UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

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DYCOM INDUSTRIES, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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DYCOM INDUSTRIES, INC.

11770 U.S. Highway 1, Suite 101

Palm Beach Gardens, Florida 33408

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To be held on November 20, 2007

 

TO OUR SHAREHOLDERS:

 

The Annual Meeting of Shareholders (the “Annual Meeting”) of Dycom Industries, Inc. (the “Company”) will be held at 11:00 a.m., local time, on Tuesday, November 20, 2007, at the City Club of the Palm Beaches, 11780 U.S. Highway 1, Suite 600, Palm Beach Gardens, Florida 33408. The Annual Meeting will be held for the following purposes:

 

1. To elect three directors;

 

2. To vote upon a proposal to approve the Company’s 2007 Non-Employee Directors Equity Plan; and

 

3. To transact such other business as may properly come before the Annual Meeting or any adjournments of the Annual Meeting.

 

The Board of Directors has fixed the close of business on Monday, October 1, 2007, as the record date for determining the shareholders entitled to notice of and to vote at the Annual Meeting.

 

IMPORTANT

 

Please mark, date, sign and return the enclosed proxy card promptly so that your shares can be voted. If you attend the Annual Meeting, you may withdraw your completed proxy and vote in person.

 

BY ORDER OF THE BOARD OF DIRECTORS,

 

Richard B. Vilsoet
Secretary

 

October 29, 2007

 

DYCOM INDUSTRIES, INC.
11770 U.S. Highway 1, Suite 101
Palm Beach Gardens, Florida 33408

 

 

PROXY STATEMENT

 

ANNUAL MEETING OF SHAREHOLDERS

Tuesday, November 20, 2007

 

 

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Dycom Industries, Inc. (the “Company”) for use at the Annual Meeting of Shareholders to be held on Tuesday, November 20, 2007, at the City Club of the Palm Beaches, 11780 U.S. Highway 1, Suite 600, Palm Beach Gardens, Florida 33408, at 11:00 a.m., local time, or at any adjournments thereof (the “Annual Meeting”), for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.

 

Only shareholders of record at the close of business on October 1, 2007 (the “Record Date”) will be entitled to notice of and to vote at the Annual Meeting. On October 1, 2007, the Company had 41,050,086 shares of common stock, par value $0.331/3, issued and outstanding. All shares outstanding on the Record Date are entitled to vote. Each share of common stock entitles the holder thereof to one vote.

 

A proxy card that is properly marked, signed, dated and returned in time for the Annual Meeting will be voted in accordance with the instructions contained therein. If no instructions are indicated, each share of common stock represented by proxy will be voted for the election of the listed nominee directors and for approval of the Company’s 2007 Non-Employee Directors Equity Plan (the “2007 Directors Plan”).

 

This Proxy Statement and the accompanying proxy card are being mailed to shareholders on or about October 29, 2007. Any shareholder giving a proxy has the power to revoke the proxy prior to its use. The proxy can be revoked by filing an instrument of revocation with the Secretary of the Company or by submitting a proxy bearing a later date than the proxy being revoked prior to the Annual Meeting. Additionally, shareholders who attend the Annual Meeting may revoke a previously granted proxy and vote in person.

 

The presence in person or by proxy of the holders of a majority of the common stock will constitute a quorum. A quorum is necessary to transact business at the Annual Meeting. With the exception of the election of directors, which requires a plurality of the votes cast, the affirmative vote of a majority of the shares of common stock represented at the Annual Meeting is required to approve any other proposals. Shares of common stock represented by proxies that reflect abstentions or “broker non-votes” (i.e., shares held by a broker or nominee which are represented at the Annual Meeting, but with respect to which such broker or nominee is not empowered to vote on a particular proposal) will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum.

 

A copy of the Company’s Annual Report to Shareholders, including financial statements for the fiscal years ended July 28, 2007 and July 29, 2006, is enclosed with this Proxy Statement, but such documentation does not constitute a part of the proxy soliciting material.

 

PROPOSAL 1

 

ELECTION OF DIRECTORS

 

The Company’s Articles of Incorporation provides that the Board of Directors shall be divided into three classes, with each class having as equal a number of directors as possible. Three director nominees have been nominated for election at the Annual Meeting. The nominees are Thomas G. Baxter, Charles M. Brennan, III and James A. Chiddix. Each nominee was selected by the Corporate Governance Committee and approved by the Board of Directors for submission to the Company’s shareholders. Thomas G. Baxter and Charles M. Brennan, III are each currently serving terms that expire at the Annual Meeting and each has been nominated for a three-year term expiring at the fiscal year 2010 Annual Meeting of Shareholders. James A. Chiddix has been nominated for a one-year term expiring at the fiscal year 2008 Annual Meeting of Shareholders. If any director nominees become unable to accept nomination or election, which is not anticipated, the persons acting under such proxies will vote for the election of such other person as the Board of Directors may recommend.

 

 

Recommendation of the Board of Directors

 

The Board of Directors recommends that shareholders vote “FOR” the election of Thomas G. Baxter, Charles M. Brennan, III and James A. Chiddix as directors.

 

CORPORATE GOVERNANCE

 

The Company is committed to sound corporate governance, and to full compliance with New York Stock Exchange (“NYSE”), Securities and Exchange Commission (“SEC”) and other regulatory and legal requirements. In furtherance of these goals the Board of Directors has adopted a Business Code of Conduct and Ethics, a Code of Ethics for Senior Financial Officers, Corporate Governance Guidelines and written charters for each of its Corporate Governance Committee, Compensation Committee and Audit Committee, all of which are available on the Company’s website at www.dycomind.com. Copies of each may also be obtained, without charge, upon written request to the Secretary of the Company at 11770 U.S. Highway 1, Suite 101, Palm Beach Gardens, Florida 33408. The Company periodically reviews these documents in light of corporate governance developments and modifies the documents as appropriate.

 

Board of Directors and Its Committees

 

The Board of Directors has established five committees: an Audit Committee, a Compensation Committee, a Corporate Governance Committee, an Executive Committee and a Finance Committee.

 

Audit Committee.  The Audit Committee currently consists of Charles M. Brennan, III, Charles B. Coe and Jack H. Smith. The Audit Committee operates in accordance with a written charter, a copy of which is available on the Company’s website at www.dycomind.com. A copy may also be obtained, without charge, upon written request to the Secretary of the Company at 11770 U.S. Highway 1, Suite 101, Palm Beach Gardens, Florida 33408.

 

The Audit Committee’s primary responsibility is to assist the Board of Directors in the oversight of (1) the quality and integrity of the Company’s financial statements and related disclosure, internal controls and financial reporting, (2) the Company’s compliance with applicable legal and regulatory requirements, (3) the independent auditor’s qualification, independence and performance and (4) the performance of the Company’s internal audit function and control functions. The Audit Committee also approves the fees paid to the Company’s independent auditors.

 

The Board of Directors has determined that each of the members of the Audit Committee is independent within the meaning of the NYSE Corporate Governance listing standards and the Company’s Corporate Governance Guidelines. In addition, the Board of Directors has determined that the Chairman of the Audit Committee, Charles M. Brennan, III, and Jack H. Smith each qualifies as an “audit committee financial expert” within the meaning of applicable regulations of the SEC, promulgated pursuant to the Sarbanes-Oxley Act of 2002. The SEC has indicated that the designation of Mr. Brennan and Mr. Smith as an audit committee financial expert does not make them an “expert” for any purpose, impose on them any duties, obligations or liability that are greater than the duties, obligations or liability imposed on them as members of the Audit Committee and the Board of Directors in the absence of such designation, or affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors. The Audit Committee met nine times during fiscal 2007.

 

Compensation Committee.  The Compensation Committee currently consists of Thomas G. Baxter, Charles B. Coe and Stephen C. Coley. The Board of Directors has determined that each of the members of the Compensation Committee is independent within the meaning of the NYSE Corporate Governance listing standards and the Company’s Corporate Governance Guidelines. The Compensation Committee operates in accordance with a written charter, a copy of which is available on the Company’s website at www.dycomind.com. A copy may also be obtained, without charge, upon written request to the Secretary of the Company at 11770 U.S. Highway 1, Suite 101, Palm Beach Gardens, Florida 33408.

The Compensation Committee’s primary responsibilities are to recommend to the Board of Directors the compensation of the directors, to determine the compensation of the Chief Executive Officer, and to approve the compensation of the other executive officers. Additionally, the Compensation Committee administers the Company’s equity-based and incentive compensation plans, policies and programs. The Compensation Committee is responsible for reviewing and discussing with management the Company’s compensation discussion and analysis included elsewhere in this Proxy Statement. The Compensation Committee met nine times during fiscal 2007.

 

Corporate Governance Committee.  The Corporate Governance Committee currently consists of Stephen C. Coley, Charles M. Brennan, III and Joseph M. Schell. The Board of Directors has determined that each of the members of the Corporate Governance Committee is independent within the meaning of the NYSE Corporate Governance listing standards and the Company’s Corporate Governance Guidelines. The Corporate Governance Committee operates in accordance with a written charter, a copy of which is available on the Company’s website at www.dycomind.com. A copy may also be obtained, without charge, upon written request to the Secretary of the Company at 11770 U.S. Highway 1, Suite 101, Palm Beach Gardens, Florida 33408.

 

The Corporate Governance Committee’s primary responsibilities are to recommend to the Board of Directors the director nominees for election by the Company’s shareholders, including those nominees that are recommended by shareholders in accordance with the procedures set forth below under the caption “Director Candidates;” to recommend to the Board of Directors persons to fill vacancies on the Board of Directors; to recommend to the Board of Directors the appointment of officers of the Company; to recommend to the Board of Directors the appointment of its members to serve on the five committees of the Board of Directors; to periodically review the number and functions of the committees of the Board of Directors; to evaluate the performance of individual directors on an annual basis; to evaluate the performance of the Chief Executive Officer on an annual basis and submit its evaluation to the Compensation Committee; to review the independence of outside directors on an annual basis; to review management succession and development plans; to establish criteria and processes for, and lead the Board of Directors and each committee in, their respective annual self-evaluations; to develop and monitor compliance with a set of corporate governance guidelines; and to counsel the Board of Directors on other corporate governance matters. The Corporate Governance Committee met four times during fiscal 2007.

 

Executive Committee.  The Executive Committee currently consists of Thomas G. Baxter, Charles M. Brennan, III and Steven Nielsen. The Executive Committee is empowered to act for the full Board of Directors during intervals between Board of Directors meetings, with the exception of certain matters that by law may not be delegated. The Executive Committee met once during fiscal 2007.

 

Finance Committee.  The Finance Committee currently consists of Thomas G. Baxter, Joseph M. Schell and Jack H. Smith. The principal functions of the Finance Committee are to set policy for short-term investments; to review borrowing arrangements; and to recommend changes in the capital structure and operating budget of the Company. The Finance Committee did not meet during fiscal 2007.

 

The Board of Directors held eight meetings during the fiscal year ended July 28, 2007. All of the directors attended more than 75% of the aggregate number of meetings held by the Board of Directors and its respective committees on which they served. Attendance at the annual meeting of shareholders is expected of all directors as if it were a regular meeting.

 

Board Independence

 

In accordance with the Company’s Corporate Governance Guidelines, the Board of Directors monitors the independence of its members on an ongoing basis using standards set forth in the guidelines. The guidelines reflect the requirements set forth in the NYSE Corporate Governance listing standards. Under these standards, the Board of

Directors has determined that each of the six non-management members of the Board of Directors, including the two non-management director nominees that are currently members of the Board of Directors, is independent and that such group constitutes a majority of the Company’s directors. Mr. Nielsen, who serves as the Company’s President and Chief Executive Officer, is not independent.

 

Code of Ethics for Senior Financial Officers and Business Code of Conduct and Ethics

 

The Company has adopted a Code of Ethics for Senior Financial Officers and a Business Code of Conduct and Ethics, each of which is a code of ethics as that term is defined in Item 406(b) of Regulation S-K. The Code of Ethics for Senior Financial Officers applies to the Company’s Chief Executive Officer, Chief Financial Officer, Controller and other employees performing similar functions, including the Chief Accounting Officer. The Business Code of Conduct and Ethics applies to all officers, managers and employees of the Company. Each code is available on the Company’s website at www.dycomind.com. Copies of each may also be obtained, without charge, upon written request to the Secretary of the Company at 11770 U.S. Highway 1, Suite 101, Palm Beach Gardens, Florida 33408. The Company intends to satisfy the requirement under Item 5.05 of Form 8-K regarding disclosure of an amendment to, or a waiver from, provisions of the Code of Ethics for Senior Financial Officers by posting such information on its website at the address specified above.

 

Executive Sessions of Non-Management Directors

 

In accordance with the Company’s Corporate Governance Guidelines, the Company’s non-management directors meet without management present at regularly scheduled executive sessions (at least quarterly). The lead non-management director, who is currently Stephen C. Coley, presides at such sessions.

 

Communications with the Board of Directors

 

The Company has adopted a formal process by which shareholders and other interested parties may communicate with one or more of the Company’s directors, the Company’s non-management directors as a group, a committee or the full Board of Directors. Shareholders who wish to communicate with a director or director group should direct their communications in writing to Dycom Industries, Inc., c/o Richard B. Vilsoet, General Counsel and Secretary, 11770 U.S. Highway 1, Suite 101, Palm Beach Gardens, Florida 33408. The Company’s Secretary has primary responsibility for monitoring director related communications from shareholders and other interested parties and forwarding collected communications to the intended recipient provided they meet certain criteria. In general, communications are forwarded to the intended director or director group as long as the communications do not relate to ordinary business, legal or administrative matters or other non-substantive or inappropriate matters further described in the Company’s Internal Process for Handling Communications to Directors. All concerns and complaints relating to accounting, internal accounting controls or auditing matters as well as complaints regarding violations of the Company’s Business Code of Conduct and Ethics or Code of Ethics for Senior Financial Officers will be referred to the Company’s Audit Committee in accordance with the Company’s Whistleblower Policy and Procedures. Both the Internal Process for Handling Communications to Directors and the Whistleblower Policy and Procedures are available on the Company’s website at www.dycomind.com.

 

Director Candidates

 

Pursuant to its charter and the Company’s Corporate Governance Guidelines, the Corporate Governance Committee is responsible for recommending to the Board of Directors the director nominees for election by the Company’s shareholders, including those nominees that are recommended by shareholders in accordance with the procedures set forth in the Company’s By-Laws. The process followed by the Corporate Governance Committee to identify and evaluate director candidates includes requests to directors and others for recommendations,

engagements of third-party search firms, meetings from time to time to evaluate biographical information and background materials relating to potential candidates, and interviews of selected candidates by members of the Corporate Governance Committee and the Board of Directors. James A. Chiddix was initially identified as a director candidate by one of the Company’s independent directors. Mr. Chiddix meets the independence requirements set forth in the NYSE Corporate Governance listing standards.

 

In considering whether to recommend any particular candidate for inclusion in the slate of recommended director nominees, the Corporate Governance Committee will consider numerous attributes, including the candidate’s integrity, business acumen, knowledge of the Company’s business and industry, age, experience and conflicts of interest. The Corporate Governance Committee does not assign specific weights to particular criteria, and no particular criterion is a prerequisite for each prospective nominee. The Corporate Governance Committee believes that the backgrounds and qualifications of the Company’s directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow the Board of Directors to fulfill its responsibilities and operate effectively.

 

The Corporate Governance Committee considers director nominee candidates from many sources, including shareholders. If a shareholder wishes to recommend a nominee for director, written notice should be sent to the Company’s Secretary in accordance with the instructions set forth later in this Proxy Statement under “Proposals for Year 2008 Annual Meeting of Shareholders.” Assuming that appropriate biographical and background material has been provided on a timely basis, the Corporate Governance Committee will evaluate shareholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others.

 

Certain Relationships and Related Transactions

 

The Board of Directors has adopted written policies and procedures for the review of all transactions in which the Company is a participant and any director or nominee, executive officer or security holder of more than five percent of the Company’s common stock (or, in the case of the foregoing persons, their immediate family members) has a direct or indirect financial interest.

 

A related person proposing to enter into such transaction must report the proposed related person transaction to the Company’s General Counsel or Director of Internal Audit. The policy calls for the proposed related person transaction to be reviewed, and if deemed appropriate, approved by the Audit Committee. Generally, the Audit Committee will approve the transaction if the Audit Committee determines the transaction is beneficial to the Company and contains the same or reasonably comparable terms as would be obtained in an arm’s length transaction with an unrelated third party.

 

Neither the Company nor any of its subsidiaries is engaged in any related party transaction with any director or executive officer of the Company, any nominee for director or any security holder known to the Company to own more than five percent of the Company’s common stock.

 

Director Compensation

 

The Company’s compensation program for non-employee directors is designed to enable the Company to attract, retain and motivate highly qualified directors to serve on the Company’s Board of Directors. The program is also intended to further align the interests of the Company’s directors with those of the Company’s shareholders by compensating directors with a mix of cash and equity-based compensation. Directors who are employees of the Company receive no additional compensation for serving on the Board of Directors or its committees. The Compensation Committee periodically receives reports on the competitiveness of director compensation for non-

employee directors from its independent compensation consultant and is responsible for recommending to the Board of Directors changes in director compensation. The last such report was prepared by Mercer Human Resource Consulting in fiscal 2007. This report was considered in making the changes in director compensation on December 13, 2006 which are discussed below.

 

The following table sets forth the compensation for the non-employee members of the Company’s Board of Directors for the fiscal year ended July 28, 2007.

 

 

 

 

 

 

 

 

 

Narrative Accompanying Director Compensation Table

 

Directors’ Fees.  On December 13, 2006, the Board of Directors approved, upon recommendation of the Compensation Committee, the increase of the annual cash retainer received by each non-employee director from $18,000 to $30,000, retroactive to November 21, 2006. The additional annual cash retainers paid to directors who serve as committee chairs were also increased as follows:

 

 

The fees for meeting attendance were unchanged. Non-employee directors receive $2,250 for each regular or special meeting of the Board of Directors attended in person and $1,000 for each telephonic meeting. Non-employee directors receive $1,250 for each regular meeting attended in person of the Audit, Corporate Governance, Finance and Executive Committees, and $750 for each telephonic meeting. Non-employee directors receive $1,250 for each Compensation Committee meeting at which executive or director compensation is being approved, whether attended in person or telephonically, and $750 for all other meetings. All directors are reimbursed for reasonable expenses incurred in connection with all meetings.

 

On December 13, 2006, the Board of Directors also approved an amendment to the Dycom Industries, Inc. 2002 Directors Restricted Stock Plan to provide for the issuance of restricted stock units and to allow participants to defer the settlement of their restricted stock units. For the period from December 13, 2006 to the day immediately prior to the fiscal 2007 Annual Meeting of Shareholders, each non-employee director was paid a supplemental annual retainer in the amount of $50,000. This retainer was paid in the form of restricted stock units that vest in substantially equal installments over a period of three years commencing on the first anniversary of the date of grant provided that in the event the director (i) is not nominated for (other than a termination of service at the request of the Board of Directors), or elected by shareholders to, an additional term as a member of the Board of Directors or (ii) terminates service as a member of the Board of Directors with the consent of the Board of Directors, any unvested restricted stock units will be fully and immediately vested on such date that the director is no longer a member of the Board of Directors. Each restricted stock unit will be settled in one share of Company common stock upon vesting. The number of restricted stock units that were granted was determined by (i) dividing (a) the U.S. dollar amount of the supplemental retainer by (b) the fair market value of a share of the Company’s common stock on the date such retainer was payable and (ii) rounding up to the nearest whole share of common stock.

 

Non-Employee Directors’ Restricted Stock Plan.  Pursuant to the 2002 Directors Restricted Stock Plan, non-employee directors who do not beneficially own at least 7,500 shares of Company common stock or restricted stock units must elect to receive at least 60% of their annual retainer(s), at the Company’s discretion, in restricted shares of Company common stock or restricted stock units. Additionally, non-employee directors may elect to receive up to 100% of such retainer(s) in restricted shares of Company common stock or restricted stock units. Non-employee directors who own at least 7,500 shares of Company common stock must elect to receive at least 25% of their annual retainer(s) in restricted shares of Company common stock or restricted stock units, as applicable, and may elect to receive up to 100% of such retainer(s) in restricted shares of Company common stock or restricted stock units. The number of restricted shares of Company common stock or restricted stock units to be granted to a non-employee director is determined by (i) dividing (a) the U.S. dollar amount of the director’s annual retainer(s) elected to be received in the form of restricted stock or restricted stock units by (b) the fair market value of a share of the Company’s common stock on the date such fees are payable and (ii) rounding up to the nearest whole share of

common stock. Non-employee directors are permitted to defer settlement of their restricted stock units until the earlier of their termination of service on the Board of Directors for any reason and a date specified by such director.

 

Non-Employee Directors’ Stock Option Plan.  Under the 2001 Directors Stock Option Plan, non-employee directors receive an initial grant of 6,000 stock options upon first becoming a director or upon reelection or appointment to the Board of Directors following a period during which a director did not serve on the Board of Directors. Thereafter, such directors will receive an annual grant of 2,000 stock options each year at the annual meeting if continuing their service as a director or a grant of 6,000 stock options upon their reelection to the Board of Directors for at least a three-year term. Stock options granted under the 2001 Directors Stock Option Plan vest in substantially equal installments on each of the first four anniversaries of the date of grant.

The following report of the Audit Committee shall not be deemed to be “soliciting material,” to be “filed” with the Securities and Exchange Commission and shall not be deemed to be incorporated by reference in any previous or future filing with the Securities and Exchange Commission except to the extent that the Company specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.

 

AUDIT COMMITTEE REPORT

 

The Audit Committee (the “Committee”) of the Company’s Board of Directors consists of three directors, all of whom meet the independence standards of the New York Stock Exchange and the applicable rules of the Securities and Exchange Commission. The Committee operates in accordance with a written charter adopted by the Board of Directors. The Committee reviews the charter on an ongoing basis and a copy, which has been approved by the Board of Directors, is available on the Company’s website at www.dycomind.com.

 

The Committee’s primary responsibility is to assist the Board of Directors in fulfilling its responsibility for oversight of (a) the quality and integrity of the Company’s financial statements and related disclosures, internal controls and financial reporting, (b) the Company’s compliance with applicable legal and regulatory requirements, (c) the Company’s independent auditors’ qualifications, independence and performance and (d) the performance of the Company’s internal audit and control functions.

 

Management has the primary responsibility for preparing the Company’s consolidated financial statements and the overall financial reporting process, including maintaining the Company’s system of internal accounting controls. The Company’s independent auditors, Deloitte & Touche LLP (“Deloitte”), have the responsibility for auditing the Company’s financial statements and issuing an opinion as to the conformity of those audited financial statements to accounting principles generally accepted in the United States of America, and for auditing the effectiveness of the Company’s internal control over financial reporting. The Committee monitors and oversees these processes.

 

The Committee reviewed the Company’s audited consolidated financial statements and the results of the audits relating to the Company’s internal control over financial reporting for the 2007 fiscal year, and discussed those matters with management and Deloitte. During the 2007 fiscal year, the Committee also discussed the interim financial information contained in each quarterly earnings announcement with management and Deloitte prior to public release. In addition, the Committee regularly discussed with management, the internal auditors and Deloitte the quality and adequacy of the Company’s internal controls and the internal audit function’s organization, responsibilities, budget and staffing and the quality of the Company’s financial reporting. The Committee regularly meets separately with management, the Company’s internal auditors and Deloitte. The Committee reviewed with both the independent and internal auditors their audit plans, audit scope, and the identification of audit risks. The Committee also discussed with the independent auditors all matters required by Statement on Auditing Standards No. 61, as amended by Statement of Auditing Standards No. 90 (Communication with Audit Committees).

 

As part of the Committee’s oversight responsibilities of the audit process, the Committee obtained a written statement from Deloitte as required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) as amended from time to time, and discussed with Deloitte any relationships that may impact their objectivity and independence from the Company and from management of the Company. In addition, the Committee also considered whether the non-audit services provided by Deloitte to the Company during the 2007 fiscal year were compatible with Deloitte’s independence as auditors. The Committee concluded that Deloitte’s provision of audit and non-audit services to the Company and its subsidiaries during fiscal 2007 was compatible and does not impair Deloitte’s independence.

Based on the aforementioned reviews and discussions, the Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 28, 2007 for filing with the Securities and Exchange Commission. The Committee also approved the appointment of Deloitte as the Company’s independent auditors for the 2008 fiscal year.

 

Audit Committee

 

Charles M. Brennan, III, Chair
Charles B. Coe
Jack H. Smith

PRINCIPAL ACCOUNTING FIRM FEES

 

The Company’s independent auditor fee pre-approval policy provides for an annual process through which the Audit Committee evaluates and pre-approves the nature, scope and fees associated with the annual audit of the Company’s financial statements and other audit related services. The Audit Committee pre-approves all other audit and permissible non-audit services provided by the Company’s independent auditors on a case-by-case basis. These services may include audit services, audit related services, tax services and other permissible services. None of the services described below under the captions “Audit-Related Fees” and “Tax Fees” were approved by the Audit Committee pursuant to the provisions of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

 

Aggregate fees billed to the Company for the fiscal years ended July 28, 2007 and July 29, 2006 by the Company’s principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates are as follows:

 

 

 

 

PROPOSAL 2

 

APPROVAL OF THE
DYCOM INDUSTRIES, INC.
2007 NON-EMPLOYEE DIRECTORS EQUITY PLAN

 

At its October 18, 2007 meeting, the Compensation Committee unanimously approved the Dycom Industries, Inc. 2007 Non-Employee Directors Equity Plan (the “2007 Directors Plan”), which was subsequently adopted by the Board of Directors and is subject to the approval thereof by the shareholders of the Company at the Annual Meeting. A description of the 2007 Directors Plan is included below.

 

General

 

The Company’s Board of Directors has recommended and asks that you approve the terms of the Dycom Industries, Inc. 2007 Directors Plan. The Company’s Board of Directors has adopted the 2007 Directors Plan, subject to the approval of the Company’s shareholders. The 2007 Directors Plan is intended to replace the Company’s existing 2001 Directors Stock Option Plan (the “Option Plan”) and the 2002 Directors Restricted Stock Plan (the “Restricted Stock Plan”). As under the Option Plan and Restricted Stock Plan, the 2007 Directors Plan would provide for equity grants to new non-employee directors upon their initial election or appointment to the Board of Directors and for annual equity grants for continuing non-employee directors. Subject to approval of the 2007 Directors Plan by the shareholders, no further awards will be granted to non-employee directors pursuant to the Option Plan or Restricted Stock Plan. At October 1, 2007 there were 227,077 shares available for grant under the Option Plan and Restricted Stock Plan.

 

The following is a general description of the 2007 Directors Plan. This summary is qualified in its entirety by reference to the terms of the 2007 Directors Plan, a copy of which is included as Appendix A to this Proxy Statement.

 

Summary of the Dycom Industries, Inc. 2007 Non-Employee Directors Equity Plan

 

Purpose.  The purpose of the 2007 Directors Plan is to promote the long-term growth and financial success of the Company by attracting, motivating and retaining non-employee directors of outstanding ability and assisting the Company in promoting a greater identity of interest between the Company’s non-employee directors and its shareholders.

 

Eligibility.  Members of the Board of Directors who are not employees of the Company or any of its subsidiaries are eligible to participate in the 2007 Directors Plan (the “Participants”). Six of the Company’s seven directors are currently eligible to participate in the 2007 Directors Plan.

 

Administration.  The 2007 Directors Plan will be administered by the Board of Directors or any committee designated by the Board of Directors. Subject to the terms of the 2007 Directors Plan, the Board of Directors will have discretionary authority to determine the terms and conditions of awards made under the 2007 Directors Plan. Additionally, the Board of Directors may, without limitation, make factual and legal determinations in connection with the administration or interpretation of the Plan. All decisions and determinations by the Board of Directors will be final and binding on all parties, all of whose members are independent directors.

 

Annual and New Director Awards.  The 2007 Directors Plan provides for (i) an annual equity award to each Participant who continues to be a member of the Board of Directors as of the date of the Company’s annual meeting of shareholders and (ii) a new director equity award upon a Participant’s initial election or appointment to the Board

of Directors. In each case, the value, type and terms of such awards shall be approved by the Board of Directors based on the recommendation of the Committee. All Committee members will have been designated by the Board of Directors as independent directors.

 

Shares Reserved for Awards.  The aggregate number of shares available for issuance under the 2007 Directors Plan will be 300,000 (the “Plan Limit”). The Plan Limit is subject to adjustment in the event of stock splits, stock dividends, bonus issues, mergers, share exchanges, reorganizations, consolidations, amalgamations, recapitalizations, certain issuances of rights or warrants or other similar transactions. For purposes of determining the number of shares that remain available for issuance under the 2007 Directors Plan, the number of shares will be determined as follows: (i) each share subject to an outstanding award will reduce the Plan Limit by one share; and (ii) the number of shares subject to an outstanding award that is forfeited, cancelled or expires for any reason without having been settled or delivered will be added back to the Plan Limit and will again be available for awards under the 2007 Directors Plan.

 

Shares will be made available from authorized but unissued shares or may be purchased on the open market or by private purchase.

 

Award Document.  Each award will be evidenced by an award document issued by the Company that sets forth the terms and conditions of such award, including without limitation, the amount and type of an award.

 

Share Election.  Participants are required to maintain beneficial ownership of at least 7,500 shares of the Company’s stock (the “Shareholding Requirement”). All Participants, regardless of their attainment of the Shareholding Requirement, may elect to receive all or a portion of their annual director fees that are otherwise payable in cash in the form of shares of Restricted Stock or Restricted Stock Units as determined by the Committee.

 

Director Fees.  Participants who have not met the Shareholding Requirement as of the day immediately prior to the date of any payment of annual fees are required to receive at least 60% of their annual directors fees that are otherwise payable in cash (other than per diem fees) in the form of shares of Restricted Stock or Restricted Stock Units. Participants are immediately fully vested in such shares of Restricted Stock or Restricted Stock Units; provided, however, that such shares or units are subject to a six-month restriction on transfer.

 

Stock Options.  The 2007 Directors Plan authorizes the issuance of nonqualified stock options. Unless determined earlier under the 2007 Directors Plan or an applicable award document, each stock option will expire on the tenth anniversary of such option’s date of grant. The exercise price of each stock option will be the fair market value of the Company’s shares of common stock on the date of grant. Fair market value is defined as the closing sale price of the Company’s common shares on the New York Stock Exchange. Subject to the terms and conditions of the 2007 Directors Plan, a stock option will vest and become exercisable on each of the first four anniversaries following its date of grant, assuming that the Participant has continued to serve as a member of the Board of Directors until such date. In the event a Participant’s service to the Board of Directors ceases due to death or disability all vested options will remain exercisable for 90 days following such termination and all unvested options will be terminated without payment. Participants may exercise stock options by paying the exercise price in cash or any other method approved by the Committee, including, through a “cashless exercise.”

 

Restricted Stock.  The 2007 Directors Plan authorizes the issuance of restricted shares of the Company’s common stock. Subject to the terms and conditions of the 2007 Directors Plan, shares of Restricted Stock will vest in three equal installments beginning on the first anniversary of the applicable date of grant, assuming that the Participant continues to serve on the Board of Directors until such date. All unvested shares of Restricted Stock will be forfeited and cancelled without payment, subject to the terms and conditions of the 2007 Directors Plan, in the event a Participant’s service on the Board of Directors terminates for any reason.

Restricted Stock Units.  Each Restricted Stock Unit will represent the right of a Participant to receive one share of the Company’s common stock upon its settlement. Subject to the terms and conditions of the 2007 Directors Plan, each Restricted Stock Unit will vest in substantially three equal installments beginning on the first anniversary of the date such Restricted Stock Unit is granted, assuming that the Participant continues to serve on the Board of Directors until such date, and shall be payable in shares of the Company’s common stock. All unvested Restricted Stock Units will be forfeited and cancelled without payment, subject to the terms and conditions of the 2007 Directors Plan, in the event a Participant’s service on the Board of Directors terminates for any reason.

 

Dividend Equivalents.  The 2007 Directors Plan provides that dividend equivalents will be awarded with respect to Restricted Stock Units in the event the Company pays a regular cash dividend with respect to its shares of common stock. Dividend equivalents will be deemed to be reinvested in common shares of the Company and credited to a bookkeeping account that the Company will maintain on behalf of each Participant.

 

Dividend equivalents will accrue on the Restricted Stock Units until such time as the awards are paid out and will be subject to the same terms and conditions (including vesting) as the underlying awards. The dividend equivalents that have been credited to a Participant’s account will be paid in shares of the Company’s common stock when the underlying Restricted Stock Units are settled. Payment of dividend equivalents that have been credited to a Participant’s account will not be made with respect to any award that does not vest and is cancelled.

 

Right to Elect to Defer Awards.  The Administrator may permit a Participant to elect to defer all or a portion of his or her Restricted Stock Units until a date subsequent to the settlement date of the Restricted Stock Units.

 

Amendment and Termination of the Plan.  The Board of Directors may amend, modify, suspend or terminate the Plan at any time, except as provided by applicable law or stock exchange rule that require shareholder approval for certain amendments. Notwithstanding the foregoing, no stock option may be repriced, regranted through cancellation or otherwise amended to reduce the applicable exercise price without the approval of the Company’s shareholders. No amendment or termination may adversely affect a Participant’s rights with respect to previously granted awards without his or her consent.

 

Corporate Changes.  The existence of the 2007 Directors Plan and any award documents does not affect or restrict in any way the right or power of the Company to effect corporate changes or acts. In the event of any change in the issued and outstanding common shares of the Company by reason of a stock dividend, recapitalization, reorganization, merger, amalgamation, consolidation, stock split, combination or exchange of shares or any other significant corporate event affecting the common stock of the Company, the Board of Directors, in its discretion, may take such measures as it deems appropriate with respect to any outstanding awards, which measures may include, without limitation, the acceleration of vesting, the rollover of outstanding awards into awards exercisable for or subject to the acquirer’s securities, the cash out of vested awards or any combination of the foregoing.

 

Term of the 2007 Directors Plan.  The 2007 Directors Plan will remain in effect until November 20, 2017, unless earlier terminated by the Board of Directors. No awards may be granted under the plan after November 20, 2017.

 

New Plan Benefits.  It is not presently possible to determine the benefits or the amounts that will be granted to Participants under the 2007 Directors Plan in the future. For fiscal year 2007, the equity-based awards granted to non-employee directors under the Option Plan and Restricted Stock Plan are set forth on page 8 of this Proxy Statement.

U.S. Federal Income Tax Consequences

 

Stock Options.  A Participant will not recognize taxable income at the time a nonqualified stock option is granted. However, upon the exercise of a nonqualified stock option the Participant will include as ordinary income an amount equal to the difference between the fair market value of the shares on the date of exercise and the exercise price of the option and the Company will generally be entitled to a tax deduction in the same amount. Upon the sale of the shares by the Participant, any subsequent appreciation or depreciation in the value of the shares will be treated as short-term or long-term capital gain or loss depending upon the length of time the shares are held by the Participant.

 

Restricted Stock.  The federal income tax consequences of awards of Restricted Stock are generally governed by Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”). Generally, a Participant will recognize income on an award of Restricted Stock, and the Company will not be allowed a tax deduction until the award vests, unless the Participant makes an election under Section 83(b) of the Code to be subject to taxation upon grant, rather than upon vesting. A Section 83(b) election must be made no later than 30 days following the date of grant. If the election is made, the Participant will recognize ordinary income on the fair market value of the shares on the date of grant and the Company will generally be entitled to a tax deduction in the same amount.

 

If a Participant does not make a Section 83(b) election, the Participant will recognize income based on the full fair market value of the shares included in the award, plus any cash distributed in lieu of fractional shares, at the time of vesting and the Company will generally be entitled to a tax deduction in the same amount. The amount recognized as income by a Participant, whether in connection with a Section 83(b) election or at the time of vesting, will be subject to ordinary income tax at the rates in effect at that time.

 

Any capital gain or loss recognized by a Participant will be either long term or short term depending on the length of time the Participant held the shares.

 

Restricted Stock Units.  A Participant generally will not recognize income, and the Company will not be allowed a tax deduction when he or she is awarded Restricted Stock Units or when dividend equivalents are credited on his or her behalf. Participants will recognize ordinary income in an amount equal to the fair market value of the shares of the common stock of the Company that are delivered when their Restricted Stock Units are settled. The Company will generally be entitled to a tax deduction in the same amount.

 

Upon the sale of the shares by the Participant, any subsequent appreciation or depreciation in the value of the shares will be treated as short-term or long-term capital gain or loss depending upon the length of time the shares are held by the Participant.

 

The foregoing is not to be considered as tax advice to any person who may be a Participant, and any such persons are advised to consult their own tax counsel.

 

Recommendation

 

The Board of Directors has unanimously approved the 2007 Directors Plan and the reservation of shares of common stock of the Company for issuance under the 2007 Directors Plan and recommends that Shareholders vote “FOR” the approval of the 2007 Directors Plan and the reservation of additional shares for issuance thereunder.

 

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

 

As of October 1, 2007, the following table sets forth certain information regarding the beneficial ownership of common stock by each person known to the Company to be the beneficial owner (as determined under the rules of the Securities and Exchange Commission (the “SEC”)) of more than five percent (5%) of such shares, each director and nominee, each Named Executive Officer, and by all directors and executive officers of the Company as a group.

 

 

 

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

The Compensation Committee of the Board of Directors (the “Compensation Committee”) is responsible for establishing our overall executive compensation philosophy and overseeing our executive compensation programs in accordance with its charter. This charter is available on the Company’s website at www.dycomind.com. The Compensation Committee approves the types and amounts of compensation for the Chief Executive Officer and the other executive officers named in the Summary Compensation Table set forth on page 31 of this Proxy Statement (together, the “Named Executive Officers”). Information about the Compensation Committee and its members can be found on page 4 of this Proxy Statement.

 

Compensation Philosophy and Objectives

 

The Company’s executive compensation program is designed to promote the long-term success of the Company and to increase shareholder value by rewarding executive officers who contribute to the Company’s sustained growth and successful attainment of strategic goals. The compensation program’s objectives are to (1) ensure that the Company can attract, motivate and retain high quality executives, (2) align the financial interests of those executives with the financial interests of the Company’s shareholders and (3) reward executive behaviors that enhance long-term shareholder returns. The program places a substantial amount of total executive compensation “at risk” based on the performance of the Company and the executive.

 

Overall levels of executive compensation are established based on an assessment of the Company’s performance as a whole. Individual executive compensation is determined based on an assessment of the performance of the Named Executive Officers, the compensation levels of the Company’s peer group, as well as compensation levels for comparable positions within a broader group of companies. Variation in compensation amongst the Named Executive Officers reflects the different roles, responsibilities, and performance of the Named Executive Officers as well as their value in relation to similarly situated executive officers of the Company’s peer group and a broader group of companies with which the Company competes for talent. These factors are considered by the Chief Executive Officer in assessing the other Named Executive Officers. The Chief Executive Officer then provides a written performance assessment to the Compensation Committee. This assessment, together with the Compensation Committee’s own judgment, is used to evaluate the individual performance and compensation of those Named Executive Officers. The Compensation Committee is solely responsible for evaluating the Chief Executive Officer’s performance and setting the level and components of his compensation. The Chief Executive Officer is not present when the Compensation Committee determines his compensation.

 

Use of Consultants

 

The Compensation Committee has the authority under its charter to hire advisors to assist in making compensation decisions. During fiscal 2007, the Compensation Committee retained and consulted with independent compensation consultants, Mercer Human Resource Consulting (“Mercer”) and Frederic W. Cook & Co., Inc. (“Cook”). Mercer provided market compensation data and analysis to the Compensation Committee while Cook was used to assess equity compensation plan design and levels based on current compensation practices and trends. In fiscal 2007, after the process of determining executive compensation was completed, Mercer was also directed to review the competitiveness of the non-employee directors compensation. Mercer’s market data was derived from a peer group of publicly-traded specialty construction companies (collectively, the “Peer Group”) together with data from a broader group of public companies. Data from the broader group of public companies was collected by Mercer in a proprietary fashion and did not include the names of the participating companies. The Peer Group data,

weighted with data from the broader group of companies, was used by the Compensation Committee to benchmark executive compensation and evaluate the Company’s cash and equity compensation mix and levels based on current compensation practices and trends. The Compensation Committee, together with its compensation consultants, periodically reviews the composition of the Peer Group based on available market data. The companies comprising the Peer Group for fiscal 2007 were: Emcor Group Inc., Shaw Group Inc., Granite Construction Inc., Quanta Services, Inc., Integrated Electrical Services, Inc., Tetra Tech Inc., InfraSource Services Inc., Mastec, Inc., Pike Electric Corporation, Insituform Technologies, Inc. and Willbros Group, Inc. Representatives of Mercer attended meetings of the Compensation Committee in which the fiscal 2007 base salaries for the Named Executive Officers were discussed, as well as meetings where the annual performance based cash awards and equity awards for the Chief Executive Officer and Chief Operating Officer were discussed. All of the decisions with respect to determining the amount or form of executive compensation under the Company’s executive compensation programs are made by the Compensation Committee and may reflect factors and considerations in addition to the information and advice provided by Mercer and Cook.

 

Major Components of Executive Officer Compensation

 

The Company’s compensation program for its Named Executive Officers consists of three major elements: (i) annual base salary; (ii) annual performance-based cash awards; and (iii) long-term equity-based incentives.

 

Annual Base Salaries.  Named Executive Officers are provided with a base salary which recognizes the value of the executive’s skills, experience, prior record of achievement, and importance to the Company. Base salary levels are intentionally set to attract quality executives and to recognize the challenges and varied skill requirements of different positions.

 

Base salaries are reviewed annually and from time to time in connection with a promotion or other change in responsibility. The Chief Executive Officer submits written base salary recommendations to the Compensation Committee for the other Named Executive Officers. In making his recommendation, the Chief Executive Officer reviews each executive’s performance, market compensation levels for comparable positions, the executive’s potential attractiveness to other companies, and the overall financial health and performance of the Company. The Compensation Committee reviews the Chief Executive Officer’s recommendations, and together with its own judgments, sets actual base salaries relative to the recommendations. Periodically, the Compensation Committee utilizes a study of market compensation levels prepared by an independent compensation consultant in order to evaluate the executive’s base salaries and the Chief Executive Officer’s recommendations. Such a study was prepared by Mercer for use by the Compensation Committee in setting base salaries for fiscal 2007. In years the study is not prepared, the most recent study’s findings are adjusted by a reasonable factor reflecting general trends in compensation and the adjusted findings are then used by the Compensation Committee.

 

The Compensation Committee directly sets the base salary for the Chief Executive Officer. In so doing, the Committee reviews the performance of the Chief Executive Officer, market compensation levels as set forth in the consultant’s most recent study and other relevant information. In addition, the Committee reviews the results of any assessment of the Chief Executive Officer’s performance resulting from formal surveys of all of the Company’s directors which are conducted from time to time and informal communications from any of the Company’s directors. At a meeting in August 2006, the Compensation Committee determined annual base salaries for the executive officers of the Company for fiscal 2007.

 

The Compensation Committee has generally set base salaries between the 50th and 75th percentile of the survey data prepared by its compensation consultant adjusted, as discussed above, by a factor in years when the survey is not prepared. For 2007, the base salary increase for Mr. Nielsen was 9.0%, Mr. Estes 5.3%, Mr. Dunn

8.4%, Mr. Vilsoet 14.0% and Mr. DeFerrari 14.7%. The increases for Messrs. Nielsen, Estes, and Dunn reflected the significant increase in size and complexity of the Company since the last compensation study completed in 2003. The increases for Messrs. Vilsoet and DeFerrari recognized their growing importance to and increased tenure with the Company, as well as the updated market compensation data developed by Mercer. The base salary of each Named Executive Officer is set forth in the “Salary” column of the Summary Compensation Table on page 31 of this Proxy Statement.

 

Annual Performance-Based Cash Awards.  Named Executive Officers are provided annual performance-based cash awards in order to recognize and reward performance that meaningfully enhances the operations of the Company during a fiscal year. Awards are designed to demonstrate tangibly to the executives the Company’s assessment of their individual performance and to communicate to executives that good performance is recognized and valued. Furthermore, the Company believes annual cash awards strongly encourage executives to continually improve their efforts.

 

Each year the Chief Executive Officer prepares a written report to the Compensation Committee recommending individual performance-based cash awards for the other Named Executive Officers. Those awards are discretionary and subjectively determined based. The Chief Executive Officer’s recommendations result from a two step analysis. First, the overall financial performance of the Company is evaluated in order to determine the appropriate level of total annual performance-based cash awards for all eligible employees, including the Named Executive Officers. Second, the Chief Executive Officer evaluates the individual performance of the other Named Executive Officers against ranges of annual award opportunities that were established at the beginning of the fiscal year and which correspond to minimum and maximum percentages of base salary. Generally, maximum annual awards to the other Named Executive Officers are capped at 50% of base salary with the exception of the Chief Operating Officer whose annual award is capped at 100% of base salary. The purpose of this process is to ensure that individual awards reflect an appropriate balance between the overall financial performance of the Company and the individual executive’s performance.

 

Historically, the Chief Executive Officer has assessed overall financial performance and the appropriate level of total annual cash awards to all eligible employees, including the Named Executive Officers, within the context of an award guideline. For fiscal 2007, the award guideline was calculated as a percentage of the amount that income (before income taxes, asset impairments, interest on the Company’s senior subordinated notes, and stock-based compensation) exceeded a preset threshold of contract revenues. Using a threshold amount ensured that the Company’s financial performance exceeded an acceptable level before any annual cash award was earned. The aggregate amount of annual awards recommended by the Chief Executive Officer for fiscal 2007 for all eligible employees, including the other Named Executive Officers, was substantially less than the guideline amount but directionally consistent with trends in prior awards and the Company’s performance. After receiving the recommendation of the Chief Executive Officer, the Compensation Committee met with the Chief Executive Officer in August 2007 to discuss his recommendations. The awards for fiscal 2007 were approved by the Compensation Committee during a subsequent meeting of the committee in August 2007. Annual award payments were made following the conclusion of the Company’s financial statement audit.

 

The aggregate fiscal 2007 cash bonus payments made to the Named Executive Officers, other than the Chief Executive Officer, totaled $810,000. This amount represented 64.8% of such executive officers’ base salaries, ranging individually from a low of 40.3% to a high of 100%. The aggregate annual cash awards paid to the Named Executive Officers, other than the Chief Executive Officer, with respect to fiscal 2006 and 2005, respectively, totaled $495,000 and $544,501 and represented 43.3% and 60.3%, respectively, of such executive officers’ base salaries. The actual annual awards paid to these Named Executive Officers, as approved by the Compensation

Committee, are set forth on the “Bonus” column of the Summary Compensation Table on page 31 of this Proxy Statement.

 

Annual Incentive Plan — Chief Executive Officer.  The Chief Executive Officer’s annual incentive plan (“AIP”) compensation is derived from performance measures that are established by the Compensation Committee within 90 days of the beginning of each fiscal year. Accordingly, AIP compensation is not discretionary, although it may be reduced (but not increased) by the Compensation Committee through the exercise of its discretion. AIP compensation is designed to be “at risk” based on the performance of the Company and has exhibited significant variability from year to year. The AIP established by the Compensation Committee for fiscal 2007 applied a pre-determined AIP payout ratio to operating earnings (before asset impairments and annual incentive plan compensation) above a threshold percentage of contract revenues. The AIP payout ratio varied as a function of the Company’s cash flow performance, which was measured as a ratio of operating cash flow to net income before asset impairments. The use of a threshold amount before any incentive compensation was earned ensured that the Company’s performance exceeded a predetermined level before any award was earned by the Chief Executive Officer. The reliance on cash flow and earnings measures in determining the payout amount reflected the importance to the Company of both operating margins and cash flows. As designed, the AIP provides that acceptable margins without solid cash flows result in a reduced award payment, while solid cash flows absent acceptable margins result in no award payment. Once the plan’s threshold requirement is met, only incremental earnings generate an award payout.

 

For fiscal 2007, the AIP provided that Mr. Nielsen receive an annual incentive award only if the award as calculated equaled or exceeded 10% of his base salary. The maximum annual incentive award payable to Mr. Nielsen for fiscal 2007 was set at 125% of his base salary.

 

Mr. Nielsen’s fiscal 2007 bonus payout was 120.8% of his base salary. Mr. Nielsen did not receive a bonus for fiscal 2006 and his fiscal 2005 bonus payment was 80.7% of base salary. The actual annual incentive award paid to the Chief Executive Officer, as approved by the Compensation Committee, is set forth on the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 31 of this Proxy Statement.

 

Long-term Equity Based Compensation.  Named Executive Officers are eligible to receive long-term equity-based incentive compensation awards under Dycom’s 2003 Long-Term Incentive Plan (the “LTIP”). Long-term equity awards provide for compensation that is “at risk” based on the performance of the Company, and, consequently, align the financial interests of the Company’s executive officers with those of the Company’s shareholders. Furthermore, LTIP awards contain vesting provisions which are important to the retention of key executives. The value of issued but unvested LTIP awards meaningfully encourages executives to remain with the Company as leaving the Company results in the forfeiture of the unvested value of previously accumulated LTIP awards. For Named Executive Officers, other than the Chief Executive Officer, individual long-term equity based awards are recommended by the Chief Executive Officer for consideration and approval by the Compensation Committee.

 

The Compensation Committee generally makes grants of LTIP awards once a year. In limited instances, awards under the LTIP may also be granted to recognize outstanding performance during the year or at the initiation of employment for newly hired key executives, or upon renewal of employment agreements. In December 2006, awards granted to the Named Executive Officers under the LTIP, other than the Chief Executive Officer and the Chief Operating Officer, consisted of (i) performance vesting restricted stock units which vest subject to the Company achieving annual pre-tax income and operating cash flow ratio goals (the “Annual Goals”) established by the Committee and provide for the vesting of additional restricted stock units if the Company achieves pre-tax and operating cash flow ratio goals for the trailing three fiscal year period ending in such fiscal year (“Three Year

Goals”) and (ii) time vesting restricted stock units which vest ratably on the four subsequent anniversaries of the initial grant date. The Named Executive Officer is required to be an employee of the Company on the applicable vesting date in order for an award to vest.

 

Performance Vesting Restricted Stock Units.  The performance vesting restricted stock units granted in December 2006 to Named Executive Officers, other than the Chief Executive Officer and Chief Operating Officer, vest in three annual installments subject to the Company achieving the Annual Goals for each of fiscal years 2007, 2008 and 2009. For the annual LTIP award to vest, the Company’s operating earnings (before asset impairments, performance share and performance unit compensation and amounts associated with the extinguishment of debt) must exceed certain pre-established targets, which are set forth as a percentage of revenue. In addition, the amount of annual performance share units vesting each year may be reduced if the ratio of operating cash flow to net income is less than a predetermined amount. Applying these criteria historically for the last seven fiscal years would have resulted in full vesting five out of the seven fiscal years and no vesting in two of the years.

 

In addition to the performance units earned when Annual Goals are met, supplemental units can be earned if the Company achieves the applicable Three Year Goals. If the Three Year Goals are achieved, the Named Executive Officers, other than the Chief Executive Officer and the Chief Operating Officer, will vest in additional restricted stock units of up to 100% of the number of restricted stock units vesting in that fiscal year. Vesting of these supplemental units only occurs if cumulative operating earnings for the trailing three year period (before asset impairments, performance share and performance unit compensation and amounts associated with the extinguishment of debt, over the previous three fiscal years) exceed certain pre-established targets, which are set forth as a percentage of revenue. The number of supplemental units vesting each year will be eliminated entirely if the ratio of operating cash flow to net income is less than a pre-determined level, as measured over the same cumulative three year period. Supplemental units are earned only in a fiscal year for which units are awarded for meeting the Annual Goals. Consequently, strong prior performance does not ensure vesting if unaccompanied by current fiscal year performance. The three year performance required to earn supplemental units is meaningfully more difficult than that required to earn an annual award and is only triggered by operating earnings and cash flow performance that is significantly better than that of fiscal 2007. Applying these criteria historically for the last seven years would have resulted in full vesting of supplemental units in one of the seven years, partial vesting at 50% in two years and no vesting in four of the years.

 

The performance criteria required under the awards provide that good margins without acceptable cash flows result in reduced vesting of the annual awards or the elimination of vesting of any supplemental awards, while acceptable cash flows absent acceptable margins result in no vesting. The use of both operating earnings and cash flows as performance criteria means that both income statement and balance sheet performance is required before awards will vest.

 

In December 2006, $400,024 in share value was granted to the Named Executive Officers, other than the Chief Executive Officer and the Chief Operating Officer, in the form of performance vesting restricted stock units (based on the closing price of a share of Company common stock on the date of grant, December 13, 2006). This amount represented 50.6% of such executive officers’ base salaries, with individual grants ranging from 41.0% to 56.1% of individual base salary. In the event that the Three Year Goals were achieved in each of the three years during which these restricted stock units vest, the number of performance vesting restricted stock units that these executive officers would earn would double. The share values granted to the Named Executive Officers were converted into a specific number of restricted stock units by dividing the share value granted by the closing price of the Company’s common stock on the day of the Compensation Committee’s approval. Information regarding the fair value and the number of performance vesting restricted stock units that the Named Executive Officers were granted in December 2006 is shown in the Grant of Plan-Based Awards Table on page 32 of this Proxy Statement.

Long-term Equity Based Compensation — Chief Executive Officer and Chief Operating Officer.  In October 2006, an award of performance vesting restricted stock units was made to each of the Chief Executive Officer and Chief Operating Officer. To comply with Section 162(m) of the Internal Revenue Code, the Compensation Committee established the performance criteria for these awards within ninety days of the beginning of fiscal 2007. In addition, the three year performance criteria which are described above have been modified to comply with Section 162(m). This modification does not alter the required three year financial performance of the Company necessary to earn a supplemental award from that required by the awards made to the other Named Executive Officers as described above.

 

The October 2006 awards made to the Chief Executive Officer and Chief Operating Officer totaled $995,046 in share value (based on the closing price of a share of Company common stock on the date of grant, October 17, 2006). This amount represented 87.3% of their aggregate base salaries, with the Chief Executive Officer receiving 88.2% of his base salary in the form of performance vesting restricted stock units and the Chief Operating Officer receiving 85.9% of his base salary in the form of performance vesting restricted stock units. These levels were deemed appropriate given the grants of time vesting restricted stock issued to the Chief Executive Officer and Chief Operating Officer during fiscal 2004 and 2005 in conjunction with entering into their respective employment agreements. In the event that the three year goals were achieved in each of the three years during which these performance restricted stock units vest, the number of performance vesting restricted stock units that these executive officers would earn would double. For both the Chief Executive Officer and the Chief Operating Officer, the share values granted were converted into a specific number of performance share units by dividing the share values granted by the closing price of the Company’s common stock on the day of the Compensation Committee’s grant of the units. Information regarding the fair value and the number of performance vesting restricted stock units that the Named Executive Officers were granted in October 2006 is shown in the Grant of Plan-Based Awards Table on page 32 of this Proxy Statement.

 

Time Vesting Restricted Stock Units.  The LTIP provides for the issuance of time vesting restricted stock plan units that vest in equal installments on the first, second, third, and fourth anniversaries of the date such units are granted, so long as the employee remains employed by the Company on the vesting date. These awards are not subject to performance conditions, but are designed to reward continued employment as leaving the Company results in the forfeiture of the unvested awards. This effect is further enhanced as the price of our common stock increases. Time vesting restricted stock units are subject to shareholding requirements. As each grant vests, the executive is required to retain, on account with the Company’s stock transfer agent, one-half of the shares that have vested, net of shares withheld to pay taxes. The shareholding requirement continues until the shares on account on an applicable vesting date are equal in value to the executive’s base salary then in effect. From that point forward, the executive is free to sell shares that vest subsequently, but must hold those shares previously on account so long as the executive remains employed by the Company. All restrictions on those shares held by the transfer agent lapse ninety days after an executive is no longer employed by the Company.

 

In December 2006, $199,960 in share value was granted to Mr. Dunn, Mr. Vilsoet and Mr. DeFerrari. No time vesting restricted stock units were granted to the Chief Executive Officer and Chief Operating Officer as they had received restricted shares during fiscal 2004 and 2005 in conjunction with entering into their respective employment agreements. For those executives receiving a grant of time vesting restricted stock units, the value received represented 25.3% of their aggregate base salaries, with individual grants ranging from 24.2% to 26.3% of an executive’s base salary. The share values granted to these Named Executive Officers were converted into a specific number of restricted stock units by dividing the share value granted by the closing price of the Company’s stock on the day of the Compensation Committee’s grant of the units. Information regarding the fair value and the number of

time vesting restricted stock units that the Named Executive Officers were granted in December 2006 is shown in the Grant of Plan-Based Awards Table on page 32 of this Proxy Statement.

 

Benefits

 

The Company provides employees with a range of retirement and health and welfare benefits that are designed to assist the Company in attracting and retaining employees and to reflect the competitive practices of the companies in the Peer Group. The Named Executive Officers are eligible for the following benefits:

 

401(k) Plan.  The Company maintains a tax qualified deferred contribution retirement plan (the “401(k) Plan”) that covers substantially all of the Company’s salaried and hourly employees. Each of the Named Executive Officers participates in the 401(k) Plan. Participants may contribute up to 15% of their compensation on a before-tax basis into their 401(k) Plan accounts. In addition, the Company matches an amount equal to 30% for each dollar contributed by participants on the first 5% of their eligible earnings.

 

Because the 401(k) Plan is a tax qualified retirement plan, the Internal Revenue Code limits the “additions” that can be made to a participant’s 401(k) Plan account each calendar year. “Additions” include Company matching contributions, before-tax contributions made by a participant and participant after-tax contributions. In addition, the Internal Revenue Code limits the amount of annual compensation that may be taken into account in computing benefits under the 401(k) Plan.

 

The Company does not maintain any non-tax qualified retirement plan or any deferred compensation plan.

 

Health and Welfare Plans.  Active employee benefits such as medical, dental, life insurance and disability coverage are available to all salaried and hourly employees through the Company’s flexible benefits plan. Employees contribute to the cost of the flexible benefits plan by paying a portion of the premium costs on a pre-tax basis.

 

Named Executive Officers participate in the medical and dental plans on terms identical with those afforded all other employees. In addition, the Company provides certain key employees, including the Named Executive Officers, with additional life insurance and disability coverage at no cost to the individual. The amount paid on behalf of the Named Executive Officers is set forth in the “All Other Compensation” column of the Summary Compensation Table on page 31 of this Proxy Statement.

 

Severance and Change in Control Benefits

 

The Company provides for the payment of severance benefits to the Named Executive Officers upon certain types of employment terminations. Providing severance and change of control benefits assists the Company in attracting and retaining executive talent and reduces the personal uncertainty that executives are likely to feel when considering a corporate transaction. These arrangements also provide valuable retention incentives that focus executives on completing such transactions, thus, enhancing long-term shareholder value. The Named Executive Officers are provided with severance benefits under individual arrangements.

 

The terms of the individual arrangements, and a calculation of the estimated severance benefits that would be payable to each Named Executive Officer under their respective arrangements, is set forth under Additional Information Regarding Potential Payments upon Termination of Employment or Change of Control table beginning on page 38 of this Proxy Statement.

Tax Deductibility of Compensation

 

Section 162(m) of the Internal Revenue Code (and the regulations promulgated thereunder) precludes a public corporation from taking an income tax deduction in any one year for compensation in excess of $1 million for its chief executive officer or any of its four other highest paid executive officers employed by the Company on the last day of the fiscal year, unless certain specific performance criteria are satisfied. The Committee seeks to maximize the tax deductibility of compensation in excess of $1 million per year, in accordance with the requirements of Section 162(m), paid to any of the executive officers. However, if compliance with the requirements of Section 162(m) negatively impacts the Company’s ability to attract and retain key personnel, the Committee may then decide to provide market competitive compensation opportunities, regardless of their tax impact. For fiscal 2007, approximately $211,000 of the compensation paid to Mr. Nielsen and $171,000 of the compensation paid to Mr. Estes was not deductible for federal income tax purposes.

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the preceding Compensation Discussion and Analysis as required by Item 402(b) of Regulation S-K. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended July 28, 2007.

 

The foregoing report has been furnished on behalf of the Board of Directors by the undersigned members of the Compensation Committee.

 

Thomas G. Baxter, Chair
Charles B. Coe
Stephen C. Coley

 

Summary Compensation Table

 

The following table sets forth the compensation of the Company’s Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and the other two most highly compensated executive officers (the “Named Executive Officers”) who were serving as executive officers as of July 28, 2007. The positions shown in the table are the officer’s positions with the Company as of July 28, 2007.

 

 

 

 

 

Grant Of Plan-Based Awards Table

 

The following table sets forth certain information with respect to plan-based awards made to the Named Executive Officers during the fiscal year ended July 28, 2007.

 

 

 

 

Narrative Accompanying Grant of Plan-Based Awards Table

 

The equity incentive awards granted to Mr. Nielsen and Mr. Estes on October 17, 2006 are subject to the Company achieving certain annual goals (the “Annual Goals”) established by the Compensation Committee (the

“Target Award”). The Annual Goals are pre-established performance measures based upon (a) pre-tax income before asset impairments, amounts recorded for performance vesting restricted stock and restricted stock unit compensation and amounts associated with the extinguishment of debt, as a percentage of contract revenues and (b) the ratio of operating cash flow to net income before asset impairment, any amounts recorded for performance vesting restricted stock compensation and amounts associated with the extinguishment of debt. Each of Mr. Nielsen’s and Mr. Estes’ Target Award will vest in three substantially equal installments subject to the Company achieving the Annual Goals in each of fiscal years 2007, 2008 and 2009. In the event the Company achieves the Annual Goals with respect to a performance period and the Company also achieves additional goals established by the Compensation Committee for the following periods: in respect of fiscal year 2007, fiscal year 2007; in respect of fiscal year 2008, fiscal years 2007 and 2008; and in respect of fiscal year 2009, fiscal years 2007 through 2009, each of Mr. Nielsen and Mr. Estes will vest in up to an additional 100% of the number of shares of his Target Award that vested in such annual performance period. These additional goals are pre-established performance measures for the indicated period based upon (a) pre-tax income before asset impairments, amounts recorded for performance vesting restricted stock and restricted stock unit compensation and amounts associated with the extinguishment of debt, as a percentage of contract revenues and (b) the ratio of operating cash flow to net income before asset impairments, amounts recorded for performance vesting restricted stock compensation and amounts associated with the extinguishment of debt. Applying these criteria historically for the last seven years would have resulted in full vesting of supplemental units in one of the seven years, partial vesting at 50% in two years and no vesting in four of the years.

 

The equity incentive awards granted to Mr. Dunn, Mr. Vilsoet and Mr. DeFerrari on December 13, 2006 are subject to the Company achieving annual goals (the “Annual Goals”) established by the Compensation Committee (the “Target Award”). The Annual Goals are pre-established performance measures based upon (a) pre-tax income before asset impairments, amounts recorded for performance vesting restricted stock and restricted stock unit compensation and amounts associated with the extinguishment of debt, as a percentage of contract revenues and (b) the ratio of operating cash flow to net income before asset impairments, amounts recorded for performance vesting restricted stock and restricted stock unit compensation and amounts associated with the extinguishment of debt. Each of Mr. Dunn’s, Mr. Vilsoet’s and Mr. DeFerrari’s Target Award will vest in three substantially equal installments subject to the Company achieving the Annual Goals in each of the three years fiscal years following the date of grant. In the event the Company achieves the Annual Goals with respect to a relevant fiscal year and the Company also achieves additional goals established by the Compensation Committee for the trailing three fiscal year period ending in such fiscal year, each of Mr. Dunn, Mr. Vilsoet and Mr. DeFerrari will vest in up to an additional 100% of the number of shares of their respective Target Award that vested in such annual performance period. These additional goals are pre- established performance measures for the indicated period based upon (a) pre-tax income before asset impairments, amounts recorded for performance vesting restricted stock and restricted stock unit compensation and amounts associated with the extinguishment of debt as a percentage of contract revenues and (b) the ratio of operating cash flow to net income before asset impairments and amounts recorded for performance vesting restricted stock and restricted stock unit compensation and amounts associated with the extinguishment of debt. Applying these criteria historically for the last seven years would have resulted in full vesting of supplemental units in one of the seven years, partial vesting at 50% in two years and no vesting in four of the years.

 

Outstanding Equity Awards Table

 

The following table sets forth certain information with respect to all outstanding equity awards held by the Named Executive Officers as of July 28, 2007.