991 Plan		Expired					69,426				—				—
1991 Arguss Plan (a)			N/A				84,040				—				—
1994 Directors Plan		Expired					—				—				—
2001 Directors Plan			2011				106,501				—				121,499
2002 Directors Plan			2012				—				—				65,377
1998 Plan (b)			2008				1,804,763				—				749,654
2003 Plan			2013				861,500				1,151,933				1,758,590
							2,926,230				1,151,933				2,695,120

     (a) No further options will be granted under the 1991 Arguss Plan.

     (b) The 749,654 available shares under the 1998 Plan that have been authorized but not issued are available for grant under the 2003 Plan.

     The following tables summarize the stock-based awards outstanding at January 27, 2007:

										Weighted
						Weighted				Average				Aggregate
						Average				Remaining				Intrinsic
		Shares Subject				Exercise				Contractual				Value (in
		to Options				Price				Life				thousands)
Options outstanding			2,926,230			$	28.40				5.7			$	5,013
Options exercisable			2,866,425			$	28.52				5.6			$	4,928

										Weighted				Weighted
						Weighted				Average				Intrinsic
		Restricted				Average				Remaining				Value (in
		Shares/Units				Grant Price				Vesting Period				thousands)
Unvested time vesting shares/units			162,323			$	23.24				2.5			$	3,604
Unvested performance vesting shares/units			989,610			$	21.49				2.5			$	21,969

     The aggregate intrinsic value for stock options and restricted shares and units in the preceding tables represents the total intrinsic value, based on the Company’s closing stock price of $22.20 as of January 27, 2007. 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, excluding any applicable tax impact.

     The following table summarizes the stock-based awards activity during the six months ended January 27, 2007:

						Unvested				Unvested
		Outstanding				Time				Performance
		Stock				Restricted				Restricted
		Options				Shares/Units				Shares/Units
As of July 29, 2006			3,063,692				139,568				490,908
Granted			22,000				72,367				644,371
Exercised/Vested			(48,668	)			(49,612	)			(129,878	)
Forfeited or cancelled			(65,344	)			—				(15,791	)
Expired			(45,450	)			—				—
As of January 27, 2007			2,926,230				162,323				989,610

     The time vesting restricted shares and units were granted to employees and officers of the Company and vest ratably over a period of four years, in December of each year. Each restricted unit will be settled in one share of the Company’s common stock on the vesting date. Upon each annual vesting, 50% of the newly vested shares (net of any shares used to satisfy tax withholding obligations) are restricted from sale or transferability (“restricted holdings”). The restrictions on sale or transferability of the restricted holdings will end 90 days after termination of employment of the holder. When the holder has accumulated restricted holdings having a value equal or greater to the holder’s annual base salary, the future grants will no longer be subject to the restriction on transferability. Additionally, there were 16,863 restricted shares and units awarded to the non-employee directors under the 2002 Directors Plan. In general, these restricted units vest ratably over a three year period. The vesting may be accelerated in the event the non-employee director is not nominated or re-elected at a subsequent annual shareholder meeting or upon termination of service if the Board of Directors consents to the acceleration. The fiscal 2006 time vesting restricted shares are considered issued and outstanding as of the grant date and carry voting and dividend rights.

     The performance vesting restricted shares and units were granted to employees and officers of the Company and represent the maximum number of awards which may vest under the grant. Each restricted unit will be settled in one share of the Company’s common stock upon vesting. The performance vesting restricted shares and units vest over a three year period from grant date, if certain Company performance targets are met. The performance targets are based on a combination of the Company’s fiscal year operating earnings (adjusted for certain amounts) as a percentage of contract revenues and the Company’s fiscal year operating cash flow level. The awards include three year performance goals with similar measures as the fiscal year targets. The fiscal 2006 performance vesting restricted stock issued under the awards carries voting and dividend rights.

     Compensation expense for stock-based awards is based on the fair value at the measurement date and is recognized in general and administrative expenses in the condensed consolidated statement 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 27, 2007 and January 28, 2006 is as follows:

		For the Three Months Ended								For the Six Months Ended
		January 27,				January 28,				January 27,				January 28,
		2007				2006				2007				2006
		(dollars in thousands)
Stock-based compensation expense		$	1,600			$	894			$	3,339			$	1,888
Tax benefit recognized			(637	)			(330	)			(1,232	)			(508	)

     The amount of compensation expense recognized during the three and six month periods ended January 27, 2007 and January 28, 2006 may not be representative of future stock-based compensation expense as the fair value of stock-based awards on the date of grant is amortized over the vesting period, and the vesting of certain stock options were accelerated in fiscal 2005 prior to the implementation of SFAS No. 123(R), “Share-Based Payment.”

     The maximum total unrecognized compensation expense and weighted-average period the expense would be recognized under the Plans is shown below. For performance based awards, the unrecognized compensation expense 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 any compensation expense recognized previously for those shares/units will be reversed.

		Unrecognized				Weighted-
		Compensation				Average
		Expense				Period
		(in thousands)				(in years)
Stock options		$	753				3.8
Unvested time vesting shares/units		$	3,551				2.5
Unvested performance vesting shares/units		$	20,217				2.5

Stock Option Analysis

     During the first quarter of fiscal 2007, in response to a public letter to Financial Executives International and the American Institute of Certified Public Accountants from the Office of the Chief Accountant of the Securities and Exchange Commission dated September 19, 2006, the Company initiated a voluntary review of its stock-based award granting practices covering the period from August 1, 1996 (the first day of fiscal 1997) through October 28, 2006. The Company found that the number and exercise price of all stock-based awards were approved by the applicable committee of the Board of Directors. Additionally, no instances of intentional back dating of equity awards nor any evidence of fraud or manipulative conduct associated with the Company’s granting practices was discovered during this review. However, in some instances, primarily associated with annual grants, the administrative activities necessary to complete the allocation of stock options to individual employees were not final at the grant date. APB No. 25 “Accounting for Stock Issued to Employees” provides that the measurement date of an award can not occur until the number of shares that the individual employee is entitled to receive is also finalized.

     Pursuant to APB No. 25, proper measurement dates were not applied for certain awards as the administrative activities related to the allocation of the stock options to employees had not been finalized as of the grant date. The Company considered the available information related to each of the stock-based awards and applied judgment in determining the measurement date. In certain instances, the stock price increased from the grant date to the measurement date which resulted in additional non-cash stock-based compensation expense. The Company determined the impact to the consolidated operating results of applying the new measurement date to the awards would not change fiscal 2006 results, but would reduce fiscal 2005 results by approximately $0.4 million, net of taxes. For each year between fiscal 1998 through fiscal 2004, the impact of the non-cash stock-based compensation expense, net of taxes, was less than $0.3 million per year with no impact upon fiscal 1997. Pursuant to the footnote disclosure provisions of SFAS No. 123 and SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure”, the Company determined the pro forma non-cash stock-based compensation expense would decrease by approximately $2.2 million for fiscal 2005 resulting in an increase in pro forma net income. For fiscal 1997 through fiscal 2004, the Company determined the footnote disclosure of pro forma non-cash stock-based compensation expense and pro forma net income (loss) would change by less than $0.2 million on an annual basis.

     The Company has determined that the impact of the above amounts is not material to net income (loss), earnings (loss) per share, additional paid-in capital, retained earnings and pro-forma disclosures for all periods between fiscal 1997 through the period ended July 29, 2006 and with respect to the trends in earnings. The applicable amounts and pro forma disclosures for periods prior to fiscal 2006 will be reflected in the Form 10-K for the fiscal year ending July 28, 2007. The accompanying condensed consolidated balance sheet as of July 29, 2006 includes an adjustment of $1.9 million to increase additional paid-in capital and decrease retained earnings from the amounts previously reported reflecting the cumulative impact of the non-cash stock-based compensation expense, net of taxes.

15. Related Party Transactions

     The Company leases administrative offices from entities related to officers of certain of its subsidiaries. The total expense under these arrangements was $0.3 million for each of the three month periods ended January 27, 2007 and January 28, 2006. The total expense under these arrangements was $0.7 million for each of the six month periods ended January 27, 2007 and January 28, 2006. Additionally, the Company paid approximately $0.2 million and $0.3 million for the three and six months ended January 27, 2007, respectively, and $0.1 million and $0.3 million for the three and six months ended January 28, 2006, respectively, in subcontracting services to entities related to officers of certain of its subsidiaries.

16. Commitments and Contingencies

     In the normal course of business, there are transactions for which the ultimate tax outcome is uncertain. Consequently, judgment is required in determining the provision for income taxes and the associated income tax assets and liabilities. The Company regularly assesses its position with regard to individual tax exposures and records liabilities for uncertain tax positions in accordance with SFAS No. 5, “Accounting for Contingencies”. These liabilities reflect management’s best estimate of the likely outcomes of current and potential future audits. The Company was recently notified that its fiscal 2003 and 2004 income tax returns were selected for examination by the Internal Revenue Service. Management believes its provision for income taxes is adequate; however, any material assessment could affect the Company’s results of operations, cash flows and liquidity.

     Recently, a number of the Company’s competitors have been subject to class action lawsuits alleging violations of the Fair Labor Standards Act and state wage and hour laws. A number of these lawsuits have resulted in the payment of substantial damages by the defendants.

     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. 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.

     In addition, the Company has been contacted by counsel representing current and former employees alleging violations of the Fair Labor Standards Act and state wage and hour laws at certain other of its subsidiaries. Regardless of whether any of these allegations are valid or whether the Company is ultimately determined to be liable, claims may be expensive to defend and may adversely affect the Company’s financial condition and results of operations.

     Certain of the Company’s subsidiaries also have pending 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 these current claims or proceedings will have a material effect on the Company’s condensed consolidated financial statements.

     The Company has obligations under performance bonds related to certain of its customer contracts. Performance bonds generally give the Company’s customer the right to obtain payment and/or performance from the issuer of the bond if the Company fails to perform it’s obligations under the contract. As of January 27, 2007, the Company has $37.5 million of outstanding performance bonds with remaining contract work to be completed under these performance bonds of $24.2 million. As of January 27, 2007, no events have occurred in which the customers have exercised their rights under the performance bonds.

     Included in the above amount is an outstanding performance bond of $10.6 million issued in favor of a customer where the Company is no longer the party performing the contract. This guarantee for the third party’s performance arose in connection with the disposition of the contract for which the bond has been procured. The term of the bond is less than one year and the obligations under the customer contract are expected to be performed in a satisfactory manner by the current performing party. In accordance with FIN No. 45, “Accounting and Disclosure Requirements for Guarantees”, the Company has recorded the estimated fair market value of the guarantee of approximately $0.1 million in accrued liabilities as of January 27, 2007. The Company is not holding any collateral; however, it does have recourse to the party performing the contract with respect to claims related to periods subsequent to the disposition of the contract.

17. Segment Information

     The Company operates in one reportable segment as a specialty contractor, providing engineering, construction, maintenance and installation services to telecommunications providers, underground 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 (dollars in thousands):

		For the Three Months Ended								For the Six Months Ended
		January 27, 2007				January 28, 2006				January 27, 2007				January 28, 2006
		(dollars in thousands)								(dollars in thousands)
Telecommunications		$	196,728			$	175,933			$	388,655			$	352,936
Utility line locating			46,549				49,198				101,976				106,981
Electric utilities and other construction and maintenance			15,016				11,960				38,215				30,816
Total contract revenues		$	258,293			$	237,091			$	528,846			$	490,733