DY Q2 2014 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 25, 2014
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission File Number 001-10613
DYCOM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

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

Registrant’s telephone number, including area code: (561) 627-7171

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer x
Accelerated filer 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 ¨ No x

There were 33,791,915 shares of common stock with a par value of $0.33 1/3 outstanding at March 3, 2014.




DYCOM INDUSTRIES, INC.
TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
 

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
January 25, 2014
 
July 27, 2013
 
(Dollars in thousands)
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and equivalents
$
16,344

 
$
18,607

Accounts receivable, net
231,619

 
252,202

Costs and estimated earnings in excess of billings
174,138

 
204,349

Inventories
43,426

 
35,999

Deferred tax assets, net
16,334

 
16,853

Income taxes receivable
18,347

 
2,516

Other current assets
16,142

 
10,608

Total current assets
516,350

 
541,134

 
 
 
 
PROPERTY AND EQUIPMENT, NET
203,639

 
202,703

GOODWILL
267,810

 
267,810

INTANGIBLE ASSETS, NET
115,243

 
125,275

OTHER
16,852

 
17,286

TOTAL NON-CURRENT ASSETS
603,544

 
613,074

TOTAL ASSETS
$
1,119,894

 
$
1,154,208

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

CURRENT LIABILITIES:
 

 
 

Accounts payable
$
52,315

 
$
77,954

Current portion of debt
9,375

 
7,813

Billings in excess of costs and estimated earnings
13,869

 
13,788

Accrued insurance claims
32,638

 
29,069

Other accrued liabilities
57,566

 
71,191

Total current liabilities
165,763

 
199,815

 
 
 
 
LONG-TERM DEBT (including debt premium of $3.4 million and $3.6 million, respectively)
416,301

 
444,169

ACCRUED INSURANCE CLAIMS
30,942

 
27,250

DEFERRED TAX LIABILITIES, NET NON-CURRENT
49,003

 
48,612

OTHER LIABILITIES
6,249

 
6,001

Total liabilities
668,258

 
725,847

 
 
 
 
COMMITMENTS AND CONTINGENCIES, Notes 10, 11, 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: 33,790,139 and 33,264,117 issued and outstanding, respectively
11,263

 
11,088

Additional paid-in capital
122,998

 
115,205

Accumulated other comprehensive income (loss)
(183
)
 
103

Retained earnings
317,558

 
301,965

Total stockholders' equity
451,636

 
428,361

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
1,119,894

 
$
1,154,208

 
 
 
 
See notes to the condensed consolidated financial statements.

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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
For the Three Months Ended
 
January 25, 2014
 
January 26, 2013
 
(Dollars in thousands, except per share amounts)
REVENUES:
 
 
 
Contract revenues
$
390,518

 
$
369,326

 
 
 
 
EXPENSES:
 

 
 

Costs of earned revenues, excluding depreciation and amortization
327,353

 
301,516

General and administrative (including stock-based compensation expense of $3.5 million and $2.5 million, respectively)
38,562

 
38,827

Depreciation and amortization
23,435

 
20,819

Total
389,350

 
361,162

 
 
 
 
Interest expense, net
(6,800
)
 
(5,748
)
Other income, net
595

 
428

INCOME (LOSS) BEFORE INCOME TAXES
(5,037
)
 
2,844

 
 
 
 
PROVISION (BENEFIT) FOR INCOME TAXES:
 

 
 

Current
(2,755
)
 
1,485

Deferred
785

 
(104
)
Total
(1,970
)
 
1,381

 
 
 
 
NET INCOME (LOSS)
$
(3,067
)
 
$
1,463

 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE:
 

 
 

Basic earnings (loss) per common share
$
(0.09
)
 
$
0.04

 
 
 
 
Diluted earnings (loss) per common share
$
(0.09
)
 
$
0.04

 
 
 
 
SHARES USED IN COMPUTING EARNINGS (LOSS) PER COMMON SHARE:
 
 
 

Basic
33,836,099

 
32,780,667

 
 
 
 
Diluted
33,836,099

 
33,514,416

 
 
 
 
See notes to the condensed consolidated financial statements.


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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
For the Six Months Ended
 
January 25, 2014
 
January 26, 2013
 
(Dollars in thousands, except per share amounts)
REVENUES:
 
 
 
Contract revenues
$
903,238

 
$
692,613

 
 
 
 
EXPENSES:
 

 
 

Costs of earned revenues, excluding depreciation and amortization
737,472

 
558,582

General and administrative (including stock-based compensation expense of $7.0 million and $4.8 million, respectively)
81,637

 
67,652

Depreciation and amortization
46,987

 
36,130

Total
866,096

 
662,364

 
 
 
 
Interest expense, net
(13,686
)
 
(9,946
)
Other income, net
2,607

 
2,042

INCOME BEFORE INCOME TAXES
26,063

 
22,345

 
 
 
 
PROVISION (BENEFIT) FOR INCOME TAXES:
 

 
 

Current
9,572

 
10,342

Deferred
898

 
(1,320
)
Total
10,470

 
9,022

 
 
 
 
NET INCOME
$
15,593

 
$
13,323

 
 
 
 
EARNINGS PER COMMON SHARE:
 

 
 

Basic earnings per common share
$
0.46

 
$
0.40

 
 
 
 
Diluted earnings per common share
$
0.45

 
$
0.40

 
 
 
 
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
 
 
 

Basic
33,629,884

 
32,935,305

 
 
 
 
Diluted
34,767,945

 
33,607,180

 
 
 
 
See notes to the condensed consolidated financial statements.


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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
For the Three Months Ended
 
For the Six Months Ended
 
January 25, 2014
 
January 26, 2013
 
January 25, 2014
 
January 26, 2013
 
(Dollars in thousands)
NET INCOME (LOSS)
$
(3,067
)
 
$
1,463

 
$
15,593

 
$
13,323

Foreign currency translation (losses) gains
(226
)
 
11

 
(286
)
 
13

COMPREHENSIVE INCOME (LOSS)
$
(3,293
)
 
$
1,474

 
$
15,307

 
$
13,336

 
 
 
 
 
 
 
 
See notes to the condensed consolidated financial statements.


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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
For the Six Months Ended
 
January 25,
2014
 
January 26,
2013
 
(Dollars in thousands)
OPERATING ACTIVITIES:
 
 
 
Net income
$
15,593

 
$
13,323

Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions:
 
 
 
Depreciation and amortization
46,987

 
36,130

Bad debt expense, net
498

 
32

Gain on sale of fixed assets
(2,435
)
 
(2,407
)
Deferred income tax provision (benefit)
898

 
(1,320
)
Stock-based compensation
7,049

 
4,762

Write-off of deferred financing costs

 
321

Amortization of premium on long-term debt
(181
)
 
(42
)
Amortization of debt issuance costs and other
940

 
734

Excess tax benefit from share-based awards
(2,297
)
 
(610
)
Change in operating assets and liabilities:
 
 
 
Accounts receivable, net
20,084

 
27,528

Costs and estimated earnings in excess of billings, net
30,292

 
39,753

Other current assets and inventory
(13,194
)
 
(3,518
)
Other assets
(718
)
 
(187
)
Income taxes receivable/payable
(15,513
)
 
(906
)
Accounts payable
(15,586
)
 
(11,897
)
Accrued liabilities, insurance claims, and other liabilities
(4,551
)
 
(10,455
)
Net cash provided by operating activities
67,866

 
91,241

 
 
 
 
INVESTING ACTIVITIES:
 
 
 

Cash paid for acquisitions, net of cash acquired

 
(314,771
)
Capital expenditures
(49,240
)
 
(29,029
)
Proceeds from sale of assets
4,964

 
2,845

Changes in restricted cash
(305
)
 
(31
)
Net cash used in investing activities
(44,581
)
 
(340,986
)
 
 
 
 
FINANCING ACTIVITIES:
 
 
 

Proceeds from issuance of 7.125% senior subordinated notes due 2021 (including $3.8 million premium on fiscal 2013 issuance)

 
93,825

Proceeds from borrowings on senior Credit Agreement
221,000

 
180,500

Proceeds from Term Loan on senior Credit Agreement

 
125,000

Principal payments on senior Credit Agreement, including Term Loan
(247,125
)
 
(160,500
)
Debt issuance costs

 
(6,409
)
Repurchases of common stock
(9,999
)
 
(15,203
)
Exercise of stock options
11,869

 
2,890

Restricted stock tax withholdings
(3,590
)
 
(885
)
Excess tax benefit from share-based awards
2,297

 
610

Principal payments on capital lease obligations

 
(74
)
Net cash (used in) provided by financing activities
(25,548
)
 
219,754

 
 
 
 
Net decrease in cash and equivalents
(2,263
)
 
(29,991
)
 
 
 
 
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
18,607

 
52,581

 
 
 
 
CASH AND EQUIVALENTS AT END OF PERIOD
$
16,344

 
$
22,590

 
 
 
 

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

 
For the Six Months Ended
 
January 25,
2014
 
January 26,
2013
 
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
 

 
 

Cash paid during the period for:
 

 
 

Interest
$
12,972

 
$
8,854

Income taxes
$
25,517

 
$
11,239

 
 
 
 
Purchases of capital assets included in accounts payable or other accrued liabilities at period end
$
4,461

 
$
2,471

Accrued costs for debt issuance included in accounts payable and accrued liabilities at period end
$

 
$
130

Accrued remaining purchase price of acquisition included in accrued liabilities at period end
$

 
$
4,710

 
 
 
 
See notes to the condensed consolidated financial statements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. Basis of Presentation and Accounting Policies
 
Basis of Presentation - Dycom Industries, Inc. and its wholly-owned subsidiaries (collectively, "Dycom" or the "Company") is a leading provider of specialty contracting services throughout the United States and in Canada. 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 and gas utilities and others.
 
The accompanying unaudited condensed consolidated financial statements of Dycom have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The condensed consolidated financial statements and accompanying notes reflect all adjustments, consisting of only normal recurring accruals that are, in the opinion of management, necessary for a fair presentation of such statements. Operating results for the interim period are not necessarily indicative of the results expected for any other interim period or for the full fiscal year. These condensed consolidated financial statements and accompanying notes should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this report and the Company's audited financial statements for the year ended July 27, 2013 included in the Company's 2013 Annual Report on Form 10-K, filed with the SEC on September 13, 2013.

The condensed consolidated financial statements include the accounts of the Company. All significant transactions and balances between Dycom Industries, Inc. and its subsidiaries have been eliminated.

All of the Company's operating segments have been aggregated into one reporting segment due to their similar economic characteristics, customers, service distribution methods, and the nature of their services and production processes. The Company's services are provided by its subsidiaries throughout the United States and Canada. Revenues from services provided in Canada were approximately $2.1 million and $5.4 million during the three and six months ended January 25, 2014, respectively, and $2.5 million and $6.4 million during the three and six months ended January 26, 2013, respectively. The Company had no material long-lived assets in Canada at January 25, 2014 or July 27, 2013.

Acquisitions On December 3, 2012, the Company acquired substantially all of the telecommunications infrastructure services subsidiaries of Quanta Services, Inc. Additionally, during the fourth quarter of fiscal 2013, the Company acquired Sage Telecommunications Corp of Colorado, LLC and certain assets of a tower construction and maintenance company. The results of operations of these businesses are included in the accompanying condensed consolidated financial statements from their dates of acquisition.

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

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Significant estimates made by management include revenue recognition of long-term contracts, including estimates of costs to complete, accruals for self-insurance claims, provision for income taxes, accruals for legal matters and other contingencies, the fair value of reporting units for goodwill impairment analysis, the assessment of impairment of intangibles and other long-lived assets, preliminary purchase price allocations of businesses acquired, stock-based compensation expense for performance-based stock awards, asset lives used in computing depreciation and amortization, and allowance for doubtful accounts. At the time they are made, the Company believes that such estimates are fair when considered in conjunction with the consolidated financial position and results of operations taken as a whole. However, actual results could differ materially from those estimates.

Significant Accounting Policies

There have been no material changes to the Company's significant accounting policies and critical accounting estimates described in the Company's Annual Report on Form 10-K for the year ended July 27, 2013.

Restricted Cash - As of January 25, 2014 and July 27, 2013, the Company had approximately $4.0 million and $3.7 million, respectively, in restricted cash which is held as collateral in support of the Company's insurance obligations. Restricted cash is

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included in other current assets and other assets in the condensed consolidated balance sheets and changes in restricted cash are reported in cash flows used in investing activities in the condensed consolidated statements of cash flows.

Fair Value of Financial Instruments - ASC Topic 820, Fair Value Measurements and Disclosures ("ASC Topic 820") requires that assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: (1) Level 1 - Quoted market prices in active markets for identical assets or liabilities; (2) Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data; and (3) Level 3 - Unobservable inputs not corroborated by market data which require the reporting entity's own assumptions. The Company's financial instruments consist primarily of cash and equivalents, restricted cash, accounts receivables, income taxes receivable and payable, accounts payable and certain accrued expenses, and long-term debt. The carrying amounts of these items approximate fair value due to their short maturity, except for the Company's outstanding 7.125% senior subordinated notes due 2021 (the "2021 Notes") which are categorized as Level 2 as of January 25, 2014 and July 27, 2013, based on observable market-based inputs. See Note 10, Debt, for further information regarding the fair value of the 2021 Notes. The Company's cash and equivalents are categorized as Level 1 as of January 25, 2014 and July 27, 2013, based on quoted market prices in active markets for identical assets. During the three and six months ended January 25, 2014 and January 26, 2013, the Company had no non-recurring fair value measurements of assets or liabilities subsequent to their initial recognition.

Recently Issued Accounting Pronouncements

Adoption of New Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment ("ASU 2012-02"). ASU 2012-02 permits entities first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test pursuant to ASC Subtopic 350-30. If the entity determines that it is more likely than not that such asset is not impaired based on its qualitative assessment, no further testing is required. The Company adopted ASU 2012-02 in fiscal 2014 and it did not have a material effect on the Company's condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

In February 2013, the FASB issued Accounting Standards Update No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force) ("ASU 2013-04"). ASU 2013-04 provides guidance related to the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. ASU 2013-04 will be effective for the Company's fiscal years beginning fiscal 2015 and interim reporting periods within that year. The adoption of this guidance is not expected to have a material effect on the Company's condensed consolidated financial statements.

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). ASU 2013-11 is intended to end inconsistent practices regarding the presentation of unrecognized tax benefits when a net operating loss, a similar tax loss or a tax credit carryforward is available to reduce the taxable income or tax payable that would result from the dis-allowance of a tax position. ASU 2013-11 will be effective for the Company's fiscal years beginning fiscal 2015 and interim periods within that year. The adoption of this guidance is not expected to have a material effect on the Company's condensed consolidated financial statements.


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2. Computation of Earnings Per Common Share

For the three months ended January 25, 2014, all common stock equivalents related to stock options and unvested restricted shares and restricted share units were excluded from the diluted loss per share calculation as their effect would be anti-dilutive due to the Company's net loss for the period. The following table sets forth the computation of basic and diluted earnings per common share:

 
For the Three Months Ended
 
For the Six Months Ended
 
January 25, 2014
 
January 26, 2013
 
January 25, 2014
 
January 26, 2013
 
(Dollars in thousands, except per share amounts)
Net income (loss) available to common stockholders (numerator)
$
(3,067
)
 
$
1,463

 
$
15,593

 
$
13,323

 
 
 
 
 
 
 
 
Weighted-average number of common shares (denominator)
33,836,099

 
32,780,667

 
33,629,884

 
32,935,305

 
 
 
 
 
 
 
 
Basic earnings (loss) per common share
$
(0.09
)
 
$
0.04

 
$
0.46

 
$
0.40

 
 
 
 
 
 
 
 
Weighted-average number of common shares
33,836,099

 
32,780,667

 
33,629,884

 
32,935,305

Potential common stock arising from stock options, and unvested restricted share units

 
733,749

 
1,138,061

 
671,875

Total shares-diluted (denominator)
33,836,099

 
33,514,416

 
34,767,945

 
33,607,180

 
 
 
 
 
 
 
 
Diluted earnings (loss) per common share
$
(0.09
)
 
$
0.04

 
$
0.45

 
$
0.40

 
 
 
 
 
 
 
 
Anti-dilutive weighted shares excluded from the calculation of earnings (loss) per share
3,440,300

 
1,289,661

 
753,914

 
1,483,241


3. Acquisitions

On December 3, 2012, Dycom acquired substantially all of the telecommunications infrastructure services subsidiaries (the "Acquired Subsidiaries") of Quanta Services, Inc. for the sum of $275.0 million in cash, an adjustment of approximately $40.4 million for working capital received in excess of a target amount, and approximately $3.7 million for other specified items. The acquisition was funded through a combination of borrowings under a new $400 million credit facility and cash on hand. On December 12, 2012, Dycom Investments, Inc., a wholly-owned subsidiary of the Company, issued $90.0 million of 7.125% senior subordinated notes due 2021 and used the net proceeds to repay approximately $90.0 million of the credit facility borrowings. See Note 10, Debt, for further information regarding the Company's debt financing.

The Acquired Subsidiaries provide specialty contracting services, including engineering, construction, maintenance and installation services to telecommunications providers, and other construction and maintenance services to electric and gas utilities and others. Principal business facilities are located in Arizona, California, Florida, Georgia, Minnesota, New York, Pennsylvania, and Washington.

During the fourth quarter of fiscal 2013, the Company acquired Sage Telecommunications Corp of Colorado, LLC ("Sage") and certain assets of a tower construction and maintenance company for a total of $11.3 million, net of cash acquired. Goodwill of $5.0 million, resulting from the acquisitions made during the fourth quarter of fiscal 2013, is expected to be deductible for tax purposes. Sage provides telecommunications construction and project management services primarily for cable operators in the Western United States. These acquisitions were not material to the Company.

The purchase prices of these businesses acquired have been allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their fair values on the respective dates of acquisition. Purchase price in excess of fair value of the separately identifiable assets acquired and the liabilities assumed have been allocated to goodwill. Purchase price allocations are based on information regarding the fair value of assets acquired and liabilities assumed as of the dates of acquisition. Management determined the fair values used in the purchase price allocations for intangible assets based on

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historical data, estimated discounted future cash flows, contract backlog amounts, if applicable, and expected royalty rates for trademarks and trade names as well as certain other assumptions. The valuation of assets acquired and liabilities assumed requires a number of judgments and is subject to revision as additional information about the fair value of assets and liabilities becomes available. For the Acquired Subsidiaries, the fair values used in the purchase price allocation for intangible assets were determined with the assistance of an independent valuation specialist. The allocation of the purchase price of the Acquired Subsidiaries was completed during the fourth quarter of fiscal 2013. Purchase price allocations of businesses acquired during the fourth quarter of fiscal 2013 are preliminary and are expected to be completed during fiscal 2014 when the valuations for intangible assets and other amounts are finalized. Additional information, which existed as of the acquisition dates but was unknown by the Company, may become known to the Company during the remainder of the measurement period, a period not to exceed twelve months from the acquisition date. Adjustments in the purchase price allocations may require an adjustment of the amounts allocated to goodwill.

The purchase price of the Acquired Subsidiaries is allocated as follows and reflects the elimination of intercompany balances (dollars in millions):
Assets
 
Cash and equivalents
$
0.2

Accounts receivable, net
112.2

Costs and estimated earnings in excess of billings
61.5

Inventories
9.0

Other current assets
1.6

Property and equipment
33.3

Goodwill
87.9

Intangibles - customer relationships
70.3

Intangibles - backlog
15.3

Intangibles - trade names
5.0

Other assets
2.3

Total assets
398.6

 
 
Liabilities
 
Accounts payable
42.1

Billings in excess of costs and estimated earnings
10.3

Accrued and other liabilities
27.1

Total liabilities
79.5

Net Assets Acquired
$
319.1


Goodwill of $87.9 million and amortizing intangible assets of $90.6 million related to the Acquired Subsidiaries is expected to be deductible for tax purposes. See Note 7, Goodwill and Intangible Assets, for further information on amortization and estimated useful lives of intangible assets acquired.

The results of operations of businesses acquired are included in the accompanying condensed consolidated financial statements from their dates of acquisition. For the three and six months ended January 25, 2014 the Acquired Subsidiaries earned revenues of $106.3 million and $256.5 million, respectively, and recognized intangible amortization expense of $3.1 million and $6.6 million, respectively. Inclusive of charges allocated for management costs, the Acquired Subsidiaries had an immaterial net loss for the three months ended January 25, 2014 and net income of approximately $4.0 million for the six months ended January 25, 2014. For the three and six months ended January 26, 2013 the Acquired Subsidiaries earned revenues of $75.9 million, recognized intangible amortization expense of $3.4 million, and their net income, inclusive of charges allocated for management costs, was immaterial.

The following unaudited pro forma information presents the Company's consolidated results of operations as if the acquisition of the Acquired Subsidiaries had occurred on July 31, 2011, the first day of the Company's 2012 fiscal year. The pro forma results include certain adjustments, including depreciation and amortization expense based on the estimated fair value of the assets acquired, interest expense related to the Company's debt financing of the transaction, and the income tax impact of these adjustments. Pro forma earnings during the three and six months ended January 26, 2013 have been adjusted to reflect amortization and depreciation as if the acquisition had occurred on July 31, 2011. This includes the impact of amortization expense, including customer relationships and contract backlog which is being recognized on an accelerated basis related to the

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expected economic benefit. Additionally, pro forma results reflect depreciation expense which is recognized over the estimated useful lives of the related property and equipment. 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.

 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
January 26, 2013
 
January 26, 2013
 
 
(Dollars in thousands, except per share amounts)
Pro forma contract revenues
 
$
421,588

 
$
921,254

Pro forma income before income taxes
 
$
7,546

 
$
44,049

Pro forma net income
 
$
4,528

 
$
26,430

 
 
 
 
 
Pro forma earnings per share:
 
 
 
 
Basic
 
$
0.14

 
$
0.80

Diluted
 
$
0.14

 
$
0.79


4. Accounts Receivable
 
Accounts receivable consists of the following:
 
January 25, 2014
 
July 27, 2013
 
(Dollars in thousands)
Contract billings
$
218,483

 
$
239,498

Retainage and other receivables
13,744

 
12,833

Total
232,227

 
252,331

Less: allowance for doubtful accounts
(608
)
 
(129
)
Accounts receivable, net
$
231,619

 
$
252,202

 
There were no material accounts receivable amounts representing claims or others similar items subject to uncertainty as of January 25, 2014 or July 27, 2013. The Company expects to collect the outstanding balance of accounts receivable, net, including retainage amounts, within the next twelve months.

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the failure of its customers to make required payments. During the three and six months ended January 25, 2014 and January 26, 2013, write-offs to the allowance for doubtful accounts, net of recoveries, were not material.


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5. Costs and Estimated Earnings in Excess of Billings
 
Costs and estimated earnings in excess of billings ("CIEB") includes revenue for services from contracts based both on the units-of-delivery and the cost-to-cost measures of the percentage of completion method and consists of the following:
 
 
January 25,
2014
 
July 27,
2013
 
(Dollars in thousands)
Costs incurred on contracts in progress
$
198,485

 
$
208,250

Estimated to date earnings
44,394

 
49,150

Total costs and estimated earnings
242,879

 
257,400

Less: billings to date
(82,610
)
 
(66,839
)
 
$
160,269

 
$
190,561

Included in the accompanying condensed consolidated balance sheets under the captions:
 

 
 

Costs and estimated earnings in excess of billings
$
174,138

 
$
204,349

Billings in excess of costs and estimated earnings
(13,869
)
 
(13,788
)
 
$
160,269

 
$
190,561

 
As of January 25, 2014, the Company expects that substantially all of its CIEB will be billed to customers and collected in the normal course of business within the next twelve months. Additionally, there were no material CIEB amounts representing claims or other similar items subject to uncertainty as of January 25, 2014 or July 27, 2013.

6. Property and Equipment
 
Property and equipment consists of the following:
 
General Useful Lives
 
January 25,
2014
 
July 27,
2013
 
(Years)
 
(Dollars in thousands)
Land
 
$
3,479

 
$
3,479

Buildings
10-35
 
11,567

 
11,449

Leasehold improvements
1-15
 
5,355

 
5,154

Vehicles
1-5
 
272,828

 
258,211

Computer hardware and software
3-10
 
71,223

 
64,191

Office furniture and equipment
2-7
 
8,240

 
7,915

Equipment and machinery
1-10
 
178,624

 
171,742

Total
 
 
551,316

 
522,141

Less: accumulated depreciation
 
 
(347,677
)
 
(319,438
)
Property and equipment, net
 
 
$
203,639

 
$
202,703

 
Depreciation expense and repairs and maintenance were as follows:
 
For the Three Months Ended
 
For the Six Months Ended
 
January 25,
2014
 
January 26,
2013
 
January 25,
2014
 
January 26,
2013
 
(Dollars in thousands)
Depreciation expense
$
18,657

 
$
15,868

 
$
37,058

 
$
29,588

Repairs and maintenance expense
$
5,245

 
$
4,376

 
$
11,239

 
$
8,188


7. Goodwill and Intangible Assets

Goodwill

The Company's goodwill and other indefinite-lived intangible assets are assessed annually for impairment as of the first day of the fourth fiscal quarter of each year, or more frequently if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value. The Company's goodwill resides in multiple reporting units. The

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profitability of individual reporting units may suffer periodically from downturns in customer demand and other factors resulting from the cyclical nature of the Company's business, the high level of competition existing within the Company's industry, the concentration of the Company's revenues from a limited number of customers, and the level of overall economic activity, including in particular construction and housing activity. During times of slowing economic conditions, the Company's customers may reduce capital expenditures and defer or cancel pending projects. Individual reporting units may be more impacted by these factors than the Company as a whole. As a result, demand for the services of one or more of the Company's reporting units could decline, resulting in an impairment of goodwill or intangible assets. The inputs used for fair value measurements of the reporting units and other related indefinite-lived intangible assets are the lowest level (Level 3) inputs. There were no changes in the carrying amount of goodwill for the six months ended January 25, 2014.

As a result of the fiscal 2013 annual impairment analysis, the Company concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit. However, the UtiliQuest reporting unit, having a goodwill balance of approximately $35.6 million and an indefinite-lived trade name of $4.7 million, has been at lower operating levels as compared to historical periods. Key fair value assumptions used in the fiscal 2013 impairment analysis of the UtiliQuest reporting unit included (a) a discount rate of 11.5% based on the Company's best estimate of the weighted average cost of capital adjusted for risks associated with the reporting unit; (b) terminal value based on a terminal growth rate of 2.0%; and (c) seven expected years of cash flow before the terminal value. Recent operating performance, along with assumptions for specific customer and industry opportunities, were considered in the key assumptions used during the fiscal 2013 impairment analysis. The Company determined during the fiscal 2013 impairment assessment that the fair value of the UtiliQuest reporting unit exceeded its carrying value by approximately 20%. Management has determined the goodwill balance of this reporting unit may have an increased likelihood of impairment if a downturn in customer demand were to occur, or if the reporting unit were not able to execute against customer opportunities, and the long-term outlook for their cash flows were adversely impacted. Furthermore, changes in the long-term outlook may result in changes to other valuation assumptions. Factors monitored by the Company which could result in a change to the reporting unit’s estimates include the outcome of customer requests for proposals and subsequent awards, strategies of competitors, labor market conditions and levels of overall economic activity, including construction and housing activity. During the six months ended January 25, 2014, there were no events that caused a material reduction in the estimated fair value of the reporting unit. As of January 25, 2014, the Company believes the goodwill and indefinite-lived intangible asset is recoverable for all of its reporting units; however, there can be no assurances that the goodwill and indefinite-lived intangible asset will not be impaired in future periods.

Intangible Assets

The Company's intangible assets consist of the following:
 
 
January 25,
2014
 
July 27,
2013
 
 
(Dollars in thousands)
Gross amount:
 
 
 
 
Customer relationships
 
$
164,394

 
$
164,497

Contract backlog
 
15,285

 
15,285

Trade names
 
8,200

 
8,200

UtiliQuest trade name
 
4,700

 
4,700

Non-compete agreements
 
400

 
400

 
 
192,979

 
193,082

Accumulated amortization:
 
 

 
 

Customer relationships
 
62,620

 
56,219

Contract backlog
 
12,276

 
9,433

Trade names
 
2,716

 
2,071

Non-compete agreements
 
124

 
84

Net Intangible Assets
 
$
115,243

 
$
125,275


Amortization of the Company's customer relationships and contract backlog intangible assets is recognized on an accelerated basis as a function of the expected economic benefit. Amortization for the Company's other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life of the intangible asset. Amortization expense for finite-lived intangible assets was $4.8 million and $5.0 million for the three months ended January 25, 2014 and January 26, 2013, respectively, and $9.9 million and $6.5 million for the six months ended January 25, 2014 and January 26, 2013, respectively. Amortization expense for the three and six months ended January 26, 2013 includes expense from the amortizing intangibles of the Acquired Subsidiaries from the date of acquisition.

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Estimated total amortization expense for the remainder of fiscal 2014 and each of the five succeeding fiscal years is as follows:
Period
 
Amount
 
 
(Dollars in thousands)
Six months ending July 26, 2014
 
$8,185
2015
 
$15,027
2016
 
$14,276
2017
 
$12,885
2018
 
$10,697
2019
 
$8,395
Thereafter
 
$41,078

As of January 25, 2014, the Company believes that the carrying amounts of its intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment and the assets may be impaired.

8. Accrued Insurance Claims
 
The Company retains the risk of loss, up to certain limits, for claims relating to automobile liability, general liability, workers’ compensation, employee group health, and locate damages. With respect to losses occurring in fiscal 2014, the Company retains the risk of loss up to $1.0 million on a per occurrence basis for automobile liability, general liability and workers’ compensation. These retention amounts are applicable to all of the states in which the Company operates, except with respect to workers’ compensation insurance in three states in which the Company participates in a state-sponsored insurance fund. Aggregate stop loss coverage for automobile liability, general liability and workers’ compensation claims is $56.3 million for fiscal 2014. The risk of loss for insured claims of the Acquired Subsidiaries outstanding, or incurred but not reported, as of the date of acquisition has been retained by Quanta Services, Inc.

The Company is party to a stop-loss agreement for losses under its employee health plan. The Company retains the risk of loss, on an annual basis, of the first $250,000 of claims per participant. In addition, the Company retains the risk of loss for the first $550,000 of claim amounts that aggregate across all participants having claims that exceed $250,000.

The liability for total accrued insurance claims and related processing costs was $63.6 million and $56.3 million at January 25, 2014 and July 27, 2013, respectively, of which, $30.9 million and $27.3 million, respectively, is reflected within non-current liabilities in the condensed consolidated financial statements.
 
9. Other Accrued Liabilities
 
Other accrued liabilities consist of the following:
 
January 25,
2014
 
July 27,
2013
 
(Dollars in thousands)
Accrued payroll and related taxes
$
14,959

 
$
19,940

Accrued employee benefit and incentive plan costs
9,727

 
15,325

Accrued construction costs
18,992

 
20,883

Accrued interest and related bank fees
864

 
937

Other current liabilities
13,024

 
14,106

Total other accrued liabilities
$
57,566

 
$
71,191

 
Other current liabilities within the above table includes income taxes payable of $2.3 million as of July 27, 2013.


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10. Debt
 
The Company’s outstanding indebtedness consists of the following:
 
January 25,
2014
 
July 27,
2013
 
(Dollars in thousands)
Borrowings on senior Credit Agreement (matures December 2017)
$
26,000

 
$
49,000

Senior Credit Agreement Term Loan (matures December 2017)
118,750

 
121,875

7.125% senior subordinated notes (matures January 2021)
277,500

 
277,500

Long-term debt premium on 7.125% senior subordinated notes (amortizes to interest expense through January 2021)
3,426

 
3,607

 
425,676

 
451,982

Less: current portion
(9,375
)
 
(7,813
)
Long-term debt
$
416,301

 
$
444,169


Senior Subordinated Notes Due 2021

On January 25, 2014 and July 27, 2013, Dycom Investments, Inc., a wholly-owned subsidiary of the Company, had outstanding an aggregate principal amount of $277.5 million of 7.125% senior subordinated notes due 2021 that were issued under an indenture dated January 21, 2011 (the "Indenture"). In addition, the 2021 Notes had a debt premium of $3.4 million and $3.6 million as of January 25, 2014 and July 27, 2013, respectively.

The 2021 Notes are guaranteed by Dycom and substantially all of the Company's subsidiaries. For additional information regarding these guarantees see Note 19, Supplemental Consolidating Financial Statements. The Indenture contains covenants that limit, among other things, the Company's ability to incur additional debt and issue preferred stock, make certain restricted payments, consummate specified asset sales, enter into transactions with affiliates, incur liens, impose restrictions on the ability of the Company's subsidiaries to pay dividends or make payments to the Company and its restricted subsidiaries, merge or consolidate with another person, and dispose of all or substantially all of its assets.

The Company determined that the fair value of the 2021 Notes as of January 25, 2014 was approximately $298.7 million, based on quoted market prices, compared to a $280.9 million carrying value (including the debt premium of $3.4 million). As of July 27, 2013, the fair value of the 2021 Notes was $292.4 million compared to a carrying value of $281.1 million (including the debt premium of $3.6 million).

Senior Credit Agreement

Dycom Industries, Inc. and certain of its subsidiaries are party to a credit agreement with various lenders (the "Credit Agreement") which matures in December 2017. The Credit Agreement provides for a $275 million revolving facility and a $125 million term loan (the "Term Loan"). The Company had outstanding revolver borrowings under the Credit Agreement of $26.0 million and $49.0 million as of January 25, 2014 and July 27, 2013, respectively. Borrowings under the Credit Agreement accrued interest at a weighted average rate of approximately 2.16% per annum and 2.19% per annum as of January 25, 2014 and July 27, 2013, respectively. As of January 25, 2014 and July 27, 2013, the Company had $118.8 million and $121.9 million, respectively, of outstanding principal amount under the Term Loan, which accrued interest at 2.16% and 2.19% per annum, respectively. Borrowings under the Credit Agreement are guaranteed by substantially all of Dycom's subsidiaries and secured by the stock of each wholly-owned, domestic subsidiary (subject to specified exceptions) and can be used to refinance certain indebtedness, to provide general working capital, and for other general corporate purposes.

Standby letters of credit of approximately $49.7 million and $46.7 million, issued as part of the Company's insurance program, were outstanding under the Credit Agreement as of January 25, 2014 and July 27, 2013, respectively. Interest on outstanding standby letters of credit accrued at 2.0% per annum at both January 25, 2014 and July 27, 2013, respectively. Unutilized commitments were at rates per annum of 0.35% at both January 25, 2014 and July 27, 2013.

At January 25, 2014 and July 27, 2013, the Company was in compliance with the financial covenants of the Credit Agreement and had additional borrowing availability of $199.3 million and $179.3 million, respectively, as determined by the most restrictive covenants of the Credit Agreement.


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11. Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Measurement of certain aspects of the Company’s tax positions is based on interpretations of tax regulations, federal and state case law and applicable statutes.

The Company is subject to federal income taxes in the United States, as well as income taxes of multiple state jurisdictions and in Canada. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian income tax examinations for fiscal years ended 2009 and prior. The Company believes its provision for income taxes is adequate; however, any assessment would affect the Company’s results of operations and cash flows.

At both January 25, 2014 and July 27, 2013, the Company had total unrecognized tax benefits of $2.3 million that, if recognized, would favorably effect the Company’s effective tax rate. Interest expense related to unrecognized tax benefits was immaterial for the three and six months ended January 25, 2014 and January 26, 2013. The Company had approximately $0.9 million and $0.8 million accrued for the payment of interest and penalties at January 25, 2014 and July 27, 2013, respectively.

12. Other Income, Net

The components of other income, net, are as follows:
 
For the Three Months Ended
 
For the Six Months Ended
 
January 25, 2014
 
January 26, 2013
 
January 25, 2014
 
January 26, 2013
 
(Dollars in thousands)
Gain on sale of fixed assets
$
570

 
$
826

 
$
2,435

 
$
2,407

Miscellaneous income (expense), net
25

 
(77
)
 
172

 
(44
)
Write-off of deferred financing costs

 
(321
)
 

 
(321
)
Total other income, net
$
595

 
$
428

 
$
2,607

 
$
2,042


The Company recognized $0.3 million in write-off of deferred financing costs during the three and six months ended January 26, 2013 in connection with the replacement of its prior credit agreement.

13. Multi-Employer Benefit Plans

Certain of the Company's subsidiaries, including certain of the Acquired Subsidiaries, participate in multi-employer benefit pension plans under the terms of collective-bargaining agreements. The Company's contributions were $0.9 million and $1.8 million during the three and six months ended January 25, 2014, respectively, and $0.8 million and $1.8 million during the three and six months ended January 26, 2013, respectively. The risks of participating in a multi-employer defined benefit pension plan are different from single-employer plans in the following aspects: (a) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of any other participating employers; (b) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may become obligations of the remaining participating employers; and (c) if the Company chooses to stop participating in the multi-employer plan, the Company may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability. The Company has not incurred withdrawal liabilities related to the plans as of January 25, 2014 or July 27, 2013.

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14. Capital Stock

Share Repurchase Programs

On August 27, 2013, the Board of Directors authorized $40.0 million to repurchase shares of the Company's outstanding common stock over the subsequent eighteen months in open market or private transactions. During fiscal 2013 and the six months ended January 25, 2014, the Company made the following repurchases pursuant to its current and previously authorized share repurchase programs:
Fiscal Period
 
Number of Shares Repurchased
 
Total Consideration
(Dollars in thousands)
 
Average Price Per Share
Fiscal 2013
 
1,047,000

 
$
15,203

 
$
14.52

Six Months Ended January 25, 2014
 
360,900

 
$
9,999

 
$
27.71

 
All of the shares repurchased during fiscal 2014 were purchased during the second fiscal quarter. All shares repurchased have been canceled. As of January 25, 2014, $30.0 million remained available for repurchases through February 2015.

Shares for Tax Withholding

During the six months ended January 25, 2014 and January 26, 2013, the Company withheld 130,195 shares and 47,277 shares, respectively, of restricted units that vested during the periods, totaling $3.6 million and $0.9 million, respectively, in order to meet payroll tax withholdings obligations that arose on the vesting of restricted units. All shares repurchased have been canceled. The shares withheld for tax withholdings do not reduce the Company’s total share repurchase authority.

15. Stock-Based Awards

The Company has certain stock-based compensation plans which provide for the grants of equity awards, including stock options, restricted shares, performance shares, restricted share units, performance share units, and stock appreciation rights.

Compensation expense for stock-based awards is based on the fair value at the measurement date and is included in general and administrative expenses in the condensed consolidated statements of operations. Stock-based compensation expense and the related tax benefit recognized related to stock options and restricted share units during the three and six months ended January 25, 2014 and January 26, 2013 were as follows:
 
For the Three Months Ended
 
For the Six Months Ended
 
January 25, 2014
 
January 26, 2013
 
January 25, 2014
 
January 26, 2013
 
(Dollars in thousands)
Stock-based compensation
$
3,544

 
$
2,496

 
$
7,049

 
$
4,762

Tax (benefit) recognized in the statement of operations
$
(1,368
)
 
$
(1,063
)
 
$
(2,665
)
 
$
(1,827
)

Compensation expense previously recognized with respect to performance share units will be reversed to the extent that performance goals are not met. As of January 25, 2014, unrecognized compensation expense related to stock options, time-based restricted share units ("RSUs") and target performance share units ("Performance RSUs") was $4.9 million, $7.9 million and $15.3 million, respectively. This expense will be recognized over a weighted-average period of 2.4 years, 3.0 years and 1.7 years, respectively, which is based on the average remaining service periods of the awards. As of January 25, 2014, the Company may recognize an additional $8.9 million in compensation expense related to Performance RSUs if the maximum amount of restricted share units are earned based on certain performance goals being met.


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Stock Options - The following table summarizes stock option award activity during the six months ended January 25, 2014
 
Stock Options
 
Shares
 
Weighted Average Exercise Price
 
 
 
 
Outstanding as of July 27, 2013
2,769,132

 
$
18.27

Granted
89,956

 
$
27.50

Options exercised
(616,119
)
 
$
19.26

Forfeited or canceled
(4,262
)
 
$
26.42

Outstanding as of January 25, 2014
2,238,707

 
$
18.35

 
 
 
 
Exercisable options as of January 25, 2014
1,766,977

 
$
18.38


RSUs and Performance RSUs - The following table summarizes RSU and Performance RSU activity during the six months ended January 25, 2014:

 
Restricted Stock
 
RSUs
 
Performance RSUs
 
Share Units
 
Weighted Average Grant Price
 
Share Units
 
Weighted Average Grant Price
 
 
 
 
 
 
 
 
Outstanding as of July 27, 2013
463,318

 
$
17.78

 
1,315,138

 
$
18.44

Granted
94,456

 
$
27.36

 
429,485

 
$
27.66

Share units vested
(137,333
)
 
$
16.19

 
(265,025
)
 
$
18.35

Forfeited or canceled
(4,156
)
 
$
19.26

 
(267,581
)
 
$
18.37

Outstanding as of January 25, 2014
416,285

 
$
20.46

 
1,212,017

 
$
21.74

 
The granted Performance RSUs in the above table is comprised of 373,465 target shares, granted to officers and employees, and 56,020 supplemental shares, granted to officers. Approximately 265,000 Performance RSUs outstanding as of July 27, 2013 were canceled during the first quarter of fiscal 2014 as a result of the fiscal 2013 performance criteria for attaining supplemental shares not being met. The total amount of Performance RSUs outstanding as of January 25, 2014 is comprised of 764,548 target shares and 447,469 supplemental shares.

16. Related Party Transactions

The Company leases administrative offices from entities related to officers of certain of the Company’s subsidiaries. The total expense under these arrangements was $0.6 million and $0.4 million for the three months ended January 25, 2014 and January 26, 2013, respectively, and $1.2 million and $0.8 million for the six months ended January 25, 2014 and January 26, 2013, respectively. Amounts paid for subcontracting services to entities related to officers of certain of the Company’s subsidiaries was $0.3 million and $0.2 million during the three months ended January 25, 2014 and January 26, 2013, respectively, and $0.6 million and $0.3 million during the six months ended January 25, 2014 and January 26, 2013, respectively.

17. Commitments and Contingencies

In October 2012, a former employee of UtiliQuest, LLC ("UtiliQuest"), a wholly-owned subsidiary of the Company, commenced a lawsuit against UtiliQuest in the Superior Court of California. The lawsuit alleges that UtiliQuest violated the California Labor Code, the California Business & Professions Code and the Labor Code Private Attorneys General Act of 2004 by failing to pay for all hours worked (including overtime) and failing to provide meal breaks and accurate wage statements. The plaintiff seeks unspecified damages and other relief on behalf of himself and a putative class of current and former employees of UtiliQuest who worked as locators in the State of California in the four years preceding the filing date of the

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lawsuit. In January 2013, UtiliQuest removed the case to the United States District Court for the Northern District of California and the plaintiff subsequently filed a Motion to Remand the case back to the California Superior Court. In April 2013, the parties exchanged initial disclosures and in July 2013, the District Court granted plaintiff's Motion to Remand. UtiliQuest filed its second removal of the case to the District Court in October 2013. On January 8, 2014, the District Court remanded the matter back to the California Superior Court. 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.

From time to time, the Company is party to various other claims and legal proceedings. It is the opinion of management, based on information available at this time, that such other pending claims or proceedings will not have a material effect on its financial statements.

As part of the Company's insurance program, it retains the risk of loss, up to certain limits, for claims related to automobile liability, general liability, workers' compensation, employee group health, and locate damages, and the Company has established reserves that it believes to be adequate based on current evaluations and experience with these types of claims. For these claims, the effect on the Company's financial statements is generally limited to the amount needed to satisfy insurance deductibles or retentions.

Performance Bonds and Guarantees

The Company has obligations under performance and other surety contract bonds related to certain of its customer contracts. Performance bonds generally provide the Company’s customer with the right to obtain payment and/or performance from the issuer of the bond if the Company fails to perform its contractual obligations. As of January 25, 2014 and July 27, 2013, the Company had $425.6 million and $446.5 million of outstanding performance and other surety contract bonds, respectively. No events have occurred in which the customers have exercised their rights under the bonds which will have a material impact on the Company's financial statements.

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

The Company has standby letters of credit issued under its Credit Agreement as part of its insurance program. These standby letters of credit collateralize the Company’s obligations to its insurance carriers in connection with the settlement of potential claims. As of January 25, 2014 and July 27, 2013, the Company had $49.7 million and $46.7 million, respectively, of outstanding standby letters of credit issued under the Credit Agreement.

18. Concentration of Credit Risk

The Company’s customer base is highly concentrated, with its top five customers accounting for approximately 58.2% of its total revenues in each of the six months ended January 25, 2014 and January 26, 2013. Revenues from three of the top five customers exceeded 10% of total revenue during the three or six months ended January 25, 2014 or January 26, 2013:
 
For the Three Months Ended
 
For the Six Months Ended
 
January 25, 2014
 
January 26, 2013
 
January 25, 2014
 
January 26, 2013
AT&T Inc. ("AT&T")
18.7%
 
13.6%
 
18.0%
 
13.5%
CenturyLink, Inc. ("CenturyLink")
14.4%
 
14.7%
 
15.0%
 
14.2%
Comcast Corporation ("Comcast")
12.0%
 
11.0%
 
11.2%
 
11.8%


21


Table of Contents

The Company believes that none of its significant customers was experiencing financial difficulties that would materially impact the collectability of the Company’s trade accounts receivable and costs in excess of billings as of January 25, 2014 and July 27, 2013. Customers representing 10% or more of combined amounts of trade accounts receivable and costs and estimated earnings in excess of billings as of January 25, 2014 or July 27, 2013 had the following outstanding balances and the related percentage of the Company’s total outstanding balances:
 
January 25, 2014
 
July 27, 2013
 
Amount
 
% of Total
 
Amount
 
% of Total
 
 
 
(Dollars in millions)
 
 
AT&T
$
59.7

 
14.7
%
 
$
57.4

 
12.6
%
CenturyLink
$
48.8

 
12.0
%
 
$
62.6

 
13.7
%
Windstream Corporation
$
30.6

 
7.5
%
 
$
59.4

 
13.0
%
 
19. Supplemental Consolidating Financial Statements

On January 25, 2014 and July 27, 2013, Dycom Investments, Inc. (the "Issuer") had outstanding an aggregate principal amount of $277.5 million of 2021 Notes. The 2021 Notes are guaranteed by Dycom Industries, Inc. (the "Parent") and substantially all of the Company's subsidiaries. Each guarantor and non-guarantor subsidiary is 100% owned, directly or indirectly, by the Issuer and the Parent. The 2021 Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and Parent. The Indenture contains certain release provisions for the guarantor subsidiaries and the Parent. With respect to the guarantor subsidiaries, these provisions include release upon (i) the sale or other disposition of all or substantially all of the assets of a guarantor or a sale or other disposition of all of the capital stock of a guarantor, in each case, to a person that is not the Issuer, the Parent or a restricted subsidiary of the Parent, (ii) the designation of a restricted subsidiary that is a guarantor as an unrestricted subsidiary, (iii) the legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture, and (iv) the release of a guarantor of its guarantee of any credit facility. The Parent may not be released from its guarantee under any circumstances, except in the event of legal or covenant defeasance of the Notes or of satisfaction and discharge of the Indenture or pursuant to a provision of the Indenture which limits the Parent’s liability under its guarantee in order to prevent a fraudulent conveyance. There are no contractual restrictions limiting transfers of cash from guarantor and non-guarantor subsidiaries to Issuer or Parent, within the meaning of Rule 3-10 of Regulation S-X.

The following consolidating financial statements present, in separate columns, financial information for (i) the Parent on a parent only basis, (ii) the Issuer, (iii) the guarantor subsidiaries on a combined basis, (iv) other non-guarantor subsidiaries on a combined basis, (v) the eliminations and reclassifications necessary to arrive at the information for the Company on a consolidated basis, and (vi) the Company on a consolidated basis. The consolidating financial statements are presented in accordance with the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the Company’s share of subsidiaries’ cumulative results of operations, capital contributions, distributions and other equity changes. Intercompany charges (income) between the Parent and subsidiaries are recognized in the consolidating financial statements during the period incurred and the settlement of intercompany balances is reflected in the consolidating statement of cash flows based on the nature of the underlying transactions.



22


Table of Contents

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JANUARY 25, 2014
 
Parent
 
Issuer
 
Subsidiary Guarantors
 
Non- Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Dycom Consolidated
 
(Dollars in thousands)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Cash and equivalents
$

 
$

 
$
15,212

 
$
1,132

 
$

 
$
16,344

Accounts receivable, net

 

 
230,775

 
844

 

 
231,619

Costs and estimated earnings in excess of billings

 

 
172,989

 
1,149

 

 
174,138

Inventories

 

 
43,426

 

 

 
43,426

Deferred tax assets, net
2,543

 

 
14,043

 
80

 
(332
)
 
16,334

Income taxes receivable
18,347

 

 

 

 

 
18,347

Other current assets
8,503

 
44

 
7,248

 
347

 

 
16,142

Total current assets
29,393

 
44

 
483,693

 
3,552

 
(332
)
 
516,350

 
 
 
 
 
 
 
 
 
 
 
 
PROPERTY AND EQUIPMENT, NET
16,402

 

 
172,637

 
14,600

 

 
203,639

GOODWILL

 

 
267,810

 

 

 
267,810

INTANGIBLE ASSETS, NET

 

 
115,243

 

 

 
115,243

DEFERRED TAX ASSETS, NET NON-CURRENT
59

 

 
4,122

 
839

 
(5,020
)
 

INVESTMENT IN SUBSIDIARIES
785,232

 
1,502,749

 

 

 
(2,287,981
)
 

INTERCOMPANY RECEIVABLES

 

 
681,310

 

 
(681,310
)
 

OTHER
8,554

 
5,976

 
2,087

 
235

 

 
16,852

TOTAL NON-CURRENT ASSETS
810,247

 
1,508,725

 
1,243,209

 
15,674

 
(2,974,311
)
 
603,544

TOTAL ASSETS
$
839,640

 
$
1,508,769

 
$
1,726,902

 
$
19,226

 
$
(2,974,643
)
 
$
1,119,894

 
 
 
 
 
 
 
 
 
 
 
 
 LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 

 
 

 
 

CURRENT LIABILITIES:
 

 
 

 
 

 
 

 
 

 
 

Accounts payable
$
2,607

 
$

 
$
49,046

 
$
662

 
$

 
$
52,315

Current portion of debt
9,375

 

 

 

 

 
9,375

Billings in excess of costs and estimated earnings

 

 
13,869

 

 

 
13,869

Accrued insurance claims
620

 

 
31,953

 
65

 

 
32,638

Deferred tax liabilities

 
155

 
150

 
27

 
(332
)
 

Other accrued liabilities
6,663

 
607

 
49,018

 
1,278

 

 
57,566

Total current liabilities
19,265

 
762

 
144,036

 
2,032

 
(332
)
 
165,763

 
 
 
 
 
 
 
 
 
 
 
 
LONG-TERM DEBT
135,375

 
280,926

 

 

 

 
416,301

ACCRUED INSURANCE CLAIMS
743

 

 
30,134

 
65

 

 
30,942

DEFERRED TAX LIABILITIES, NET NON-CURRENT

 
427

 
53,005

 
591

 
(5,020
)
 
49,003

INTERCOMPANY PAYABLES
229,350

 
441,422

 

 
10,538

 
(681,310
)
 

OTHER LIABILITIES
3,271

 

 
2,829

 
149

 

 
6,249

Total liabilities
388,004

 
723,537

 
230,004

 
13,375

 
(686,662
)
 
668,258

Total stockholders' equity
451,636

 
785,232

 
1,496,898

 
5,851

 
(2,287,981
)
 
451,636

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
839,640

 
$
1,508,769

 
$
1,726,902

 
$
19,226

 
$
(2,974,643
)
 
$
1,119,894


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Table of Contents

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JULY 27, 2013
 
Parent
 
Issuer
 
Subsidiary Guarantors
 
Non- Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Dycom Consolidated
 
(Dollars in thousands)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Cash and equivalents
$

 
$

 
$
18,166

 
$
441

 
$

 
$
18,607

Accounts receivable, net

 

 
249,533

 
2,669

 

 
252,202

Costs and estimated earnings in excess of billings

 

 
202,651

 
1,698

 

 
204,349

Inventories

 

 
35,999

 

 

 
35,999

Deferred tax assets, net
2,285

 

 
15,873

 
121

 
(1,426
)
 
16,853

Income taxes receivable
2,516

 

 

 

 

 
2,516

Other current assets
2,563

 
10

 
7,583

 
452

 

 
10,608

Total current assets
7,364

 
10

 
529,805

 
5,381

 
(1,426
)
 
541,134

 
 
 
 
 
 
 
 
 
 
 
 
PROPERTY AND EQUIPMENT, NET
13,779

 

 
173,254

 
15,670

 

 
202,703

GOODWILL

 

 
267,810

 

 

 
267,810

INTANGIBLE ASSETS, NET

 

 
125,275

 

 

 
125,275

DEFERRED TAX ASSETS, NET NON-CURRENT
691

 

 
4,104

 
66

 
(4,861
)
 

INVESTMENT IN SUBSIDIARIES
769,639

 
1,472,559

 

 

 
(2,242,198
)
 

INTERCOMPANY RECEIVABLES

 

 
618,524

 

 
(618,524
)
 

OTHER
8,739

 
6,331

 
2,133

 
83

 

 
17,286

TOTAL NON-CURRENT ASSETS
792,848

 
1,478,890

 
1,191,100

 
15,819

 
(2,865,583
)
 
613,074

TOTAL ASSETS
$
800,212

 
$
1,478,900

 
$
1,720,905

 
$
21,200

 
$
(2,867,009
)
 
$
1,154,208

 
 
 
 
 
 
 
 
 
 
 
 
 LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 

 
 

 
 

CURRENT LIABILITIES:
 

 
 

 
 

 
 

 
 

 
 

Accounts payable
$
2,042

 
$

 
$
75,012

 
$
900

 
$

 
$
77,954

Current portion of debt
7,813

 

 

 

 

 
7,813

Billings in excess of costs and estimated earnings

 

 
13,788

 

 

 
13,788

Accrued insurance claims
619

 

 
28,342

 
108

 

 
29,069

Deferred tax liabilities

 
155

 
140

 
1,131

 
(1,426
)
 

Other accrued liabilities
9,151

 
1,321

 
59,374

 
1,345

 

 
71,191

Total current liabilities
19,625

 
1,476

 
176,656

 
3,484

 
(1,426
)
 
199,815

 
 
 
 
 
 
 
 
 
 
 
 
LONG-TERM DEBT
163,062

 
281,107

 

 

 

 
444,169

ACCRUED INSURANCE CLAIMS
726

 

 
26,426

 
98

 

 
27,250

DEFERRED TAX LIABILITIES, NET NON-CURRENT

 
427

 
52,436

 
610

 
(4,861
)
 
48,612

INTERCOMPANY PAYABLES
185,296

 
426,251

 

 
6,977

 
(618,524
)
 

OTHER LIABILITIES
3,142

 

 
2,855

 
4

 

 
6,001

Total liabilities
371,851

 
709,261

 
258,373

 
11,173

 
(624,811
)
 
725,847

Total stockholders' equity
428,361

 
769,639

 
1,462,532

 
10,027

 
(2,242,198
)
 
428,361

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
800,212

 
$
1,478,900

 
$
1,720,905

 
$
21,200

 
$
(2,867,009
)
 
$
1,154,208


24


Table of Contents

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 25, 2014
 
Parent
 
Issuer
 
Subsidiary Guarantors
 
Non- Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Dycom Consolidated
 
(Dollars in thousands)
REVENUES:
 
 
 
 
 
 
 
 
 
 
 
Contract revenues
$

 
$

 
$
388,402

 
$
2,116

 
$

 
$
390,518

 
 
 
 
 
 
 
 
 
 
 
 
EXPENSES:
 

 
 

 
 

 
 

 
 

 
 

Costs of earned revenues, excluding depreciation and amortization

 

 
325,678

 
1,675

 

 
327,353

General and administrative
10,284

 
215

 
25,322

 
2,741

 

 
38,562

Depreciation and amortization
1,039

 

 
21,230

 
1,166

 

 
23,435

Intercompany charges (income), net
(13,130
)
 

 
13,271

 
(141
)
 

 

Total
(1,807
)
 
215

 
385,501

 
5,441

 

 
389,350

 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
(1,807
)
 
(4,994
)
 
1

 

 

 
(6,800
)
Other income, net

 

 
630

 
(35
)
 

 
595