CORPORATE PROFILE
Dycom Industries, Inc. 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. Dycom has grown to become one of
North America’s largest specialty contracting services
companies. Its more than 40 operating subsidiaries
serve customers in all 50 states, the District of
Columbia, and in Canada. Headquartered in Palm
Beach Gardens, Florida, Dycom employs a workforce
of more than 10,800 employees across all locations.
Specialty Contracting Services
Engineering. Dycom provides outside plant
engineers and drafters to telecommunication providers.
These personnel design aerial, underground and buried
fiber optic, copper, and coaxial cable systems that
extend from the telephone company central office, or
cable operator headend, to the consumer’s home or
business. The engineering services Dycom provides
to telephone companies include: the design of service
area concept boxes, terminals, buried and aerial drops,
transmission and central office equipment; the proper
administration of feeder and distribution cable pairs;
and fiber cable routing and design. For cable television
multiple system operators, Dycom performs make-ready
studies, strand mapping, field walk-out, computer-
aided radio frequency design and drafting, and fiber
cable routing and design. Dycom obtains rights of way
and permits in support of its engineering activities
and those of its customers, and provides construction
management and inspection personnel in conjunction
with engineering services or on a stand-alone basis.
Construction, Maintenance, and Installation.
Dycom places and splices fiber, copper, and coaxial
cables. In addition, Dycom excavates trenches in which
to place these cables; places related structures such
as poles, anchors, conduits, manholes, cabinets and
closures; places drop lines from main distribution lines
to the consumer’s home or business; and maintains and
removes these facilities. These services are provided
to both telephone companies and cable television
multiple system operators in connection with the
deployment of new networks and the expansion or
maintenance of existing networks. For cable television
system operators, Dycom installs and maintains
customer premise equipment such as digital video
recorders, set top boxes and modems. For wireless
carriers, Dycom provides tower construction, lines and
antenna installation, and foundation and equipment
pad construction, as well as equipment and material
fabrication and site testing services.
Underground Facility Locating Services.
Dycom provides underground facility locating
services to a variety of utility companies, including
telecommunication providers. Under various state laws,
excavators are required, prior to excavating, to request
from utility companies the location of their underground
facilities in order to prevent utility network outages and
to safeguard the general public from the consequences
of damages to underground utilities. Utility companies
are required to respond within specified time periods to
these requests to mark underground and buried facilities.
Dycom’s underground facility locating services include
locating telephone, cable television, power, water, sewer,
and gas lines.
Electric and Gas Utilities and Other Construction
and Maintenance Services. Dycom performs construction
and maintenance services for electric and gas utilities and
other customers. These services are performed primarily
on a stand-alone basis and typically include installing and
maintaining overhead and underground power distribution
lines. In addition, Dycom periodically provides these
services for the combined projects of telecommunication
providers and electric utility companies, primarily in joint
trenching situations, in which services are being delivered
to new housing subdivisions. Dycom also maintains
and installs underground natural gas transmission and
distribution systems for gas utilities.
Dycom Industries, Inc. and Subsidiaries
FINANCIAL HIGHLIGHT S
The following financial information has been derived from the Company’s consolidated financial statements. This information should be read in conjunction
with the consolidated financial statements and the notes thereto contained in this Annual Report, as well as the section of this Annual Report entitled
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
2013
2012
2011
2010
2009
In thousands, except per common share amounts and number of employees
Revenues
$1,608,612
$1,201,119
$1,035,868
Income (loss) from continuing
operations
Net income (loss)
Earnings (loss) per common
share - diluted
Weighted average number of
common shares – diluted
Total assets
Long-term obligations
Stockholders’ equity
Number of employees
$35,188
$39,378
$16,107
$35,188
$1.04
$39,378
$1.14
$16,107
$0.45
33,782
34,482
35,754
$1,154,208
$526,032
$428,361
10,822
$772,193
$264,699
$392,931
8,111
$724,755
$254,391
$351,851
8,320
$988,623
$5,849
$5,849
$0.15
38,997
$679,556
$187,798
$394,555
8,897
$1,106,900
$(53,094)
$(53,180)
$(1.35)
39,255
$693,457
$192,804
$390,623
9,231
DYCOM’S NATIONWID E P RE S E N CE
October 2013
DEAR FELLO W SHARE HO LD ER S :
As fiscal 2014 begins, we look back on another
year of outstanding performance. Our acquisition
of the telecommunications infrastructure services
subsidiaries of Quanta Services dramatically increased
the Company’s scope and scale. It was buttressed by
continued organic growth, growth which accelerated
throughout the year. Both of these developments
occurred at a time when our customers are increasingly
signaling that vast increases in the capabilities of their
telecommunications networks are being considered.
Programs to dramatically increase telecommunication
network capabilities have occurred before in our
industry. When they have, our business opportunities
have significantly escalated. When these opportunities
have been met with good execution on our part,
shareholders and employees have been amply rewarded.
In my fiscal 2007 shareholder letter, I outlined a
simple model of our industry’s dynamics:
Six years later this simple model’s powerful
• Telephone and cable companies will converge
insights remain undiminished. Its conceptual clarity
in their product offerings and compete with
has enabled us to both predict and understand industry
one another.
developments and the opportunities they may create.
• Each will offer video, voice, and data services to
Today, telephone and cable companies continue
residential consumers over wired networks
to converge in their residential product offerings and
possessing dramatically improved capabilities.
compete ever more strenuously with one another. The
• Improved capabilities will be initiated by telephone
entry of cable operators over the last five years into
and cable companies to create significant relative
the market for data services to small and medium
competitive advantages.
business enterprises has been remarkable and continues
• These initiatives will enable new consumer
unabated as a key growth opportunity for us and our
applications which create meaningful value.
customers. Improved wired networks continue to
• Consumers will demand ever increasing amounts
support augmented video, voice and data services
of network bandwidth and reliability as they adopt
to both residential and business customers while
these ever evolving and valued applications.
the introduction of the iPhone by Apple in 2007 has
• Demand for network bandwidth and reliability
unleashed tremendous demand for wireless broadband
has continually and inevitably exhausted
services, a new and key growth area for the Company
network capacity, driving increased telephone
during fiscal 2013.
and cable company capital expenditures to
These improved network capabilities have been
provision ever growing amounts of bandwidth and
initiated by our customers to create and maintain
network functionality.
relative competitive advantages. Recently, the CEO of
one of our customers stated, “And you are going to see,
times more capable than the routine data connections
this is just the nature of our industry. Somebody invests
provided to residential consumers today. This potential
in technology and it gives them an advantage and
step function change in capability is reminiscent in
they ride it for a while. Somebody comes along and
many ways to the increase in capabilities achieved
they invest.”
when internet access transitioned from dial-up over a
Consumer applications which take advantage of
standard copper telephone connection to a one megabit
enhanced telecommunications network capabilities have
broadband connection provided by cable operators over
exploded since 2007. Earlier this year it was reported
hybrid fiber coaxial cable networks. Dial-up access,
that Netflix, an online video service provider, consumed
which was the predominant technology in the initial
roughly one third of peak period network downstream
phase of internet access, was generally accomplished
bandwidth on the internet. In 2007, Netflix was best
through 28 kilobit or 56 kilobit connections from
known for physically distributing digital video discs
telephone companies. When cable operators began
(DVDs) through the U.S. Postal Service. YouTube, a
offering connections, they quickly did so at one
video service which allows users to share video content
megabit, an 18 to 35 fold increase in capability. The
was founded in 2005. Its first video was uploaded on
rapid and massive consumer adoption of these one
April 23 of that year. Earlier in 2013 it was reported
megabit connections was accompanied by significant
that YouTube consumed over 17 percent of peak period
cable industry capital expenditures which fueled in part
network downstream bandwidth on the internet. These
the rapid growth the Company experienced from 1997
two video applications combined consume roughly one
through 2000. Success by the cable operators prompted
half of current peak internet downstream bandwidth. Six
a competitive response as telephone companies began
years ago they were insignificant.
to roll out digital subscriber line (DSL) technology.
The impact of these and other applications has
This roll out also contributed to our growth in that
increased the demands on our customers’ networks.
time period. As our industry model predicts, consumer
Customers have responded to these demands through
demand generated technology deployments by our
capital expenditures which have enhanced the speed
customers so that they could create relative competitive
with which consumers and businesses download and
advantages for their own businesses.
upload data over both wired and wireless networks.
There are other ways in which that earlier period
Recently, one of our customers publicly disclosed that
and the current industry environment are very similar.
approximately one-third of its millions and millions of
Merger activity amongst our customers was robust as
high speed data subscribers now routinely subscribe
they felt compelled to create scale in part to support the
to 50 megabit connections, a speed that was barely
needs for growth capital. New sources of capital from
commercially available in 2007.
outside the existing industry emerged with Microsoft
All in all, I strongly believe that this model of industry
investing in cable operator Comcast and Paul Allen,
dynamics remains as instructive today as it was in 2007.
a co-founder of Microsoft, purchasing and heavily
In fact, recent comments made by several of
investing in cable operator Charter Communications.
our customers appear to be signaling that they are
The involvement of these new industry participants
considering the broader deployment of one gigabit
served to highlight the critical importance of high speed
connections. These connections are roughly 20 to 50
access to the ultimate success of the internet. High speed
continued
access enabled the internet to become the transformative
growth accelerated from 2.4% in the first quarter
medium it is today. Similarly, today the wireless industry
through 7.5% in the fourth quarter. Services for wireless
is undergoing substantial merger activity including the
carriers grew strongly throughout the year offsetting the
provision of capital by a participant new to the United
slowing of rural broadband projects which were funded
States market. This participant is focused on dramatic
by the American Recovery and Reinvestment Act of
improvements in wireless network capabilities. Wired
2009. On a stand-alone basis our legacy businesses
networks are also attracting renewed interest as Google
produced revenues* of $1.271 billion, a record amount
has announced that it is or will be building a one gigabit
which eclipsed the pre-recession revenues of fiscal 2008.
fiber to the home network in three cities. This last
On a total basis including all revenues from
development is particularly noteworthy as it signifies
companies acquired during the fiscal year, revenues
that one of the foremost beneficiaries of past increases
totaled $1.609 billion, an increase of 33.9% from
in network bandwidth is now attempting to be the direct
fiscal 2012. Earnings were strong despite substantial
catalyst of another dramatic increase.
acquisition related expenses while operating cash flow
Within this industry context, our purchase of the
increased 63.9% from $65 million to $107 million. The
telecommunications infrastructure services subsidiaries
balance sheet remains strong with $197.9 of liquidity
of Quanta Services in December of 2012 was well timed
through cash and availability on our bank credit facility
to increase our scope and scale just as new potential
at fiscal year-end.
industry catalysts were emerging. This acquisition
As we look forward to an industry environment
strengthened our customer base, geographic scope
full of potential opportunities, we are pleased with
and technical service offerings. It reinforced our rural
the condition of the Company and grateful to our
engineering and construction capabilities, wireless
employees for their hard work and dedication.
construction resources and broadband construction
To our shareholders and directors: thanks for
competencies. It took advantage of a very attractive
your insights and support. As always, your constant
financing environment to drive strong investment
vigilance ensures that we remain focused on the
returns. The acquisition brought us an experienced
fundamentals of success. And finally, to our retiring
management team with a solid industry reputation.
director Chip Brennan, thanks for your 11 years of
The businesses acquired operate nationwide from
dedicated service. Your wise counsel has been much
principal business locations in Arizona, California,
appreciated. You leave us a much better company.
Florida, Georgia, Minnesota, New York, Pennsylvania
and Washington. They have provided literally decades
of dedicated service to our joint customers. We have
been pleased with the acquisition.
Sincerely,
In a year focused on the acquisition, financing
and integration of these newly acquired businesses,
Steven Nielsen
President and Chief Executive Officer
our legacy businesses continued to perform very well.
Organic revenue* growth for the fiscal year was 4.9%,
an impressive growth rate given the challenge of lapping
the strong growth of the prior year. Organic revenue
*Organic revenue and revenues of legacy businesses are Non-GAAP
financial measures. See the Reconciliation of Non-GAAP Financial
Measures at the end of this annual report for a reconciliation of these
financial measures to the most directly comparable financial measure
calculated and presented in accordance with accounting principles
generally accepted in the United States.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 27, 2013
(cid:133) 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
(State or other jurisdiction of incorporation or
organization)
11770 US Highway 1, Suite 101,
Palm Beach Gardens, Florida
(Address of principal executive offices)
59-1277135
(I.R.S. Employer Identification No.)
33408
(Zip Code)
Registrant’s telephone number, including area code: (561) 627-7171
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.33 1/3 per share
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133) No (cid:95)
(cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:95)
(cid:3)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:95) No (cid:133)
(cid:3)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:95) No (cid:133)
(cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ($ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy of information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. (cid:95)
(cid:3)
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 (cid:95) Accelerated filer (cid:133)
Non-accelerated filer (cid:133)
(Do not check if a smaller reporting company)
Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:95)
(cid:3)
The aggregate market value of the common stock, par value $0.33 1/3 per share, held by non-affiliates of the registrant, computed by
reference to the closing price of such stock on the New York Stock Exchange on January 26, 2013, was $688,599,652.
There were 33,295,803 shares of common stock with a par value of $0.33 1/3 outstanding at September 6, 2013.
DOCUMENTS INCORPORATED BY REFERENCE
Document
Portions of the registrant’s Proxy Statement to be filed by November 24, 2013
Part of Form 10-K into which incorporated
Parts II and III
Such Proxy Statement, except for the portions thereof which have been specifically incorporated by reference, shall not be
deemed "filed" as part of this Annual Report on Form 10-K.
Dycom Industries, Inc.
Table of Contents
Cautionary Note Concerning Forward-Looking Statements
Available Information
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships, Related Transactions and Director Independence
Principal Accounting Fees and Services
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
2
3
3
4
9
15
15
15
15
16
17
19
38
39
82
82
84
84
84
84
84
84
84
88
Cautionary Note Concerning Forward-Looking Statements
This Annual Report on Form 10-K, including any documents incorporated by reference or deemed to be incorporated by
reference herein, contains "forward-looking statements," which are statements relating to future events, future financial
performance, strategies, expectations, and competitive environment. Words such as "outlook," "believe," "expect," "anticipate,"
"estimate," "intend," "forecast," "may," "should," "could," "project" and similar expressions, as well as statements in future
tense, identify forward-looking statements.
You should not read forward-looking statements as a guarantee of future performance or results. They will not necessarily
indicate accurately whether such performance or results will be achieved or at what time. Forward-looking statements are based
on information available at the time those statements are made and/or management’s good faith belief at that time with respect
to future events. Such statements are subject to risks and uncertainties that could cause actual performance or results to differ
materially from those expressed in or suggested by the forward-looking statements. Important factors, assumptions,
uncertainties, and risks that could cause such differences include, but are not limited to:
• anticipated outcomes of contingent events, including litigation;
• projections of revenues, income or loss, or capital expenditures;
• whether the carrying value of our assets is impaired;
• expected benefits and synergies of businesses acquired, including those acquired in fiscal 2013, and future
opportunities for the combined businesses;
• plans for future operations, growth and acquisitions, dispositions, or financial needs;
• availability of financing;
• the outcome of our plans for future operations, growth and services, including contract backlog;
• restrictions imposed by our credit agreement and the indenture governing our senior subordinated notes;
• the use of our cash flow to service our debt;
• future economic conditions and trends in the industries we serve;
• assumptions relating to any of the foregoing;
and other factors discussed within Item 1, Business, Item 1A, Risk Factors and Item 7, Management’s Discussion and Analysis
of Financial Condition and Results of Operations in this Annual Report on Form 10-K and other risks outlined in our periodic
filings with the Securities and Exchange Commission ("SEC"). Our forward-looking statements are expressly qualified in their
entirety by this cautionary statement. Our forward-looking statements are only made as of the date of this Annual Report on
Form 10-K, and we undertake no obligation to update these forward-looking statements to reflect new information, or events or
circumstances arising after such date.
Available Information
Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any
amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), are available free of charge at our website, www.dycomind.com, as soon as reasonably
practicable after we file these reports with, or furnish these reports to, the SEC. All references to www.dycomind.com in this
report are inactive textual references only and the information on our website is not incorporated into this Annual Report on
Form 10-K.
3
Item 1. Business.
PART I
Dycom Industries, Inc. is a leading provider of specialty contracting services and was incorporated in the State of Florida
in 1969. These services, which are provided throughout the United States and in Canada, 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 terms "Company," "we," "us," and "our" mean Dycom Industries, Inc. and all subsidiaries included in the
Consolidated Financial Statements in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on
Form 10-K unless the context indicates otherwise.
We have established relationships with many leading telephone companies, cable television multiple system operators, and
electric and gas utilities and others. These companies include AT&T Inc. ("AT&T"), CenturyLink, Inc. ("CenturyLink"),
Comcast Corporation ("Comcast"), Verizon Communications Inc. ("Verizon"), Windstream Corporation ("Windstream"),
Charter Communications, Inc. ("Charter"), Time Warner Cable Inc. ("Time Warner Cable"), Frontier Communications
Corporation ("Frontier"), Ericsson Inc. ("Ericsson"), and Cablevision Systems Corporation ("Cablevision"), as well as
numerous rural service providers.
On December 3, 2012, we acquired substantially all of the telecommunications infrastructure services subsidiaries (the
"Acquired Subsidiaries") of Quanta Services, Inc. Additionally, during the fourth quarter of fiscal 2013, we acquired Sage
Telecommunications Corp of Colorado, LLC ("Sage") and certain assets of a tower construction and maintenance company.
The results of operations of the businesses acquired are included in the accompanying consolidated financial statements from
their respective dates of acquisition.
Specialty Contracting Services
Engineering. We provide outside plant engineers and drafters to telecommunication providers. These personnel design
aerial, underground and buried fiber optic, copper, and coaxial cable systems that extend from the telephone company central
office, or cable operator headend, to the consumer's home or business. The engineering services we provide to telephone
companies include: the design of service area concept boxes, terminals, buried and aerial drops, transmission and central office
equipment; the proper administration of feeder and distribution cable pairs; and fiber cable routing and design. For cable
television multiple system operators, we perform make-ready studies, strand mapping, field walk-out, computer-aided radio
frequency design and drafting, and fiber cable routing and design. We obtain rights of way and permits in support of our
engineering activities and those of our customers, and provide construction management and inspection personnel in
conjunction with engineering services or on a stand-alone basis.
Construction, Maintenance, and Installation. We place and splice fiber, copper, and coaxial cables. In addition, we
excavate trenches in which to place these cables; place related structures such as poles, anchors, conduits, manholes, cabinets
and closures; place drop lines from main distribution lines to the consumer's home or business; and maintain and remove these
facilities. These services are provided to both telephone companies and cable television multiple system operators in
connection with the deployment of new networks and the expansion or maintenance of existing networks. For cable television
system operators, we install and maintain customer premise equipment such as digital video recorders, set top boxes and
modems. We provide tower construction, lines and antenna installation, and foundation and equipment pad construction for
wireless carriers, as well as equipment and material fabrication and site testing services. Additionally, premise wiring services
are provided to various companies, as well as state and local governments. These services include the installation, repair and
maintenance of telecommunications infrastructure within improved structures.
Underground Facility Locating Services. We provide underground facility locating services to a variety of utility
companies, including telecommunication providers. Under various state laws excavators are required, prior to excavating, to
request from utility companies the location of their underground facilities in order to prevent utility network outages and to
safeguard the general public from the consequences of damages to underground utilities. Utility companies are required to
respond within specified time periods to these requests to mark underground and buried facilities. Our underground facility
locating services include locating telephone, cable television, power, water, sewer, and gas lines.
Electric and Gas Utilities and Other Construction and Maintenance Services. We perform construction and maintenance
services for electric and gas utilities and other customers. These services are performed primarily on a stand-alone basis and
typically include installing and maintaining overhead and underground power distribution lines. In addition, we periodically
provide these services for the combined projects of telecommunication providers and electric utility companies, primarily in
4
joint trenching situations, in which services are being delivered to new housing subdivisions. We also maintain and install
underground natural gas transmission and distribution systems for gas utilities.
Revenues by Type of Customer
We recognize revenues under the percentage of completion method of accounting using the units-of-delivery or cost-to-
cost measures. A majority of our contracts are based on units-of-delivery and revenue is recognized as each unit is completed.
Revenues from contracts using the cost-to-cost measures of completion are recognized based on the ratio of contract costs
incurred to date to total estimated contract costs. Revenues from services provided under time and materials based contracts are
recognized as the services are performed.
The following table presents information regarding percentage of total revenues by type of customer:
Telecommunications
Underground facility locating
Electric and gas utilities and other customers
Total contract revenues
Business Strategy
Fiscal Year Ended
2013
2012
2011
87.7%
7.9%
4.4%
100.0%
84.5%
10.9%
4.6%
100.0%
82.1%
14.0%
3.9%
100.0%
Capitalize on Long-Term Growth Drivers. We are well positioned to benefit from increased demand for network
bandwidth which ensures reliable video, voice, and data services. As telecommunications networks experience increased
demand, our customers must expand the capacity and improve the performance of their existing networks and, in certain
instances, deploy new networks. This is increasingly important to our customers as the service offerings of telephone and cable
companies converge, with each offering reliable, competitively priced voice, video, and data services to consumers and
businesses. Additionally, there is a significant increase in demand for mobile broadband driven by the proliferation of smart
phones and other wireless data devices. Our customers' networks, both wireline and wireless, are increasingly facing demands
for greater capacity and reliability which increases the demand for the services we provide.
Selectively Increase Market Share. We believe our reputation for high quality and ability to provide services nationally
creates opportunities to expand our market share. Our decentralized operating structure and numerous points of contact within
customer organizations position us favorably to win new opportunities with existing customers. Our significant financial
resources enable us to address larger opportunities which some of our relatively capital-constrained competitors may be unable
to perform. We do not intend to increase market share by pursuing unprofitable work.
Pursue Disciplined Financial and Operating Strategies. We manage the financial aspects of our business by centralizing
certain activities which allow us to reduce costs through leveraging our scope and scale. Functions such as treasury, tax and
risk management, the approval of capital equipment procurements, the design of employee benefit plans, as well as the review
and promulgation of "best practices" in certain other aspects of our operations, are centralized. Additionally, we centralize
efforts in information technology that are designed to support and enhance our operating efficiency. In contrast, we decentralize
the recording of transactions and the financial reporting necessary for timely operational decisions. Decentralization promotes
greater accountability for business outcomes from our local decision makers. We also maintain a decentralized approach to
marketing, field operations and ongoing customer service, empowering local managers to capture new business and execute
contracts on a timely and cost-effective basis. This approach enables us to utilize our capital resources effectively and
efficiently while retaining the organizational agility necessary to compete with our predominantly small, privately owned local
competitors.
Pursue Selective Acquisitions. We selectively pursue acquisitions when we believe doing so is operationally and
financially beneficial, although we do not rely solely on acquisitions for growth. In particular, we pursue acquisitions that we
believe will provide us with incremental revenue and geographic diversification while complementing our existing operations.
We generally target companies for acquisition that have defensible leadership positions in their market niches, profitability
which meets or exceeds industry averages, proven operating histories, sound management and certain clearly identifiable cost
synergies.
5
Customer Relationships
We have established relationships with many leading telephone companies, including AT&T, CenturyLink, Verizon,
Windstream, and Frontier as well as telecommunication equipment and infrastructure providers, including Ericsson and Crown
Castle International Corp. We also provide telecommunications engineering, construction, installation and maintenance
services to cable television multiple system operators, including Comcast, Charter, Time Warner Cable, Cablevision and Bright
House Networks. Premise wiring services are provided to various companies, as well as state and local governments. Our
underground facility locating services are provided to telecommunication providers and to a variety of utility and gas
companies, including Edison International and Washington Gas Light Company. We also provide construction and
maintenance services to a number of electric and gas utility companies, including Questar Gas Company.
Our customer base is highly concentrated, with our top five customers accounting for approximately 58.5%, 59.6% and
62.0% of our total revenues in fiscal 2013, 2012, and 2011, respectively. During fiscal 2013, approximately 15.5% of our total
revenues was derived from AT&T, 14.6% from CenturyLink, 10.9% from Comcast, 9.6% from Verizon, and 7.9% from
Windstream. We believe that a substantial portion of our total revenues and operating income will continue to be derived from
a concentrated group of customers.
A significant portion of our services are performed under master service agreements and other arrangements with
customers that extend for periods of one or more years. We are party to numerous master service agreements and generally
maintain multiple agreements with each of our customers. Master service agreements generally contain customer-specified
service requirements, such as discrete pricing for individual tasks. To the extent that such agreements specify exclusivity, there
are often a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar
amount to other service providers, perform work with the customer's own employees, and use other service providers when
jointly placing facilities with another utility. In most cases, a customer may terminate an agreement for convenience with
written notice.
A customer's decision to engage us to perform a specific construction or maintenance project is often made by local
customer management working with our subsidiaries. As a result, our relationships with customers are generally broad and
extend deeply into their organizations. Historically, master service agreements have been awarded primarily through a
competitive bidding process; however, we have been able to extend some of these agreements on a negotiated basis. We also
enter into both long-term and short-term single project contracts with our customers.
Our markets are served locally by dedicated and experienced personnel. The management of our subsidiaries possesses
intimate knowledge of their particular markets, allowing us to be more responsive in addressing customer needs. Our sales and
marketing efforts are the responsibility of management, including management of our subsidiaries. These marketing efforts
tend to focus on contacts with managers within our customers' organizations.
Backlog
Our backlog totaled $2.197 billion and $1.565 billion at July 27, 2013 and July 28, 2012, respectively. We expect to
complete 55.4% of the July 27, 2013 backlog during fiscal 2014. The increase in backlog is due in part to the incremental
backlog resulting from businesses acquired in fiscal 2013.
Our backlog consists of the uncompleted portion of services to be performed under job-specific contracts and the estimated
value of future services that we expect to provide under master service agreements and other contracts. Many of our contracts
are multi-year agreements, and we include in our backlog the amount of services projected to be performed over the terms of
the contracts based on our historical experience with customers and, more generally, our experience in procurements of this
type. Revenue estimates included in our backlog can be subject to change as a result of project accelerations, cancellations or
delays due to various factors, including but not limited to commercial issues and adverse weather. These factors can also cause
revenue amounts to be realized in periods and at levels different than originally projected. In many instances, our customers are
not contractually committed to procure specific volumes of services under a contract. Our estimates of a customer's
requirements during a particular future period may prove to be inaccurate.
Backlog is considered a non-GAAP financial measure as defined by SEC Regulation G; however, it is a common
measurement used in our industry. Our methodology for determining backlog may not be comparable to the methodologies
used by others.
6
Safety and Risk Management
We are committed to ensuring that our employees perform their work safely, and we regularly communicate with our
employees to reinforce that commitment and instill safe work habits. The safety directors of our subsidiaries review accidents
and claims for our operations, examine trends and implement changes in procedures to address safety issues. Claims arising in
our business generally include workers' compensation claims, various general liability and damage claims, and claims related to
vehicle accidents, including personal injury and property damage. We insure against the risk of loss arising from our operations
up to certain deductible limits in substantially all of the states in which we operate. In addition, we retain the risk of loss, up to
certain limits, under our employee group health plan.
We carefully monitor claims and actively participate with our insurers in determining claims estimates and adjustments.
The estimated costs of claims are accrued as liabilities, and include estimates for claims incurred but not reported. Due to
fluctuations in our loss experience from year to year, insurance accruals have varied and can affect the consistency of our
operating margins. If we experience insurance claims in excess of our umbrella coverage limit, our business could be materially
and adversely affected. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations,
and Note 8, Accrued Insurance Claims, of Notes to Consolidated Financial Statements.
Competition
The specialty contracting services industry in which we operate is highly fragmented. It is characterized by a large number
of participants, including several large companies as well as a significant number of small, privately owned, local competitors.
We also face competition from the in-house service organizations of our existing and prospective customers, particularly
telecommunications providers that employ personnel who perform some of the same services that we provide. We have been
performing specialty contracting services through relationships with our subsidiaries that in many cases have existed for
decades. However, our existing and prospective customers may elect to discontinue outsourcing specialty contracting services
in the future. In addition, there are relatively few barriers to entry into the markets in which we operate. As a result, any
organization that has adequate financial resources and access to technical expertise may become a competitor.
A significant portion of our revenue is currently derived from master service agreements, and price is often an important
factor in awarding such agreements. Accordingly, we may be underbid by our competitors if they elect to reduce their prices in
order to procure business or we could be required to lower the price charged under a contract being rebid. Our competitors may
also have or develop the expertise, experience and resources to provide services that are equal or superior in both price and
quality to our services, and we may not be able to maintain or enhance our competitive position.
The principal competitive factors for our services include geographic presence, breadth of service offerings, worker and
general public safety, price, quality of service, and industry reputation. We believe that we perform as well as or better than our
competitors with respect to these factors.
Employees
As of July 27, 2013, we employed approximately 10,822 persons. The number of our employees varies with the level of
our work in progress. We maintain a nucleus of technical and managerial personnel to supervise all projects and add employees
as needed to complete specific projects.
Materials and Subcontractors
For a majority of the contract services we perform, our customers provide all the materials required while we provide the
necessary personnel, tools, and equipment. Materials supplied by our customers, for which the customer retains financial and
performance risk, are not included in our revenue or costs of sales. Under contracts where we are required to supply part or all
of the materials, we are not generally dependent upon any one source for the materials that we customarily use to complete
projects. We do not manufacture materials for resale.
We use independent subcontractors to help manage fluctuations in work volumes and reduce the amount that we may
otherwise be required to spend on fixed assets and working capital. These independent subcontractors typically are small
locally owned companies. Independent subcontractors provide their own employees, vehicles, tools, and insurance coverage.
No single independent subcontractor is significant.
7
Seasonality
Our revenues exhibit seasonality as a significant portion of the work we perform is outdoors. Consequently, our operations
are impacted by extended periods of inclement weather. Generally, inclement weather is more likely to occur during the winter
season, which falls during our second and third fiscal quarters. Also, a disproportionate percentage of total paid holidays fall
within our second quarter, which decreases the number of available workdays. Additionally, our customer premise equipment
installation activities for cable providers historically decrease around calendar year end holidays as their customers generally
require less activity during this period. As a result, we may experience reduced revenue in the second or third quarters of our
fiscal year.
Environmental Matters
A significant portion of the work we perform is associated with the underground networks of our customers. We could be
subject to potential material liabilities in the event we cause a release of hazardous substances or other environmental damage
resulting from underground objects we encounter. Additionally, environmental laws and regulations which relate to our
business include those regarding the removal and remediation of hazardous substances. These laws and regulations can impose
significant fines and criminal sanctions for violations. Costs associated with the discharge of hazardous substances may include
clean-up costs and related damages or liabilities. These costs could be significant and could adversely affect our results of
operations and cash flows.
Executive Officers of the Registrant
The following table sets forth certain information concerning the Company's executive officers, all of whom serve at the
pleasure of the Board of Directors.
Name
Steven E. Nielsen
Timothy R. Estes
H. Andrew DeFerrari
Richard B. Vilsoet
Age
50
59
44
60
Office
Chairman, President and Chief Executive Officer
Executive Vice President and Chief Operating Officer
Senior Vice President and Chief Financial Officer
Vice President, General Counsel and Corporate Secretary
Executive Officer Since
February 26, 1996
September 1, 2001
November 22, 2005
June 11, 2005
There are no arrangements or understandings between any executive officer of the Company and any other person pursuant
to which any executive officer was selected as an officer of the Company. There are no family relationships among the
Company's executive officers.
Steven E. Nielsen has been the Company's President and Chief Executive Officer since March 1999. Prior to that, Mr.
Nielsen was President and Chief Operating Officer of the Company from August 1996 to March 1999, and Vice President from
February 1996 to August 1996.
Timothy R. Estes has been the Company's Executive Vice President and Chief Operating Officer since September 2001.
Prior to that, Mr. Estes was the President of Ansco & Associates, Inc., one of the Company's subsidiaries, from 1997 until 2001
and Vice President from 1994 until 1997.
H. Andrew DeFerrari has been the Company's Senior Vice President and Chief Financial Officer since April 2008. Prior to
that, Mr. DeFerrari was the Company's Vice President and Chief Accounting Officer since November 2005 and was the
Company's Financial Controller from July 2004 through November 2005. Mr. DeFerrari was previously a senior audit manager
with Ernst & Young Americas, LLC.
Richard B. Vilsoet has been the Company's General Counsel and Corporate Secretary since June 2005 and Vice President
since November 2005. Before joining the Company, Mr. Vilsoet was a partner with Shearman & Sterling LLP. Mr. Vilsoet was
with Shearman & Sterling LLP for over 15 years.
8
Item 1A. Risk Factors.
Our business is subject to a variety of risks and uncertainties, including, but not limited to, the risks and uncertainties
described below. If any of the risks described below, or elsewhere in this Annual Report on Form 10-K, or the Company's other
filings with the Securities and Exchange Commission, were to occur, our financial condition and results of operations could
suffer and the trading price of our common stock could decline. Additionally, if other risks not presently known to us, or that
we do not currently believe to be significant, occur or become significant, our financial condition and results of operations
could suffer and the trading price of our common stock could decline.
Uncertain economic conditions and/or challenges in the financial and credit markets may adversely impact our customers'
future spending. The U.S. economy is still recovering from the recent recession, and growth in U.S. economic activity has
remained slow. It is uncertain when these conditions will significantly improve. Economic downturns adversely impact the
demand for our services and potentially result in the delay or cancellation of projects by our customers. This makes it difficult
to estimate our customers' requirements for our services and adds uncertainty to the determination of our backlog. In addition,
our customers generally finance their projects though cash flow from operations, the issuance of debt, or the issuance of equity.
As a result, reduced cash flow from operations or volatility in the credit and equity markets could reduce the availability of debt
or equity financing for our customers. This may result in a reduction in our customers' spending for our services, which could
adversely affect our operations as a result of less demand for our services or lower margins.
Demand for our services is cyclical and vulnerable to downturns affecting the industries we serve. Demand for our
services by telecommunications customers has been, and will likely continue to be, cyclical in nature and vulnerable to
downturns in the economy and telecommunications industry. Our results for fiscal 2009 and fiscal 2010 were impacted by
customer reductions in near-term spending plans. Although we experienced an improved operating environment in fiscal 2013,
2012, and 2011, there is no guarantee that future downturns will not occur. During times of slowing economic conditions, our
customers often reduce their capital expenditures and defer or cancel pending projects. In addition, our underground facility
locating services more generally are influenced by the level of overall economic activity. As a result of the foregoing, demand
for our services may decline during periods of economic weakness adversely affecting our operations, cash flows and liquidity.
We derive a significant portion of our revenues from master service agreements and long-term contracts which may be
canceled by our customers upon notice or which we may be unable to renew on negotiated terms. During fiscal 2013, we
derived approximately 77.0% of our revenues from master service agreements and long-term contracts. By their terms, the
majority of these contracts may be canceled by our customers upon notice, regardless of whether or not we are in default. In
addition, our customers generally have no obligation to assign a specific amount of work to us under these agreements.
Consequently, projected expenditures by customers are not assured until a definitive work order is placed with us and the work
completed. Furthermore, our customers generally require competitive bidding of these contracts. Accordingly, we may be
underbid by our competitors if they elect to reduce their prices in order to procure business or we could be required to lower the
price charged under a contract being rebid. The loss of work obtained through master service agreements and long-term
contracts or the reduced profitability of such work could adversely affect our results of operations, cash flows and liquidity.
The industries we serve have experienced and may continue to experience rapid technological, structural and competitive
changes that could reduce the need for our services and adversely affect our revenues. The telecommunications industry is
characterized by rapid technological change, intense competition and changing consumer demands. We generate a significant
portion of our revenues from customers in the telecommunications industry. New technologies, or upgrades to existing
technologies by customers, could reduce the need for our services and adversely affect our revenues and profitability. New,
developing, or existing services could displace the wireline or wireless systems that we install and that are used by our
customers to deliver services to consumers and businesses. In addition, improvements in existing technology may allow
telecommunication companies to improve their networks without physically upgrading them. Reduced demand for our services
or a loss of a significant customer could adversely affect our results of operations, cash flows and liquidity.
We derive a significant portion of our revenues from a limited number of customers, and the loss of one or more of these
customers could adversely impact our revenues and profitability. Our customer base is highly concentrated, with our top five
customers accounting for approximately 58.5%, 59.6%, and 62.0% of our total revenues in fiscal 2013, 2012, and 2011,
respectively. If we were to lose one or more of our significant customers, our revenue may significantly decline. In addition,
revenues under our contracts with significant customers may vary from period-to-period depending on the timing or volume of
work which those customers order or perform with their in-house service organizations. Additionally, the consolidation, merger
or acquisition of an existing customer may result in a change in procurement strategies employed by the surviving entity which
could reduce the amount of work we receive. The loss of work from a significant customer could adversely affect our results of
operations, cash flows and liquidity.
9
The specialty contracting services industry in which we operate is highly competitive. We compete with other specialty
contractors, including numerous small, privately owned companies, as well as several companies that may have financial,
technical and marketing resources that exceed our own. Relatively few barriers to entry exist in the markets in which we
operate and, as a result, any organization with adequate financial resources and access to technical expertise may become a
competitor. Additionally, our competitors may develop the expertise, experience and resources to provide services that are
equal or superior in both price and quality to our services, and we may not be able to maintain or enhance our competitive
position. We also face competition from the in-house service organizations of our customers whose personnel perform some of
the services that we provide. We can offer no assurance that our existing or prospective customers will continue to outsource
specialty contracting services in the future.
Our financial results are based on estimates and assumptions that may differ from actual results. In preparing our
consolidated financial statements in conformity with accounting principles generally accepted in the United States of America,
a number of estimates and assumptions are made by management that affect the amounts reported in the financial statements.
These estimates and assumptions must be made because certain information that is used in the preparation of our financial
statements is either dependent on future events or cannot be calculated with a high degree of precision from available data. In
some instances, these estimates are particularly uncertain and we must exercise significant judgment. Estimates are primarily
used in our assessment of the recognition of revenue for costs and estimated earnings under the percentage of completion
method of accounting, allowance for doubtful accounts, the fair value of reporting units for goodwill impairment analysis, the
assessment of impairment of intangibles and other long-lived assets, the purchase price allocations of businesses acquired,
accrued insurance claims, income taxes, asset lives used in computing depreciation and amortization, stock-based
compensation expense for performance-based stock awards, and accruals for contingencies, including legal matters. At the time
they are made, we believe that such estimates are fair when considered in conjunction with our consolidated financial position
and results of operations taken as a whole. However, actual results could differ from those estimates and such differences may
be material to our financial statements.
Our profitability is based on our delivering services within the estimated costs established when pricing our contracts. We
recognize revenues under the percentage of completion method of accounting using the units-of-delivery or cost-to-cost
measures. A significant majority of our contracts are based on units-of-delivery and revenue is recognized as each unit is
completed. As the price for each of the units is fixed by the contract, our profitability could decline if our actual cost to
complete each unit exceeds our original estimates. Revenues from contracts using the cost-to-cost measures of completion are
recognized based on the ratio of contract costs incurred to date to total estimated contract costs. Application of the percentage
of completion method of accounting requires that we estimate the costs to be incurred in performing the contract. Our process
for estimating costs is based on the knowledge and experience of our project managers and financial professionals. Any
changes in original cost estimates, or the assumptions underpinning such estimates, may result in changes to costs and income.
These changes would be recognized in the period in which they are determined and could result in significant changes to
previously reported profits.
We have a significant amount of accounts receivable and costs and estimated earnings in excess of billings. We extend
credit to our customers as a result of performing work under contract prior to billing our customers for that work. These
customers include telephone companies, cable television multiple system operators, and gas and electric utilities and others. At
July 27, 2013, we had net accounts receivable of $252.2 million and costs and estimated earnings in excess of billings of
$204.3 million. We periodically assess the credit risk of our customers and continuously monitor the timeliness of payments.
Slowing conditions in the industries we serve may impair the financial condition of one or more of our customers and hinder
their ability to pay us on a timely basis or at all. Furthermore, bankruptcies or financial difficulties within the
telecommunications sector could hinder the ability of our customers to pay us on a timely basis or at all. The failure or delay in
payment by our customers could reduce our cash flows and adversely impact our liquidity and profitability.
We retain the risk of loss for certain insurance related liabilities. We retain the risk of loss, up to certain limits, for claims
related to automobile liability, general liability, workers' compensation, employee group health, and locate damages. We
estimate and develop our accrual for these claims based on facts, circumstances and historical evidence. However, the estimate
for accrued insurance claims remains subject to uncertainty as it depends in part on factors that cannot be known with
precision. These factors include the estimated number of future claims, the payment pattern of claims which have been
incurred, changes in the medical condition of claimants, and other factors such as inflation, tort reform or other legislative
changes, unfavorable jury decisions and court interpretations. Should a greater number of claims occur compared to what we
have estimated, or should the dollar amount or cost of actual claims exceed what we have anticipated, our recorded reserves
may not be sufficient, and we could incur substantial additional unanticipated charges. See Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Accrued Insurance Claims,
and Note 8, Accrued Insurance Claims, of Notes to the Consolidated Financial Statements in this Annual Report on Form 10-
K.
10
Our backlog is subject to reduction or cancellation. Our backlog consists of the uncompleted portion of services to be
performed under job-specific contracts and the estimated value of future services that we expect to provide under master
service agreements and other contracts. Many of our contracts are multi-year agreements, and we include in our backlog the
amount of services projected to be performed over the terms of the contracts based on our historical experience with customers
and, more generally, our experience in procurements of this type. Revenue estimates included in our backlog can be subject to
change as a result of project accelerations, cancellations or delays due to various factors, including but not limited to
commercial issues and adverse weather. These factors can also cause revenue amounts to be realized in periods and at levels
different than originally projected. In many instances, our customers are not contractually committed to procure specific
volumes of services under a contract. Our estimates of a customer's requirements during a particular future period may prove to
be inaccurate. As a result, our backlog as of any particular date is an uncertain indicator of future revenues and earnings.
We may incur impairment charges on goodwill or other intangible assets. We account for goodwill in accordance with
Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") Topic 350, Intangibles-Goodwill
and Other ("ASC Topic 350"). Our reporting units goodwill and other related indefinite-lived intangible assets are assessed
annually as of the first day of the fourth fiscal quarter of each year in order to determine whether their carrying value exceeds
their fair value. In addition, they are tested on an interim basis if an event occurs or circumstances change between annual tests
that would more likely than not reduce their fair value below carrying value. If we determine the fair value of the goodwill or
other indefinite-lived intangible assets is less than their carrying value as a result of the tests, an impairment loss is recognized.
Any such write-down adversely affects our results of operations.
Our goodwill resides in multiple reporting units. 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. For
businesses acquired in fiscal 2013, there were no significant changes in forecast assumptions between the initial valuation date
and the annual impairment analysis. As a result, the estimated fair values determined during the fiscal 2013 annual impairment
analysis approximated the reporting units' carrying values for the businesses acquired in fiscal 2013. Our 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 levels. The fair value of the UtiliQuest reporting unit exceeds its carrying value
by approximately 20%. The UtiliQuest reporting unit provides services to a broad range of customers including utilities and
telecommunication providers. These services are required prior to underground excavation and are influenced by overall
economic activity, including construction activity. 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 for this reporting unit may result in changes to other valuation assumptions.
The profitability of individual reporting units may suffer periodically from downturns in customer demand and other
factors resulting from the cyclical nature of our business, the high level of competition existing within our industry, the
concentration of our revenues from a limited number of customers, and the level of overall economic activity. Individual
reporting units may be relatively more impacted by these factors than the company as a whole. Specifically, during times of
slowing economic conditions, our customers may reduce capital expenditures and defer or cancel pending projects. As a result,
demand for the services of one or more of the reporting units could decline which could adversely affect our operations, cash
flow, and liquidity, and could result in an impairment of goodwill or intangible assets.
We may be subject to periodic litigation and regulatory proceedings, including Fair Labor Standards Act and state wage
and hour class action lawsuits, which may adversely affect our business and financial performance. From time to time, we may
be involved in lawsuits and regulatory actions that are brought or threatened against us in the ordinary course of business.
These actions and proceedings may involve claims for, among other things, compensation for alleged personal injury, workers'
compensation, employment discrimination, breach of contract or property damage. In addition, we may be subject to class
action lawsuits involving allegations of violations of the Fair Labor Standards Act and state wage and hour laws. Due to the
inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such actions or proceedings. The
outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify, because
plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the
potential loss relating to such lawsuits may remain unknown for substantial periods of time. In addition, plaintiffs in many
types of actions may seek punitive damages, civil penalties, consequential damages or other losses, or injunctive or declaratory
relief. The ultimate resolution of these matters through settlement, mediation or court judgment could have a material impact
on our financial condition, results of operations, and cash flows. In addition, regardless of the outcome, these proceedings could
result in substantial cost and may require us to devote substantial resources to defend ourselves. For a description of current
legal proceedings, see Item 3, Legal Proceedings, and Note 18, Commitments and Contingencies, of Notes to the Consolidated
Financial Statements in this Annual Report on Form 10-K.
11
The loss of certain key managers could adversely affect our business. We depend on the services of our executive officers
and the senior management of our subsidiaries. Our senior management team has many years of experience in our industry, and
the loss of any one of them could negatively affect our ability to execute our business strategy and adversely affect our
operations. Although we have entered into employment agreements with our executive officers and certain other key
employees, we cannot guarantee that any of them or other key management personnel will remain employed by us for any
length of time. We do not carry significant "key-person" life insurance on any of our employees.
Our business is labor intensive, and we may be unable to attract and retain qualified employees. Our ability to maintain
our productivity and profitability is limited by our ability to employ, train and retain the skilled personnel necessary to operate
our business. We cannot be certain that we will be able to maintain the skilled labor force necessary to operate efficiently and
support our growth strategy. Our ability to do so depends on a number of factors, such as general rates of employment,
competitive demands for employees possessing the skills we need and the level of compensation required to hire and retain
qualified employees. In addition, our labor costs may increase when there is a shortage in the supply of skilled personnel.
We may be unable to secure sufficient independent subcontractors to fulfill our obligations, or our independent
subcontractors may fail to satisfy their obligations. We utilize independent subcontractors to complete work on a portion of our
projects. If we are unable to secure independent subcontractors at a reasonable cost or at all, we may be delayed in completing
work under a contract or the cost of completing the work may increase. In addition, we may have disputes with these
independent subcontractors arising from, among other things, the quality and timeliness of the work they have performed. Any
of these factors could adversely affect the quality of our service, our ability to perform under certain contracts and the
relationship with our customers, which could have an adverse effect on our results of operations, cash flows, and liquidity.
Higher fuel prices may increase our cost of doing business, and we may not be able to pass along added costs to
customers. Fuel prices fluctuate based on market events outside of our control. Most of our contracts do not allow us to adjust
our pricing for higher fuel costs during a contract term and we may be unable to secure price increases reflecting rising costs
when renewing or bidding contracts. As a result, higher fuel costs may negatively impact our financial condition and results of
operations. Although we may hedge our anticipated fuel purchases with the use of financial instruments, underlying commodity
costs have been volatile in recent periods. Accordingly, there can be no assurance that, at any given time, we will have financial
instruments in place to hedge against the impact of increased fuel costs. To the extent we enter into hedge transactions, declines
in fuel prices below the levels established in the financial instruments may require us to make payments which could have an
adverse impact on our financial condition and results of operations.
Our results of operations fluctuate seasonally. Our revenues exhibit seasonality as a significant portion of the work we
perform is outdoors. Consequently, our operations are impacted by extended periods of inclement weather. Generally,
inclement weather is more likely to occur during the winter season which falls during our second and third fiscal quarters. Also,
a disproportionate percentage of total paid holidays fall within our second quarter, which decreases the number of available
workdays. Additionally, our customer premise equipment installation activities historically decrease around calendar year end
holidays as their customers generally require less activity during this period. As a result, we may experience reduced revenue in
the second or third quarters of our fiscal year.
We may be unable to generate internal growth. Our internal growth may be affected by, among other factors, our ability to
offer the services our existing customers require, attract new customers, and hire and retain qualified employees or independent
subcontractors. Many of the factors affecting our ability to generate internal growth, such as the capital budgets of our
customers and the availability of qualified employees, may be beyond our control. Should one or more of these factors occur,
we may not be able to achieve internal growth, expand our operations or grow our business.
Failure to combine and integrate the businesses acquired in fiscal 2013 into our operations in a successful and timely
manner could adversely affect our business and results of operations. On December 3, 2012, we acquired substantially all of
the telecommunications infrastructure service subsidiaries (the "Acquired Subsidiaries") of Quanta Services, Inc. Our
integration of the Acquired Subsidiaries into our operations is a complex and time-consuming process which requires
significant efforts and expenses. The difficulties of combining the businesses of the Acquired Subsidiaries with our operations
includes, among others:
•
•
•
•
retaining and integrating management and other key employees;
unanticipated issues in integrating information, communications and other systems;
consolidating corporate and administrative infrastructures;
minimizing the diversion of management's attention from ongoing business concerns; and
12
•
failure to manage successfully and coordinate the growth of the combined company.
These factors could result in increased costs, decreases in the amount of expected revenues and diversion of management's time
and energy, which could materially impact our business, financial condition and results of operations.
We may not realize the anticipated benefits of the purchase of the Acquired Subsidiaries even if they are successfully
integrated into our operations. We purchased the Acquired Subsidiaries with the expectation that the acquisition would result
in various benefits for the Company, including, among others, the strategic strengthening of our customer base, geographic
scope, and technical service offerings, as well as the enhancement of our rural telecommunications engineering and
construction capabilities. However, these anticipated benefits may not materialize if we are unable to capitalize on expected
business opportunities due to competition or other factors, or general industry and business conditions deteriorate. If the
anticipated benefits of the acquisition are not realized, our business, financial condition and results of operations could be
adversely affected.
Failure to integrate future acquisitions successfully could adversely affect our business and results of operations. As part
of our growth strategy, we may acquire companies that expand, complement or diversify our business. We regularly review
various opportunities and periodically engage in discussions regarding possible acquisitions. Future acquisitions may expose us
to operational challenges and risks, including the diversion of management's attention from our existing business, the failure to
retain key personnel or customers of an acquired business, the assumption of unknown liabilities of the acquired business for
which there are inadequate reserves; and the potential impairment of acquired intangible assets. Our ability to grow and
maintain our competitive position may be adversely affected by our ability to successfully integrate any businesses acquired.
Unanticipated changes in our tax rates or exposure to additional income and other tax liabilities could affect our
profitability. We are subject to income taxes in many different jurisdictions of the United States and Canada and certain of our
tax liabilities are subject to the apportionment of income to different jurisdictions. Our effective tax rates could be adversely
affected by changes in the mix of earnings in locations with differing tax rates, the valuation of deferred tax assets and
liabilities or tax laws. An increase to our effective tax rate may increase our tax obligations. In addition, the amount of income
and other taxes we pay is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax
authority could affect our profitability.
The indenture under which our senior subordinated notes were issued and our bank credit facility impose restrictions
which may prevent us from engaging in beneficial transactions. At July 27, 2013, we had outstanding an aggregate principal
amount of $277.5 million in senior subordinated notes due 2021 (the "2021 Notes"). We also have a credit agreement (the
"Credit Agreement") with a syndicate of banks, which provides for a $125.0 million term loan (the "Term Loan") and a $275.0
million revolving facility, including a sublimit of $150.0 million for the issuance of letters of credit. At July 27, 2013, we had
$49.0 million of outstanding borrowings under the revolving facility, $121.9 million outstanding under the Term Loan, and
$46.7 million of outstanding letters of credit issued under the Credit Agreement. The terms of our indebtedness contain
covenants that restrict our ability to, among other things: make certain payments, including the payment of dividends; redeem
or repurchase our capital stock; incur additional indebtedness and issue preferred stock; make investments or create liens; enter
into sale and leaseback transactions; merge or consolidate with another entity; sell certain assets; and enter into transactions
with affiliates. In addition, the Credit Agreement requires us to comply with a consolidated leverage ratio and a consolidated
interest coverage ratio. A default under our Credit Agreement or the indenture governing the 2021 Notes could result in the
acceleration of our obligations under either or both of those agreements as a result of cross acceleration and cross default
provisions. In addition, these covenants may prevent us from engaging in transactions that benefit us, including responding to
changing business and economic conditions or securing additional financing, if needed.
Many of our telecommunications customers are highly regulated, and new regulations or changes to existing regulations
may adversely impact their demand for and the profitability of our specialty contracting service. Many of our
telecommunications customers are regulated by the Federal Communications Commission ("FCC"). The FCC may alter its
application of current regulations and may impose additional regulations. If existing or new regulations have an adverse affect
on our telecommunications customers and adversely impact the profitability of the services they provide, our customers may
reduce expenditures which could impact the demand for specialty contracting services.
We may incur liabilities or suffer negative financial impact relating to occupational health and safety matters. Our
operations are subject to stringent laws and regulations governing workplace safety. Our workers frequently operate heavy
machinery and work near high voltage lines. As a result, they and others are subject to potential injury and death. If any of our
workers or any other persons are injured or killed in the course of our operations, we could be found to have violated relevant
safety regulations, which could result in a fine or, in extreme cases, criminal sanction. In addition, if our safety record were to
substantially deteriorate over time, customers could decide to cancel our contracts or not award us future business.
13
Our failure to comply with environmental laws could result in significant liabilities. A significant portion of the work we
perform is associated with the underground networks of our customers. We could be subject to potential material liabilities in
the event we cause a release of hazardous substances or other environmental damage resulting from underground objects we
encounter. Additionally, the environmental laws and regulations which relate to our business include those regarding the
removal and remediation of hazardous substances. These laws and regulations can impose significant fines and criminal
sanctions for violations. Costs associated with the discharge of hazardous substances may include clean-up costs and related
damages or liabilities. These costs could be significant and could adversely affect our results of operations and cash flows. In
addition, new laws and regulations, altered enforcement of existing laws and regulations, the discovery of previously unknown
contamination or leaks, or the imposition of new clean-up requirements could require us to incur significant costs or create new
or increased liabilities that could harm our financial condition and results of operations.
We may not have access in the future to sufficient funding to finance desired growth. Using cash for operational growth,
capital expenditures, share repurchases, or acquisitions may limit our financial flexibility and make us more likely to seek
additional capital through future debt or equity financings. Our existing debt agreements contain significant restrictions on our
operational and financial flexibility, including our ability to incur additional debt. Also, if we seek to incur more debt, we may
be required to agree to additional covenants that further limit our operational and financial flexibility. If we pursue additional
debt or equity financings, we cannot be certain that such funding will be available on terms acceptable to us or at all.
Our capital expenditures may fluctuate as a result of changes in business requirements. Our anticipated capital
expenditure requirements may vary from time to time as a result of changes in our business. Increased capital expenditures will
use cash flow and may increase our borrowing costs if cash for capital expenditures is not available from operations.
Increases in our health insurance costs could adversely impact our results of operations and cash flows. The costs of
employee health care insurance have been increasing in recent years due to rising health care costs, legislative changes, and
general economic conditions. Additionally, we may incur additional costs as a result of the Patient Protection and Affordable
Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "Health Care Reform Laws") that
were signed into law in March 2010. A continued increase in health care costs or additional costs incurred as a result of the
Health Care Reform Laws could have a negative impact on our financial position and results of operations.
Several of our subsidiaries participate in multiemployer pension plans, which under certain circumstances could result in
material liabilities being incurred. A few of our subsidiaries participate in various multiemployer pension plans under union
and industry-wide agreements that generally provide defined pension benefits to employees covered by collective bargaining
agreements. Because of the nature of multiemployer plans, there are risks associated with participation in these plans that differ
from single-employer plans. Assets contributed by an employer to a multiemployer plan are not segregated into a separate
account and are not restricted to provide benefits only to employees of that contributing employer. Under the Employee
Retirement Income Security Act, a contributing employer to an underfunded multiemployer plan is liable, generally upon
withdrawal from a plan, for its proportionate share of the plan's unfunded vested liability. We currently have no intention of
withdrawing from any multiemployer plan in which we participate. However, a future withdrawal from a multiemployer
pension plan in which we participate could result in a material withdrawal liability to the extent that any unfunded vested
liability under such plan is allocable to the Company.
Failure to adequately protect critical data and technology systems could materially affect our operations. We use our own
information technology systems as well as those of our business partners to maintain certain data and provide reports. Our
measures protecting these systems may be compromised as a result of third-party security breaches, employee error,
malfeasance or other irregularity, and may result in persons obtaining unauthorized access to our or our customers' data or
accounts. The occurrence of any such event could have a material adverse effect on our business.
The market price of our common stock has been, and may continue to be, highly volatile. During fiscal 2013, our common
stock fluctuated from a high of $26.77 per share to a low of $13.09 per share. We may continue to experience significant
volatility in the market price of our common stock due to numerous factors, including, but not limited to:
•
•
•
•
fluctuations in our operating results or the operating results of one or more of our competitors;
announcements by us or our competitors of significant contracts, acquisitions or capital commitments;
changes in recommendations or earnings estimates by securities analysts; and
the impact of economic conditions on the credit and stock markets and on our customers’ demand for our services.
14
In addition, factors unrelated to our operating performance, such as market disruptions, industry outlook, general economic
conditions, and political events, could decrease the market price of our common stock and, as a result, investors could lose
some or all of their investments.
Anti-takeover provisions of Florida law and provisions in our articles of incorporation and by-laws could make it more
difficult to effect an acquisition of our company or a change in our control. Certain provisions of our articles of incorporation
and by-laws could delay or prevent an acquisition or change in control and the replacement of our incumbent directors and
management. For example, our board of directors is divided into three classes. At any annual meeting of our shareholders, our
shareholders only have the right to appoint approximately one-third of the directors on our board of directors. In addition, our
articles of incorporation authorize our board of directors, without further shareholder approval, to issue up to 1,000,000 shares
of preferred stock on such terms and with such rights as our board of directors may determine. The issuance of preferred stock
could dilute the voting power of the holders of common stock, including by the grant of voting control to others. Our by-laws
also restrict the right of stockholders to call a special meeting of stockholders. Lastly, we are subject to certain anti-takeover
provisions of the Florida Business Corporation Act. These anti-takeover provisions could discourage or prevent a change in
control.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We lease our executive offices located in Palm Beach Gardens, Florida. Our subsidiaries operate from owned or leased
administrative offices, district field offices, equipment yards, shop facilities, and temporary storage locations throughout the
United States and Canada. Our leased properties operate under both non-cancellable and cancellable leases. We believe that our
facilities are adequate for our current operations and additional facilities would be available on commercially reasonable terms,
if necessary.
Item 3. Legal Proceedings.
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 "California Superior Court"). 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 lawsuit. In January 2013, UtiliQuest removed the case to the United States District Court for the
Northern District of California (the "District Court") 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. An initial case management conference took place in August 2013. 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. We intend to
vigorously defend ourselves against this lawsuit.
From time to time, we and our subsidiaries are parties to various other claims and legal proceedings. It is the opinion of our
management, based on information available at this time, that such other pending claims or proceedings will not have a
material effect on the Company's consolidated financial statements.
As part of our insurance program, we retain 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 we have established reserves that we
believe to be adequate based on current evaluations and our experience with these types of claims. For these claims, the effect
on our financial statements is generally limited to the amount needed to satisfy our insurance deductibles or retentions.
Item 4. Mine Safety Disclosures.
Not applicable.
15
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information for Our Common Stock
Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "DY". The following table
shows the range of high and low closing sales prices for each quarter within the last two fiscal years as reported on the NYSE.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2013
Fiscal 2012
High
Low
High
Low
$
$
$
$
19.38
21.51
21.88
26.77
$
$
$
$
13.09
14.20
18.25
18.47
$
$
$
$
20.20
22.18
23.79
23.58
$
$
$
$
12.59
17.86
21.28
16.75
As of September 6, 2013, there were approximately 502 holders of record of our $0.33 1/3 par value per share common
stock.
Issuer Purchases of Equity Securities During the Fourth Quarter of Fiscal 2013
During the three months ended July 27, 2013, the Company did not repurchase any of its common stock.
During fiscal 2013, 2012, and 2011, the Company made the following repurchases of its common stock under its share
repurchase programs:
Fiscal Year Ended
July 30, 2011
July 28, 2012
July 27, 2013
Number of Shares
Repurchased
Total Consideration
(Dollars in thousands)
5,389,500
597,700
1,047,000
$
$
$
64,548
12,960
15,203
Average Price Per Share
11.98
$
21.68
$
14.52
$
All shares repurchased have been subsequently canceled. As of July 27, 2013, approximately $22.8 million of the $40.0
million authorized on March 15, 2012 remained authorized for repurchases through September 15, 2013. On August 27, 2013,
the Company announced that its Board of Directors had authorized $40.0 million to repurchase shares of the Company's
outstanding common stock to be made over the next eighteen months in open market or private transactions. The repurchase
authorization replaces the Company's previous repurchase authorization described above. As of September 12, 2013, the full
$40.0 million remained authorized for repurchase.
Performance Graph
The performance graph below compares the cumulative total returns for our common stock against the cumulative total
return (including reinvestment of dividends) of the Standard & Poor’s (S&P) 500 Composite Stock Index and a peer group
index for the last five fiscal years, assuming an investment of $100 in our common stock and each of the respective indices
noted on July 26, 2008. For comparing total returns on our common stock, a peer group consisting of MasTec, Inc., Quanta
Services, Inc., Pike Electric Corporation, MYR Group, Inc., and Willbros Group, Inc. was selected. The comparisons in the
graph are required by the Securities and Exchange Commission and are not intended to be forecast or be indicative of possible
future performance of our common stock.
16
C
COMPARISO
Among Dycom
ON OF 5 YEAR
m Industries, In
R CUMULAT
nc., the S&P 50
TIVE TOTAL
00 Index and a
L RETURN*
a Peer Group
__
*$
_
____________
on 7/31/08 in s
$100 invested o
stock or index,
including rein
nvestment of di
ividends. Fisca
al year ending J
July 31.
Co
opyright © 20
13 S&P, a divi
ision of The M
cGraw-Hill Co
ompanies Inc. A
All rights reser
rved.
D
ividend Policy
y
We have no
fin
nancial conditi
an
ny earnings for
ash dividends o
ca
otes contains co
no
ot paid cash div
ion, profitabilit
r use in the bus
on our common
ovenants that r
vidends since 1
ty, cash flow, c
siness, includin
n stock in the f
restrict our abil
1982. Our Boar
capital requirem
ng for investme
foreseeable futu
lity to make ce
rd of Directors
ments, and the
ent in acquisitio
ure. Additional
ertain payments
s regularly eval
outlook of our
ons, and conse
ally, the indentu
s, including the
luates our divid
r business. We
equently we do
ure governing o
e payment of d
dend policy ba
currently inten
not anticipate
our senior subo
dividends.
ased on our
nd to retain
paying any
ordinated
Se
ecurities Auth
horized for Iss
uance Under
Equity Comp
pensation Plan
ns
The informa
w
with the SEC pu
ation required b
ursuant to Regu
by this item is
ulation 14A.
hereby incorpo
orated by refer
rence from our
r definitive pro
xy statement to
o be filed
It
tem 6. Selected
d Financial Da
ata.
We use a fis
scal 2010 cons
atements for th
scal year endin
sisted of 53 we
he applicable fi
ng on the last S
eks. The follow
iscal year.
fis
sta
Saturday in July
wing selected f
y. Fiscal 2013,
financial data i
2012, 2011, a
is derived from
and 2009 consis
m the audited co
sted of 52 wee
onsolidated fin
ks while
nancial
Amounts se
re
espective date o
hereto, and with
th
et forth in our s
of acquisition.
h Item 7, Mana
selected financi
This data shou
agement's Disc
ial data include
uld be read in c
cussion and An
e the results an
conjunction wit
alysis of Finan
nd balances of
th our consolid
ncial Condition
acquired comp
dated financial
n and Results o
panies from the
statements and
of Operations.
eir
d notes
17
2013 (1)
Fiscal Year
2011 (2)
2012
(In thousands, except per share amounts)
2010 (3)
2009 (4)
Operating Data:
Revenues
Income (loss) from continuing
operations
Net income (loss)
Earnings (Loss) Per Common
Share:
Basic
Diluted
Balance Sheet Data (at end of
period):
Total assets
Long-term liabilities (5)
Stockholders' equity (6)
$
$
$
$
$
$
$
$
1,608,612
35,188
35,188
1.07
1.04
1,154,208
526,032
428,361
$
$
$
$
$
$
$
$
1,201,119
39,378
39,378
1.17
1.14
772,193
264,699
392,931
$
$
$
$
$
$
$
$
1,035,868
16,107
16,107
0.46
0.45
724,755
254,391
351,851
$
$
$
$
$
$
$
$
988,623
5,849
5,849
0.15
0.15
679,556
187,798
394,555
$
$
$
$
$
$
$
$
1,106,900
(53,094)
(53,180)
(1.35)
(1.35)
693,457
192,804
390,623
(1) Includes the results of the Acquired Subsidiaries (acquired on December 3, 2012). Additionally, during the fourth quarter of
fiscal 2013, the Company acquired Sage and certain assets of a tower construction and maintenance company. The results
of operations of these businesses acquired are also included in the selected financial data above from their respective dates
of acquisition. In connection with the businesses acquired in fiscal 2013, we recognized approximately $6.8 million and
$3.4 million of pre-tax acquisition and integration costs, respectively, during fiscal 2013 which are included within general
and administrative expenses. We also recognized $0.3 million in pre-tax write-off of deferred financing costs during the
second quarter of fiscal 2013 in connection with the replacement of our prior credit agreement. See Note 10, Debt, in Notes
to the Consolidated Financial Statements.
(2) Includes the results of Communication Services, Inc. (acquired November 2010) and NeoCom Solutions, Inc. (acquired
December 2010) from their respective dates of acquisition. Additionally, during fiscal 2011, the Company recognized debt
extinguishment costs consisting of (a) $6.0 million in tender premiums and legal and professional fees associated with the
tender offer to purchase the $135.35 million outstanding aggregate principal amount of its 8.125% senior subordinated
notes due 2015 (the "2015 Notes") and the subsequent redemption of the remaining balance of the 2015 Notes not tendered
for purchase; and (b) $2.3 million in deferred debt issuance costs that were written off as a result of the completion of such
tender offer and redemption. See Note 10, Debt, in Notes to the Consolidated Financial Statements.
(3) During the first quarter of fiscal 2010, we recognized a non-cash income tax charge of $1.1 million for a valuation
allowance on a deferred tax asset associated with an investment that became impaired for tax purposes. See Note 11,
Income Taxes, in Notes to the Consolidated Financial Statements.
(4) During fiscal 2009, we recognized a goodwill impairment charge of $94.4 million as a result of an interim impairment test
of goodwill that included impairments at the following reporting units: Broadband Installation Services for $14.8 million,
C-2 Utility Contractors for $9.2 million, Ervin Cable Construction for $15.7 million, Nichols Construction for $2.0 million,
Stevens Communications for $2.4 million and UtiliQuest for $50.5 million.
(5) During fiscal 2009, we repurchased a principal amount of $14.65 million of our 2015 Notes for $11.3 million. During fiscal
2011, we issued $187.5 million aggregate principal amount of 7.125% senior subordinated notes due 2021 in a private
placement. A portion of the net proceeds was used to fund a tender offer and redemption of the $135.35 million outstanding
aggregate principal amount of the 2015 Notes. In March 2011, we filed a registration statement on Form S-4 with the SEC
to exchange the $187.5 million of 7.125% senior subordinated notes due 2021 for registered notes with substantially similar
terms. The registration statement became effective on June 23, 2011. On December 12, 2012, an additional $90.0 million in
aggregate principal amount of our 7.125% senior subordinated notes due 2021 were issued. The net proceeds of this
issuance were used to repay a portion of the borrowings under our credit facility entered into in December 2012. In
December 2012, we filed a registration statement on Form S-4 with the SEC to exchange the $90.0 million of 7.125%
senior subordinated notes due 2021 for registered notes with substantially similar terms. The registration statement became
effective on March 7, 2013. See Note 10, Debt, in Notes to the Consolidated Financial Statements.
18
(6) We repurchased 1,047,000 shares of our common stock in fiscal 2013 for $15.2 million at an average price of $14.52 per
share, 597,700 shares of our common stock in fiscal 2012 for $13.0 million at an average price of $21.68 per share,
5,389,500 shares of our common stock in fiscal 2011 for $64.5 million at an average price of $11.98 per share, 475,602
shares of our common stock in fiscal 2010 for $4.5 million at an average price of $9.44 per share, and 450,000 shares of our
common stock in fiscal 2009 for $2.9 million at an average price of $6.48 per share.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the
accompanying notes thereto, as well as the "Business" and "Risk Factors" sections of this Annual Report on Form 10-K.
Overview
We are 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. For the fiscal year ended July 27, 2013, the percentage of our revenue by customer type
from telecommunications, underground facility locating, and electric and gas utilities and other customers, was approximately
87.7%, 7.9%, and 4.4%, respectively.
We conduct operations through our subsidiaries. Our revenues may fluctuate as a result of changes in the capital
expenditure and maintenance budgets of our customers, changes in the general level of construction activity, as well as overall
economic conditions. The capital expenditures and maintenance budgets of our telecommunications customers may be
impacted by consumer and business demands on telecommunications providers, the introduction of new communication
technologies, the physical maintenance needs of their infrastructure, the actions of our government and the Federal
Communications Commission, and general economic conditions.
A significant portion of our services are performed under master service agreements and other arrangements with
customers that extend for periods of one or more years. We are party to numerous master service agreements and generally
maintain multiple agreements with each of our customers. Master service agreements generally contain customer-specified
service requirements, such as discrete pricing for individual tasks. To the extent that such contracts specify exclusivity, there
are often a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar
amount to other service providers, perform work with the customer's own employees, and use other service providers when
jointly placing facilities with another utility. In most cases, a customer may terminate an agreement for convenience with
written notice. The remainder of our services are provided pursuant to contracts for specific projects. Long-term contracts relate
to specific projects with terms in excess of one year from the contract date. Short-term contracts for specific projects are
generally of three to four months in duration. A portion of our contracts include retainage provisions by which 5% to 10% of
the contract invoicing may be withheld by the customer pending project completion.
We recognize revenues under the percentage of completion method of accounting using the units-of-delivery or cost-to-
cost measures. A majority of our contracts are based on units-of-delivery and revenue is recognized as each unit is completed.
Revenues from contracts using the cost-to-cost measures of completion are recognized based on the ratio of contract costs
incurred to date to total estimated contract costs. Revenues from services provided under time and materials based contracts are
recognized as the services are performed.
The following table summarizes our revenues from multi-year master service agreements and other long-term contracts, as
a percentage of contract revenues:
Multi-year master service agreements
Other long-term contracts
Total long-term contracts
Fiscal Year Ended
2013
2012
2011
65.2%
11.8
77.0%
70.3%
10.3
80.6%
75.5%
10.4
85.9%
The percentage of revenue from long-term contracts varies from period to period depending on the mix of work performed
under our contracts. During fiscal 2013, a higher percentage of revenue was earned for services performed under short-term
contracts as compared to the prior two fiscal years, primarily as a result of increased work performed for certain rural
19
broadband customers. Additionally, during fiscal 2013 we performed increased work for storm restoration services pursuant to
short-term contracts.
A significant portion of our revenue is derived from several large customers. The following table reflects the percentage of
total revenue from those customers who contributed at least 2.5% of our total revenue in fiscal 2013, 2012, or 2011:
AT&T Inc.
CenturyLink, Inc.
Comcast Corporation
Verizon Communications Inc.
Windstream Corporation
Charter Communications, Inc.
Time Warner Cable Inc.
Fiscal Year Ended
2012
13.7%
13.6%
12.6%
11.3%
8.4%
6.5%
4.6%
2011
21.1%
10.8%
14.3%
8.9%
5.7%
6.8%
5.9%
2013
15.5%
14.6%
10.9%
9.6%
7.9%
5.7%
4.5%
Cost of earned revenues includes all direct costs of providing services under our contracts, including costs for direct labor
provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and
amortization), direct materials, insurance claims and other direct costs. We retain the risk of loss, up to certain limits, for claims
related to automobile liability, general liability, workers' compensation, employee group health, and locate damages. Locate
damage claims result from property and other damages arising in connection with our underground facility locating services. A
change in claims experience or actuarial assumptions related to these risks could materially affect our results of operations. For
a majority of the contract services we perform, our customers provide all required materials while we provide the necessary
personnel, tools, and equipment. Materials supplied by our customers, for which the customer retains financial and
performance risk, are not included in our revenue or costs of sales.
General and administrative expenses include costs of management personnel and administrative overhead at our
subsidiaries, as well as our corporate costs. These costs primarily consist of employee compensation and related expenses,
including stock-based compensation, legal, consulting and professional fees, information technology and development costs,
provision for or recoveries of bad debt expense, and other costs that are not directly related to the performance of our services
under customer contracts. In connection with the businesses acquired in fiscal 2013, we recognized approximately $6.8 million
and $3.4 million of pre-tax acquisition and integration costs, respectively, during fiscal 2013 which are included within general
and administrative expenses.
Our senior management, including the senior managers of our subsidiaries, perform substantially all of our sales and
marketing functions as part of their management responsibilities and, accordingly, we have not incurred material sales and
marketing expenses. Information technology and development costs included in general and administrative expenses are
primarily incurred to support and to enhance our operating efficiency. To protect our rights, we have filed for patents on certain
of our innovations.
We are subject to concentrations of credit risk relating primarily to our cash and equivalents, trade accounts receivable,
other receivables and costs and estimated earnings in excess of billings. Cash and equivalents primarily include balances on
deposit in banks. We maintain substantially all of our cash and equivalents at financial institutions we believe to be of high
credit quality. To date we have not experienced any loss or lack of access to cash in our operating accounts.
We grant credit under normal payment terms, generally without collateral, to our customers. These customers primarily
consist of telephone companies, cable television multiple system operators and electric and gas utilities. With respect to a
portion of the services provided to these customers, we have certain statutory lien rights which may, in certain circumstances,
enhance our collection efforts. Adverse changes in overall business and economic factors may impact our customers and
increase potential credit risks. These risks may be heightened as a result of economic uncertainty and market volatility. In the
past, some of our customers have experienced significant financial difficulties and likewise, some may experience financial
difficulties in the future. These difficulties expose us to increased risks related to the collectability of amounts due for services
performed. We believe that none of our significant customers were experiencing financial difficulties that would materially
impact the collectability of our trade accounts receivable and costs in excess of billings as of July 27, 2013.
20
Legal Proceedings
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 "California Superior Court"). 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 lawsuit. In January 2013, UtiliQuest removed the case to the United States District Court for the
Northern District of California (the "District Court") 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. An initial case management conference took place in August 2013. 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. We intend to
vigorously defend ourselves against this lawsuit.
From time to time, we and our subsidiaries are parties to various other claims and legal proceedings. It is the opinion of our
management, based on information available at this time, that such other pending claims or proceedings will not have a
material effect on our financial statements.
As part of our insurance program, we retain 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 we have established reserves that we
believe to be adequate based on current evaluations and our experience with these types of claims. For these claims, the effect
on our financial statements is generally limited to the amount needed to satisfy our insurance deductibles or retentions.
Acquisitions
As part of our growth strategy, we may acquire companies that expand, complement or diversify our business. We
regularly review opportunities and periodically engage in discussions regarding possible acquisitions. Our ability to sustain our
growth and maintain our competitive position may be affected by our ability to identify, acquire, and successfully integrate
companies.
On December 3, 2012, we acquired substantially all of the telecommunications infrastructure services subsidiaries (the
"Acquired Subsidiaries") of Quanta Services, Inc. for $275.0 million in cash plus 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, our wholly-owned subsidiary, Dycom Investments, Inc., issued and additional $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.
We recognized approximately $6.5 million of pre-tax acquisition costs during fiscal 2013 related to the acquisition of the
Acquired Subsidiaries, which are included within general and administrative expenses. Additionally, we incurred
approximately $3.4 million in pre-tax integration costs during fiscal 2013, which are also included within general and
administrative expense.
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. On a combined basis, the businesses operate in 49 states serving over 300 individual customers.
We believe that the acquisition strengthens our customer base, geographic scope and technical services offerings. In addition, it
reinforces our rural engineering and construction capabilities, wireless construction resources, and broadband construction
competencies. We expect the acquisition to enhance the efficiency of the Company's operating scale.
During the fourth quarter of fiscal 2013, we acquired Sage Telecommunications Corp of Colorado, LLC ("Sage"). Sage
provides telecommunications construction and project management services primarily for cable operators in the Western
United States. We recognized approximately $0.2 million in pre-tax acquisition costs related to Sage. Additionally, during the
fourth quarter of fiscal 2013 we acquired certain assets of a tower construction and maintenance company.
The purchase prices of the 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
21
allocations are based on information regarding the fair value of assets acquired and liabilities assumed as of the dates of
acquisition. We determined the fair values used in the purchase price allocation for intangible assets based on historical data,
estimated discounted future cash flows, contract backlog amounts, if applicable, and expected royalty rates for trademarks and
trade names among other information. 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 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. 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 will be completed during fiscal 2014 when the valuations for intangible assets and other amounts are
finalized. Additional information, which existed as of the date of acquisition but at that time was unknown, may become known
to us 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 a recasting of the amounts allocated to goodwill.
Outlook
The telecommunications industry has undergone and continues to undergo significant changes due to advances in
technology, increased competition as the telephone and cable companies have converged, growing consumer demand for
enhanced and bundled services, and governmental broadband stimulus funding. As a result of these factors, the networks of our
customers increasingly face demands for more capacity and greater reliability. Telecommunications providers continue to
outsource a significant portion of their engineering, construction and maintenance requirements in order to reduce their
investment in capital equipment, provide flexibility in workforce sizing, expand product offerings without large increases in
incremental hiring and focus on those competencies they consider core to their business success. These factors drive customer
demand for the types of services we provide.
Telecommunications network operators are increasingly relying on the deployment of fiber optic cable technology deeper
into their networks and closer to consumers and businesses in order to respond to demands for capacity, reliability, and product
bundles of voice, video, and high speed data services. Fiber deployments have enabled an increasing number of cable
companies to offer voice services in addition to their traditional video and data services. These voice services require the
installation of customer premise equipment and at times the upgrade of in-home wiring. Additionally, fiber deployments are
also facilitating the provisioning of video services by local telephone companies in addition to their traditional voice and high
speed data services. Several large telephone companies have pursued fiber-to-the-premise and fiber-to-the-node initiatives to
compete actively with cable operators. These long-term initiatives and the possibility that other telephone companies may
pursue similar strategies present opportunities for us.
Significant demand for mobile broadband is driven by the proliferation of smart phones and other wireless data devices.
This demand and other advances in technology have created the need for wireless carriers to upgrade their networks. Wireless
carriers are actively spending on their networks to respond to the explosion in wireless data traffic, upgrade network
technologies to improve performance and efficiency and consolidate disparate technology platforms. These customer initiatives
present long-term opportunities for us with the wireless service providers we serve. Further, the demand for mobile broadband
has increased bandwidth requirements on the wired networks of our customers. As the demand for mobile broadband grows,
the amount of wireless traffic that must be "backhauled" over customers' fiber networks increases and, as a result, carriers are
accelerating the deployment of fiber optic cables to cellular sites. These trends are also increasing the demand for the types of
services we provide.
Cable companies are continuing to target the provision of data and voice services to residential customers and have
expanded their service offerings to business customers. Often times these services are provided over fiber optic cables using
"metro Ethernet" technology. The commercial geographies that cable companies are targeting for network deployments
generally require incremental fiber optic cable deployment and, as a result, require the type of engineering and construction
services that we provide.
Additionally, we provide underground facility locating services to a variety of utility companies, including
telecommunication providers. Underground facility locating is required prior to underground excavation and is impacted by
overall economic activity. Underground excavation is required for the construction and maintenance of telephone, cable
television, power, water, sewer, and gas utility networks, the construction and maintenance of roads and highways as well as
the construction of new and existing commercial and residential projects. As a result, the level of outsourcing of this
requirement, along with the pace of overall economic activity influence the demand for underground facility locating services.
22
Within the context of a slowly growing economy, we believe the latest trends and developments support our industry
outlook. We will continue to closely monitor the effects that changes in economic and market conditions may have on our
customers and our business and we will continue to manage those areas of the business we can control.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires management to make certain estimates and assumptions that
affect the amounts reported therein and accompanying notes. On an ongoing basis, we evaluate these estimates and
assumptions, including those related to recognition of revenue for costs and estimated earnings under the percentage of
completion method of accounting, allowance for doubtful accounts, the fair value of reporting units for goodwill impairment
analysis, the assessment of impairment of intangibles and other long-lived assets, the purchase price allocations of businesses
acquired, accrued insurance claims, income taxes, asset lives used in computing depreciation and amortization, stock-based
compensation expense for performance-based stock awards, and accruals for contingencies, including legal matters. These
estimates and assumptions require the use of judgment as to the likelihood of various future outcomes and, as a result, actual
results could differ materially from these estimates.
We have identified the accounting policies below as critical to the accounting for our business operations and the
understanding of our results of operations because they involve making significant judgments and estimates that are used in the
preparation of our consolidated financial statements. The impact of these policies affect our reported and expected financial
results and are discussed below. We have discussed the development, selection and application of our critical accounting
policies with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the disclosure relating to
our critical accounting policies herein.
Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also
important to understanding our consolidated financial statements. The Notes to Consolidated Financial Statements in this
Annual Report on Form 10-K contain additional information related to our accounting policies, including the critical
accounting policies described herein, and should be read in conjunction with this discussion.
Revenue Recognition. We recognize revenues under the percentage of completion method of accounting using the units-of-
delivery or cost-to-cost measures. A majority of our contracts are based on units-of-delivery and revenue is recognized as each
unit is completed. Revenues from contracts using the cost-to-cost measures of completion are recognized based on the ratio of
contract costs incurred to date to total estimated contract costs. Revenues from services provided under time and materials
based contracts are recognized as the services are performed. The current asset "Costs and estimated earnings in excess of
billings" represents revenues recognized in excess of amounts billed. The current liability "Billings in excess of costs and
estimated earnings" represents billings in excess of revenues recognized.
Application of the percentage of completion method of accounting requires the use of estimates of costs to be incurred for
the performance of the contract. The cost estimation process is based on the knowledge and experience of our project managers
and financial professionals. Factors that we consider in estimating the work to be completed and ultimate contract recovery
include the availability and productivity of labor, the nature and complexity of the work to be performed, the effect of change
orders, the availability of materials, the effect of any delays in performance and the recoverability of any claims. Changes in
job performance, job conditions, estimated profitability and final contract settlements may result in changes to costs and
income and their effects are recognized in the period in which the revisions are determined. At the time a loss on a contract
becomes known, the entire amount of the estimated ultimate loss is accrued.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the
failure of our customers to make required payments. Management analyzes the collectability of accounts receivable balances
each period. This analysis considers the aging of account balances, historical bad debt experience, changes in customer
creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors
change, the estimate made by management may also change, which could affect the level of our future provision for doubtful
accounts. We recognize an increase in the allowance for doubtful accounts when it is probable that a receivable is not
collectible and the loss can be reasonably estimated. Any increase in the allowance account has a corresponding negative effect
on our results of operations. We believe that none of our significant customers were experiencing financial difficulties that
would materially impact our trade accounts receivable or allowance for doubtful accounts as of July 27, 2013.
Goodwill and Intangible Assets. As of July 27, 2013, we had $267.8 million of goodwill, $4.7 million of indefinite-lived
intangible assets and $120.6 million of finite-lived intangible assets, net of accumulated amortization. As of July 28, 2012, we
23
had $174.8 million of goodwill, $4.7 million of indefinite-lived intangible assets and $45.1 million of finite-lived intangible
assets, net of accumulated amortization. The increase in goodwill and intangible assets is a result of our fiscal 2013
acquisitions. See Note 7, Goodwill and Intangible Assets, in the Notes to the Consolidated Financial Statements in this Annual
Report on Form 10-K.
We account for goodwill in accordance with Financial Accounting Standards Board Accounting Standard Codification
("ASC") Topic 350, Intangibles – Goodwill and Other ("ASC Topic 350"). Our reporting units goodwill and other related
indefinite-lived intangible assets are assessed annually as of the first day of the fourth fiscal quarter of each year in accordance
with ASC Topic 350 in order to determine whether their carrying value exceeds their fair value. In addition, they are tested on
an interim basis if an event occurs or circumstances change between annual tests that would more likely than not reduce their
fair value below carrying value. During fiscal 2013, the Company adopted Accounting Standards Update No. 2011-
08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment ("ASU 2011-08"). ASU 2011-08 permits
entities testing for goodwill impairment to perform a qualitative assessment to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform
the two-step goodwill impairment test described in ASC Topic 350. If we determine the fair value of goodwill or other
indefinite-lived intangible assets is less than their carrying value as a result of the tests, an impairment loss is recognized.
Impairment losses, if any, are reflected in operating income or loss in the consolidated statements of operations during the
period incurred.
In accordance with ASC Topic 360, Impairment or Disposal of Long-Lived Assets, we review finite-lived intangible assets
for impairment whenever an event occurs or circumstances change which indicates that the carrying amount of such assets may
not be fully recoverable. Recoverability is determined based on an estimate of undiscounted future cash flows resulting from
the use of an asset and its eventual disposition. Should an asset not be recoverable, an impairment loss is measured by
comparing the fair value of the asset to its carrying value. If we determine the fair value of an asset is less than the carrying
value, an impairment loss is incurred. Impairment losses, if any, are reflected in operating income or loss in the consolidated
statements of operations during the period incurred.
We use judgment in assessing if goodwill and intangible assets are impaired. Estimates of fair value are based on our
projection of revenues, operating costs, and cash flows taking into consideration historical and anticipated future results,
general economic and market conditions, as well as the impact of planned business or operational strategies. To measure fair
value, we employ a combination of present value techniques which reflect market factors. Changes in our judgments and
projections could result in significantly different estimates of fair value potentially resulting in additional impairments of
goodwill and other intangible assets.
Our goodwill resides in multiple reporting units. The profitability of individual reporting units may suffer periodically
from downturns in customer demand and other factors resulting from the cyclical nature of our business, the high level of
competition existing within our industry, the concentration of our revenues from a limited number of customers, and the level
of overall economic activity. During times of slowing economic conditions, our customers may reduce capital expenditures and
defer or cancel pending projects. Individual reporting units may be relatively more impacted by these factors than the Company
as a whole. As a result, demand for the services of one or more of our reporting units could decline resulting in an impairment
of goodwill or intangible assets.
We performed our annual impairment assessment as of the first day of the fourth quarter of each of fiscal 2013, 2012 and
2011 and concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit
in each of fiscal 2013, 2012 and 2011. During fiscal 2013, we performed qualitative assessments on reporting units that
comprise less than 30% of our consolidated goodwill balance. The qualitative assessments indicated that it was more likely
than not that the fair value exceeded carrying value for those reporting units. For the remaining reporting units we performed
the first step of the quantitative analysis described in ASC Topic 350. The key valuation assumptions contributing to the fair
value estimates of our reporting units were (a) a discount rate based on our best estimate of the weighted average cost of capital
adjusted for risks associated with the reporting units; (b) terminal value based on terminal growth rates; and (c) seven expected
years of cash flow before the terminal value for each annual test. The table below outlines the key assumptions in each of our
fiscal 2013, 2012 and 2011 annual quantitative impairment analyses:
Terminal growth rate range
Discount rate
2013
1.5% - 2.5%
11.5%
2012
1.5% - 3.0%
13.0%
2011
1.5% - 3.0%
13.5%
24
The discount rate reflects risks inherent within each reporting unit operating individually, which is greater than the risks
inherent in the Company as a whole. The decreases in discount rates in both fiscal 2013 and fiscal 2012 are a result of reduced
risk relative to industry conditions and a lower interest rate environment at the time of the analysis. We believe the assumptions
used in the impairment analysis each year are reflective of the risks inherent in the business models of our reporting units and
within our industry.
For the businesses acquired in fiscal 2013, there were no significant changes in forecast assumptions between the initial
valuation date and the annual impairment analysis. As a result, the estimated fair values determined during the fiscal 2013
annual impairment analysis approximated the reporting units' carrying values. Excluding these businesses, if the discount rate
applied in the fiscal 2013 impairment analysis had been 100 basis points higher than estimated for each reporting unit and all
other assumptions were held constant, the conclusion would remain unchanged and there would be no impairment of goodwill
or the indefinite-lived intangible asset.
Our 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 levels. The fair value of the UtiliQuest
reporting unit exceeds its carrying value by approximately 20%. The UtiliQuest reporting unit provides services to a broad
range of customers including utilities and telecommunication providers. These services are required prior to underground
excavation and are influenced by overall economic activity, including construction activity. 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. As of
July 27, 2013, we believe the goodwill is recoverable for all of the reporting units; however, there can be no assurances that the
goodwill will not be impaired in future periods.
Current operating results, including any losses, are evaluated by us in the assessment of goodwill and other intangible
assets. The estimates and assumptions used in assessing the fair value of the reporting units and the valuation of the underlying
assets and liabilities are inherently subject to significant uncertainties. Changes in judgments and estimates could result in a
significantly different estimate of the fair value of the reporting units and could result in impairments of goodwill or intangible
assets at additional reporting units. Additionally, adverse conditions in the economy and future volatility in the equity and
credit markets could impact the valuation of our reporting units.
Certain of our reporting units also have other intangible assets including customer relationships, trade names, and non-
compete intangibles. As of July 27, 2013, we believe that the carrying amounts of these 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 could be impaired.
Business Combinations. We account for business combinations under the acquisition method of accounting. The purchase
price of each acquired business is allocated to the tangible and intangible assets acquired and the liabilities assumed on the
basis of their respective fair values on the date of acquisition. Any excess of the purchase price over the fair value of the
separately identifiable assets acquired and the liabilities assumed is allocated to goodwill. 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. Additional information, which existed as of the acquisition date but at that time was
unknown to us, may become known during the remainder of the measurement period, a period not to exceed twelve months
from the acquisition date. Adjustments in the purchase price allocation may require a recasting of the amounts allocated to
goodwill and intangible assets. In accordance with the acquisition method of accounting, acquisition costs are expensed as
incurred.
Accrued Insurance Claims. We retain the risk of loss, up to certain limits, for claims related to automobile liability, general
liability, workers' compensation, employee group health, and locate damages. Locate damage claims result from property and
other damages arising in connection with our underground facility locating services. A liability for unpaid claims and the
associated claim expenses, including incurred but not reported losses, is determined with the assistance of an actuary and
reflected in the consolidated financial statements as accrued insurance claims. The liability for accrued claims and related
accrued processing costs was $56.3 million and $48.8 million at July 27, 2013 and July 28, 2012, respectively. Based on prior
payment patterns for similar claims, we expect $29.1 million of the amount accrued at July 27, 2013 to be paid within the next
twelve months.
We estimate the liability for claims based on facts, circumstances and historical evidence. When loss reserves are recorded
they are not discounted, even though they will not be paid until sometime in the future. Factors affecting the determination of
the expected cost for existing and incurred but not reported claims include, but are not limited to, the estimated number of
25
future claims, the payment pattern of claims which have been incurred, changes in the medical condition of claimants, and
other factors such as inflation, tort reform or other legislative changes, unfavorable jury decisions and court interpretations.
With regard to losses occurring in fiscal 2011 through fiscal 2013, we retain the risk of loss of up to $1.0 million on a per
occurrence basis for automobile liability, general liability and workers' compensation. We have maintained this same level of
retention for fiscal 2014. These retention amounts are applicable to all of the states in which we operate, except with respect to
workers' compensation insurance in three states in which we participate in a state sponsored insurance fund. Aggregate stop
loss coverage for automobile liability, general liability and workers' compensation claims is $52.5 million for fiscal 2013 and
$56.3 million for fiscal 2014. Quanta Services, Inc. has retained the risk of loss for insured claims of the Acquired Subsidiaries
outstanding, or incurred but not reported, as of the date of acquisition.
For losses under our employee health plan, we are party to a stop-loss agreement under which we retain the risk of loss, on
an annual basis, of the first $250,000 of claims per participant. In addition, we retain the risk of loss for the first $550,000 of
claim amounts that aggregate across all participants having claims that exceed $250,000.
Income Taxes. We account for income taxes under the asset and liability method. This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. ASC Topic 740, Income Taxes ("ASC Topic 740") prescribes a two-step
process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an
income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that
the position will be sustained upon examination, based on the technical merits of the position. The second step measures the
benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not
recognition threshold. ASC Topic 740 also provides guidance on derecognition, classification, recognition and classification of
interest and penalties, accounting in interim periods, disclosure and transition. Under ASC Topic 740, companies may
recognize a previously unrecognized tax benefit if the tax position is effectively (as opposed to "ultimately") settled through
examination, negotiation or litigation.
Stock-Based Compensation. Our stock-based award programs are intended to attract, retain and reward talented employees,
officers and directors, and to align stockholder and employee interests. We have granted stock-based awards under our 2012
Long-Term Incentive Plan ("2012 Plan"), 2003 Long-Term Incentive Plan ("2003 Plan"), and the 2007 Non-Employee
Directors Equity Plan ("2007 Directors Plan" and, together with the 2012 Plan and 2003 Plan, the "Plans"). In addition, awards
are outstanding under other plans under which no further awards will be granted. Our policy is to issue new shares to satisfy
equity awards under the Plans. The Plans provide for the grants of a number of types of stock-based awards, including stock
options, restricted shares, performance shares, restricted share units, performance share units ("Performance RSUs"), and stock
appreciation rights. The total number of shares available for grant under the Plans as of July 27, 2013 was 2,033,272.
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 consolidated statements of operations. The fair value of stock option grants is estimated on
the date of grant using the Black-Scholes option pricing model based on certain assumptions including: expected volatility
based on the historical price of our stock over the expected life of the option; the risk free rate of return based on the U.S.
Treasury yield curve in effect at the time of grant for the expected term of the option; the expected life based on the period of
time the options are expected to be outstanding using historical data to estimate option exercise and employee termination; and
dividend yield based on our history and expectation of dividend payments. Stock options generally vest ratably over a four-year
period and are exercisable over a period of up to ten years.
The fair value of time-based restricted share units ("RSUs") and Performance RSUs is estimated on the date of grant and is
generally equal to the closing stock price on that date. RSUs vest ratably over a period of four years and are settled in one share
of our common stock on the vesting date. Performance RSUs vest over a three-year period from the date of grant if certain
performance goals are achieved. The performance targets are based on our fiscal year operating earnings (adjusted for certain
amounts) as a percentage of contract revenues and our fiscal year operating cash flow level. For the fiscal 2013 performance
period, the performance targets exclude amounts attributable to significant businesses acquired in fiscal 2013, including
acquisition, financing, and other related costs of the businesses acquired. Additionally, the awards include three year
performance goals having similar measures as the fiscal year targets which, if met, result in supplemental shares awarded. For
Performance RSUs, we evaluate compensation expense quarterly and recognize expense for performance-based awards if we
determine it is probable that the performance criteria for the awards will be met.
The total amount of stock-based compensation expense ultimately recognized is based on the number of awards that
actually vest and fluctuates as a result of performance criteria for performance-based awards, as well as the vesting period of all
stock-based awards. Accordingly, the amount of compensation expense recognized during any fiscal year may not be
26
representative of future stock-based compensation expense. In accordance with ASC Topic 718, Compensation – Stock
Compensation, compensation costs for performance-based awards are recognized over the requisite service period if it is
probable that the performance goal will be satisfied. We use our best judgment to determine probability of achieving the
performance goals at each reporting period and recognize compensation costs based on the estimate of the shares that are
expected to vest.
Contingencies and Litigation. In the ordinary course of our business, we are involved in certain legal proceedings. ASC
Topic 450, Contingencies ("ASC Topic 450") requires that an estimated loss from a loss contingency should be accrued by a
charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can
be reasonably estimated. In determining whether a loss should be accrued, we evaluate, among other factors, the probability of
an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. If only a range of probable loss
can be determined, we accrue for our best estimate within the range for the contingency. In those cases where none of the
estimates within the range is better than another, we accrue for the amount representing the low end of the range in accordance
with ASC Topic 450. As additional information becomes available, we reassess the potential liability related to our pending
contingencies and litigation and revise our estimates. Revisions of our estimates of the potential liability could materially
impact our results of operations. Additionally, if the final outcome of such litigation and contingencies differs adversely from
that currently expected, it would result in a charge to earnings when determined.
Results of Operations
The Company uses a fiscal year ending on the last Saturday in July. On December 3, 2012, we 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 and certain assets of a tower construction and maintenance company. The businesses
acquired in fiscal 2013 have been included in the consolidated statements of operations since their respective dates of
acquisition. The following table sets forth, as a percentage of revenues earned, our consolidated statements of operations for the
periods indicated (totals may not add due to rounding):
Revenues
Expenses:
Cost of earned revenue, excluding depreciation and
amortization
General and administrative
Depreciation and amortization
Total
Interest expense, net
Loss on debt extinguishment
Other income, net
Income before income taxes
Provision for income taxes
Net income
2013
Fiscal Year Ended
2012
(Dollars in millions)
2011
$ 1,608.6
100.0% $ 1,201.1
100.0% $ 1,035.9
100.0%
1,300.4
80.8
968.9
80.7
837.1
80.8
145.8
85.5
1,531.7
(23.3)
—
4.6
58.2
23.0
35.2
$
9.1
5.3
95.2
(1.5)
—
0.3
3.6
1.4
2.2% $
104.0
62.7
1,135.7
(16.7)
—
15.8
64.6
25.2
39.4
8.7
5.2
94.6
(1.4)
—
1.3
5.4
2.1
3.3% $
94.6
62.5
994.3
(15.9)
(8.3)
11.1
28.5
12.4
16.1
9.1
6.0
96.0
(1.5)
(0.8)
1.1
2.7
1.2
1.6%
27
Year Ended July 27, 2013 Compared to Year Ended July 28, 2012
Revenues. The following table presents information regarding total revenues by type of customer for the fiscal years ended
July 27, 2013 and July 28, 2012 (totals may not add due to rounding):
Fiscal Year Ended
2013
2012
Revenue % of Total
Revenue % of Total
(Dollars in millions)
Increase
(decrease)
%
Increase
(decrease)
Telecommunications
Underground facility locating
Electric and gas utilities and other customers
Total contract revenues
$ 1,410.5
127.8
70.3
$ 1,608.6
87.7% $ 1,014.6
131.3
55.2
100.0% $ 1,201.1
7.9
4.4
84.5% $
10.9
4.6
100.0% $
395.9
(3.5)
15.1
407.5
39.0%
(2.7)
27.4
33.9%
Revenues increased $407.5 million, or 33.9%, during fiscal 2013 as compared to fiscal 2012. Of this increase, $337.9
million was generated by businesses acquired in fiscal 2013.
The following table presents total revenues by type of customer for the fiscal years ended July 27, 2013 and July 28, 2012,
excluding the amounts attributed to the businesses acquired.
Telecommunications
Underground facility locating
Electric and gas utilities and other customers
Revenues from businesses acquired in fiscal 2013
Total contract revenues
* Not meaningful.
Fiscal Year Ended
2012
2013
Revenue
Revenue
Increase
(decrease)
Increase
(decrease)
(Dollars in millions)
$
$
$
1,104.8
126.4
39.5
1,270.7
337.9
1,608.6
$
$
$
1,014.6
131.3
55.2
1,201.1
—
1,201.1
$
$
$
90.2
(4.9)
(15.7)
69.6
337.9
407.5
8.9%
(3.7)
(28.4)
5.8%
*
33.9%
Revenues from specialty construction services provided to telecommunications companies, excluding amounts attributed
to businesses acquired in fiscal 2013, increased 8.9%, or $90.2 million, to $1,104.8 million during fiscal 2013 compared to
$1,014.6 million during fiscal 2012. During fiscal 2013 and fiscal 2012, the Company earned revenues from storm restoration
services of $16.7 million and $6.0 million, respectively. During fiscal 2013, revenues increased approximately $77.7 million
for a significant customer, including revenues for services performed for its wireless network under contracts entered into
during fiscal 2012. Revenues increased $26.7 million for three leading cable multiple system operators for maintenance and
construction services, including services to provision fiber to small and medium businesses as well as network upgrades.
Revenues increased $9.4 million for another cable multiple system operator enhancing its fiberoptic network. Additionally,
revenues increased $8.0 million for a telephone customer which is expanding and enhancing its broadband services related to
rural access lines it acquired and for broadband stimulus initiatives. These increases were partially offset by a decrease in
revenue of $12.2 million for a telephone customer from decreases in services provided under existing contracts and broadband
stimulus initiatives. Additionally, we experienced a decrease in revenue of $10.4 million for a significant telephone customer as
a result of reduced spending in fiscal 2013 as compared to fiscal 2012. Other telecommunications customers had net decreases
in revenue of $19.7 million in fiscal 2013 as compared to fiscal 2012.
Revenues from underground facility locating customers, excluding amounts attributed to businesses acquired in fiscal
2013, decreased 3.7% to $126.4 million during fiscal 2013 compared to $131.3 million during fiscal 2012. The decrease
partially resulted from a contract that ended during the second quarter of fiscal 2012 and due to reduced work from current
customers.
28
Revenues from electric and gas utilities and other construction and maintenance customers, excluding amounts attributed
to businesses acquired in fiscal 2013, decreased to $39.5 million during fiscal 2013 compared to $55.2 million during fiscal
2012. The decrease was primarily attributable to decreases in work performed for several gas companies and electric utilities
during fiscal 2013 as compared to fiscal 2012.
Costs of Earned Revenues. Costs of earned revenues increased to $1,300.4 million during fiscal 2013 compared to $968.9
million during fiscal 2012. The increase was primarily due to a higher level of operations during fiscal 2013, including costs of
the businesses acquired in fiscal 2013. The primary components of the total increase was a $235.8 million aggregate increase in
direct labor and independent subcontractor costs, a $41.2 million increase in direct material costs, and an aggregate $54.5
million increase in other direct costs, including a pre-tax $0.5 million charge for a wage and hour class action settlement.
Costs of earned revenues as a percentage of contract revenues increased 0.2% during fiscal 2013 as compared to fiscal
2012. Direct material costs as a percentage of total revenue increased 0.3% compared to fiscal 2012 as our mix of work
included a higher level of projects where we provided materials to the customer. Other direct costs increased 0.3% as a
percentage of total revenue primarily as a result of the mix of work performed and increased equipment and claims related
costs as compared to fiscal 2012. Offsetting these increases, fuel costs decreased 0.3% as a percentage of total revenue during
fiscal 2013 as compared to fiscal 2012. Additionally, total labor and subcontractor costs decreased 0.1% as a percentage of total
revenue for fiscal 2013 as compared to fiscal 2012.
General and Administrative Expenses. General and administrative expenses increased to $145.8 million during fiscal 2013
as compared to $104.0 million for fiscal 2012. General and administrative expenses as a percentage of contract revenues were
9.1% and 8.7% for fiscal 2013 and fiscal 2012, respectively. The increase in total general and administrative expenses for fiscal
2013 resulted primarily from the general and administrative costs of the businesses acquired in fiscal 2013 and approximately
$6.8 million and $3.4 million of pre-tax acquisition and integration costs, respectively, during fiscal 2013. Additionally, stock-
based compensation increased to $9.9 million during fiscal 2013 from $7.0 million during fiscal 2012. Other increases in
general and administrative expenses were increased payroll expenses as a result of growth, increased incentive pay expenses
from improved operations, and higher professional fees for legal and accounting services.
Depreciation and Amortization. Depreciation and amortization increased to $85.5 million during fiscal 2013 from $62.7
million during fiscal 2012 and totaled 5.3% and 5.2% as a percentage of contract revenues during the current and prior year,
respectively. The increase in depreciation and amortization expense for fiscal 2013 is a result of the addition of fixed assets and
amortizing intangibles relating to the businesses acquired during fiscal 2013. These increases were partially offset by certain
fixed assets becoming fully depreciated in fiscal 2012 and 2013.
Interest Expense, Net. Interest expense, net was $23.3 million and $16.7 million during fiscal 2013 and 2012, respectively.
The increase for fiscal 2013 reflects higher debt balances outstanding during the current year primarily related to the financing
of the purchase of the Acquired Subsidiaries. The additional debt includes $90.0 million in 7.125% senior subordinated notes
due 2021 issued on December 12, 2012, as well as outstanding amounts during the period under our new five-year credit
agreement (the "Credit Agreement"). The additional interest cost on incremental debt was partially offset by lower cost of debt
related to the replacement of our previous credit agreement during fiscal 2013.
Other Income, Net. Other income decreased to $4.6 million during fiscal 2013 from $15.8 million during fiscal 2012. The
decreases in other income were primarily a function of the number of assets sold and prices obtained for those assets during
fiscal 2013. Additionally, we recognized $0.3 million in write-off of deferred financing costs during fiscal 2013 in connection
with the replacement of our credit facility in December 2012.
Income Taxes. The following table presents our income tax expense and effective income tax rate for fiscal years 2013 and
2012:
Income tax provision
Effective income tax rate
Fiscal Year Ended
2012
2013
(Dollars in millions)
$
$
23.0
39.5%
25.2
39.0%
Our effective income tax rate differs from the statutory rates for the tax jurisdictions where we operate. Variations in our
effective income tax rate for fiscal 2013 and 2012 are primarily attributable to the impact of non-deductible and non-taxable
items, disqualifying dispositions of incentive stock option exercises, and production-related tax credits recognized in relation to
29
our pre-tax results during the period. Non-deductible and non-taxable items will generally have a reduced impact on the
effective income tax rate in periods of greater pre-tax results. We had total unrecognized tax benefits of approximately $2.3
million and $2.2 million as of July 27, 2013 and July 28, 2012, respectively, which would reduce our effective tax rate during
the periods recognized if it is determined that those liabilities are no longer required.
Net Income. Net income was $35.2 million for fiscal 2013 as compared to $39.4 million during fiscal 2012.
Year Ended July 28, 2012 Compared to Year Ended July 30, 2011
Revenues. The following table presents information regarding total revenues by type of customer for the fiscal years ended
July 28, 2012 and July 30, 2011 (totals may not add due to rounding):
Fiscal Year Ended
2012
2011
Revenue % of Total Revenue % of Total
Increase
(decrease)
%
Increase
(decrease)
Telecommunications
Underground facility locating
Electric and gas utilities and other customers
Total contract revenues
$ 1,014.6
131.3
55.2
$ 1,201.1
(Dollars in millions)
850.5
144.7
40.7
100.0% $ 1,035.9
84.5% $
10.9
4.6
82.1% $
14.0
3.9
100.0% $
164.1
(13.4)
14.5
165.3
19.3%
(9.2)
35.6
16.0%
Revenues increased $165.3 million, or 16.0%, during fiscal 2012 compared to fiscal 2011. Businesses acquired during the
second quarter of fiscal 2011 generated $54.5 million of revenues during fiscal 2012 compared to $33.8 million during fiscal
2011.
Revenues from specialty construction services provided to telecommunications companies increased 19.3%, or $164.1
million, to $1,014.6 million during fiscal 2012 compared to $850.5 million during fiscal 2011. Businesses acquired during the
second quarter of fiscal 2011 generated $20.7 million of this increase. Revenue increased $50.5 million for a significant
telephone customer for services provided under existing contracts, including fiber to the cell site activity, and for services
provided under new contracts which expanded our geographic service area. For another significant telecommunications
customer revenue increased $41.4 million for services provided under new contracts entered into during fiscal 2011 which
expanded our geographic service area. Additionally, we had incremental revenue of $36.6 million for a telephone customer
from services provided under existing contracts and rural broadband initiatives. For two leading cable multiple system
operators, we experienced a $13.0 million increase in revenue for installation, maintenance, and construction services, which
included services to provision fiber to cellular sites. Other telecommunications customers had net increases in revenue of $58.0
million for fiscal 2012, including services provided under new contracts for rural broadband initiatives, expanding both our
customer base and geographic service areas. These increases were partially offset by a decrease in revenue of $50.6 million for
a significant telephone customer compared to fiscal 2011 as a result of reduced spending by the customer in fiscal 2012 and a
$5.6 million decline in services provided to another leading cable multiple system operator.
Total revenues from underground facility locating customers during fiscal 2012 decreased 9.2% to $131.3 million
compared to $144.7 million during fiscal 2011. The decrease resulted from contracts that were terminated during fiscal 2011,
reflecting a planned de-emphasis of technician intensive customer contracts.
Total revenues from electric and gas utilities and other construction and maintenance customers during fiscal 2012
increased 35.6% to $55.2 million compared to $40.7 million during fiscal 2011. The increase was primarily attributable to
increases in work performed for several gas companies and electric utilities during fiscal 2012 as compared to fiscal 2011.
Costs of Earned Revenues. Costs of earned revenues increased to $968.9 million during fiscal 2012 compared to $837.1
million during fiscal 2011. The increase was primarily due to a higher level of operations during fiscal 2012, including the
operating costs of Communication Services, Inc. ("Communication Services") and NeoCom Solutions, Inc. ("NeoCom") since
their acquisitions during the second quarter of fiscal 2011. The primary components of the increase were a $93.0 million
aggregate increase in direct labor and independent subcontractor costs, a $28.8 million increase in direct materials costs, a
$7.9 million increase in other direct costs, and a $2.1 million increase in fuel costs.
30
Costs of earned revenues as a percentage of contract revenues decreased 0.1% during fiscal 2012 compared to fiscal 2011.
Labor and subcontractor costs decreased 0.3% in fiscal 2012 compared to fiscal 2011 as a result of improved operating
efficiency and the mix of work performed. Additionally, fuel costs decreased 0.3% as a percentage of total revenue as
compared to fiscal 2011. Other direct costs decreased 0.9% as a percentage of total revenue compared to fiscal 2011, primarily
as a result of reduced costs for insurance claims during fiscal 2012 and improved operating cost leverage. Offsetting these
decreases, material usage increased 1.4% as a percentage of total revenue based on our mix of work.
General and Administrative Expenses. General and administrative expenses increased $9.4 million to $104.0 million
during fiscal 2012 compared to $94.6 million for fiscal 2011. The increase is partially a result of incremental general and
administrative expenses of Communication Services and NeoCom which were acquired during the second quarter of fiscal
2011. Further, the increase in total general and administrative expenses during fiscal 2012 resulted from increased payroll from
the growth of operations, higher incentive pay expenses as a result of improved operating results, and increased stock-based
compensation expense. Stock-based compensation expense was $7.0 million during fiscal 2012 compared to $4.4 million
during fiscal 2011.
General and administrative expenses as a percentage of contract revenues were 8.7% and 9.1% for fiscal 2012 and fiscal
2011, respectively. The decrease in general and administrative expenses as a percentage of contract revenues is the result of
improved operating leverage on our increase in revenue.
Depreciation and Amortization. Depreciation and amortization increased to $62.7 million during fiscal 2012 from $62.5
million during fiscal 2011 and totaled 5.2% and 6.0% as a percentage of contract revenues during fiscal 2012 and fiscal 2011,
respectively. The decrease in depreciation and amortization as a percentage of contract revenues was primarily the result of our
mix of work and greater leverage on depreciable assets as our revenue has grown.
Interest Expense, Net. Interest expense, net was $16.7 million and $15.9 million during fiscal 2012 and fiscal 2011,
respectively. The increase reflects higher debt balances outstanding during the period as a result of the issuance of our 7.125%
senior subordinated notes due 2021, as described below, and the related purchase and redemption of our outstanding 8.125%
senior subordinated notes due 2015. However, our overall effective interest rate has been reduced as a result of the issuance of
our 7.125% senior subordinated notes due 2021.
Fiscal 2011 – Loss on Debt Extinguishment. On January 21, 2011, Dycom Investments, Inc., one of our subsidiaries,
issued $187.5 million aggregate principal amount of 7.125% senior subordinated notes due 2021 in a private placement. A
portion of the net proceeds was used to fund the purchase in January 2011 of $86.96 million aggregate principal amount of our
outstanding 8.125% senior subordinated notes due 2015 (the "2015 Notes") at a price of 104.313% of the principal amount
pursuant to a tender offer to purchase, for cash, any and all of our $135.35 million in aggregate principal amount of outstanding
2015 Notes. Additionally, a portion of the net proceeds was used to fund our redemption in February 2011 of the remaining
$48.39 million outstanding aggregate principal amount of 2015 Notes at a price of 104.063% of the principal amount. As a
result, we recognized a loss on debt extinguishment of approximately $6.0 million during fiscal 2011, comprised of tender
premiums and legal and professional fees associated with the tender offer and redemption and $2.3 million for the write off of
deferred debt issuance costs for the 2015 Notes redeemed.
Other Income, Net. Other income increased to $15.8 million during fiscal 2012 from $11.1 million during fiscal 2011. The
increase in other income was primarily a function of assets sold and prices obtained for those assets during fiscal 2012,
including approximately $0.6 million for the gain on sale of a non-core cable system asset.
Income Taxes. The following table presents our income tax expense and effective income tax rate for continuing operations
for fiscal years 2012 and 2011:
Income tax provision
Effective income tax rate
$
2012
Fiscal Year Ended
2011
(Dollars in millions)
$
25.2
39.0 %
12.4
43.5%
Our effective income tax rates differ from the statutory rate for the tax jurisdictions where we operate. Variations in our
effective income tax rate for fiscal 2012 and 2011 are primarily attributable to the impact of non-deductible and non-taxable
items, disqualifying dispositions of incentive stock option exercises, and production-related tax credits recognized in relation to
our pre-tax results during the period. Non-deductible and non-taxable items will generally have a reduced impact on the
31
effective income tax rate in periods of greater pre-tax results. We had total unrecognized tax benefits of approximately
$2.2 million and $2.1 million as of July 28, 2012 and July 30, 2011, respectively, which would reduce our effective tax rate
during the periods recognized if it is determined that those liabilities are no longer required.
Net Income. Net income was $39.4 million for fiscal 2012 as compared to $16.1 million for fiscal 2011.
Liquidity and Capital Resources
Capital requirements. Historically, our sources of cash have been operating activities, long-term debt, equity offerings,
bank borrowings, and proceeds from the sale of idle and surplus equipment and real property. Our working capital needs vary
based on our level of operations and generally increase with higher levels of revenue. Our working capital requirements are
also impacted by the time it takes to collect our accounts receivable for work performed for customers. Cash and equivalents
totaled $18.6 million at July 27, 2013 compared to $52.6 million at July 28, 2012. Working capital (total current assets less
total current liabilities) was $341.3 million at July 27, 2013 compared to $262.4 million at July 28, 2012.
Capital resources are primarily used to purchase equipment and maintain sufficient levels of working capital in order to
support our contractual commitments to customers. We periodically borrow from and repay our revolving credit facility
depending on our cash requirements. Additionally, our capital requirements may increase to the extent we make acquisitions
that involve consideration other than our stock, buy back our common stock, repay revolving borrowings, or repurchase or call
our senior subordinated notes. We have not paid cash dividends since 1982. Our board of directors regularly evaluates our
dividend policy based on our financial condition, profitability, cash flow, capital requirements, and the outlook of our business.
We currently intend to retain any earnings for use in the business, including for investment in acquisitions, and consequently
we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Additionally, the indenture
governing our senior subordinated notes contains covenants that restrict our ability to make certain payments, including the
payment of dividends.
We expect capital expenditures, net of disposals, to range from $70 million to $75 million for fiscal 2014. Our level of
capital expenditures can vary depending on the customer demand for our services, the replacement cycle we select for our
equipment, and overall growth. We intend to fund these expenditures primarily from operating cash flows, availability under
our credit facility and cash on hand.
Net cash flows:
Provided by operating activities
Used in investing activities
Provided by (used in) financing activities
2013
For the Fiscal Year Ended
2012
(Dollars in millions)
2011
$
$
$
106.7
$
(389.1) $
$
248.3
$
65.1
(51.9) $
(5.4) $
43.9
(85.4)
(17.0)
Cash from Operating Activities. During fiscal 2013, net cash provided by operating activities was $106.7 million. Non-
cash items during fiscal 2013 were primarily depreciation and amortization, gain on sale of assets, stock-based compensation,
and deferred income taxes. Changes in working capital (excluding cash) and changes in other long term assets and liabilities
used $17.5 million of operating cash flow during fiscal 2013. The primary working capital sources of cash flow during fiscal
2013 were decreases in accounts receivable of $3.6 million, including amounts collected for balances from business acquired
during fiscal 2013. Additionally, net decreases in income tax receivables was $6.0 million during the period due to the timing
of payments. Working capital changes that used operating cash flow during fiscal 2013 were increases in net costs and
estimated earnings in excess of billings of $12.3 million as a result of growth in operations during fiscal 2013. Other working
capital changes that used operating cash flow during fiscal 2013 were decreases in accounts payable of $11.2 million as a result
of timing of payments. Additionally, decreases in accrued liabilities, insurance claims and other liabilities used $2.5 million of
cash flow. Net increases in other current and other non-current assets combined used $1.1 million of operating cash flow during
fiscal 2013 primarily for inventory and other pre-paid costs.
Based on average daily revenue during the applicable quarter, days sales outstanding calculated for accounts receivable,
net was 48 as of July 27, 2013 compared to 41 days as of July 28, 2012. Days sales outstanding calculated for costs and
estimated earnings in excess of billings, net of billings in excess of costs and estimated earnings, was 36 days as of both
July 27, 2013 and July 28, 2012. The change in days sales outstanding for accounts receivable resulted from growth in
operations during fiscal 2013, the impact of generally higher days sales outstanding for the Acquired Subsidiaries and other
32
changes in customer mix compared to fiscal 2012. We believe that none of our major customers were experiencing financial
difficulties which would materially affect our cash flows or liquidity as of July 27, 2013.
During fiscal 2012, net cash provided by operating activities was $65.1 million. Non-cash items during fiscal 2012 were
primarily depreciation and amortization, gain on sale of assets, stock-based compensation, and deferred income taxes. Changes
in working capital (excluding cash) and changes in other long term assets and liabilities used $37.9 million of operating cash
flow during fiscal 2012. The primary working capital uses during fiscal 2012 were increases in accounts receivable of $3.4
million and increases in net costs and estimated earnings in excess of billings of $35.7 million. The increases in accounts
receivable and costs and estimated earnings in excess of billings are a result of growth in operations during fiscal 2012 and
changes to the customer mix compared to fiscal 2011. Other working capital changes that used operating cash flow during
fiscal 2012 were increases in other current and other non-current assets combined of $6.3 million, primarily for higher levels of
inventory, and decreases in accrued liabilities and accrued insurance claims of $1.2 million. Working capital sources of cash
flow during fiscal 2012 were income taxes receivable of $5.7 million used during the period and increases in accounts payable
of $3.0 million as a result of timing of higher operating levels and timing of payments.
During fiscal 2011, net cash provided by operating activities was $43.9 million. Operating cash flow and net income for
fiscal 2011 were reduced by our payment of $6.0 million in consent and other fees related to our repurchase of $135.35 million
in aggregate principal amount of the 2015 Notes. Non-cash items during fiscal 2011 were primarily depreciation and
amortization, gain on sale of assets, stock-based compensation, deferred income taxes, amortization of debt issuance costs, and
the write-off of approximately $2.3 million of debt issuance costs in connection with the tender offer and subsequent
redemption of the outstanding 2015 Notes. Changes in working capital (excluding cash) and changes in other long term assets
and liabilities used $47.4 million of operating cash flow during fiscal 2011. The primary working capital uses during fiscal
2011 were increases in accounts receivable of $21.7 million and increases in net costs and estimated earnings in excess of
billings of $23.2 million. The increases in accounts receivable and costs and estimated earnings in excess of billings are a result
of higher revenue levels during the fourth quarter of fiscal 2011, including storm restoration services. Other uses of working
capital included other current and other non-current assets combined of $4.4 million, primarily for higher levels of inventory,
and increases in income taxes receivable of $5.0 million as a result of the timing of federal and state income tax payments.
Working capital changes that increased operating cash flow during fiscal 2011 were increases in accounts payable of $2.6
million and increases in other accrued liabilities and accrued insurance claims of $4.3 million. These increases were primarily
attributable to higher operating levels of fiscal 2011 and the timing of payments.
Cash Used in Investing Activities. Net cash used in investing activities was $389.1 million during fiscal 2013. During fiscal
2013 we paid $330.3 million in connection with the acquisition of businesses, including $319.0 million for the Acquired
Subsidiaries, net of cash acquired. Additionally, during fiscal 2013 capital expenditures of $64.7 million were offset in part by
proceeds from the sale of assets of $5.8 million. Restricted cash, primarily related to funding provisions of our insurance
program, decreased less than $0.1 million during fiscal 2013.
Net cash used in investing activities was $51.9 million during fiscal 2012. During fiscal 2012 capital expenditures of $77.6
million were offset in part by proceeds from the sale of assets of $24.8 million, including approximately $5.5 million related to
the sale of non-core cable system assets during the third quarter of fiscal 2012. Capital expenditures of $77.6 million for fiscal
2012 increased from $61.5 million in fiscal 2011 as the result of spending for new work opportunities and the replacement of
certain fleet assets. In addition, we incurred certain capital expenditures to increase the fuel and operating efficiency of our fleet
of vehicles. Restricted cash, primarily related to funding provisions of our insurance programs, decreased $0.9 million during
fiscal 2012.
During fiscal 2011 net cash used in investing activities was $85.4 million, including $9.0 million and $27.5 million paid in
connection with the acquisitions of Communication Services, Inc. and NeoCom Solutions, Inc., respectively. Capital
expenditures of $61.5 million were offset in part by proceeds from the sale of assets of $12.3 million. Restricted cash, primarily
related to funding provisions of our insurance program, decreased approximately $0.2 million during fiscal 2011.
Cash Provided by Financing Activities. Net cash provided by financing activities was $248.3 million during fiscal 2013.
During fiscal 2013 we received $93.8 million in gross proceeds from the issuance of long-term debt comprised of the issuance
of an incremental $90.0 million in aggregate principal amount of our 7.125% senior subordinated notes due 2021 and $3.8
million in premium received in connection with the issuance, $125.0 million in proceeds from the term loan ("Term Loan")
under our Credit Agreement and net revolving borrowings under our Credit Agreement of $49.0 million, partially offset by
principal payments on the Term Loan of $3.1 million. Additionally, we paid $6.7 million of debt issuance costs in connection
with the new Credit Agreement and issuance of the 7.125% senior subordinated notes due 2021 during fiscal 2013.
33
During fiscal 2013, we repurchased 1,047,000 shares of our common stock in open market transactions, at an average price
of $14.52 per share, for approximately $15.2 million. We withheld shares of restricted units and paid $0.9 million to tax
authorities in order to meet payroll tax withholdings obligations on restricted units that vested to employees and certain officers
during fiscal 2013. Additionally, we received $5.3 million from the exercise of stock options and received excess tax benefits
of $1.3 million primarily from the vesting of restricted share units and exercises of stock options during fiscal 2013.
Net cash used in financing activities was $5.4 million during fiscal 2012. During fiscal 2012, we repurchased 597,700
shares of our common stock in open market transactions, at an average price of $21.68 per share, for approximately $13.0
million. We received $6.5 million from the exercise of stock options and received excess tax benefits of $1.6 million primarily
from the vesting of restricted share units and exercises of stock options during fiscal 2012. During fiscal 2012, we withheld
shares of restricted units and paid $0.3 million to tax authorities in order to meet payroll tax withholdings obligations on
restricted units that vested to certain officers and employees during those periods. Additionally, we paid approximately $0.2
million during fiscal 2012 for principal payments on capital leases.
Net cash used in financing activities was $17.0 million for fiscal 2011. During fiscal 2011, we received $187.5 million in
gross proceeds from the issuance of $187.5 million aggregate principal amount of 7.125% senior subordinated notes due 2021
and paid $5.2 million in debt issuance costs. A portion of the net proceeds from the issuance were used in January 2011 to fund
the purchase of $86.96 million principal amount of our 2015 Notes pursuant to a concurrent tender offer and to fund the
redemption of the remaining $48.39 million outstanding aggregate principal amount in February 2011. Additionally, we paid
$0.6 million in principal payments on capital leases. During fiscal 2011 we repurchased 5,389,500 shares of our common stock
in open market transactions for $64.5 million, at an average price of $11.98 per share. Additionally, we received $1.3 million
from the exercise of stock options during fiscal 2011. Further, during fiscal 2011 we withheld shares of restricted share units
and paid $0.2 million to tax authorities in order to meet payroll tax withholding obligations on our restricted share units that
vested to certain officers and employees during those periods.
Compliance with Credit Agreement and Indenture. On December 3, 2012 we entered into our new, five-year Credit
Agreement with various lenders. The Credit Agreement matures in December 2017 and provides for a $125 million term loan
and a $275 million revolving facility. The Credit Agreement contains a sublimit of $150 million for the issuance of letters of
credit. Subject to certain conditions, the Credit Agreement provides for the ability to enter into one or more incremental
facilities, either by increasing the revolving commitments under the Credit Agreement and/or in the form of term loans, in an
aggregate amount not to exceed $100 million. Borrowings under the Credit Agreement can be used to refinance certain
indebtedness, to provide general working capital, and for other general corporate purposes. We used borrowings under the
Credit Agreement in connection with the acquisition of businesses during fiscal 2013, including the Acquired Subsidiaries.
The Credit Agreement replaced our prior credit agreement, dated as of June 4, 2010, which was due to expire in June
2015. At the time of termination, there were no outstanding borrowings and all outstanding letters of credit were transferred to
the Credit Agreement. We did not incur any material early termination penalties in connection with the termination of the prior
credit agreement. We recognized $0.3 million in write-off of deferred financing costs during the second quarter of fiscal 2013
in connection with the replacement of the prior credit agreement.
Borrowings under the Credit Agreement (other than Swingline Loans (as defined in the Credit Agreement)) bear interest at
a rate equal to either (a) the administrative agent's base rate, described in the Credit Agreement as the highest of (i) the
administrative agent's prime rate, (ii) the Federal Funds Rate plus 0.50%, and (iii) a floating rate of interest equal to one month
LIBOR plus 1.00%, or (b) the Eurodollar Rate, plus, in each case, an applicable margin based upon our consolidated leverage
ratio. Swingline Loans bear interest at a rate equal to the administrative agent's base rate plus a margin based upon our
consolidated leverage ratio. As of July 27, 2013, borrowings are eligible for a margin of 1.0% for borrowings based on the
administrative agent's base rate and 2.0% for borrowings based on the Eurodollar Rate. Borrowings under the Credit
Agreement are guaranteed by substantially all of our subsidiaries and secured by the stock of each of the wholly-owned,
domestic subsidiaries (subject to specified exceptions). We incur fees under the Credit Agreement for the unutilized
commitments at rates that range from 0.25% to 0.40% per annum, fees for outstanding standby letters of credit at rates that
range from 1.50% to 2.25% per annum and fees for outstanding commercial letters of credit at rates that range from 0.75% to
1.125% per annum, in each case based on our consolidated leverage ratio. As of July 27, 2013, $49.0 million of outstanding
revolving borrowings and the Term Loan were based on the Eurodollar Rate at a rate per annum of 2.19%. Unutilized
commitments and outstanding standby letters of credit were at rates per annum of 0.35% and 2.0%, respectively.
The Term Loan is subject to annual amortization payable in equal quarterly installments of principal, with installments
paid during the third and fourth quarters of fiscal 2013. The remaining amortization for the Term Loan as of July 27, 2013 is as
follows: $7.8 million during fiscal 2014, $10.9 million during fiscal 2015; $14.1 million during fiscal 2016; $17.2 million
during fiscal 2017; and $71.9 million during fiscal 2018.
34
The Credit Agreement contains affirmative and negative covenants which are customary for similar credit agreements,
including, without limitation, limitations on us and our subsidiaries with respect to indebtedness, liens, investments,
distributions, mergers and acquisitions, disposition of assets, sale-leaseback transactions, transactions with affiliates and capital
expenditures. The Credit Agreement contains financial covenants which require us to (i) maintain a consolidated leverage ratio
of not greater than (a) 3.50 to 1.00 for fiscal quarters ending July 27, 2013 through April 26, 2014, (b) 3.25 to 1.00 for fiscal
quarters ending July 26, 2014 through April 25, 2015 and (c) 3.00 to 1.00 for fiscal quarters ending July 25, 2015 and each
fiscal quarter thereafter, as measured on a trailing four quarter basis at the end of each fiscal quarter, and (ii) maintain a
consolidated interest coverage ratio of not less than 3.00 to 1.00, as measured at the end of each fiscal quarter.
On July 27, 2013 we had $46.7 million of outstanding letters of credit issued under the Credit Agreement. The outstanding
letters of credit are issued as part of our insurance program. At July 27, 2013 and July 28, 2012 we were in compliance with the
financial covenants of the applicable credit agreement and had additional borrowing availability of $179.3 million and $186.5
million, respectively, as determined by the most restrictive covenants of the applicable agreement.
On July 28, 2012, Dycom Investments, Inc., one of our subsidiaries, had outstanding an aggregate principal amount of
$187.5 million of 7.125% senior subordinated notes due 2021 that were issued under an indenture dated January 21, 2011 (the
"Indenture"). On December 12, 2012, an additional $90.0 million in aggregate principal amount of 7.125% senior subordinated
notes due 2021 were issued under the Indenture at 104.25% of the principal amount. The resulting debt premium of $3.8
million is being amortized to interest expense over the remaining term of the notes and was $3.6 million as of July 27, 2013.
The net proceeds of this issuance were used to repay a portion of the borrowings under our Credit Agreement. Holders of all
$277.5 million aggregate principal amount of the 7.125% senior subordinated notes due 2021 (the "2021 Notes") vote as one
series under the Indenture.
On July 27, 2013, $277.5 million in aggregate principal amount of 2021 Notes was outstanding under the Indenture. The
2021 Notes are guaranteed by substantially all of our subsidiaries. The Indenture contains covenants that limit, among other
things, our ability and the ability of our subsidiaries 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 our subsidiaries to pay dividends or make payments to us and our restricted subsidiaries, merge or consolidate with another
person, and dispose of all or substantially all of its assets.
Contractual Obligations. The following tables set forth our outstanding contractual obligations, including related party
leases, as of July 27, 2013:
7.125% senior subordinated notes due 2021
Credit Agreement – revolving borrowings
Credit Agreement – Term Loan
Fixed interest payments on long-term debt (a)
Operating lease obligations
Employment agreements
Purchase and other contractual obligations
Total
$
$
— $
—
7,813
19,772
14,880
6,423
11,697
60,585
$
Less than 1
Year
Years 1 – 3
Greater than
5 Years
Years 3 – 5
(Dollars in thousands)
— $
—
25,000
39,544
17,414
7,320
—
89,278
—
49,000
89,062
39,544
5,891
783
—
184,280
$ 277,500
—
—
49,429
1,860
—
—
$ 328,789
$
Total
277,500
49,000
121,875
148,289
40,045
14,526
11,697
662,932
$
$
(a) Includes interest payments on our $277.5 million in aggregate principal amount of 2021 Notes outstanding and excludes any
interest payments on our variable rate debt. Variable rate debt as of July 27, 2013 was comprised of $121.9 million outstanding
on our Term Loan and $49.0 million in outstanding revolving borrowings under our Credit Agreement.
Purchase and other contractual obligations in the above table primarily represents obligations under agreements to
purchase undelivered vehicles and equipment. We have excluded contractual obligations under the multiemployer defined
pension plans that cover certain of our employees as these obligations are determined based on our future union employee
payrolls, which cannot be reliably determined as of July 27, 2013. During fiscal 2013, 2012, and 2011, our contributions to the
multiemployer defined pension plan totaled approximately $3.2 million, $2.9 million, and $3.8 million, respectively.
35
Our consolidated balance sheet as of July 27, 2013 includes a long-term liability of approximately $27.3 million for
accrued insurance claims. This liability has been excluded from the above table as the timing of any cash payments is
uncertain. See Note 8, Accrued Insurance Claims, of the Notes to the Consolidated Financial Statements for additional
information regarding our accrued insurance claims liability.
The liability for unrecognized tax benefits for uncertain tax positions at July 27, 2013 and July 28, 2012 was $2.3 million
and $2.2 million, respectively, and is included in other liabilities in the consolidated balance sheet. This amount has been
excluded from the contractual obligations table because we are unable to reasonably estimate the timing of the resolution of the
underlying tax positions with the relevant tax authorities.
Off-Balance Sheet Arrangements.
Performance Bonds and Guarantees – We have obligations under performance and other surety contract bonds related to
certain of our customer contracts. Performance bonds generally provide a customer with the right to obtain payment and/or
performance from the issuer of the bond if we fail to perform our contractual obligations. As of July 27, 2013, we had $446.5
million of outstanding performance and other surety contract bonds. The estimated cost to complete projects secured by our
outstanding performance and other surety contract bonds was approximately $132.1 million as of July 27, 2013. No events
have occurred in which the customers have exercised their rights under the bonds. Additionally, we have periodically
guaranteed certain obligations of our subsidiaries, including obligations in connection with obtaining state contractor licenses
and leasing real property and equipment.
Letters of Credit – We have standby letters of credit issued under our Credit Agreement as part of our insurance program.
These letters of credit collateralize our obligations to our insurance carriers in connection with the settlement of potential
claims. As of July 27, 2013 and July 28, 2012 we had $46.7 million and $38.5 million, respectively, outstanding standby letters
of credit issued under the Credit Agreement.
Sufficiency of Capital Resources. We believe that our capital resources, including existing cash balances and amounts
available under our Credit Agreement, are sufficient to meet our financial obligations. These obligations include interest
payments required on our senior subordinated notes and outstanding borrowings under our Credit Agreement, working capital
requirements, and the normal replacement of equipment at our current level of operations for at least the next twelve months.
Our future operating results and cash flows may be affected by a number of factors including our success in bidding on future
contracts and our ability to manage costs effectively. To the extent we seek to grow by acquisitions that involve consideration
other than our stock, or to the extent we buy back our common stock, repay revolving borrowings or repurchase or call our
senior subordinated notes, our capital requirements may increase. Changes in financial markets or other areas of the economy
could adversely impact our ability to access the capital markets, in which case we would expect to rely on a combination of
available cash and the Credit Agreement to provide short-term funding.
Management continually monitors the financial markets and assesses general economic conditions for any impact on our
financial position. If changes in financial markets or other areas of the economy adversely impact our ability to access capital
markets, we would expect to rely on a combination of available cash and the existing committed credit facility to provide short-
term funding. We believe that our cash investment policies are conservative and we expect that the current volatility in the
capital markets will not have a material impact on our cash investments.
Backlog. Our backlog totaled $2.197 billion and $1.565 billion at July 27, 2013 and July 28, 2012, respectively. We expect
to complete 55.4% of the July 27, 2013 backlog during the next twelve months. The increase in backlog is due in part to the
incremental backlog resulting from businesses acquired in fiscal 2013.
Our backlog consists of the uncompleted portion of services to be performed under job-specific contracts and the estimated
value of future services that we expect to provide under master service agreements and other contracts. Many of our contracts
are multi-year agreements, and we include in our backlog the amount of services projected to be performed over the terms of
the contracts based on our historical experience with customers and, more generally, our experience in procurements of this
type. Revenue estimates included in our backlog can be subject to change as a result of project accelerations, cancellations or
delays due to various factors, including but not limited to commercial issues and adverse weather. These factors can also cause
revenue amounts to be realized in periods and at levels different than originally projected. In many instances, our customers
are not contractually committed to procure specific volumes of services under a contract. Our estimates of a customer's
requirements during a particular future period may prove to be inaccurate.
36
Backlog is considered a non-GAAP financial measure as defined by SEC Regulation G; however, it is a common
measurement used in our industry. Our methodology for determining backlog may not be comparable to the methodologies
used by others.
Seasonality and Quarterly Fluctuations
Our revenues exhibit seasonality as a significant portion of the work we perform is outdoors. Consequently, our operations
are impacted by extended periods of inclement weather. Generally, inclement weather is more likely to occur during the winter
season which falls during our second and third fiscal quarters. Also, a disproportionate percentage of total paid holidays fall
within our second quarter, which decreases the number of available workdays. Additionally, our customer premise equipment
installation activities for cable providers historically decrease around calendar year end holidays as their customers generally
require less activity during this period. As a result, we may experience reduced revenue in the second or third quarters of our
fiscal year.
In addition, we have experienced and expect to continue to experience quarterly variations in revenues and net income as a
result of other factors, including:
• the timing and volume of customers' construction and maintenance projects, including possible delays as a result of
material procurement;
• seasonal budgetary spending patterns of customers and the timing of their budget approvals;
• the commencement or termination of master service agreements and other long-term agreements with customers;
• costs incurred to support growth internally or through acquisitions;
• fluctuations in results of operations caused by acquisitions;
• fluctuations in the employer portion of payroll taxes as a result of reaching the limitation on payroll withholdings
obligations;
• changes in mix of customers, contracts, and business activities;
• fluctuations in insurance expense due to changes in claims experience and actuarial assumptions;
• fluctuations in stock-based compensation expense as a result of performance criteria in performance-based share
awards, as well as the timing and vesting period of all stock-based awards;
• fluctuations in incentive pay as a result of operating results;
• fluctuations in interest expense due to levels of debt and related borrowing costs;
• fluctuations in other income as a result of the timing and levels of capital assets sold during the period; and
• fluctuations in income tax expense due to levels of taxable earnings, the impact of non-deductible items and tax
credits, and the impact of disqualifying dispositions of incentive stock option expenses.
Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any
subsequent fiscal period.
Recently Issued Accounting Pronouncements
Refer to Note 1, Accounting Policies, of Notes to the Consolidated Financial Statements for a discussion of recent
accounting standards and pronouncements.
37
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks related to interest rates on our cash and equivalents and our debt obligations. We monitor
the effects of market changes on interest rates and manage interest rate risks by investing in short-term cash equivalents with
market rates of interest and by maintaining a mix of fixed and variable rate debt obligations. A hypothetical 100 basis point
increase in interest rates would result in an increase to annual earnings of approximately $0.2 million if our cash and
equivalents held as of July 27, 2013 were to be fully invested in interest bearing financial instruments.
Our revolving credit facility permits borrowings at a variable rate of interest. On July 27, 2013, we had variable rate debt
outstanding under the Credit Agreement of $49.0 million of revolver borrowings and a $121.9 million term loan. Interest
related to the borrowings fluctuates based on LIBOR or the base rate of the bank administrative agent of the Credit Agreement.
At the current level of borrowings, for every 50 basis point change in the interest rate, interest expense associated with such
borrowings would correspondingly increase or decrease by approximately $0.9 million annually. Additionally, outstanding
long-term debt on July 27, 2013 included $277.5 million of principal amount of the 2021 Notes, which bear a fixed rate of
interest of 7.125%. Due to the fixed rate of interest on the notes, changes in interest rates would not have an impact on the
related interest expense. The fair value of the outstanding notes was approximately $292.4 million on July 27, 2013, based on
quoted market prices, as compared to $281.1 million carrying value (including debt premium of $3.6 million). There exists
market risk sensitivity on the fair value of the fixed rate notes with respect to changes in interest rates. A hypothetical 50 basis
point change in the market interest rates in effect would result in an increase or decrease in the fair value of the notes of
approximately $8.4 million, calculated on a discounted cash flow basis.
We also have market risk for foreign currency exchange rates related to our operations in Canada. As of July 27, 2013, the
market risk for foreign currency exchange rates was not significant as our operations in Canada have not been material.
38
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Page
40
41
42
43
44
46
81
39
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 27, 2013 AND JULY 28, 2012
ASSETS
CURRENT ASSETS:
Cash and equivalents
Accounts receivable, net
Costs and estimated earnings in excess of billings
Inventories
Deferred tax assets, net
Income taxes receivable
Other current assets
Total current assets
PROPERTY AND EQUIPMENT, NET
GOODWILL
INTANGIBLE ASSETS, NET
OTHER
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Current portion of debt
Billings in excess of costs and estimated earnings
Accrued insurance claims
Other accrued liabilities
Total current liabilities
LONG-TERM DEBT (including debt premium of $3.6 million at July 27, 2013)
ACCRUED INSURANCE CLAIMS
DEFERRED TAX LIABILITIES, NET NON-CURRENT
OTHER LIABILITIES
Total liabilities
COMMITMENTS AND CONTINGENCIES, Notes 10, 11, and 18
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: 33,264,117 and
33,587,744 issued and outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Total stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
See notes to the consolidated financial statements.
40
July 27, 2013 July 28, 2012
(Dollars in thousands)
$
18,607
252,202
204,349
35,999
16,853
2,516
10,608
541,134
202,703
267,810
125,275
17,286
613,074
$ 1,154,208
$
77,954
7,813
13,788
29,069
71,191
199,815
444,169
27,250
48,612
6,001
725,847
$
$
$
52,581
141,788
127,321
26,274
15,633
4,884
8,466
376,947
158,247
174,849
49,773
12,377
395,246
772,193
36,823
74
1,522
25,218
50,926
114,563
187,500
23,591
49,537
4,071
379,262
—
—
11,088
115,205
103
301,965
428,361
$ 1,154,208
11,196
114,820
138
266,777
392,931
772,193
$
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 27, 2013, JULY 28, 2012, AND JULY 30, 2011
2013
2012
(Dollars in thousands, except per share amounts)
2011
REVENUES:
Contract revenues
EXPENSES:
$
1,608,612
$
1,201,119
$
1,035,868
Costs of earned revenues, excluding depreciation and amortization
General and administrative (including stock-based compensation
expense of $9.9 million, $7.0 million, and $4.4 million, respectively)
Depreciation and amortization
Total
1,300,416
968,949
145,771
85,481
1,531,668
104,024
62,693
1,135,666
Interest expense, net
Loss on debt extinguishment
Other income, net
INCOME BEFORE INCOME TAXES
PROVISION (BENEFIT) FOR INCOME TAXES:
Current
Deferred
Total
NET INCOME
EARNINGS PER COMMON SHARE:
Basic earnings per common share
Diluted earnings per common share
837,119
94,622
62,533
994,274
(15,911)
(8,295)
11,096
28,484
(2,351)
14,728
12,377
(23,334)
—
4,589
58,199
25,281
(2,270)
23,011
(16,717)
—
15,825
64,561
15,309
9,874
25,183
$
$
$
35,188
$
39,378
$
16,107
1.07
1.04
$
$
1.17
$
1.14
$
0.46
0.45
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic
Diluted
33,012,595
33,782,187
33,653,055
34,481,895
35,306,900
35,754,168
See notes to the consolidated financial statements.
41
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED JULY 27, 2013, JULY 28, 2012, AND JULY 30, 2011
NET INCOME
Foreign currency translation (losses) gains
COMPREHENSIVE INCOME
$
$
2013
2012
(Dollars in thousands)
39,378
$
$
$
(161)
39,217
$
35,188
(35)
35,153
2011
16,107
130
16,237
See notes to the consolidated financial statements.
42
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 27, 2013, JULY 28, 2012, AND JULY 30, 2011
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
Equity
Balances at July 31, 2010
Stock options exercised
Non-cash stock-based
compensation expense
Issuance of restricted stock,
net of tax withholdings
Repurchase of common stock
Other comprehensive income
Net income
Balances at July 30, 2011
Stock options exercised
Non-cash stock-based
compensation expense
Issuance of restricted stock,
net of tax withholdings
Repurchase of common stock
Other comprehensive loss
Tax benefits from stock-based
compensation
Net income
Balances at July 28, 2012
Stock options exercised
Non-cash stock-based
compensation expense
Issuance of restricted stock,
net of tax withholdings
Repurchase of common stock
Other comprehensive loss
Tax benefits from stock-based
compensation
Net income
Balances at July 27, 2013
38,656,190
153,841
$ 12,885
51
170,209
1,270
169
—
(Dollars in thousands, except shares)
$
$
$
—
—
4,314
67,109
(5,389,500)
—
—
33,487,640
617,103
23
(1,797)
—
—
11,162
206
(51)
(62,751)
—
—
112,991
6,284
5,168
2
6,780
75,533
(597,700)
—
—
—
33,587,744
544,162
25
(199)
—
—
—
11,196
181
(354)
(12,761)
—
1,880
—
114,820
5,072
5,674
2
9,900
173,537
(1,047,000)
—
58
(349)
—
(942)
(14,854)
—
—
—
—
130
—
299
—
—
—
—
(161)
—
—
138
—
—
—
—
(35)
211,292
—
$
394,555
1,321
—
4,314
—
—
—
16,107
227,399
—
—
—
—
—
—
39,378
266,777
—
—
—
—
—
(28)
(64,548)
130
16,107
351,851
6,490
6,782
(329)
(12,960)
(161)
1,880
39,378
392,931
5,253
9,902
(884)
(15,203)
(35)
—
—
33,264,117
—
—
$ 11,088
1,209
—
115,205
$
$
—
—
103
$
—
35,188
301,965
$
1,209
35,188
428,361
See notes to the consolidated financial statements.
43
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 27, 2013, JULY 28, 2012, AND JULY 30, 2011
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities, net of acquisitions:
2013
2012
(Dollars in thousands)
2011
$
35,188
$
39,378
$
16,107
Depreciation and amortization
Bad debt expense (recovery), net
Gain on sale of fixed assets
Deferred income tax (benefit) provision
Stock-based compensation
Write-off of deferred financing costs
Amortization of premium on long-term debt
Amortization of debt issuance costs and other
Excess tax benefit from share-based awards
Other
Change in operating assets and liabilities:
Accounts receivable, net
Costs and estimated earnings in excess of billings, net
Other current assets and inventory
Other assets
Income taxes receivable/payable
Accounts payable
Accrued liabilities, insurance claims, and other liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired
Capital expenditures
Proceeds from sale of assets
Changes in restricted cash
Net cash used in investing activities
FINANCING ACTIVITIES:
Proceeds from issuance of 7.125% senior subordinated notes due 2021
(including $3.8 million premium on fiscal 2013 issuance)
Proceeds from Term Loan on senior Credit Agreement
Proceeds from borrowings on senior Credit Agreement
Principal payments on senior Credit Agreement, including Term Loan
Purchase of 8.125% senior subordinated notes due 2015
Debt issuance costs
Repurchases of common stock
Exercise of stock options and other
Restricted stock tax withholdings
Excess tax benefit from share-based awards
44
85,481
139
(4,683)
(2,270)
9,902
321
(218)
1,652
(1,283)
57
3,625
(12,338)
(1,083)
(31)
5,994
(11,163)
(2,546)
106,744
(330,291)
(64,650)
5,827
60
(389,054)
93,825
125,000
404,500
(358,625)
—
(6,739)
(15,203)
5,253
(884)
1,283
62,693
186
(15,430)
9,874
6,782
—
—
1,297
(1,625)
(105)
(3,421)
(35,693)
(6,403)
62
5,747
2,978
(1,195)
65,125
—
(77,612)
24,783
926
(51,903)
—
—
—
—
—
—
(12,960)
6,490
(329)
1,625
62,533
(23)
(10,216)
14,728
4,409
2,337
—
1,295
—
87
(21,665)
(23,157)
(5,014)
617
(5,025)
2,580
4,264
43,857
(36,451)
(61,457)
12,305
225
(85,378)
187,500
—
—
—
(135,350)
(5,177)
(64,548)
1,321
(197)
—
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 27, 2013, JULY 28, 2012, AND JULY 30, 2011
Principal payments on capital lease obligations
Net cash provided by (used in) financing activities
(74)
248,336
(233)
(5,407)
(582)
(17,033)
Net (decrease) increase in cash and equivalents
(33,974)
7,815
(58,554)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
52,581
44,766
103,320
CASH AND EQUIVALENTS AT END OF PERIOD
$
18,607
$
52,581
$
44,766
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES
AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest
Income taxes
Purchases of capital assets included in accounts payable or other accrued
liabilities at period end
$
$
$
21,414
19,128
$
$
15,443
10,722
13,639
$
4,593
$
$
$
17,296
3,481
10,173
See notes to the consolidated financial statements.
45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Basis of Presentation – Dycom Industries, Inc. ("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 consolidated financial statements include the results of Dycom and its subsidiaries, all of which are wholly-owned. All
intercompany accounts and transactions have been eliminated and the financial statements reflect all adjustments, consisting of
only normal recurring accruals that are, in the opinion of management, necessary for a fair presentation of such statements.
These financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP")
pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").
On December 3, 2012, the Company acquired substantially all of the telecommunications infrastructure service
subsidiaries (the "Acquired Subsidiaries") of Quanta Services, Inc. Additionally, 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. The results of operations of the businesses acquired are included in the accompanying consolidated
financial statements from their respective 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 certain
estimates and assumptions that affect the amounts reported therein and accompanying notes. For the Company, key estimates
include: recognition of revenue for costs and estimated earnings under the percentage of completion method of accounting,
allowance for doubtful accounts, the fair value of reporting units for goodwill impairment analysis, the assessment of
impairment of intangibles and other long-lived assets, the purchase price allocations of businesses acquired, accrued insurance
claims, income taxes, asset lives used in computing depreciation and amortization, stock-based compensation expense for
performance-based stock awards, and accruals for contingencies, including legal matters. 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 from those estimates and such differences may be
material to the financial statements.
Revenue Recognition – The Company recognizes revenues under the percentage of completion method of accounting using
the units-of-delivery or cost-to-cost measures. A majority of the Company’s contracts are based on units-of-delivery and
revenue is recognized as each unit is completed. Revenues from contracts using the cost-to-cost measures of completion are
recognized based on the ratio of contract costs incurred to date to total estimated contract costs. Revenues from services
provided under time and materials based contracts are recognized when the services are performed. The current asset "Costs
and estimated earnings in excess of billings" represents revenues recognized in excess of amounts billed. The current liability
"Billings in excess of costs and estimated earnings" represents billings in excess of revenues recognized.
Application of the percentage of completion method of accounting requires the use of estimates of costs to be incurred for
the performance of the contract. The cost estimation process is based on the knowledge and experience of the Company’s
project managers and financial professionals. Factors that the Company considers in estimating the work to be completed and
ultimate contract recovery include the availability and productivity of labor, the nature and complexity of the work to be
performed, the effect of change orders, the availability of materials, the effect of any delays in performance and the
recoverability of any claims. Changes in job performance, job conditions, estimated profitability and final contract settlements
may result in changes to costs and income and their effects are recognized in the period in which the revisions are determined.
At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is accrued.
Cash and Equivalents – Cash and equivalents primarily include balances on deposit in banks. The Company maintains
substantially all of its cash and equivalents at financial institutions it believes to be of high credit quality. To date, the Company
has not experienced any loss or lack of access to cash in its operating accounts.
Restricted Cash – As of July 27, 2013 and July 28, 2012, the Company had approximately $3.7 million in restricted cash
which is held as collateral in support of the Company's insurance obligations. Restricted cash is included in other current assets
and other assets in the consolidated balance sheets and changes in restricted cash are reported in cash flows used in investing
activities in the consolidated statements of cash flows.
46
Allowance for Doubtful Accounts – The Company maintains an allowance for doubtful accounts for estimated losses
resulting from the failure of its customers to make required payments. Management analyzes the collectability of accounts
receivable balances each period. This analysis considers the aging of account balances, historical bad debt experience, changes
in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of
these factors change, the estimates made by management may also change, which could affect the level of the Company’s
future provision for doubtful accounts.
Inventories – Inventories consist of materials and supplies used in the ordinary course of business and are carried at the
lower of cost (using the first-in, first-out method) or market. Inventories also include certain job specific materials which are
valued using the specific identification method. For contracts where the Company is required to supply part or all of the
materials on behalf of the customer, the loss of the customer or declines in contract volumes could result in an impairment of
the value of materials purchased.
Property and Equipment – Property and equipment are stated at cost and depreciated on a straight-line basis over their
estimated useful lives (see Note 6, Property and Equipment, for the range of useful lives). Amortization of capital lease assets
is included in depreciation expense. Maintenance and repairs are expensed as incurred and major improvements are capitalized.
When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting
gain or loss is included in other income. Capitalized software is accounted for in accordance with Financial Accounting
Standards Board ("FASB") Accounting Standard Codification ("ASC") Topic 350-40, Internal Use Software. Capitalized
software consists primarily of costs to purchase and develop internal-use software and is amortized over its useful life as a
component of depreciation expense. Property and equipment includes internally developed capitalized computer software gross
cost and net book value of $18.3 million and $11.6 million, respectively, as of July 27, 2013, and gross cost and net book value
of $11.6 million and $7.4 million, respectively, as of July 28, 2012.
Goodwill and Intangible Assets – The Company accounts for goodwill in accordance with ASC Topic 350, Intangibles-
Goodwill and Other ("ASC Topic 350"). The Company's reporting units goodwill and other related indefinite-lived intangible
assets are assessed annually as of the first day of the fourth fiscal quarter of each year in accordance with ASC Topic 350 in
order to determine whether their carrying value exceeds their fair value. In addition, they are tested on an interim basis if an
event occurs or circumstances change between annual tests that would more likely than not reduce their fair value below
carrying value. If the Company determines the fair value of goodwill or other indefinite-lived intangible assets is less than their
carrying value as a result of the tests, an impairment loss is recognized. Impairment losses, if any, are reflected in operating
income or loss in the consolidated statements of operations during the period incurred.
In accordance with ASC Topic 360, Impairment or Disposal of Long-Lived Assets, the Company reviews finite-lived
intangible assets for impairment whenever an event occurs or circumstances change which indicates that the carrying amount of
such assets may not be fully recoverable. Recoverability is determined based on an estimate of undiscounted future cash flows
resulting from the use of an asset and its eventual disposition. An impairment loss is measured by comparing the fair value of
the asset to its carrying value. If the Company determines the fair value of an asset is less than the carrying value, an
impairment loss is incurred. Impairment losses, if any, are reflected in operating income or loss in the consolidated statements
of operations during the period incurred.
The Company uses judgment in assessing if goodwill and intangible assets are impaired. Estimates of fair value are based
on the Company's projection of revenues, operating costs, and cash flows taking into consideration historical and anticipated
future results, general economic and market conditions, as well as the impact of planned business or operational strategies. To
measure fair value, the Company employs a combination of present value techniques which reflect market factors. Changes in
the Company's judgments and projections could result in significantly different estimates of fair value potentially resulting in
additional impairments of goodwill and other intangible assets.
Business Combinations – The Company accounts for business combinations under the acquisition method of
accounting. The purchase price of each acquired business is allocated to the tangible and intangible assets acquired and the
liabilities assumed on the basis of their respective fair values on the date of acquisition. Any excess of the purchase price over
the fair value of the separately identifiable assets acquired and the liabilities assumed is allocated to goodwill. 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. Additional information, which existed as of the acquisition date
but at that time was unknown to the Company, may become known during the remainder of the measurement period, a period
not to exceed twelve months from the acquisition date. Adjustments in the purchase price allocation may require a recasting of
the amounts allocated to goodwill and intangible assets. In accordance with the acquisition method of accounting, acquisition
costs are expensed as incurred.
47
Long-Lived Tangible Assets – The Company reviews long-lived tangible assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability
is based on an estimate of undiscounted future cash flows resulting from the use of an asset group and its eventual disposition.
Measurement of an impairment loss is based on the fair value of the asset compared to its carrying value. Long-lived tangible
assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Accrued Insurance Claims – The Company retains the risk of loss, up to certain limits, for claims related to automobile
liability, general liability, workers' compensation, employee group health, and locate damages. Locate damage claims result
from property and other damages arising in connection with the Company's underground facility locating services. A liability
for unpaid claims and the associated claim expenses, including incurred but not reported losses, is determined with the
assistance of an actuary and reflected in the consolidated financial statements as accrued insurance claims. The liability for
accrued claims and related accrued processing costs was $56.3 million and $48.8 million at July 27, 2013 and July 28, 2012,
respectively, and included incurred but not reported losses of approximately $26.0 million and $22.3 million, respectively.
Based on prior payment patterns for similar claims, the Company expects $29.1 million of the amount accrued at July 27, 2013
to be paid within the next twelve months.
The Company estimates the liability for claims based on facts, circumstances and historical evidence. When loss reserves
are recorded they are not discounted, even though they will not be paid until sometime in the future. Factors affecting the
determination of the expected cost for existing and incurred but not reported claims include, but are not limited to, the
estimated number of future claims, the payment pattern of claims which have been incurred, changes in the medical condition
of claimants, and other factors such as inflation, tort reform or other legislative changes, unfavorable jury decisions and court
interpretations.
Income Taxes – The Company accounts for income taxes under the asset and liability method. This approach requires the
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in
the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between
the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in
income in the period that includes the enactment date. The Company records net deferred tax assets to the extent it believes
these assets will more likely than not be realized. In making such determination, the Company considers all available positive
and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax
planning strategies and recent financial operations. In the event the Company determines that it would be able to realize its
deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation
allowance, which would reduce the provision for income taxes.
ASC Topic 740, Income Taxes ("ASC Topic 740") prescribes a two-step process for the financial statement recognition
and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an
income tax position in order to determine whether it is more likely than not that the position will be sustained upon
examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the
financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740
also provides guidance on derecognition, classification, recognition and classification of interest and penalties, accounting in
interim periods, disclosure and transition. Under ASC Topic 740, companies may recognize a previously unrecognized tax
benefit if the tax position is effectively (as opposed to "ultimately") settled through examination, negotiation or litigation.
Per Share Data – Basic earnings per common share is computed based on the weighted average number of shares
outstanding during the period, excluding unvested restricted share units. Diluted earnings per common share includes the
weighted average common shares outstanding for the period and dilutive potential common shares, including unvested
restricted share units. Performance vesting restricted share units are only included in diluted earnings per common share
calculations for the period if all the necessary performance conditions are satisfied and their impact is dilutive. Common stock
equivalents related to stock options are excluded from diluted earnings per common share calculations if their effect would be
anti-dilutive.
Stock-Based Compensation – The Company's stock-based award programs are intended to attract, retain and reward
talented employees, officers and directors, and to align stockholder and employee interests. Stock-based awards are granted by
the Company under its 2012 Long-Term Incentive Plan ("2012 Plan"), 2003 Long-Term Incentive Plan ("2003 Plan"), and the
2007 Non-Employee Directors Equity Plan ("2007 Directors Plan" and, together with the 2012 Plan and 2003 Plan, the
"Plans"). The Company also has several other plans, both expired and current, under which awards are outstanding but under
which no further awards will be granted. The Company's policy is to issue new shares to satisfy equity awards under the Plans.
48
The Plans provide for the grants of a number of types of stock-based awards, including stock options, restricted shares,
performance shares, restricted share units, performance share units ("Performance RSUs"), and stock appreciation rights. The
total number of shares available for grant under the Plans as of July 27, 2013 was 2,033,272.
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 consolidated statements of operations. The fair value of stock option grants is estimated on
the date of grant using the Black-Scholes option pricing model based on certain assumptions including: expected volatility
based on the historical price of the Company's stock over the expected life of the option; the risk free rate of return based on the
U.S. Treasury yield curve in effect at the time of grant for the expected term of the option; the expected life based on the period
of time the options are expected to be outstanding using historical data to estimate option exercise and employee termination;
and dividend yield based on the Company's history and expectation of dividend payments. Stock options generally vest ratably
over a four-year period and are exercisable over a period of up to ten years.
The fair value of time-based restricted share units ("RSUs") and Performance RSUs is estimated on the date of grant and is
generally equal to the closing stock price on that date. RSUs vest ratably over a period of four years and are settled in one share
of the Company's common stock on the vesting date. Performance RSUs vest over a three year period from the date of grant if
certain performance goals are achieved. The performance targets are based on the Company's fiscal year operating earnings
(adjusted for certain amounts) as a percentage of contract revenues and the Company's fiscal year operating cash flow level. For
the fiscal 2013 performance period, the performance targets exclude amounts attributable to significant businesses acquired in
fiscal 2013, including acquisition, financing, and other related costs of the businesses acquired. Additionally, the awards
include three year performance goals having similar measures as the fiscal year targets which, if met, result in supplemental
shares awarded. For Performance RSUs, the Company evaluates compensation expense quarterly and recognizes expense for
performance-based awards only if management determines it is probable that the performance criteria for the awards will be
met.
The total amount of stock-based compensation expense ultimately recognized is based on the number of awards that
actually vest and fluctuates as a result of performance criteria for performance-based awards, as well as the vesting period of all
stock-based awards. Accordingly, the amount of compensation expense recognized during any fiscal year may not be
representative of future stock-based compensation expense. In accordance with ASC Topic 718, Compensation – Stock
Compensation, compensation costs for performance-based awards are recognized over the requisite service period if it is
probable that the performance goal will be satisfied. The Company uses its best judgment to determine probability of achieving
the performance goals at each reporting period and recognizes compensation costs based on the estimate of the shares that are
expected to vest.
Fair Value of Financial Instruments – ASC Topic 820, Fair Value Measurements and Disclosures ("ASC Topic 820")
defines and establishes a measurement framework for fair value and expands disclosure requirements. 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 and other 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 July 27, 2013 and July 28, 2012, 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
July 27, 2013 and July 28, 2012, based on quoted market prices in active markets for identical assets. During fiscal 2013 and
2012, the Company had no non-recurring fair value measurements of assets or liabilities subsequent to their initial recognition.
Taxes Collected from Customers – ASC Topic 605, Taxes Collected from Customers and Remitted to Governmental
Authorities, addresses the income statement presentation of any tax collected from customers and remitted to a government
authority and provides that the presentation of taxes on either a gross basis or a net basis in an accounting policy decision that
should be disclosed. The Company's policy is to present contract revenues net of sales taxes.
Segment Information – The Company operates in one reportable segment as a specialty contractor, providing engineering,
construction, maintenance and installation services to telecommunications providers, underground facility locating services to
various utilities including telecommunications providers, and other construction and maintenance services to electric and gas
utilities and others. All of the Company's operating segments have been aggregated into one reporting segment due to their
similar economic characteristics, nature of services and production processes, type of customers, and service distribution
methods. The Company's services are provided by its various subsidiaries throughout the United States and in Canada.
49
Revenues from services provided in Canada were approximately $13.0 million, $11.9 million, and $7.4 million during fiscal
2013, 2012, 2011, respectively. The Company had no material long-lived assets in the Canadian operations at July 27, 2013 or
July 28, 2012.
Recently Issued Accounting Pronouncements
Adoption of New Accounting Pronouncements
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220):
Presentation of Comprehensive Income ("ASU 2011-05"). ASU 2011-05 requires the total of comprehensive income, the
components of net income, and the components of other comprehensive income to be presented either in a single continuous
statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 also requires entities to
present on the face of the financial statements reclassification adjustments for items that are reclassified from other
comprehensive income to net income. The Company adopted ASU 2011-05 in fiscal 2013.
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Comprehensive Income (Topic
220) ("ASU 2013-02"), which does not change the requirements for reporting net income or other comprehensive income in
financial statements under ASU 2011-05; however, the amendments require entities to report either on the income statement or
in a footnote to the financial statements, the effects on earnings from items that are classified out of accumulated other
comprehensive income. The Company adopted ASU 2013-02 in fiscal 2013. The adoption of this guidance did not have a
material effect on the Company's consolidated financial statements.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles – Goodwill and Other (Topic
350): Testing Goodwill for Impairment ("ASU 2011-08"). ASU 2011-08 permits entities testing for goodwill impairment to
perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less
than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test
described in ASC Topic 350. ASU 2011-08 does not change how goodwill is determined or assigned to reporting units, nor
does it revise the requirement to assess goodwill at least annually for impairment. ASU 2011-08 is effective for goodwill
impairment tests performed in interim and annual periods for fiscal years beginning after December 15, 2011. The Company
adopted ASU 2011-08 in fiscal 2013. The adoption of this guidance did not have a material effect on the Company's
consolidated financial statements.
Accounting Standards Not Yet Adopted
In July 2012, 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 amends Topic 350 by establishing
an optional two-step analysis for impairment testing of indefinite-lived intangibles other than goodwill. This update allows an
entity the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment
test. Under that option, an entity no longer would be required to calculate the fair value of the intangible asset unless the entity
determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying
amount. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after
September 15, 2012 and early adoption is permitted. The adoption of this guidance is not expected to have a material effect on
the Company's consolidated financial statements.
In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Liabilities (Topic 405): 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 provides guidance on the financial statement presentation of
unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. To the
extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date
under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of
a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to
use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a
liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is
based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made
presuming disallowance of the tax position at the reporting date. ASU 2013-11 is effective for annual and interim periods for
fiscal years beginning after December 15, 2013. The Company is currently evaluating the potential impact of ASU 2013-11 on
its consolidated financial statements.
50
2. Computation of Earnings Per Common Share
The following is a reconciliation of the numerator and denominator of the basic and diluted earnings per common share
computation as required by ASC Topic 260, Earnings Per Share.
Fiscal Year Ended
2011
2012
2013
(Dollars in thousands, except per share amounts)
Net income available to common stockholders (numerator)
$
35,188
$
39,378
$
16,107
Weighted-average number of common shares (denominator)
33,012,595
33,653,055
35,306,900
Basic earnings per common share
Weighted-average number of common shares
Potential common stock arising from stock options, and
unvested restricted share units
Total shares-diluted (denominator)
Diluted earnings per common share
$
$
1.07
$
1.17
$
0.46
33,012,595
33,653,055
35,306,900
769,592
33,782,187
828,840
34,481,895
447,268
35,754,168
1.04
$
1.14
$
0.45
Anti-dilutive weighted shares excluded from the calculation
of earnings per share
1,204,116
1,262,964
2,071,254
3. Acquisitions
On December 3, 2012, Dycom acquired substantially all of the telecommunications infrastructure services subsidiaries
(Acquired Subsidiaries) of Quanta Services, Inc. for $275.0 million in cash plus 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's wholly-owned subsidiary, Dycom Investments, Inc., 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 Company recognized approximately $6.5 million of pre-tax acquisition costs during fiscal 2013 for this acquisition,
which are included within general and administrative expenses in the Company's consolidated statements of operations.
Additionally, the Company incurred approximately $3.4 million in pre-tax integration costs during fiscal 2013, which are also
included within general and administrative expenses.
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. On a combined basis, the businesses operate in 49 states serving over 300 individual customers.
The Company believes that the acquisition strengthens its customer base, geographic scope and technical services offerings. In
addition, it reinforces the Company's rural engineering and construction capabilities, wireless construction resources, and
broadband construction competencies. The Company expects the acquisition to enhance the efficiency of the Company's
operating scale.
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,
in acquisition payments. The Company recognized approximately $0.2 million of pre-tax acquisition costs during fiscal 2013
for the acquisition of Sage, which are included within general and administrative expenses. Goodwill of $5.0 million resulting
from these acquisitions is expected to be deductible for tax purposes. Sage provides telecommunications construction and
51
project management services primarily for cable operators in the Western United States. These acquisitions were not included
in the pro forma results below because they were not material to the Company.
The purchase prices of the 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
historical data, estimated discounted future cash flows, contract backlog amounts, if applicable, and expected royalty rates for
trademarks and trade names among other information. 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 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. 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 will 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 at that time was
unknown to 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 a recasting 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
Accounts receivable, net
Costs and estimated earnings in excess of billings
Inventories
Other current assets
Property and equipment
Goodwill
Intangibles - customer relationships
Intangibles - backlog
Intangibles - trade names
Other assets
Total assets
Liabilities
Accounts payable
Billings in excess of costs and estimated earnings
Accrued and other liabilities
Total liabilities
Net Assets Acquired
$
0.2
112.2
61.5
9.0
1.6
33.3
87.9
70.3
15.3
5.0
2.3
398.6
42.1
10.3
27.1
79.5
$
319.1
Goodwill of $87.9 million and amortizing intangible assets of $90.6 million related to the acquisition 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. During fiscal 2013, the Company made certain purchase accounting adjustments
which increased aggregate goodwill and intangible assets approximately $0.6 million. The increase was primarily based on
information obtained about facts and circumstances that existed as of the acquisition date, including the final working capital
adjustment, and totaled $3.8 million. The remaining $3.2 million net change was related to the fair values assigned to property
and equipment and other assets, including vehicle leases.
52
The results of operations of businesses acquired have been included in the consolidated statements of operations since the
respective dates of acquisition. For fiscal 2013 the Acquired Subsidiaries earned revenues of $335.4 million, incurred
intangible amortization expense of $14.3 million, and their net income since the date of acquisition, inclusive of charges
allocated for management costs, was not material.
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 and debt amortization expense related to the Company's debt financing of the transaction,
elimination of expenses charged by the seller to the businesses which will not continue after the acquisition date, and the
income tax impact of these adjustments. Pro forma earnings for fiscal 2012 were adjusted to include $6.5 million of acquisition
related costs as the pro forma information presents the consolidated results of operations as if the acquisition had occurred on
July 31, 2011. Accordingly, the pro forma earnings for fiscal 2013 were adjusted to exclude these acquisition related costs.
Additionally, pro forma earnings in fiscal 2013 and 2012 have been adjusted to reflect the impact of 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 expected economic
benefit, and 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.
Pro forma contract revenues
Pro forma income before income taxes
Pro forma net income
Pro forma earnings per share:
Basic
Diluted
4. Accounts Receivable
Accounts receivable consists of the following:
Contract billings
Retainage and other receivables
Total
Less: allowance for doubtful accounts
Accounts receivable, net
$
$
$
$
$
$
$
Fiscal Year Ended
July 27, 2013
July 28, 2012
1,836,605
90,039
54,439
1.65
1.61
$
$
$
$
$
1,724,541
42,094
25,675
0.76
0.74
July 28,
July 27,
2013
2012
(Dollars in thousands)
239,498
$
12,833
252,331
136,610
5,448
142,058
(270)
141,788
(129)
252,202
$
As of July 27, 2013, the Company expected to collect all retainage balances within the next twelve months.
53
The allowance for doubtful accounts changed as follows:
Fiscal Year Ended
Allowance for doubtful accounts at beginning of period
Bad debt expense, net
Amounts charged against the allowance
Allowance for doubtful accounts at end of period
5. Costs and Estimated Earnings in Excess of Billings
$
$
Costs and estimated earnings in excess of billings, net, consists of the following:
Costs incurred on contracts in progress
Estimated to date earnings
Total costs and estimated earnings
Less: billings to date
Included in the accompanying consolidated balance sheets under the captions:
Costs and estimated earnings in excess of billings
Billings in excess of costs and estimated earnings
July 27,
July 28,
2013
2012
(Dollars in thousands)
$
270
139
(280)
129
$
368
186
(284)
270
July 27,
2013
July 28,
2012
(Dollars in thousands)
208,250
49,150
257,400
(66,839)
190,561
204,349
(13,788)
190,561
$
$
$
$
100,766
26,555
127,321
(1,522)
125,799
127,321
(1,522)
125,799
$
$
$
$
The above amounts include revenue for services from contracts based both on the units-of-delivery and the cost-to-cost
measures of the percentage of completion method. Additionally, the amounts above include the impact of amounts acquired on
December 3, 2012 related to the Acquired Subsidiaries.
6. Property and Equipment
Property and equipment consists of the following:
July 27,
2013
July 28,
2012
$
$
(Dollars in thousands)
2,915
10,630
4,674
220,669
57,965
5,552
133,467
435,872
(277,625)
$ 158,247
3,479
11,449
5,154
258,211
64,191
7,915
171,742
522,141
(319,438)
$ 202,703
Land
Buildings
Leasehold improvements
Vehicles
Computer hardware and software
Office furniture and equipment
Equipment and machinery
Total
Less: accumulated depreciation
Property and equipment, net
General
Useful Lives
(Years)
—
10-35
1-15
1-5
3-10
2-7
1-10
54
Depreciation expense and repairs and maintenance were as follows:
Depreciation expense
Repairs and maintenance expense
7. Goodwill and Intangible Assets
Goodwill
2013
Fiscal Year Ended
2012
(Dollars in thousands)
64,756
19,408
56,187
15,623
2011
55,727
15,130
The Company's goodwill balance was $267.8 million as of July 27, 2013 and $174.8 million as of both July 28, 2012 and
July 30, 2011. Changes in the carrying amount of goodwill for fiscal 2013 are as follows:
Fiscal 2013 Changes
Goodwill
Accumulated impairment losses
As of
July 30, 2011
$
$
370,616
(195,767)
174,849
$
$
As of
July 28, 2012
Impairment
Losses
(Dollars in thousands)
— $
—
— $
$
$
370,616
(195,767)
174,849
Acquisitions
As of
July 27, 2013
92,961
—
92,961
$
$
463,577
(195,767)
267,810
The carrying value of goodwill increased as a result of the Company's fiscal 2013 acquisitions. The Company's goodwill
resides in multiple reporting units. The 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. 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 relatively 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 reporting units goodwill and other related
indefinite-lived intangible assets are assessed annually as of the first day of the fourth fiscal quarter of each year in accordance
with ASC Topic 350, Intangibles – Goodwill and Other, in order to determine whether their carrying value exceeds their fair
value. 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.
The Company performed its annual impairment assessment as of the first day of the fourth quarter of each of fiscal 2013,
2012 and 2011 and concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any
reporting unit in each of fiscal 2013, 2012 and 2011. During fiscal 2013, the Company performed qualitative assessments on
reporting units that comprise less than 30% of its consolidated goodwill balance. The qualitative assessments indicated that it
was more likely than not that the fair value exceeded carrying value for those reporting units. For the remaining reporting units,
the Company performed the first step of the quantitative analysis described in ASC Topic 350. The key valuation assumptions
contributing to the fair value estimates of the Company's reporting units were (a) a discount rate based on the Company's best
estimate of the weighted average cost of capital adjusted for risks associated with the reporting units; (b) terminal value based
on terminal growth rates; and (c) seven expected years of cash flow before the terminal value for each annual test. The table
below outlines the key assumptions in each of the Company's fiscal 2013, 2012 and 2011 annual quantitative impairment
analyses:
Terminal Growth Rate Range
Discount Rate
2013
1.5% - 2.5%
11.5%
2012
1.5% - 3%
13.0%
2011
1.5% - 3%
13.5%
55
The discount rate reflects risks inherent within each reporting unit operating individually, which is greater than the risks
inherent in the Company as a whole. The decreases in discount rates in both fiscal 2013 and fiscal 2012 are a result of reduced
risk relative to industry conditions and a lower interest rate environment at the time of the analysis. The Company believes the
assumptions used in the impairment analysis each year are reflective of the risks inherent in the business models of its reporting
units and within its industry.
For businesses acquired in fiscal 2013, there were no significant changes in forecast assumptions between the initial
valuation date and the annual impairment analysis. As a result, the estimated fair values determined during the fiscal 2013
annual impairment analysis approximated the reporting units' carrying values. Excluding these businesses, if the discount rate
applied in the fiscal 2013 impairment analysis had been 100 basis points higher than estimated for each reporting unit and all
other assumptions were held constant, the conclusion would remain unchanged and there would be no impairment of goodwill
or the indefinite-lived intangible asset.
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 levels. The fair value of the UtiliQuest
reporting unit exceeds its carrying value by approximately 20%. The UtiliQuest reporting unit provides services to a broad
range of customers, including utilities and telecommunication providers. These services are required prior to underground
excavation and are influenced by overall economic activity, including construction activity. 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 for this reporting unit may result in changes to other
valuation assumptions. As of July 27, 2013, the Company believes the goodwill is recoverable for all of its reporting units;
however, there can be no assurances that the goodwill will not be impaired in future periods.
Current operating results, including any losses, are evaluated by the Company in the assessment of goodwill and other
intangible assets. The estimates and assumptions used in assessing the fair value of the reporting units and the valuation of the
underlying assets and liabilities are inherently subject to significant uncertainties. Changes in judgments and estimates could
result in a significantly different estimate of the fair value of the reporting units and could result in impairments of goodwill or
intangible assets at additional reporting units. Additionally, adverse conditions in the economy and future volatility in the
equity and credit markets could impact the valuation of the Company's reporting units. The Company can provide no
assurances that, if such conditions occur, they will not trigger impairments of goodwill or other intangible assets in future
periods.
Intangible Assets
The Company's intangible assets consist of the following:
Carrying amount:
Customer relationships
Contract backlog
Trade names
UtiliQuest trade name
Non-compete agreements
Accumulated amortization:
Customer relationships
Contract backlog
Trade names
Non-compete agreements
Net Intangible Assets
Weighted
Average
Remaining
Useful Lives
(Years)
12.4
2.3
5.1
—
4.3
July 28,
July 27,
2013
2012
(Dollars in thousands)
$
$
164,497
15,285
8,200
4,700
400
193,082
56,219
9,433
2,071
84
125,275
$
$
89,145
—
2,860
4,700
150
96,855
45,852
—
1,182
48
49,773
Amortization of the Company's intangible assets of customer relationships and contract backlog is recognized on an
accelerated basis related to the expected economic benefit. As a result, the weighted average remaining useful lives for these
intangible assets is not representative of the average period in which the amortization expense will be recognized. Amortization
56
for the Company's other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life of the
intangible asset.
The carrying amount of customer relationships, contract backlog, trade names and non-compete agreements increased
$75.4 million, $15.3 million, $5.3 million, and $0.3 million, respectively, during fiscal 2013 as a result of the businesses
acquired in fiscal 2013. The acquired customer relationships, contract backlog, trade names, and non-compete agreements have
been assigned estimated useful lives of 15 years, 1-4 years (based on remaining contract terms), 5 years, and 5 years,
respectively. Amortization expense for finite-lived intangible assets for fiscal 2013, 2012 and 2011 was $20.7 million, $6.5
million, and $6.8 million, respectively.
Estimated total amortization expense for each of the five succeeding fiscal years is as follows (including amortization for
the newly acquired businesses based on the purchase price allocations as of July 27, 2013):
Period
2014
2015
2016
2017
2018
Thereafter
Amount
(Dollars in thousands)
$18,125
$15,035
$14,315
$12,893
$10,705
$49,502
As of July 27, 2013, the Company believes that the carrying amounts of the 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 could 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 regard to losses occurring in fiscal 2011 through
fiscal 2013, 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. The Company has maintained this same level of retention for fiscal 2014. 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 $52.5 million for fiscal 2013 and $56.3 million
for fiscal 2014. Quanta Services, Inc. has retained the risk of loss for insured claims of the Acquired Subsidiaries outstanding,
or incurred but not reported, as of the date of acquisition.
For losses under the Company's employee health plan, the Company is party to a stop-loss agreement under which it
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.
57
Accrued insurance claims consist of the following:
Amounts expected to be paid within one year:
Accrued auto, general liability and workers' compensation
Accrued employee group health
Accrued damage claims
Amounts expected to be paid beyond one year:
Accrued auto, general liability and workers' compensation
Accrued damage claims
Total accrued insurance claims
9. Other Accrued Liabilities
Other accrued liabilities consist of the following:
Accrued payroll and related taxes
Accrued employee benefit and incentive plan costs
Accrued construction costs
Other current liabilities
Total other accrued liabilities
July 27,
July 28,
2012
2013
(Dollars in thousands)
$
$
19,328
3,710
6,031
29,069
25,245
2,005
27,250
56,319
$
$
16,514
2,867
5,837
25,218
21,423
2,168
23,591
48,809
July 28,
July 27,
2013
2012
(Dollars in thousands)
$
$
19,940
15,325
20,883
15,043
71,191
$
$
19,248
12,488
11,515
7,675
50,926
Other current liabilities within the above table includes income taxes payable of $2.3 million as of July 27, 2013.
10. Debt
The Company’s outstanding indebtedness consists of the following:
Borrowings on senior Credit Agreement (matures December 2017)
Senior Credit Agreement Term Loan (matures December 2017)
7.125% senior subordinated notes due 2021
Long-term debt premium on 7.125% senior subordinated notes due 2021
Capital leases
Less: current portion
Long-term debt
Senior Subordinated Notes Due 2021
July 28,
July 27,
2013
2012
(Dollars in thousands)
$
$
49,000
121,875
277,500
3,607
—
451,982
(7,813)
444,169
$
$
—
—
187,500
—
74
187,574
(74)
187,500
On July 28, 2012, Dycom Investments, Inc. (the "Issuer"), a wholly-owned subsidiary of the Company, had outstanding an
aggregate principal amount of $187.5 million of 7.125% senior subordinated notes due 2021 that were issued under an
indenture dated January 21, 2011 (the "Indenture"). On December 12, 2012, an additional $90.0 million in aggregate principal
amount of 7.125% senior subordinated notes due 2021 were issued under the Indenture at 104.25% of the principal amount.
The resulting debt premium of $3.8 million is being amortized to interest expense over the remaining term of the notes, and
was $3.6 million as of July 27, 2013. The net proceeds of this issuance were used to repay a portion of the borrowings under
the Company's new credit facility. Holders of all $277.5 million aggregate principal amount of the senior subordinated notes
(the "2021 Notes") vote as one series under the Indenture.
58
The 2021 Notes are guaranteed by Dycom and substantially all of the Company's subsidiaries. The Indenture contains
covenants that limit, among other things, the ability of the Company and its subsidiaries 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 was approximately $292.4 million, on July 27, 2013, based
on quoted market prices, as compared to a $281.1 million carrying value (including debt premium of $3.6 million). As of
July 28, 2012, the fair value of the 2021 Notes was $192.0 million as compared to a carrying value of $187.5 million.
Senior Credit Agreement
On December 3, 2012 Dycom Industries, Inc. and certain of its subsidiaries entered into a new, five-year credit agreement
(the "Credit Agreement") with various lenders. The Credit Agreement matures in December 2017 and provides for a $125
million term loan (the "Term Loan") and a $275 million revolving facility. The Credit Agreement contains a sublimit of $150
million for the issuance of letters of credit. Subject to certain conditions, the Credit Agreement provides for the ability to enter
into one or more incremental facilities, either by increasing the revolving commitments under the Credit Agreement and/or in
the form of term loans, in an aggregate amount not to exceed $100 million. Borrowings under the Credit Agreement can be
used to refinance certain indebtedness, to provide general working capital, and for other general corporate purposes. The
Company used borrowings under the Credit Agreement in connection with the acquisition of businesses acquired during fiscal
2013, including the Acquired Subsidiaries.
The Credit Agreement replaced Dycom's prior credit agreement, dated as of June 4, 2010, which was due to expire in June
2015. At the time of termination, there were no outstanding borrowings and all outstanding letters of credit were transferred to
the Credit Agreement. Dycom did not incur any material early termination penalties in connection with the termination of the
prior credit agreement. The Company recognized $0.3 million in write-off of deferred financing costs during the second quarter
of fiscal 2013 in connection with the replacement of the prior credit agreement.
Borrowings under the Credit Agreement (other than Swingline Loans (as defined in the Credit Agreement)) bear interest at
a rate equal to either (a) the administrative agent's base rate, described in the Credit Agreement as the highest of (i) the
administrative agent's prime rate, (ii) the Federal Funds Rate plus 0.50%, and (iii) a floating rate of interest equal to one month
LIBOR plus 1.00%, or (b) the Eurodollar Rate, plus, in each case, an applicable margin based upon Dycom's consolidated
leverage ratio. Swingline Loans bear interest at a rate equal to the administrative agent's base rate plus a margin based upon
Dycom's consolidated leverage ratio. As of July 27, 2013, borrowings are eligible for a margin of 1.0% for borrowings based
on the administrative agent's base rate and 2.0% for borrowings based on the Eurodollar Rate. 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). The Company incurs fees under the Credit Agreement for the unutilized
commitments at rates that range from 0.25% to 0.40% per annum, fees for outstanding standby letters of credit at rates that
range from 1.50% to 2.25% per annum and fees for outstanding commercial letters of credit at rates that range from 0.75% to
1.125% per annum, in each case based on the Company's consolidated leverage ratio. As of July 27, 2013, $49.0 million of
outstanding borrowings (and the Term Loan) were based on the Eurodollar Rate at a rate per annum of 2.19%. Unutilized
commitments and outstanding standby letters of credit were at rates per annum of 0.35% and 2.0%, respectively.
The Credit Agreement contains affirmative and negative covenants which are customary for similar credit agreements,
including, without limitation, limitations on Dycom and its subsidiaries with respect to indebtedness, liens, investments,
distributions, mergers and acquisitions, disposition of assets, sale-leaseback transactions, transactions with affiliates and capital
expenditures. The Credit Agreement contains financial covenants which require Dycom to (i) maintain a consolidated leverage
ratio of not greater than (a) 3.50 to 1.00 for fiscal quarters ending July 27, 2013 through April 26, 2014, (b) 3.25 to 1.00 for
fiscal quarters ending July 26, 2014 through April 25, 2015 and (c) 3.00 to 1.00 for fiscal quarters ending July 25, 2015 and
each fiscal quarter thereafter, as measured on a trailing four-quarter basis at the end of each fiscal quarter, and (ii) maintain a
consolidated interest coverage ratio of not less than 3.00 to 1.00, as measured at the end of each fiscal quarter.
59
The Term Loan is subject to annual amortization payable in equal quarterly installments of principal. Contractual
maturities on the Company's outstanding indebtedness, including the Term Loan and excluding issue premium, as of July 27,
2013 is as follows:
Period
2014
2015
2016
2017
2018
Thereafter
Amount
(Dollars in thousands)
$7,813
$10,938
$14,062
$17,187
$120,875
$277,500
On July 27, 2013 and July 28, 2012, the Company had $46.7 million and $38.5 million, respectively, of outstanding letters
of credit issued under the Credit Agreement and prior credit agreement, respectively. The outstanding letters of credit are
issued as part of the Company's insurance program. At July 27, 2013 and July 28, 2012, the Company was in compliance with
the financial covenants of the applicable credit agreement and had additional borrowing availability of $179.3 million and
$186.5 million, respectively, as determined by the most restrictive covenants of the applicable agreement.
11. Income Taxes
The Company accounts for income taxes under the asset and liability method. This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities. The Company’s effective income tax rate differs from the statutory rate for
the tax jurisdictions where it operates primarily as the result of the impact of non-deductible and non-taxable items and tax
credits recognized in relation to pre-tax results. Measurement of certain aspects of the Company’s tax positions are based on
interpretations of tax regulations, federal and state case law and the applicable statutes.
The components of the provision for income taxes are as follows:
Current:
Federal
Foreign
State
Deferred:
Federal
Foreign
State
Total Tax Provision
2013
Fiscal Year Ended
2012
(Dollars in thousands)
2011
$
$
22,173
406
2,702
25,281
(2,866)
6
590
(2,270)
23,011
$
$
11,263
568
3,478
15,309
9,392
49
433
9,874
25,183
$
$
(3,116)
—
765
(2,351)
14,375
107
246
14,728
12,377
Substantially all of the Company's pre-tax income is from operations in the United States. There were immaterial amounts
of pre-tax income related to foreign operations for fiscal 2013, 2012, and 2011.
60
The deferred tax provision represents the change in the deferred tax assets and the liabilities representing the tax
consequences of changes in the amount of temporary differences and changes in tax rates during the year. The significant
components of deferred tax assets and liabilities are comprised of the following:
July 27, 2013
July 28, 2012
(Dollars in thousands)
Deferred tax assets:
Insurance and other reserves
Allowance for doubtful accounts and reserves
Net operating loss carryforwards
Stock-based compensation
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Property and equipment
Goodwill and intangibles
Other
Deferred tax liabilities
Net deferred tax liabilities
$
$
$
$
$
$
23,089
427
1,183
4,231
1,800
30,730
(1,788 )
28,942
$
36,491
23,498
712
60,701
$
$
22,014
484
1,473
2,705
1,673
28,349
(1,696)
26,653
35,832
24,039
686
60,557
(31,759) $
(33,904)
The above valuation allowance reduces the deferred tax asset balances to the amount that the Company has determined is
more likely than not to be realized. Prior to fiscal 2009, the Company incurred non-cash impairment charges on an investment
for financial statement purposes and recorded a deferred tax asset reflecting the tax benefits of those impairment charges.
During the first quarter of fiscal 2010, the investment became impaired for tax purposes and the Company determined that it
was more likely than not that the associated tax benefit would not be realized prior to its eventual expiration. Accordingly, the
Company recognized a non-cash income tax charge of $1.1 million for a valuation allowance of the associated deferred tax
asset during fiscal 2010. During fiscal 2012, the Company was able to utilize approximately $0.3 million of the underlying tax
asset. As a result, there is $0.8 million remaining in the valuation allowance related to the investment as of July 27, 2013. As of
July 27, 2013, the Company had immaterial state net operating loss carryforwards, which generally begin to expire in fiscal
2022.
The difference between the total tax provision and the amount computed by applying the statutory federal income tax rates
to pre-tax income is as follows:
Statutory rate applied to pre-tax income
State taxes, net of federal tax benefit
Non-deductible and non-taxable items
Change in accruals for uncertain tax positions
Valuation allowance of deferred tax asset
Other items, net
Total tax provision
$
$
61
2013
Fiscal Year Ended
2012
(Dollars in thousands)
$
$
20,370
2,271
366
153
—
(149)
23,011
22,600
2,766
208
93
(313)
(171)
$
25,183
$
2011
9,970
659
1,517
53
—
178
12,377
The Company files income tax returns in the U.S. federal jurisdiction, multiple state jurisdictions and in Canada. With
limited exceptions, the Company is no longer subject to U.S. federal and most state and local income tax examinations for
fiscal years ended 2009 and prior. The Company believes its provision for income taxes is adequate; however, any significant
assessment could affect the Company’s results of operations and cash flows. During fiscal 2012 the Company was notified by
the Internal Revenue Service ("IRS") that its federal income tax return for a recent period was selected for examination. The
IRS completed its examination during the fourth quarter of fiscal 2013. The Company received a "no change" letter as a result
of this examination as the IRS did not propose any adjustments.
In the normal course of business, tax positions exist for which the ultimate outcome is uncertain. The Company establishes
reserves against some or all of the tax benefit of the Company's tax positions at the time the Company determines that the
ultimate outcome becomes uncertain. For purposes of evaluating whether a tax position is uncertain, management presumes the
tax position will be examined by the relevant taxing authority; the technical merits of a tax position are derived from authorities
in the tax law and their applicability to the facts and circumstances of the tax position; and each tax position is evaluated
without consideration of the possibility of offset or aggregation with other tax positions taken. A number of years may elapse
before a particular uncertain tax position is audited and finally resolved or when a tax assessment is raised. The number of
years subject to tax assessments varies depending on the tax jurisdiction. The tax benefit that has been previously reserved
because of a failure to meet the "more likely than not" recognition threshold would be recognized in the Company's income tax
expense in the first interim period when the uncertainty disappears, when the matter is effectively settled, or when the
applicable statue of limitations expires.
A summary of unrecognized tax benefits is as follows:
2013
Fiscal Year Ended
2012
(Dollars in thousands)
$
$
Balance at beginning of year
Additions based on tax positions related to the fiscal year
Additions based on tax positions related to prior years
Reductions related to the expiration of statues of limitation
Balance at end of year
$
$
2,194
155
19
(20)
2,348
2,054
154
6
(20)
$
2,194
$
2011
1,977
226
36
(185)
2,054
As of July 27, 2013 and July 28, 2012, the Company had total unrecognized tax benefits of $2.3 million and $2.2 million,
respectively, which would reduce the Company’s effective tax rate during future periods if it is subsequently determined that
those liabilities were not required. The Company had approximately $0.8 million and $0.6 million, respectively, for the
payment of interest and penalties accrued at both July 27, 2013 and July 28, 2012. The Company recognizes interest related to
unrecognized tax benefits in interest expense and penalties in general and administrative expenses. Interest expense related to
unrecognized tax benefits was immaterial for each of fiscal 2013, 2012, and 2011.
12. Other Income, Net
The components of other income, net, are as follows:
Gain on sale of fixed assets
Miscellaneous (expense) income, net
Total other income, net
$
$
2013
Fiscal Year Ended
2012
(Dollars in thousands)
$
$
15,430
395
15,825
$
4,683
(94)
4,589
$
2011
10,216
880
11,096
Included within miscellaneous expense above is $0.3 million in write-off of deferred financing costs recognized in
connection with the replacement of the Company's prior credit agreement in fiscal 2013. See Note 10, Debt, for further
information regarding the Company's debt financing.
62
13. Employee Benefit Plans
The Company sponsors a defined contribution plan that provides retirement benefits to eligible employees who elect to
participate. Under the plan, participating employees may defer up to 15% of their base pre-tax compensation. The Company
contributes 30% of the first 5% of base compensation that a participant contributes to the plan. The Company's contributions
were $1.6 million, $1.2 million, and $1.0 million in fiscal 2013, 2012, and 2011 respectively. In addition, in connection with
the businesses acquired in fiscal 2013, the Company assumed the obligation to make future contributions under an employee
benefit plan in effect for certain hourly employees. Contributions for fiscal 2013 under this plan were $0.8 million.
The Company contributes to several multiemployer defined benefit pension plans under the terms of collective bargaining
agreements ("CBA") that cover certain employees represented by unions.
The risks of participating in a multiemployer plan are different from single-employer plans in the following aspects:
• assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other
participating employers;
• if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be inherited by the
remaining participating employers; and
• if the Company stops participating in the multiemployer plan or ceases to have an obligation to contribute to the 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 information available to the Company about the multiemployer plans in which it participates, whether via request to
the plan or publicly available, is generally dated due to the nature of the reporting cycle of multiemployer plans and legal
requirements under the Employee Retirement Income Security Act ("ERISA") as amended by the Multiemployer Pension Plan
Amendments Act ("MPPAA"). Based upon these plans' most recently available annual reports, the Company's contribution to
each of the plans was less than 5% of each such plans total contributions. The Pension, Hospitalization and Benefit Plan of the
Electrical Industry – Pension Trust Fund ("the Plan") was considered individually significant and is presented separately below.
All other plans are presented in the aggregate.
PPA Zone
Status (a)
Company Contributions (in
thousands)
EIN
2011
13-6123601 Green Green
2012
Fund
The Plan
Other Plans (c)
Total
Contributions
FIP/RP
Status (b)
No
2013
$ 2,962
243
2012
2011
$2,882 $ 3,811
—
—
$ 3,205
$2,882 $ 3,811
Surcharge
Imposed
No
Expiration
Date of
CBA
05/05/2016
various
(a) The most recent Pension Protection Act (the "PPA") zone status was provided by the Plan for Plan years ending 2012, and
2011 respectively. The zone status is based on information that the Company received from the Plan and is certified by the
Plan's actuary. Generally, plans in the red zone are less that 65% funded, plans in the yellow zone are between 65% and 80%
funded, and plans in the green zone are at least 80% funded.
(b) The "FIR/RP Status" column indicates plans for which a financial improvement plan (FIP) or rehabilitation plan (RP), as
required by the Internal Revenue Code, is either pending or has been implemented.
(c) As a result of the acquisition of the Acquired Subsidiaries, the Company contributes to various multiemployer plans for
employees of certain of the Acquired Subsidiaries. Contribution requirements to these multiemployer plans are specified in the
applicable collective bargaining agreements, and are typically assessed on a pay-as-you-go basis based on union employee
payrolls, which vary depending on location and union resources needed in connection with certain projects.
The Company has not incurred withdrawal liabilities related to the plans as of July 27, 2013.
63
14. Capital Stock
During fiscal 2013, 2012 and 2011, the Company made the following repurchases under its share repurchase programs:
Fiscal Year Ended
July 30, 2011
July 28, 2012
July 27, 2013
Number of Shares
Repurchased
5,389,500
597,700
1,047,000
Total Consideration
(Dollars in thousands)
$
$
$
64,548
12,960
15,203
$
$
$
Average Price Per
Share
11.98
21.68
14.52
All shares repurchased have been subsequently canceled. As of July 27, 2013, approximately $22.8 million of the $40.0
million authorized on March 15, 2012 remained authorized for repurchases through September 15, 2013. On August 27, 2013,
the Company announced that its Board of Directors had authorized $40.0 million to repurchase shares of the Company's
outstanding common stock to be made over the next eighteen months in open market or private transactions. The repurchase
authorization replaces the Company's previous repurchase authorization described above. As of September 12, 2013, the full
$40.0 million remained authorized for repurchase.
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 ("Performance RSUs") and stock
appreciation rights.
On November 20, 2012, the shareholders of the Company approved the Dycom Industries, Inc. 2012 Long-Term Incentive
Plan (the "2012 Plan"). The 2012 Plan authorizes 3,000,000 shares of common stock for equity awards to employees and
officers of the Company. No new awards will be made under the Company's previous 2003 Long-Term Incentive Plan. As of
July 27, 2013, the number of shares available for grant under the 2012 Plan was 1,837,179.
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 consolidated statements of operations. Stock-based compensation expense and the related
tax benefit recognized related to stock options and restricted share units during fiscal 2013, 2012, and 2012 were as follows:
Stock-based compensation
Tax benefit recognized in the statement of operations
2013
Fiscal Year Ended
2012
(Dollars in thousands)
2011
$
$
9,902
3,782
$
$
6,952
2,412
$
$
4,409
1,284
The actual tax benefit realized for the tax deductions from option exercises and stock vestings totaled $3.4 million, $2.8
million, and $0.7 million during fiscal 2013, 2012, and 2011, respectively.
As of July 27, 2013, unrecognized compensation expense related to stock options, time-based restricted share units
("RSUs") and target Performance RSUs was $5.2 million, $6.8 million and $8.8 million, respectively. Compensation expense
previously recognized with respect to Performance RSUs will be reversed to the extent the performance goals are not met.
Unrecognized compensation expense related to stock options, RSUs and Performance RSUs will be recognized over a
weighted-average period of 2.0 years, 3.1 years and 1.2 years, respectively, which is the weighted average remaining
contractual term for RSUs and Performance RSUs. The Company may recognize an additional $7.2 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.
64
The following table summarizes the significant assumptions and the valuation of stock options and restricted share units
granted during fiscal 2013, 2012, and 2011:
Weighted average fair value of RSUs granted
Weighted average fair value of Performance RSUs granted
Weighted average fair value of stock options granted
Stock option assumptions:
Risk-free interest rate
Expected life (years)
Expected volatility
Expected dividends
Stock Options
2013
18.52
18.08
11.66
$
$
$
Fiscal Year Ended
2012
$
$
$
19.49
19.47
12.51
$
$
$
2011
13.60
10.60
8.15
1.6%
9.3
55.4%
—
1.8%
9.4
56.1%
—
2.3%
6.8
58.6%
—
The following table summarizes stock option award activity during fiscal 2013:
Outstanding as of July 28, 2012
Granted
Options exercised
Forfeited or canceled
Outstanding as of July 27, 2013
Exercisable options as of July 27, 2013
Stock Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual Life
(In years)
Aggregate
Intrinsic Value
(In thousands)
17.08
18.47
9.65
24.62
18.27
20.33
4.9
3.7
$
$
26,735
15,549
Shares
3,298,747
144,155
(544,162)
(129,608)
2,769,132
1,878,315
$
$
$
$
$
$
Options exercisable presented above reflect the approximate amount of options expected to vest after giving effect to
estimated forfeitures at an insignificant rate. The aggregate intrinsic values for stock options in the above table are based on the
Company’s closing stock price of $26.48 on July 26, 2013. These amounts represent the total intrinsic value that would have
been received by the holders of the stock-based awards had the awards been exercised and sold as of that date, before any
applicable taxes. The total intrinsic value of stock options exercised was $6.0 million, $6.4 million and $1.1 million for fiscal
2013, 2012, and 2011, respectively. The Company received cash from the exercise of stock options of $5.3 million, $6.5
million, and $1.3 million during fiscal 2013, 2012, and 2011, respectively.
RSUs and Performance RSUs
RSUs and Performance RSUs are settled in one share of the Company’s common stock upon vesting. RSUs vest ratably
over a period of four years and, upon each annual vesting, 50% of the newly vested shares (net of any shares used to satisfy tax
withholding obligations) are restricted from sale or transferability ("restricted holdings"). The restrictions on sale or
transferability of the restricted holdings will end 90 days after termination of employment of the holder. When the holder has
accumulated restricted holdings having a value equal to or greater than the holder’s annual base salary then in effect, future
grants will no longer be subject to the restriction on transferability.
65
The following table summarizes RSU and Performance RSU activity during fiscal 2013:
RSUs
Weighted
Average
Grant Price
Share
Units
Restricted Stock
Performance RSUs
Aggregate
Intrinsic Value
(In thousands)
Share Units
Weighted
Average
Grant Price
Aggregate
Intrinsic Value
(In thousands)
$
Outstanding as of July 28, 2012 222,760
$
405,713
Granted
(91,413) $
Share units vested
(73,742) $
Forfeited or canceled
$
Outstanding as of July 27, 2013 463,318
14.49
18.52
12.79
17.69
17.78
$
12,269
774,264
831,390
(137,432)
(153,084)
1,315,138
$
$
$
$
$
18.76
18.08
18.23
18.36
18.44
$
34,825
Included in the RSU shares granted during fiscal 2013 was approximately 294,000 shares at a weighted average grant price
of $18.54 to employees of the Acquired Subsidiaries as of the date of acquisition. The Performance RSUs in the above table
represent the maximum number of awards that could vest, which is two hundred percent of the target awards. Accordingly, the
target amount of Performance RSUs outstanding as of July 27, 2013 was 657,569. Approximately 265,000 Performance RSUs
outstanding as of July 27, 2013 will be canceled during fiscal 2014 as a result of the fiscal 2013 performance criteria for
attaining supplemental shares not being met.
The unvested RSUs reflect the approximate amount of units expected to vest after giving effect to estimated forfeitures.
The total fair value of restricted share units vested during fiscal 2013, 2012, and 2011 was $4.2 million, $1.9 million, and $1.1
million, respectively.
The aggregate intrinsic values for restricted share units are based on the Company’s closing stock price of $26.48 on
July 26, 2013. These amounts represent the total intrinsic value that would have been received by the holders of the stock-based
awards had the awards been exercised and sold as of that date, before any applicable taxes.
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 for fiscal 2013, 2012, and 2011 was $1.9 million, $1.5 million, and $1.4 million,
respectively. The remaining future minimum lease commitments under these arrangements is approximately $1.4 million, $1.0
million, $1.0 million, $1.0 million, $0.4 million, and $0.7 million during fiscal 2014, 2015, 2016, 2017, 2018, and thereafter,
respectively. Additionally, amounts paid for subcontracting services to entities related to officers of certain of the Company’s
subsidiaries were $0.7 million and $0.5 million in fiscal 2013 and 2012, respectively. There was a minimal amount paid in
independent subcontracting services to entities related to officers of certain of the Company’s subsidiaries in fiscal 2011.
17. Concentration of Credit Risk
The Company is subject to concentrations of credit risk relating primarily to its cash and equivalents, trade accounts
receivable and costs and estimated earnings in excess of billings. The Company grants credit under normal payment terms,
generally without collateral, to its customers. These customers primarily consist of telephone companies, cable television
multiple system operators, and electric and gas utilities. With respect to a portion of the services provided to these customers,
the Company has certain statutory lien rights which may in certain circumstances enhance the Company’s collection efforts.
Adverse changes in overall business and economic factors may impact the Company’s customers and increase credit risks.
These risks may be heightened as a result of economic weakness and market volatility. In the past, some of the Company’s
customers have experienced significant financial difficulties and likewise, some may experience financial difficulties in the
future. These difficulties expose the Company to increased risks related to the collectability of amounts due for services
performed.
The Company’s customer base is highly concentrated, with its top five customers accounting for approximately 58.5%,
59.6%, and 62.0% of its total revenues in fiscal 2013, 2012, and 2011, respectively. AT&T Inc. ("AT&T"), CenturyLink, Inc.
("CenturyLink"), Comcast Corporation ("Comcast"), and Verizon Communications, Inc. ("Verizon") represent a significant
66
portion of the Company’s customer base and each were over 10% of total revenue during fiscal 2013, 2012, or 2011 as
reflected in the following table:
AT&T
CenturyLink
Comcast
Verizon
Fiscal Year Ended
2012
13.7%
13.6%
12.6%
11.3%
2013
15.5%
14.6%
10.9%
9.6%
2011
21.1%
10.8%
14.3%
8.9%
The Company believes that none of its significant customers were experiencing financial difficulties that would materially
impact the collectability of the Company’s trade accounts receivable and costs in excess of billings as of 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 July 27, 2013 or July 28, 2012 had the following outstanding balances and the related percentage of the
Company’s total outstanding balances:
CenturyLink
Windstream Corporation
AT&T
Verizon
18. Commitments and Contingencies
July 27, 2013
Amount % of Total
July 28, 2012
Amount % of Total
$
$
$
$
62.6
59.4
57.4
33.4
(Dollars in millions)
47.6
35.4
24.7
30.5
13.7% $
13.0% $
12.6% $
7.3% $
17.7%
13.2%
9.2%
11.3%
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 "California Superior Court"). 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 lawsuit. In January 2013, UtiliQuest removed the case to the United States District Court for the
Northern District of California (the "District Court") 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. An initial case management conference took place in August 2013. 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 and its subsidiaries are parties to various other claims and legal proceedings. It is the
opinion of the Company’s management, based on information available at this time, that such other pending claims or
proceedings will not have a material effect on its consolidated 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 its
insurance deductibles or retentions.
In the normal course of business, tax positions exist for which the ultimate outcome is uncertain. The Company establishes
reserves against some or all of the tax benefit of the Company's tax positions at the time the Company determines that it
becomes uncertain. For purposes of evaluating whether a tax position is uncertain, management presumes the tax position will
be examined by the relevant taxing authority; the technical merits of a tax position are derived from authorities in the tax law
and their applicability to the facts and circumstances of the tax position; and each tax position is evaluated without
consideration of the possibility of offset or aggregation with other tax positions taken. A number of years may elapse before a
particular uncertain tax position is audited and finally resolved or when a tax assessment is raised. The number of years subject
to tax assessments varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a
67
failure to meet the "more likely than not" recognition threshold would be recognized in the Company's income tax expense in
the first interim period when the uncertainty disappears; when the matter is effectively settled; or when the applicable statute of
limitations expires.
The Company and its subsidiaries have operating leases covering office facilities, vehicles, and equipment that have
original noncancelable terms in excess of one year. Certain of these leases contain renewal provisions and generally require the
Company to pay insurance, maintenance, and other operating expenses. Total expenses incurred under these operating lease
agreements, excluding the transactions with related parties presented in Note 16, Related Party Transactions, was $15.3
million, $10.6 million, and $9.4 million for fiscal 2013, 2012, and 2011, respectively. The Company also incurred rental
expense of approximately $19.0 million, $9.9 million, and $6.7 million respectively, related to facilities, vehicles, and
equipment which are being leased under original terms that are one year or less. The future minimum obligation under the
leases with noncancelable terms in excess of one year, excluding transactions with related parties, is as follows:
Future Minimum
Lease Payments
(Dollars in thousands)
13,447
$
9,301
6,084
3,105
1,482
1,198
34,617
$
2014
2015
2016
2017
2018
Thereafter
Total
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 July 27, 2013, the Company had
$446.5 million of outstanding performance and other surety contract bonds. No events have occurred in which the customers
have exercised their rights under the bonds.
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 July 27, 2013 and July 28, 2012, the Company had $46.7 million and $38.5 million, respectively, of
outstanding standby letters of credit issued under the Credit Agreement.
19. Quarterly Financial Data (Unaudited)
In the opinion of management, the following unaudited quarterly data from fiscal 2013 and 2012 reflect all adjustments
(consisting of normal recurring accruals), which are necessary to present a fair presentation of amounts shown for such periods
(the sum of the quarterly results may not equal the reported annual amounts due to rounding). The earnings per common share
calculation for each quarter is based on the weighted average shares of common stock outstanding plus the dilutive effect of
stock options and restricted share units, if any.
68
Fiscal 2013:
Fourth
First
Quarter
Quarter
(Dollars in thousands, except per share amounts)
Second
Quarter
Third
Quarter
Revenues
Costs of earned revenues, excluding depreciation and amortization
Gross profit
Net income
Earnings per common share - Basic
Earnings per common share - Diluted
$ 323,286
$ 257,066
66,220
$
11,861
$
0.36
$
0.35
$
$ 369,326
$ 301,516
67,810
$
1,463
$
0.04
$
0.04
$
$ 437,367
$ 357,664
79,703
$
7,199
$
0.22
$
0.21
$
$ 478,632
$ 384,169
94,463
$
14,666
$
0.44
$
0.43
$
Fiscal 2012:
Fourth
First
Quarter
Quarter
(Dollars in thousands, except per share amounts)
Third
Quarter
Second
Quarter
Revenues
Costs of earned revenues, excluding depreciation and amortization
Gross profit
Net income
Earnings per common share - Basic
Earnings per common share - Diluted
$ 319,575
$ 255,187
$ 64,388
$ 12,966
0.39
$
0.38
$
$
$
$
$
$
$
267,407
220,239
47,168
3,485
0.10
0.10
$ 296,103
$ 241,386
$ 54,717
9,645
$
0.29
$
0.28
$
$ 318,034
$ 252,137
65,897
$
13,282
$
0.40
$
0.39
$
For fiscal 2013, the quarterly financial data includes the results of the Acquired Subsidiaries (acquired on December 3,
2012). Additionally, during the fourth quarter of fiscal 2013, the Company acquired Sage and certain assets of a tower
construction and maintenance company. The results of operations of these businesses acquired are included in the quarterly
financial data above. During the second quarter of fiscal 2013, the Company recognized $6.5 million of pre-tax acquisition
costs in connection with the Acquired Subsidiaries and also recognized $0.2 million of pre-tax acquisitions costs during the
fourth quarter of fiscal 2013 related to Sage.
20. Supplemental Consolidating Financial Statements
As of July 27, 2013, the outstanding aggregate principal amount of the 2021 Notes was $277.5 million, comprised of
$187.5 million and $90.0 million in principal amount issued in fiscal 2011 and the second quarter of fiscal 2013, respectively.
The 2021 Notes were issued by Dycom Investments, Inc., a wholly-owned subsidiary of the Company. See Note 10, Debt, for
further information regarding the Company's debt financing. The following consolidating financial statements present, in
separate columns, financial information for (i) Dycom Industries, Inc. ("Parent") on a parent only basis, (ii) Dycom
Investments, Inc. ("the Issuer"), (iii) the guarantor subsidiaries for the 2021 Notes on a combined basis, (iv) other non-
guarantor subsidiaries on a combined basis, (v) the eliminations and reclassifications necessary to arrive at the information for
the Company on a 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.
Each guarantor and non-guarantor subsidiary is wholly-owned, directly or indirectly, by the Issuer and the Parent. The
Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and Parent. There are
no contractual restrictions limiting transfers of cash from guarantor and non-guarantor subsidiaries to Issuer or Parent, within
the meaning of Rule 3-10 of Regulation S-X.
69
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 27, 2013
Parent
Issuer
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
(Dollars in thousands)
Eliminations and
Reclassifications
Dycom
Consolidated
ASSETS
CURRENT ASSETS:
Cash and equivalents
Accounts receivable, net
Costs and estimated earnings
in excess of billings
Inventories
Deferred tax assets, net
Income taxes receivable
Other current assets
Total current assets
PROPERTY AND
EQUIPMENT, NET
GOODWILL
INTANGIBLE ASSETS, NET
DEFERRED TAX ASSETS,
NET NON-CURRENT
INVESTMENT IN
SUBSIDIARIES
INTERCOMPANY
RECEIVABLES
OTHER
TOTAL NON-CURRENT
ASSETS
TOTAL ASSETS
LIABILITIES AND
STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable
Current portion of debt
Billings in excess of costs and
estimated earnings
Accrued insurance claims
Deferred tax liabilities
Other accrued liabilities
Total current liabilities
LONG-TERM DEBT
ACCRUED INSURANCE
CLAIMS
DEFERRED TAX
LIABILITIES, NET NON-
CURRENT
$
$
—
—
— $
—
18,166
249,533
$
—
—
2,285
2,516
2,563
7,364
13,779
—
—
691
—
—
—
—
10
10
—
—
—
—
769,639
1,472,559
202,651
35,999
15,873
—
7,583
529,805
173,254
267,810
125,275
4,104
—
—
8,739
—
6,331
618,524
2,133
792,848
$ 800,212
1,478,890
$ 1,478,900
1,191,100
$ 1,720,905
$
$
2,042
7,813
— $
—
75,012
—
—
619
—
9,151
19,625
—
—
155
1,321
1,476
163,062
281,107
13,788
28,342
140
59,374
176,656
—
$
$
—
26,426
726
—
$
$
$
441
2,669
1,698
—
121
—
452
5,381
15,670
—
—
66
—
—
83
15,819
21,200
900
—
—
108
1,131
1,345
3,484
—
98
— $
—
18,607
252,202
—
—
(1,426)
—
—
(1,426)
—
—
—
(4,861)
(2,242,198)
(618,524)
—
204,349
35,999
16,853
2,516
10,608
541,134
202,703
267,810
125,275
—
—
—
17,286
(2,865,583)
(2,867,009)
$
613,074
1,154,208
— $
—
77,954
7,813
—
—
(1,426)
—
(1,426)
—
—
13,788
29,069
—
71,191
199,815
444,169
27,250
427
52,436
610
(4,861)
48,612
70
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 27, 2013
INTERCOMPANY
PAYABLES
OTHER LIABILITIES
Total liabilities
Total stockholders' equity
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY
185,296
3,142
371,851
428,361
426,251
—
709,261
769,639
—
2,855
258,373
1,462,532
6,977
4
11,173
10,027
(618,524)
—
(624,811)
(2,242,198)
—
6,001
725,847
428,361
$ 800,212
$ 1,478,900
$ 1,720,905
$
21,200
$
(2,867,009)
$
1,154,208
71
1,018
1,362
1,452
—
80
—
787
4,699
15,431
—
—
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 28, 2012
Parent
Issuer
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
(Dollars in thousands)
Eliminations and
Reclassifications
Dycom
Consolidated
$
$
—
—
— $
—
51,563
140,426
$
$
— $
—
52,581
141,788
ASSETS
CURRENT ASSETS:
Cash and equivalents
Accounts receivable, net
Costs and estimated earnings
in excess of billings
Inventories
Deferred tax assets, net
Income taxes receivable
Other current assets
Total current assets
PROPERTY AND
EQUIPMENT, NET
GOODWILL
INTANGIBLE ASSETS, NET
DEFERRED TAX ASSETS,
NET NON-CURRENT
INVESTMENT IN
SUBSIDIARIES
INTERCOMPANY
RECEIVABLES
OTHER
TOTAL NON-CURRENT
ASSETS
TOTAL ASSETS
—
—
2,390
4,884
2,211
9,485
9,671
—
—
—
—
—
—
—
10
10
—
—
—
65
125,869
26,274
13,566
—
5,458
363,156
133,145
174,849
49,773
734,451
1,425,451
—
—
6,075
—
4,338
860,758
1,731
750,197
$ 759,682
1,429,854
$ 1,429,864
1,229,597
$ 1,592,753
LIABILITIES AND
STOCKHOLDERS'
EQUITY
$
CURRENT LIABILITIES:
Accounts payable
Current portion of debt
Billings in excess of costs and
estimated earnings
Accrued insurance claims
Deferred tax liabilities
Other accrued liabilities
Total current liabilities
LONG-TERM DEBT
ACCRUED INSURANCE
CLAIMS
DEFERRED TAX
LIABILITIES, NET NON-
CURRENT
2,785
—
—
588
—
5,054
8,427
—
708
1,020
$
— $
—
33,441
74
—
—
249
565
814
1,522
24,551
84
43,772
103,444
187,500
—
22,815
—
—
—
—
(403)
—
—
(403)
—
—
—
127,321
26,274
15,633
4,884
8,466
376,947
158,247
174,849
49,773
—
—
—
12,377
9,341
1,085
(10,491)
$
$
$
$
—
54
233
16,803
21,502
597
—
—
79
70
1,535
2,281
—
68
(2,159,902)
(860,812)
—
(3,031,205)
(3,031,608)
$
395,246
772,193
— $
—
36,823
74
—
—
(403)
—
(403)
—
—
1,522
25,218
—
50,926
114,563
187,500
23,591
57,140
1,868
(10,491)
49,537
72
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 28, 2012
INTERCOMPANY
PAYABLES
OTHER LIABILITIES
Total liabilities
Total stockholders' equity
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY
353,713
2,883
366,751
392,931
507,099
—
695,413
734,451
—
1,185
184,584
1,408,169
—
3
4,220
17,282
(860,812)
—
(871,706)
(2,159,902)
—
4,071
379,262
392,931
$ 759,682
$ 1,429,864
$ 1,592,753
$
21,502
$
(3,031,608)
$
772,193
73
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JULY 27, 2013
Parent
Issuer
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
(Dollars in thousands)
Eliminations and
Reclassifications
Dycom
Consolidated
$
—
$
— $ 1,594,363
$
14,249
$
— $
1,608,612
REVENUES:
Contract revenues
EXPENSES:
Costs of earned revenues,
excluding depreciation and
amortization
General and administrative
Depreciation and
amortization
Intercompany charges
(income), net
Total
—
44,462
2,920
(53,377)
(5,995)
—
818
—
—
818
1,288,369
89,336
77,595
54,720
1,510,020
12,047
11,155
4,966
(1,343)
26,825
—
115
Interest expense, net
Other income, net
(5,675)
(320)
(17,599)
—
(60)
4,794
INCOME (LOSS) BEFORE
INCOME TAXES AND
EQUITY IN EARNINGS OF
SUBSIDIARIES
—
(18,417)
89,077
(12,461)
PROVISION (BENEFIT) FOR
INCOME TAXES
—
(7,281)
35,214
(4,922)
—
—
—
—
—
—
—
—
—
1,300,416
145,771
85,481
—
1,531,668
(23,334)
4,589
58,199
23,011
NET INCOME (LOSS)
BEFORE EQUITY IN
EARNINGS OF
SUBSIDIARIES
EQUITY IN EARNINGS OF
SUBSIDIARIES
—
(11,136)
53,863
(7,539)
—
35,188
35,188
46,324
—
—
(81,512)
—
NET INCOME (LOSS)
$ 35,188
$ 35,188
$
53,863
$
(7,539) $
(81,512)
$
35,188
Foreign currency translation
loss
COMPREHENSIVE INCOME
(LOSS)
(35)
(35)
—
(35)
70
(35)
$ 35,153
$ 35,153
$
53,863
$
(7,574) $
(81,442)
$
35,153
74
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JULY 28, 2012
Parent
Issuer
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
Eliminations and
Reclassifications
Dycom
Consolidated
(Dollars in thousands)
$
—
$
— $ 1,186,380
$
14,739
$
— $
1,201,119
—
—
(12)
—
(12)
—
—
12
—
968,949
104,024
62,693
—
1,135,666
(16,717)
15,825
64,561
25,183
—
28,048
3,137
(34,212)
(3,027)
—
574
—
—
574
957,449
65,185
54,735
33,749
1,111,118
11,500
10,217
4,833
463
27,013
—
522
Interest income (expense), net
Other income, net
(3,049)
22
(13,660)
—
(8)
15,281
—
(14,234)
90,535
(11,752)
—
(5,550)
35,299
(4,566)
REVENUES:
Contract revenues
EXPENSES:
Costs of earned revenues,
excluding depreciation and
amortization
General and administrative
Depreciation and
amortization
Intercompany charges
(income), net
Total
INCOME (LOSS) BEFORE
INCOME TAXES AND
EQUITY IN EARNINGS OF
SUBSIDIARIES
PROVISION (BENEFIT) FOR
INCOME TAXES
NET INCOME (LOSS)
BEFORE EQUITY IN
EARNINGS OF
SUBSIDIARIES
EQUITY IN EARNINGS OF
SUBSIDIARIES
—
(8,684)
55,236
(7,186)
12
39,378
39,378
48,062
—
—
(87,440)
—
NET INCOME (LOSS)
$
39,378
$ 39,378
$
55,236
$
(7,186)
$
(87,428)
$
39,378
Foreign currency translation
loss
COMPREHENSIVE INCOME
(LOSS)
(161)
(161)
—
(161)
322
(161)
$
39,217
$ 39,217
$
55,236
$
(7,347)
$
(87,106)
$
39,217
75
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JULY 30, 2011
Parent
Issuer
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
(Dollars in thousands)
Eliminations and
Reclassifications
Dycom
Consolidated
REVENUES:
Contract revenues
EXPENSES:
$
—
$ — $ 1,025,484
$
10,384
$
— $
1,035,868
—
—
(47)
—
(47)
—
—
—
47
—
837,119
94,622
62,533
—
994,274
(15,911)
(8,295)
11,096
28,484
12,377
Costs of earned revenues,
excluding depreciation and
amortization
General and administrative
Depreciation and amortization
Intercompany charges
(income), net
Total
—
23,520
3,192
(29,852 )
(3,140 )
—
648
—
—
648
Interest income (expense), net
Loss on debt extinguishment
Other income, net
(3,140 )
—
—
(12,852)
(8,295)
—
827,980
62,174
54,232
29,437
973,823
81
—
10,845
9,139
8,280
5,156
415
22,990
—
—
251
— —
(21,795)
62,587
(12,355)
—
(9,430)
27,142
(5,335)
INCOME (LOSS) BEFORE
INCOME TAXES AND
EQUITY IN EARNINGS OF
SUBSIDIARIES
PROVISION (BENEFIT) FOR
INCOME TAXES
NET INCOME (LOSS)
BEFORE EQUITY IN
EARNINGS OF
SUBSIDIARIES
EQUITY IN EARNINGS OF
SUBSIDIARIES
—
(12,365)
35,445
(7,020)
47
16,107
16,107
28,472
—
—
(44,579)
—
NET INCOME (LOSS)
$ 16,107
$ 16,107
$
35,445
$
(7,020)
$
(44,532) $
16,107
Foreign currency translation gain
COMPREHENSIVE INCOME
(LOSS)
130
130
—
130
(260)
130
$ 16,237
$ 16,237
$
35,445
$
(6,890)
$
(44,792) $
16,237
76
Net cash provided by (used in)
operating activities
Cash flows from investing
activities:
Cash paid for acquisitions, net
of cash acquired
Capital expenditures
Proceeds from sale of assets
Return of capital from
subsidiaries
Investment in subsidiaries
Changes in restricted cash
Net cash (provided by) used in
investing activities
Cash flows from financing
activities:
Proceeds from issuance of
7.125% senior subordinated
notes due 2021, (including
$3.8 million premium on
Proceeds from Term Loan on
Senior Credit Agreement
Proceeds from borrowings on
Senior Credit Agreement
Principal payments on Senior
Credit Agreement
Debt issuance costs
Repurchases of common stock
Exercise of stock options and
other
Restricted stock tax
withholdings
Excess tax benefit from share-
based awards
Principal payments on capital
lease obligations
Intercompany funding
Net decrease in cash and
equivalents
CASH AND EQUIVALENTS
AT BEGINNING OF PERIOD
CASH AND EQUIVALENTS
AT END OF PERIOD
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED JULY 27, 2013
Parent
Issuer
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
(Dollars in thousands)
Eliminations and
Reclassifications
Dycom
Consolidated
$ 6,952
$ (9,612)
$
112,176
$
(2,772)
$
—
$
106,744
—
(8,151)
—
—
—
—
(330,291)
(51,647)
5,770
—
—
60
1,816
(2,600)
—
—
—
—
—
(4,852)
57
—
—
—
—
—
—
(1,816)
2,600
—
(330,291)
(64,650)
5,827
—
—
60
(8,091)
(784)
(376,168)
(4,795)
784
(389,054)
—
93,825
125,000
404,500
—
—
(358,625)
(4,158)
(15,203)
—
(2,581)
—
—
—
—
5,253
(884)
1,283
—
(156,027)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,990
6,990
—
—
—
—
(33,397)
(577)
51,563
1,018
—
—
—
—
—
—
—
—
—
—
(784)
(784)
—
—
93,825
125,000
404,500
(358,625)
(6,739)
(15,203)
5,253
(884)
1,283
(74)
—
248,336
(33,974)
52,581
$
—
$
— $
18,166
$
441
$
—
$
18,607
77
Net cash provided by financing
activities
1,139
10,396
230,595
—
(80,848)
(74)
230,669
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED JULY 28, 2012
Parent
Issuer
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
(Dollars in thousands)
Eliminations and
Reclassifications
Dycom
Consolidated
$ 6,755
$ (8,774)
$
69,823
$
(2,679)
$
—
$
65,125
Net cash provided by (used in)
operating activities
Cash flows from investing
activities:
Capital expenditures
Proceeds from sale of assets
Changes in restricted cash
Capital contributions to
subsidiaries, net
Net cash provided by (used in)
investing activities
Cash flows from financing
activities:
(3,685)
—
926
—
—
—
(69,362)
19,211
—
(4,565)
5,572
—
—
(4,943)
—
—
(2,759)
(4,943)
(50,151)
1,007
Repurchases of common stock
Exercise of stock options and
other
Restricted stock tax
withholdings
Excess tax benefit from share-
based awards
Principal payments on capital
lease obligations
Intercompany funding
(12,960)
6,490
(329)
1,625
—
1,178
—
—
—
—
—
—
—
—
—
13,717
(233)
(12,484)
Net cash provided by (used in)
financing activities
(3,996)
13,717
(12,717)
Net increase in cash and
equivalents
CASH AND EQUIVALENTS
AT BEGINNING OF PERIOD
CASH AND EQUIVALENTS
AT END OF PERIOD
—
—
—
—
6,955
44,608
—
—
—
—
—
2,532
2,532
860
158
—
—
—
4,943
4,943
—
—
—
—
—
(4,943)
(77,612)
24,783
926
—
(51,903)
(12,960)
6,490
(329)
1,625
(233)
—
(4,943)
(5,407)
—
—
7,815
44,766
$
—
$
— $
51,563
$
1,018
$
—
$
52,581
78
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED JULY 30, 2011
Parent
Issuer
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
(Dollars in thousands)
Eliminations and
Reclassifications
Dycom
Consolidated
Net cash provided by (used in)
operating activities
Cash flows from investing
activities:
Capital expenditures
Proceeds from sale of assets
Cash paid for acquisitions
Changes in restricted cash
Capital contributions to
subsidiaries
Net cash used in investing
activities
Cash flows from financing
activities:
Repurchases of common stock
Exercise of stock options and
other
Restricted stock tax
withholdings
Principal payments on capital
lease obligations
Debt issuance costs
Proceeds from issuance of
7.125% senior subordinated
notes due 2021
Purchase of 8.125% senior
subordinated notes due 2015
Intercompany funding
Net cash provided by (used in)
financing activities
Net decrease in cash and
equivalents
CASH AND EQUIVALENTS
AT BEGINNING OF PERIOD
CASH AND EQUIVALENTS
AT END OF PERIOD
$ 7,979
$ (12,343)
$
53,611
$
(5,390)
$
—
$
43,857
(1,746)
—
—
25
—
—
(27,500)
—
(53,346)
11,645
(8,951)
200
(6,365)
660
—
—
—
(52,492)
—
—
(1,721)
(79,992)
(50,452)
(5,705)
(64,548)
1,321
(197)
—
(456)
—
—
—
—
(4,721)
—
—
—
(582)
—
—
187,500
—
—
—
—
—
—
—
—
57,622
(135,350)
44,906
—
(60,827)
(6,258)
92,335
(61,409)
—
10,791
10,791
—
—
—
—
52,492
52,492
—
—
—
—
—
—
—
(52,492)
(61,457)
12,305
(36,451)
225
—
(85,378)
(64,548)
1,321
(197)
(582)
(5,177)
187,500
(135,350)
—
(52,492)
(17,033)
—
—
—
—
(58,250)
(304)
102,858
462
—
—
(58,554)
103,320
$
—
$
— $
44,608
$
158
$
—
$
44,766
79
21. Subsequent Events
On August 27, 2013, the Company announced that its Board of Directors had authorized $40.0 million to repurchase
shares of the Company's outstanding common stock to be made over the next eighteen months in open market or private
transactions. The repurchase authorization replaces the Company's previous repurchase authorization, which was due to expire
on September 15, 2013 and of which approximately $22.8 million remained outstanding as of July 27, 2013. As of September
12, 2013, the full $40.0 million remained authorized for repurchase.
80
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dycom Industries, Inc.
Palm Beach Gardens, Florida
We have audited the accompanying consolidated balance sheets of Dycom Industries, Inc. and subsidiaries (the "Company") as
of July 27, 2013 and July 28, 2012, and the related consolidated statements of operations, comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period ended July 27, 2013. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Dycom
Industries, Inc. and subsidiaries as of July 27, 2013 and July 28, 2012, and the results of their operations and their cash flows
for each of the three years in the period ended July 27, 2013, in conformity with accounting principles generally accepted in the
United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company's internal control over financial reporting as of July 27, 2013, based on the criteria established in Internal
Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated September 12, 2013 expressed an unqualified opinion on the Company's internal control over financial
reporting.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
September 12, 2013
81
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
There have been no changes in or disagreements with accountants on accounting and financial disclosures within the
meaning of Item 304 or Regulation S-K.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934 (the "Exchange Act")) as of July 27, 2013, the end of the period covered by this Annual Report on Form 10-K. Based
on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of July 27, 2013, the Company's
disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported
within the time periods specified by the SEC's rules and forms, and (2) accumulated and communicated to the Company's
management, including the Company's Chief Executive Officer and Chief Financial Officer, in a manner that allows timely
decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial reporting. In making our assessment of changes in
internal control over financial reporting as of July 27, 2013, we have excluded the telecommunications infrastructure services
subsidiaries acquired (the "Acquired Subsidiaries") from Quanta Services, Inc. on December 3, 2012. Additionally, we have
excluded Sage Telecommunications Corp of Colorado, LLC ("Sage") acquired during the fourth quarter of fiscal 2013. These
businesses acquired during fiscal 2013 represent approximately 34.5% of our total assets at July 27, 2013 and 21.0% of our
total contract revenues for the fiscal year ended July 27, 2013.
Management’s Report on Internal Control over Financial Reporting
Management of Dycom Industries, Inc. and subsidiaries is responsible for establishing and maintaining a system of internal
control over financial reporting as defined in Rule 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934. The
Company’s internal control system is designed to provide reasonable assurance that the reported financial information is
presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are
reasonable. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of
human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not
absolute assurance, with respect to reporting financial information. Further, because of changes in conditions, effectiveness of
internal control over financial reporting may vary over time.
In accordance with the SEC’s published guidance, management's assessment and conclusion on the effectiveness of the
Company's internal control over financial reporting as of July 27, 2013 excludes an assessment of the internal control over
financial reporting of the Acquired Subsidiaries, acquired on December 3, 2012, and Sage, acquired during the fourth quarter of
fiscal 2013. These businesses acquired during fiscal 2013 represent approximately 34.5% of our total assets at July 27, 2013
and 21.0% of our total contract revenues for the fiscal year ended July 27, 2013.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting
was effective as of July 27, 2013.
The effectiveness of the Company’s internal control over financial reporting as of July 27, 2013 has been audited by
Deloitte & Touche LLP, the Company’s independent registered public accounting firm. Their report, which is set forth in Part
II, Item 9A, Controls and Procedures, of this Annual Report on Form 10-K, expresses an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting as of July 27, 2013.
82
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dycom Industries, Inc.
Palm Beach Gardens, Florida
We have audited the internal control over financial reporting of Dycom Industries, Inc. and subsidiaries (the "Company") as of
July 27, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company's internal control over financial reporting based on our audit.
As described in Management's Report on Internal Control Over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at (1) the telecommunications infrastructure services subsidiaries
acquired from Quanta Services, Inc. on December 3, 2012, and (2) Sage Telecommunications Corp of Colorado, LLC, which
was acquired during the fourth quarter of 2013. These businesses acquired during fiscal 2013 constitute 34.5% of total assets
and 21.0% of contract revenues of the consolidated financial statement amounts as of and for the year ended July 27, 2013.
Accordingly, our audit did not include the internal control over financial reporting at these businesses acquired during 2013.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July
27, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements as of and for the year ended July 27, 2013 of the Company and our report dated
September 12, 2013 expressed an unqualified opinion on those financial statements.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
September 12, 2013
83
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Information concerning directors and nominees of the Registrant and other information as required by this item are hereby
incorporated by reference from the Company's definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A. The information set forth under the caption "Executive Officers of the Registrant" in Part I, Item 1 of this
Annual Report on Form 10-K is incorporated herein by reference.
Code of Ethics
The Company has adopted a Code of Ethics for Senior Financial Officers, which is a code of ethics as that term is defined
in Item 406(b) of Regulation S-K and which applies to its Chief Executive Officer, Chief Financial Officer, Controller and
other persons performing similar functions. The Code of Ethics for Senior Financial Officers is available on the Company's
Internet website at www.dycomind.com. If the Company makes any substantive amendments to, or a waiver from, provisions of
the Code of Ethics for Senior Financial Officers, it will disclose the nature of such amendment, or waiver, on its website or in a
report on Form 8-K. Information on the Company's website is not deemed to be incorporated by reference into this Annual
Report on Form 10-K.
Item 11. Executive Compensation.
The information required by Item 11 regarding executive compensation is included under the headings "Compensation
Discussion and Analysis," "Compensation Committee Report," and "Compensation Committee Interlocks and Insider
Participation" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A, and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information concerning the ownership of certain of the Registrant's beneficial owners and management and related
stockholder matters is hereby incorporated by reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
Item 13. Certain Relationships, Related Transactions and Director Independence.
Information concerning relationships and related transactions is hereby incorporated by reference from the Company's
definitive proxy statement to be filed with the Commission pursuant to Regulation 14A.
Item 14. Principal Accounting Fees and Services.
Information concerning principal accounting fees and services is hereby incorporated by reference from the Company's
definitive proxy statement to be filed with the Commission pursuant to Regulation 14A.
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as a part of this report:
PART IV
1. Consolidated financial statements: the consolidated financial statements and the Report of the Independent Registered
Public Accounting Firm are listed on pages 39 through 81.
2. Financial statement schedules:
All schedules have been omitted because they are inapplicable, not required, or the information is included in the above
referenced consolidated financial statements or the notes thereto.
3. Exhibits furnished pursuant to the requirements of Form 10-K:
84
Exhibit Number
2.1
3(i)
3(ii)
4.1
4.2
4.3
4.4
4.5+
4.6
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
Stock Purchase Agreement, dated as of November 19, 2012, among Dycom Industries, Inc., PBG Acquisition III,
LLC, Quanta Services, Inc. and Infrasource FI LLC (incorporated by reference to Exhibit 2.1 to Dycom Industries,
Inc.'s Current Report on Form 8-K filed with the SEC on November 20, 2012).
Restated Articles of Incorporation of Dycom Industries, Inc. (incorporated by reference to Dycom Industries,
Inc.’s Form 10-Q filed with the SEC on June 11, 2002).
Amended and Restated By-laws of Dycom Industries, Inc., as amended on February 24, 2009 (incorporated by
reference to Dycom Industries, Inc.’s Form 8-K, filed with the SEC on March 2, 2009).
Indenture, dated as of January 21, 2011, among Dycom Investments, Inc., Dycom Industries, Inc. and certain
subsidiaries of Dycom Industries, Inc., as guarantors, and U.S. Bank National Association, as trustee (incorporated
by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on January 24, 2011).
First Supplemental Indenture, dated as of January 28, 2011, among Dycom Investments, Inc., Dycom Industries,
Inc. and certain subsidiaries of Dycom Industries, Inc., as guarantors, and U.S. Bank National Association, as
trustee. (incorporated by reference to Exhibit 4.1 to Dycom Industries, Inc.'s Current Report on Form 8-K filed
with the SEC on December 12, 2012).
Second Supplemental Indenture, dated as of December 12, 2012, among Dycom Investments, Inc., Dycom
Industries, Inc. and certain subsidiaries of Dycom Industries, Inc., as guarantors, and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.1 to Dycom Industries, Inc.'s Current Report on
Form 8-K filed with the SEC on December 12, 2012).
Third Supplemental Indenture, dated as of February 26, 2013, among Dycom Investments, Inc., Dycom Industries,
Inc. and certain subsidiaries of Dycom Industries, Inc., as guarantors, and U.S. Bank National Association, as
trustee (incorporated by reference to Exhibit 4.5 to the First Amendment to Dycom Investments, Inc.'s Registration
Statement on Form S-4 filed with the SEC on February 26, 2013).
Fourth Supplemental Indenture, dated as of July 26, 2013, among Dycom Investments, Inc., Dycom Industries,
Inc. and certain subsidiaries of Dycom Industries, Inc., as guarantors, and U.S. Bank National Association, as
trustee.
Registration Rights Agreement, dated as of December 12, 2012, among Dycom Investments, Inc., Dycom
Industries, Inc., certain subsidiaries of Dycom Industries, Inc., and Goldman, Sachs & Co. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as representatives of the Initial Purchasers (incorporated by reference to
Exhibit 4.2 to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on December 12, 2012).
1998 Incentive Stock Option Plan (incorporated by reference to Dycom Industries, Inc.’s Preliminary Proxy
Statement filed with the SEC on September 30, 1999).
2003 Long-Term Incentive Plan, amended and restated effective as of September 19, 2011 (incorporated by
reference to Dycom Industries, Inc.’s Form 8-K, filed with the SEC on September 23, 2011).
Form of Non-Qualified Stock Option Agreement under the 2003 Long-Term Incentive Plan, as amended and
restated (incorporated by reference to Dycom Industries, Inc.'s Form 10-K, filed with the SEC on September 4,
2012).
Form of Incentive Stock Option Agreement under the 2003 Long-Term Incentive Plan, as amended and restated
(incorporated by reference to Dycom Industries, Inc.'s Form 10-K, filed with the SEC on September 4, 2012).
Form of Restricted Stock Unit Agreement under the 2003 Long-Term Incentive Plan, as amended and restated
(incorporated by reference to Dycom Industries, Inc.'s Form 10-K, filed with the SEC on September 4, 2012).
Form of Performance Unit Agreement under the 2003 Long-Term Incentive Plan, as amended and restated
(incorporated by reference to Dycom Industries, Inc.'s Form 10-K, filed with the SEC on September 4, 2012).
2012 Long-Term Incentive Plan (incorporated by reference to Dycom Industries, Inc.'s Definitive Proxy Statement
filed with the SEC on October 11, 2012).
Form of Non-Qualified Stock Option Agreement under the 2012 Long-Term Incentive Plan (incorporated by
reference to Dycom Industries, Inc.'s Form 8-K filed with the SEC on December 20, 2012).
85
10.9*
Form of Incentive Stock Option Agreement under the 2012 Long-Term Incentive Plan (incorporated by reference
to Dycom Industries, Inc.'s Form 8-K filed with the SEC on December 20, 2012).
10.10*
Form of Restricted Stock Unit Agreement under the 2012 Long-Term Incentive Plan (incorporated by reference to
Dycom Industries, Inc.'s Form 8-K filed with the SEC on December 20, 2012).
10.11*
Form of Performance Unit Agreement under the 2012 Long-Term Incentive Plan (incorporated by reference to
Dycom Industries, Inc.'s Form 8-K filed with the SEC on December 20, 2012).
10.12*
2007 Non-Employee Directors Equity Plan, amended and restated effective as of September 19, 2011
(incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 23, 2011).
10.13*
Form of Non-Employee Director Non-Qualified Stock Option Agreement, under the 2007 Non-Employee
Directors Equity Plan, as amended and restated (incorporated by reference to Dycom Industries, Inc.'s Form 10-K,
filed with the SEC on September 4, 2012).
10.14*
Form of Non-Employee Director Restricted Stock Unit Agreement, under the 2007 Non-Employee Directors
Equity Plan, as amended and restated (incorporated by reference to Dycom Industries, Inc.'s Form 10-K, filed with
the SEC on September 4, 2012).
10.15*
Employment Agreement for Richard B. Vilsoet dated as of May 5, 2005 (incorporated by reference to Dycom
Industries, Inc.’s Form 10-K filed with the SEC on September 9, 2005).
10.16*
Employment Agreement for H. Andrew DeFerrari dated as of July 14, 2004 (incorporated by reference to Dycom
Industries, Inc.’s Form 8-K filed with the SEC on January 23, 2006).
10.17*
Amendment to the Employment Agreement of H. Andrew DeFerrari dated as of August 25, 2006 (incorporated by
reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on August 31, 2006).
10.18*
Amendment to the Employment Agreements of H. Andrew DeFerrari and Richard B. Vilsoet dated as of May 28,
2010 (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on May 28, 2010).
10.19*
Employment Agreement for Steven E. Nielsen dated as of May 1, 2012 (incorporated by reference to Dycom
Industries, Inc.’s Form 8-K filed with the SEC on May 2, 2012).
10.20*
Employment Agreement for Timothy R. Estes dated as of October 4, 2012 (incorporated by reference to Dycom
Industries, Inc.'s Form 8-K filed with the SEC on October 4, 2012).
10.21
2009 Annual Incentive Plan (incorporated by reference to Dycom Industries, Inc.’s Definitive Proxy Statement
filed with the SEC on October 30, 2008).
10.22*
Form of Indemnification Agreement for directors and executive officers of Dycom Industries, Inc. (incorporated
by reference to Dycom Industries, Inc.’s Form 10-K filed with the SEC on September 3, 2009).
10.23
Credit Agreement, dated as of December 3, 2012, among Dycom Industries, Inc., as the Borrower, the subsidiaries
of Dycom Industries, Inc. identified therein, certain lenders named therein, Bank of America, N.A., as
Administrative Agent, Swingline Lender and L/C Issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Managers, Wells Fargo Bank, National
Association, as Syndication Agent, and Suntrust Bank, PNC Bank, National Association and Branch Banking and
Trust Company, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to Dycom Industries,
Inc.'s Current Report on Form 8-K filed with the SEC on December 5, 2012).
10.24*+ Description of Non-Employee Directors' Compensation.
12.1 +
Computation of Ratio of Earnings to Fixed Charges.
21.1+
Principal subsidiaries of Dycom Industries, Inc.
23.1+
Consent of Independent Registered Public Accounting Firm.
31.1 +
31.2 +
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
86
32.1 +
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 +
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
101++** The following materials from the Registrant’s Annual Report on Form 10-K for the fiscal year ended July 27, 2013
formatted in eXtensible Business Reporting Language: (i) the Consolidated Balance Sheets; (ii) the Consolidated
Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated
Statements of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to
Consolidated Financial Statements.
+ Filed herewith
++ Furnished herewith
* Indicates a management contract or compensatory plan or arrangement.
** Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not
filed or part of a registration statement or prospectus for the purposes of section 11 or 12 of the Securities Act of
1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchanges Act of 1934, as
amended, and otherwise is not subject to liability under these sections.
87
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
DYCOM INDUSTRIES, INC.
Registrant
Date: September 12, 2013
/s/ Steven E. Nielsen
Name: Steven E. Nielsen
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
Position
Date
/s/ Steven E. Nielsen
Steven E. Nielsen
/s/ H. Andrew DeFerrari
H. Andrew DeFerrari
/s/ Thomas G. Baxter
Thomas G. Baxter
/s/ Charles M. Brennan, III
Charles M. Brennan, III
/s/ Charles B. Coe
Charles B. Coe
/s/ Stephen C. Coley
Stephen C. Coley
/s/ Dwight B. Duke
Dwight B. Duke
/s/ Patricia L. Higgins
Patricia L. Higgins
President and Chief Executive Officer
September 12, 2013
Senior Vice President and Chief Financial Officer
September 12, 2013
(Principal Financial and Accounting Officer)
Director
September 12, 2013
Director
September 12, 2013
Director
September 12, 2013
Director
September 12, 2013
Director
September 12, 2013
Director
September 12, 2013
88
DYCOM INDUSTRIES, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited) – Not filed in the Form 10-K
The shareholder letter included at the beginning of this Annual Report includes the financial measure “organic revenue
growth,” which is a Non-GAAP financial measure as defined in Regulation G of the Securities and Exchange Act of 1934.
The Company cautions that Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the
Company’s reported results under generally accepted accounting principles (GAAP).
The below table presents a reconciliation of Non-GAAP contract revenues and year-over-year growth to GAAP contract
revenues and year-over-year growth. The organic revenue change represents the revenue growth excluding revenues from
acquired businesses and storm restoration services. The Company believes organic revenue provides the most meaningful
comparison of contract revenues on a year-over-year basis.
Calculation of Organic Growth % (dollars in thousands):
Contract
Revenues -
GAAP
Revenues from
subsidiaries
acquired in fiscal
2013
Revenues from
storm restoration
services
Contract
Revenues - Non-
GAAP
%
Growth -
GAAP (a)
%
Growth -
Non-GAAP
(a)
Q1-13 Organic Growth:
Three Months Ended October 27, 2012
$
323,286
$
-
$
-
$
323,286
1.2
%
2.4
%
Three Months Ended October 29, 2011
$
319,575
$
-
$
(3,729)
$
315,846
Q4-13 Organic Growth:
Three Months Ended July 27, 2013
$
478,632
$
(139,079)
$
-
$
339,553
50.5
%
7.5
%
Three Months Ended July 28, 2012
$
318,034
$
-
$
(2,256)
$
315,778
Fiscal 2013 Organic Growth:
Twelve Months Ended July 27, 2013
$
1,608,612
$
(337,923)
$
(16,721)
$
1,253,968
33.9
%
4.9
%
Twelve Months Ended July 28, 2012
$
1,201,119
$
-
$
(5,985)
$
1,195,134
(a) Year-over-year growth percentage is calculated as follows: (i) revenues in the current period less (ii) revenues in the comparative prior year period;
divided by (ii) revenues in the comparative prior year period.
The following table presents contract revenues on a stand-alone basis for subsidiaries acquired in fiscal 2013 and legacy
subsidiaries (dollars in thousands):
Revenues from
subsidiaries
acquired in fiscal
2013
Revenues from
legacy
subsidiaries
Contract
Revenues –
GAAP
Twelve Months Ended July 27, 2013
$
337,923
$
1,270,689
$
1,608,612
CORPORATE DIRECTORY
Executive Officers:
Annual Meeting:
Steven E. Nielsen
Chairman, President and Chief Executive Officer
Timothy R. Estes
Executive Vice President and
Chief Operating Officer
H. Andrew DeFerrari
Senior Vice President and
Chief Financial Officer
Richard B. Vilsoet
Vice President, General Counsel and Secretary
Directors:
Thomas G. Baxter 2, 4, 5
Charles M. Brennan, III 1, 4, 5
Charles B. Coe 1, 2, 5
Stephen C. Coley 1, 3, 4
Dwight B. Duke 1, 3
Patricia L. Higgins 1, 2, 3
Steven E. Nielsen 4
Committees:
1 Audit Committee
2 Compensation Committee
3 Corporate Governance Committee
4 Executive Committee
5 Finance Committee
Registrar and Transfer Agent:
American Stock Transfer & Trust Company
New York, New York
Independent Auditors:
Deloitte & Touche LLP
Miami, Florida
The 2013 Annual Shareholders Meeting
will be held at 11:00 a.m. on
Tuesday, November 26, 2013, at the Corporate offices of
Dycom Industries, Inc.
11770 U.S. Highway 1
Suite 402
Palm Beach Gardens, Florida 33408
Common Stock:
The common stock of Dycom Industries, Inc. is traded on the
New York Stock Exchange under the trading symbol “DY.”
Shareholder Information:
Copies of this report to Shareholders, the Annual Report to the
Securities and Exchange Commission (“SEC”) on Form 10-K,
and other published reports may be obtained, without charge, by
sending a written request to:
Secretary
Dycom Industries, Inc.
11770 U.S. Highway 1
Suite 101
Palm Beach Gardens, Florida 33408
Telephone: (561) 627-7171
Web Site: www.dycomind.com
E-mail: info@dycominc.com
Documents that Dycom has filed electronically with the SEC can
be accessed on the SEC’s website at www.sec.gov.
Dycom has filed the certifications of the Chief Executive Officer
and Chief Financial Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 of its 2013
Annual Report on Form 10-K filed with the SEC. Additionally,
in December 2012, Dycom’s Chief Executive Officer submitted
to the New York Stock Exchange a certificate stating that he is
not aware of any violations by Dycom of the New York Stock
Exchange corporate governance listing standards.
DYCOM INDUSTRIES, INC.
11770 U.S. Highway 1
Suite 101
Palm Beach Gardens, Florida 33408
(561) 627-7171