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 April 26, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

DYCOM INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Florida		59-1277135
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
11770 US Highway 1, Suite 101, Palm Beach Gardens, Florida		33408
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (561) 627-7171
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 þ No o

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

Large accelerated filer þ		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 þ

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

Common stock		Outstanding shares May 21, 2008
Common stock, par value of $0.33 1/3		40,105,359

 

 

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			37
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			55
Item 4.		Controls and Procedures			55
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			56
Item 1A.		Risk Factors			57
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			57
Item 6.		Exhibits			58
Signatures					59
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 1 — FINANCIAL INFORMATION

Item 1. Financial Statements

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

		April 26,				July 28,
		2008				2007
		(dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and equivalents		$	25,040			$	18,862
Accounts receivable, net			127,856				146,864
Costs and estimated earnings in excess of billings			84,764				95,392
Deferred tax assets, net			19,229				15,478
Income taxes receivable			9,380				—
Inventories			8,854				8,268
Other current assets			9,628				7,266
Current assets of discontinued operations			171				307
Total current assets			284,922				292,437
Property and equipment, net			177,027				164,544
Goodwill			249,902				250,830
Intangible assets, net			64,682				70,122
Other			10,668				11,831
Total non-current assets			502,279				497,327
TOTAL		$	787,201			$	789,764
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	28,778			$	30,375
Current portion of debt			2,518				3,301
Billings in excess of costs and estimated earnings			613				712
Accrued self-insured claims			31,652				26,902
Income taxes payable			—				1,947
Other accrued liabilities			55,479				63,076
Current liabilities of discontinued operations			1,608				939
Total current liabilities			120,648				127,252
LONG-TERM DEBT			151,529				163,509
ACCRUED SELF-INSURED CLAIMS			35,468				33,085
DEFERRED TAX LIABILITIES, net non-current			20,599				19,316
OTHER LIABILITIES			6,953				1,322
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS			507				649
Total liabilities			335,704				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: 40,103,616 and 41,005,106 issued and outstanding, respectively			13,367				13,668
Additional paid-in capital			182,405				191,837
Accumulated other comprehensive income			191				75
Retained earnings			255,534				239,051
Total stockholders’ equity			451,497				444,631
TOTAL		$	787,201			$	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
		April 26, 2008				April 28, 2007
		(dollars in thousands, except per share amounts)
REVENUES:
Contract revenues		$	293,440			$	291,643
EXPENSES:
Costs of earned revenues, excluding depreciation and amortization			239,598				233,657
General and administrative (including stock-based compensation expense of $1.4 million and $1.4 million, respectively)			24,969				23,712
Depreciation and amortization			17,301				15,327
Total			281,868				272,696
Interest income			238				174
Interest expense			(3,110	)			(3,596	)
Other income, net			2,670				5,189
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			11,370				20,714
PROVISION (BENEFIT) FOR INCOME TAXES:
Current			(442	)			8,157
Deferred			4,119				(13	)
Total			3,677				8,144
INCOME FROM CONTINUING OPERATIONS			7,693				12,570
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX			(807	)			(125	)
NET INCOME		$	6,886			$	12,445
EARNINGS PER COMMON SHARE — BASIC:
Income from continuing operations		$	0.19			$	0.31
Loss from discontinued operations			(0.02	)			—
Net income		$	0.17			$	0.31
EARNINGS PER COMMON SHARE — DILUTED:
Income from continuing operations		$	0.19			$	0.31
Loss from discontinued operations			(0.02	)			—
Net income		$	0.17			$	0.31
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic			40,436,212				40,469,787
Diluted			40,486,765				40,770,976

See notes to the condensed consolidated financial statements.

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

		For the Nine Months Ended
		April 26, 2008				April 28, 2007
		(dollars in thousands, except per share amounts)
REVENUES:
Contract revenues		$	907,869			$	820,488
EXPENSES:
Costs of earned revenues, excluding depreciation and amortization			748,816				662,193
General and administrative (including stock-based compensation expense of $4.6 million and $4.8 million, respectively)			72,892				66,786
Depreciation and amortization			50,258				41,964
Total			871,966				770,943
Interest income			619				801
Interest expense			(10,231	)			(11,306	)
Other income, net			5,040				6,814
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			31,331				45,854
PROVISION (BENEFIT) FOR INCOME TAXES:
Current			12,370				17,888
Deferred			(855	)			222
Total			11,515				18,110
INCOME FROM CONTINUING OPERATIONS			19,816				27,744
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX			(1,228	)			(154	)
NET INCOME		$	18,588			$	27,590
EARNINGS PER COMMON SHARE — BASIC:
Income from continuing operations		$	0.49			$	0.69
Loss from discontinued operations			(0.03	)			(0.01	)
Net income		$	0.46			$	0.68
EARNINGS PER COMMON SHARE — DILUTED:
Income from continuing operations		$	0.48			$	0.68
Loss from discontinued operations			(0.03	)			—
Net income		$	0.45			$	0.68
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic			40,651,236				40,324,503
Diluted			40,865,349				40,622,116

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 Nine Months Ended
		April 26, 2008				April 28, 2007
		(dollars in thousands)
OPERATING ACTIVITIES:
Net income		$	18,588			$	27,590
Adjustments to reconcile net cash inflow from operating activities:
Depreciation and amortization			50,258				42,771
Bad debts (recovery) expense, net			(412	)			4
Gain on sale of fixed assets and other			(4,786	)			(6,656	)
Deferred income tax benefit			(844	)			(32	)
Stock-based compensation expense			4,584				4,764
Amortization of debt issuance costs			608				566
Excess tax benefit from share-based awards			(479	)			(131	)
Change in operating assets and liabilities, net of acquisitions:
(Increase) decrease in operating assets:
Accounts receivable, net			19,514				22,977
Costs and estimated earnings in excess of billings, net			10,529				(14,005	)
Other current assets			(2,941	)			(359	)
Other assets			973				1,479
Increase (decrease) in operating liabilities:
Accounts payable			(533	)			(5,363	)
Accrued insurance claims and other liabilities			(2,037	)			39
Income taxes payable			(6,184	)			4,594
Net cash provided by operating activities			86,838				78,238
INVESTING ACTIVITIES:
Restricted cash			(299	)			(502	)
Capital expenditures			(59,992	)			(59,159	)
Proceeds from sale of assets			6,296				12,375
Proceeds from acquisition indemnification claims			522				—
Cash paid for acquisitions			—				(61,812	)
Net cash used in investing activities			(53,473	)			(109,098	)
FINANCING ACTIVITIES:
Proceeds from long-term debt			15,000				105,000
Principal payments on long-term debt			(27,762	)			(87,665	)
Purchases of common stock			(14,073	)			—
Excess tax benefit from share-based awards			479				131
Restricted stock tax withholdings			(2,145	)			(1,100	)
Exercise of stock options and other			1,314				3,192
Net cash (used in) provided by financing activities			(27,187	)			19,558
Net increase (decrease) in cash and equivalents			6,178				(11,302	)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD			18,862				27,268
CASH AND EQUIVALENTS AT END OF PERIOD		$	25,040			$	15,966
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest		$	12,515			$	13,796
Income taxes		$	18,346			$	14,453
Purchases of capital assets included in accounts payable or other accrued liabilities at period end		$	3,953			$	4,028
Amounts included in accrued liabilities for acquisition costs		$	—			$	90

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 nine 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 nine months ended April 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: recognition of revenue for costs and estimated earnings in excess of billings, allowance for doubtful accounts, accrued insurance claims, the fair value of goodwill and intangible assets, asset lives used in computing depreciation and amortization, compensation expense for performance-based stock awards, and 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 April 26, 2008 and July 28, 2007, the Company had approximately $4.8 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 indefinite-lived intangible asset 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 a reporting unit’s goodwill or indefinite-lived intangible may be impaired and written down. Goodwill and 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 asset is less than their 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. In order to measure fair value, the Company employs a combination of present value techniques which 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 Financial Accounting Standards Board (“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 income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order 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 measures the benefit to be recognized in the financial statements for those income 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 — During the three and nine months ended April 26, 2008, and April 28, 2007, the Company did not have any material changes in its equity resulting from non-owner sources. Accordingly, comprehensive income approximated the net income 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 April 26, 2008 and April 28, 2007, the subsidiary contributed approximately $1.1 million and $0.7 million to the plan, respectively. During the nine months ended April 26, 2008 and April 28, 2007, the subsidiary contributed approximately $2.9 million and $1.7 million to the plan, respectively.

     Recently Issued Accounting Pronouncements — In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires entities to provide greater transparency about how and why the entity uses derivative instruments, how the instruments and related hedged items are accounted for under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and how the instruments and related hedged items affect the financial position, results of operations, and cash flows of the entity. SFAS No. 161 is effective for the Company in fiscal 2010. SFAS No. 161 is not currently expected to have a material impact on the Company’s financial statements.

     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”). 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 fiscal 2010 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. 157, “Fair Value Measurements” (“SFAS No. 157”) 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 February 2008, the FASB released a proposed FASB Staff Position 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 Nine Months Ended
		April 26, 2008				April 28, 2007				April 26, 2008				April 28, 2007
		(dollars in thousands)
Contract revenues of discontinued operations		$	—			$	—			$	—			$	10,030
Loss from discontinued operations before income taxes		$	(1,247	)		$	(206	)		$	(1,942	)		$	(254	)
Loss from discontinued operations, net of tax		$	(807	)		$	(125	)		$	(1,228	)		$	(154	)

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

		April 26, 2008				July 28, 2007
		(dollars in thousands)
Accounts receivable, net		$	2			$	56
Deferred tax assets, net			168				244
Other current assets			1				7
Current assets of discontinued operations		$	171			$	307
Accounts payable		$	627			$	114
Accrued liabilities			981				825
Total current liabilities of discontinued operations		$	1,608			$	939
Other accrued liabilities and deferred taxes		$	507			$	649
Non-current liabilities of discontinued operations		$	507			$	649

3. Computation of Earnings Per Common Share

     The following is a reconciliation of the numerator and denominator of the basic and diluted earnings per common share computation as required by SFAS No. 128, “Earnings Per Share.” Basic earnings per common 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 common 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 common 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								For the Nine Months Ended
		April 26, 2008				April 28, 2007				April 26, 2008				April 28, 2007
		(dollars in thousands, except per share amounts)
Numerator:
Income from continuing operations		$	7,693			$	12,570			$	19,816			$	27,744
Loss from discontinued operations, net of tax			(807	)			(125	)			(1,228	)			(154	)
Net income		$	6,886			$	12,445			$	18,588			$	27,590
Denominator:
Basic
Weighted-average number of common shares - Basic			40,436,212				40,469,787				40,651,236				40,324,503
Diluted
Weighted-average number of common shares - Basic			40,436,212				40,469,787				40,651,236				40,324,503
Potential common stock arising from stock options, restricted shares and restricted share units			50,553				301,189				214,113				297,613
Weighted-average number of common shares - Diluted			40,486,765				40,770,976				40,865,349				40,622,116
Antidilutive weighted shares excluded from the calculation of earnings per common share			2,064,633				1,611,774				2,056,955				2,301,738
EARNINGS PER COMMON SHARE — BASIC:
Income from continuing operations		$	0.19			$	0.31			$	0.49			$	0.69
Loss from discontinued operations			(0.02	)			—				(0.03	)			(0.01	)
Net income		$	0.17			$	0.31			$	0.46			$	0.68
EARNINGS PER COMMON SHARE — DILUTED:
Income from continuing operations		$	0.19			$	0.31			$	0.48			$	0.68
Loss from discontinued operations			(0.02	)			—				(0.03	)			—
Net income		$	0.17			$	0.31			$	0.45			$	0.68

4. Acquisitions

     In September 2006, the Company acquired the outstanding common stock of Cable Express, a provider of 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 for Cable Express was approximately $55.2 million and the Company 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. During the three months ended April 26, 2008, approximately $0.5 million of the escrowed amount was returned to the Company in satisfaction of certain indemnification claims. As of April 26, 2008, approximately $4.6 million of the escrowed amount has been released to the sellers and approximately $1.1 million remains to be released to the sellers in September 2008, so long as the amount is not subject to any claims. 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 as of the acquistion date 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			34,114
Intangible assets — customer relationships			22,800
Intangible assets — tradenames			1,100
Other assets			139
Total assets			83,650
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		$	54,687

     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 nine months ended April 28, 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 Nine Months Ended
		April 28, 2007
		(dollars in thousands, except
		per share amounts)
Total revenues		$	831,387
Income from continuing operations before income taxes		$	41,180
Income from continuing operations		$	24,935
Net income		$	24,781
Earnings per share from continuing operations:
Basic		$	0.62
Diluted		$	0.61
Earnings per share:
Basic		$	0.61
Diluted		$	0.61

     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. 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:

		April 26, 2008				July 28, 2007
		(dollars in thousands)
Contract billings		$	126,157			$	144,835
Retainage			1,349				2,249
Other receivables			873				766
Total			128,379				147,850
Less: allowance for doubtful accounts			523				986
Accounts receivable, net		$	127,856			$	146,864

     The allowance for doubtful accounts changed as follows:

		For the Three Months Ended								For the Nine Months Ended
		April 26, 2008				April 28, 2007				April 26, 2008				April 28, 2007
		(dollars in thousands)
Allowance for doubtful accounts at beginning of period		$	860			$	1,038			$	986			$	1,964
Bad debt expense (recovery), net			(293	)			248				(412	)			4
Amounts charged against the allowance			(44	)			(125	)			(51	)			(807	)
Allowance for doubtful accounts at end of period		$	523			$	1,161			$	523			$	1,161

          As of April 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 April 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:

		April 26, 2008				July 28, 2007
		(dollars in thousands)
Costs incurred on contracts in progress		$	70,007			$	76,316
Estimated to date earnings			14,757				19,076
Total costs and estimated earnings			84,764				95,392
Less: billings to date			613				712
		$	84,151			$	94,680
Included in the accompanying condensed consolidated balance sheets under the captions:
Costs and estimated earnings in excess of billings		$	84,764			$	95,392
Billings in excess of costs and estimated earnings			(613	)			(712	)
		$	84,151			$	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:

		April 26, 2008				July 28, 2007
		(dollars in thousands)
Land		$	2,953			$	2,953
Buildings			9,651				9,232
Leasehold improvements			2,511				2,104
Vehicles			212,498				198,256
Furniture and fixtures			41,554				34,580
Equipment and machinery			134,100				122,951
Total			403,267				370,076
Less accumulated depreciation			226,240				205,532
Property and equipment, net		$	177,027			$	164,544

     Depreciation expense and repairs and maintenance, including amounts for assets subject to capital leases, were as follows:

		For the Three Months Ended								For the Nine Months Ended
		April 26, 2008				April 28, 2007				April 26, 2008				April 28, 2007
		(dollars in thousands)
Depreciation expense		$	15,473			$	13,561			$	44,803			$	37,003
Repairs and maintenance expense		$	4,722			$	4,679			$	15,431			$	14,826

8. Goodwill and Intangible Assets

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

		Useful Life
		In Years		April 26, 2008				July 28, 2007
				(dollars in thousands)
Goodwill		N/A		$	249,902			$	250,830
Intangible Assets:
Carrying amount
Covenants not to compete		5		$	800			$	800
UtiliQuest tradename		Indefinite			4,700				4,700
Tradenames		4-15			2,925				2,925
Customer relationships		5-15			77,555				77,539
					85,980				85,964
Accumulated amortization:
Covenants not to compete					709				587
Tradenames					1,063				527
Customer relationships					19,526				14,728
					21,298				15,842
Net Intangible Assets				$	64,682			$	70,122

     During the nine months ended April 26, 2008 goodwill was reduced by approximately $0.5 million as a result of the receipt of escrowed funds by the Company for indemnification of claims related to the Cable Express acquisition (See Note 4). Additionally, goodwill decreased by approximately $0.4 million related to the application of FIN 48. See Note 12 for further discussion regarding the adoption and application of FIN 48.

     For finite-lived intangible assets, amortization expense for the three months ended April 26, 2008 and April 28, 2007 was $1.8 million and $1.8 million, respectively. For finite-lived intangible assets, amortization expense for the nine months ended April 26, 2008 and April 28, 2007 was $5.5 million and $5.0 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. These conditions generally improved during the third quarter of fiscal 2008.

     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 by these factors than the Company as a whole. Specifically 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, or if the reporting unit was not able to execute against customer opportunities, and the 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 had 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 $34.1 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 second quarter of fiscal 2008 and by increased professional fees related to this matter.

     As of April 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 April 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 April 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 Insurance 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 as of April 26, 2008 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 insurance claims consist of the following:

		April 26, 2008				July 28, 2007
Amounts expected to be paid within one year:
Accrued auto, general liability and workers’ compensation		$	17,308			$	13,748
Accrued employee group health			3,951				3,678
Accrued damage claims			10,393				9,476
			31,652				26,902
Amounts expected to be paid beyond one year:
Accrued auto, general liability and workers’ compensation			30,838				25,217
Accrued damage claims			4,630				7,868
			35,468				33,085
Total accrued insurance claims		$	67,120			$	59,987

10. Other Accrued Liabilities

          Other accrued liabilities consist of the following:

		April 26, 2008				July 28, 2007
		(dollars in thousands)
Accrued payroll and related taxes		$	23,792			$	27,870
Accrued employee benefit and bonus costs			4,854				9,293
Accrued construction costs			8,849				10,272
Interest payable			608				3,587
Other			17,376				12,054
Total other accrued liabilities		$	55,479			$	63,076

11. Debt

          The Company’s debt consists of the following:

		April 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			4,047				6,792
Notes payable			—				18
			154,047				166,810
Less: current portion			2,518				3,301
Long-term debt		$	151,529			$	163,509

          In October 2005, Dycom Investments, Inc., a wholly-owned subsidiary of the Company, issued 8.125% senior subordinated notes (“Notes”) due October 2015 in the amount of $150.0 million. 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 April 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 April 26, 2008, the Company had no outstanding borrowings and $49.6 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 insurance program and bear interest at 1.375% per annum. Subsequent to April 26, 2008, the outstanding letters of credit were reduced by approximately $3.1 million. At April 26, 2008, the Company had additional borrowing availability of $194.1 million under the most restrictive covenants of the Credit Agreement and was in compliance with the financial covenants and conditions.

          The Company had $4.0 million in capital lease obligations as of April 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. During the three months ended April 26, 2008, the Company reversed liabilities for unrecognized tax benefits and interest expense that were no longer required, resulting in a $0.9 million decrease in the Company’s provision for income taxes, $0.3 million decrease in interest expense, and $0.1 million decrease in goodwill. As of April 26, 2008, the total amount remaining of unrecognized tax benefits is $5.4 million. If it is subsequently determined this amount is not required, approximately $4.9 million would affect the Company’s effective tax rate and $0.5 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 elements of that process are anticipated to be completed at different times throughout 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 $1.2 million and accrued interest of up to $0.5 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 the nine months ended April 26, 2008, the Company recognized approximately $0.1 million in interest expense in the accompanying condensed consolidated statements of operations.

13. Other Income, net

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

		For the Three Months Ended								For the Nine Months Ended
		April 26, 2008				April 28, 2007				April 26, 2008				April 28, 2007
		(dollars in thousands)
Gain on sale of fixed assets		$	2,582			$	5,108			$	4,786			$	6,452
Miscellaneous income			88				81				254				362
Total other income, net		$	2,670			$	5,189			$	5,040			$	6,814

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 month period in open market or private transactions. The Company repurchased and cancelled 1,016,200 shares during the nine months ended April 26, 2008 at an average price per share of $13.82. As of April 26, 2008, approximately $0.9 million of the authorized amount remains for the repurchase of common stock.

15. Stock-Based Awards

          The Company’s stock-based award plans are comprised of 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. 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 April 26, 2008, there were 258,236 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 April 26, 2008, including restricted performance shares and units that will be issued under outstanding awards if certain performance goals are met:

										Unvested
										Restricted
										Shares and				Shares
		Plan				Outstanding				Units				Available for
		Expiration				Stock Options				Outstanding				Grant
1991 Plan		Expired					45,000				—				—
1991 Arguss Plan (a)			N/A				53,436				—				—
2001 Directors Plan (a)			2011				66,501				—				—
2002 Directors Plan (a)			2012				—				8,030				—
1998 Plan (b)			2008				1,400,719				—				794,873
2003 Plan			2013				780,647				1,202,401				1,484,792
2007 Directors Plan			2017				30,000				10,788				258,236
							2,376,303				1,221,219				2,537,901

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

						Weighted				Weighted Average				Aggregate
		Shares Subject to				Average Exercise				Remaining				Intrinsic Value (in
		Options				Price				Contractual Life				thousands)
Options outstanding			2,376,303			$	29.83				4.4			$	12
Options exercisable			2,319,552			$	29.94				4.3			$	12

						Weighted				Weighted Average				Aggregate
		Restricted				Average Grant				Remaining				Intrinsic Value (in
		Shares/Units				Price				Vesting Period				thousands)
Unvested time vesting shares/units			134,786			$	24.37				2.4			$	1,834
Unvested performance vesting shares/units			1,086,433			$	24.56				1.3			$	14,786

          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 $13.61 on April 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 nine months ended April 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				560,142			$	27.38
Options Exercised/ Shares and Units Vested			(62,128	)		$	21.15				(78,040	)		$	24.54				(194,622	)		$	21.80
Forfeited or cancelled			(85,912	)		$	33.90				—			$	—				(61,019	)		$	22.85
Outstanding as of April 26, 2008			2,376,303			$	29.83				134,786			$	24.37				1,086,433			$	24.56

          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 nine months ended April 26, 2008 and April 28, 2007 is as follows:

		For the Three Months Ended								For the Nine Months Ended
		April 26, 2008				April 28, 2007				April 26, 2008				April 28, 2007
		(dollars in thousands)
Stock-based compensation expense		$	1,419			$	1,425			$	4,584			$	4,764
Tax benefit recognized			(546	)			(677	)			(1,765	)			(1,914	)

          The Company evaluates compensation expense quarterly and only recognizes compensation expense for performance based awards if management determines it is probable that the performance criteria for the awards will be met. The total amount of compensation ultimately recognized is based on the number of awards that actually vest. During fiscal 2008, 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, stock-based compensation expense was reduced for these awards during the nine month period ended April 26, 2008. Additionally, the Company incurred approximately $0.4 million of incremental stock based compensation expense as a result of the modification of certain awards. Accordingly, the amount of compensation expense recognized during the three and nine month periods ended April 26, 2008 may 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 April 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-
		Expense				Average Period
		(in thousands)				(in years)
Stock options		$	655				2.8
Unvested time vesting shares/units		$	2,712				2.4
Unvested performance vesting shares/units		$	25,230				1.3

          During the nine months ended April 26, 2008 and April 28, 2007, the Company received cash of $1.3 million and $3.2 million, respectively, from the exercise of stock options. During the nine months ended April 26, 2008 and April 28, 2007, the Company realized a tax benefit from the exercise of stock options and vesting of restricted stock and restricted stock units of approximately $2.9 million and $2.2 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 $0.3 million for each of the three month periods ended April 26, 2008 and April 28, 2007. The total expense under these arrangements was $1.0 million for each of the nine month periods ended April 26, 2008 and April 28, 2007. Additionally, the Company paid approximately $0.2 million and $0.5 million for the three and nine months ended April

26, 2008, respectively, and $0.3 million and $0.5 million for the three and nine months ended April 28, 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 primarily dating from September 2003 through January 31, 2007 and cover a number of states where these subsidiaries conducted business. During the second quarter of fiscal 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 all potential members of the purported class opt-in. 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 number of opt-in members of the purported class and the corresponding 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 recorded a pre-tax expense for this amount in costs of earned revenues during the second quarter of fiscal 2008. Actual payments could differ from our estimate.

     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. In an effort to resolve this matter and avoid the expense of further litigation, the parties have engaged a third party to mediate discussions scheduled to take place in June 2008. This lawsuit may be expensive to defend and/or settle and may adversely affect the Company’s 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 other claims and legal proceedings. Additionally, as part of the Company’s insurance program, 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. For these claims, the effect on the Company’s financial statements is generally limited to the amount of the Company’s insurance deductible or self-insurance retention. It is the opinion of the Company’s management, based on information available at this time, that none of such other pending claims or proceedings will have a material effect on its 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 April 26, 2008, the Company had $42.7 million of outstanding performance bonds. As of April 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 Nine Months Ended
		April 26, 2008				April 28, 2007				April 26, 2008				April 28, 2007
		(dollars in thousands)
Telecommunications		$	226,170			$	223,224			$	687,384			$	611,879
Underground facility locating			53,883				52,951				161,155				154,926
Electric utilities and other construction and maintenance			13,387				15,468				59,330				53,683
Total contract revenues		$	293,440			$	291,643			$	907,869			$	820,488

          One of the Company’s subsidiaries earned revenues from contracts in Canada of approximately $0.6 million and $2.7 million during the three and nine months ended April 26, 2008, respectively, and $1.3 million and $2.5 million during the three and nine months ended April 28, 2007. The Company had no material long-lived assets in the Canadian operations at April 26, 2008 or July 28, 2007.

19. Supplemental Consolidating Financial Statements

          During fiscal 2006, the Company completed an offering of 8.125% senior subordinated notes in the amount of $150.0 million (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 condensed consolidating financial statements are presented in accordance with the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the Company’s share of subsidiaries’ cumulative results of operations, capital contributions, distributions and other equity changes.

     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.

          The condensed consolidating statements of cash flows for the nine months ended April 28, 2007 have been restated to correct the presentation of transactions that are settled on a net basis through the Company’s intercompany payables and receivables. Previously, the Company had presented certain intercompany activity between the Parent, Issuer, Guarantor, and Non-Guarantor subsidiaries as operating activities of the Parent. The impact of these activities is now reflected in the operating activity of the Guarantor and Non-Guarantor subsidiaries. Additionally, cash flow activity of the Issuer related to the payment of interest has been restated as an operating activity. These amounts had previously been reflected in the financing section as part of transactions that are settled on a net basis through the Issuer’s intercompany payables. There was no impact on the consolidated statement of cash flows for the nine months ended April 28, 2007.

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

														Non-
										Subsidiary				Guarantor				Eliminations and				Dycom
		Parent				Issuer				Guarantors				Subsidiaries				Reclassifications				Consolidated
										(dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and equivalents		$	—			$	—			$	24,648			$	392			$	—			$	25,040
Accounts receivable, net			3				—				127,279				574				—				127,856
Costs and estimated earnings in excess of billings			—				—				84,680				84				—				84,764
Deferred tax assets, net			1,541				—				17,559				129				—				19,229
Income taxes receivable			9,380				—				—				—				—				9,380
Inventories			—				—				8,852				2				—				8,854
Other current assets			4,745				—				4,686				197				—				9,628
Current assets of discontinued operations			—				—				171				—				—				171
Total current assets			15,669				—				267,875				1,378				—				284,922
Property and equipment, net			12,302				—				155,056				10,141				(472	)			177,027
Goodwill			—				—				249,902				—				—				249,902
Intangible assets, net			—				—				64,682				—				—				64,682
Deferred tax assets, net non-current			830				38				—				—				(868	)			—
Investment in subsidiaries			763,689				1,127,818				—				—				(1,891,507	)			—
Intercompany receivables			—				—				552,595				—				(552,595	)			—
Other			3,940				3,687				3,030				11				—				10,668
Total non-current assets			780,761				1,131,543				1,025,265				10,152				(2,445,442	)			502,279
TOTAL		$	796,430			$	1,131,543			$	1,293,140			$	11,530			$	(2,445,442	)		$	787,201
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	602			$	—			$	26,567			$	1,609			$	—			$	28,778
Current portion of debt			—				—				2,518				—				—				2,518
Billings in excess of costs and estimated earnings			—				—				613				—				—				613
Accrued self-insured claims			1,720				—				29,640				292				—				31,652
Other accrued liabilities			4,978				499				49,279				746				(23	)			55,479
Current liabilities of discontinued operations			—				—				1,608				—				—				1,608
Total current liabilities			7,300				499				110,225				2,647				(23	)			120,648
LONG-TERM DEBT			—				150,000				1,529				—				—				151,529
ACCRUED SELF-INSURED CLAIMS			943				—				34,012				513				—				35,468
DEFERRED TAX LIABILITIES, net non-current			—				—				21,421				46				(868	)			20,599
INTERCOMPANY PAYABLES			329,746				217,355				—				5,505				(552,606	)			—
OTHER LIABILITIES			6,944				—				9				—				—				6,953
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS			—				—				507				—				—				507
Total liabilities			344,933				367,854				167,703				8,711				(553,497	)			335,704
Total stockholders’ equity			451,497				763,689				1,125,437				2,819				(1,891,945	)			451,497
TOTAL		$	796,430			$	1,131,543			$	1,293,140			$	11,530			$	(2,445,442	)		$	787,201