form10k.htm


   
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-K
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended July 31, 2010

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to ________

Commission File Number 001-10613

DYCOM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

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

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

Securities registered pursuant to Section 12(b) of the Act:
   
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $0.33 1/3 per share
New York Stock Exchange
Series A Preferred Stock Purchase Rights
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 [ ] No [X]
 
    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 [ ] No [X]
 
    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No [ ]
 
    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
 
    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 registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
 
    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 [ ]      Accelerated filer [X]     Non-accelerated filer [ ]   Smaller reporting company [ ]
(Do not check if a smaller reporting company)
 
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
 
    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 23, 2010, was $329,829,659.
 
    There were 38,305,239 shares of common stock with a par value of $0.33 1/3 outstanding at September 2, 2010

DOCUMENTS INCORPORATED BY REFERENCE

Document
Part of Form 10-K into which incorporated
Portions of the registrant’s Proxy Statement to be filed by November 28, 2010
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
3
 
Available Information
3
     
 
PART I
 
     
3
8
14
14
14
14
     
 
PART II
 
     
14
16
17
34
34
68
68
70
     
 
PART III
 
70
70
70
70
70
     
 
PART IV
 
71
     
 
73




Cautionary Note Concerning Forward-Looking Statements
 
    In this Annual Report on Form 10-K, Dycom Industries, Inc. and its subsidiaries (referred to as “the Company,” “we,” “us,” or “our”) have made forward-looking statements. The words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “forecast,” “may,” “should,” “could,” “project” and similar expressions identify forward-looking statements. Such statements may 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 are impaired;

 
plans for future operations, growth and acquisitions, dispositions, or financial needs;

 
availability of financing;

 
plans relating to our services, including our contract backlog;

 
future economic conditions and trends in the industries we serve; and

 
assumptions relating to any of foregoing.
 
    These forward-looking statements are based on management’s current expectations, estimates and projections and are subject to known and unknown risks and uncertainties that may cause actual results in the future to differ materially from the results projected or implied in any forward-looking statements contained in this report. The factors that could affect future results and cause these results to differ materially from those expressed in the forward-looking statements include, but are not limited to, those described under Item 1A, “Risk Factors” and other risks outlined in our periodic filings with the Securities and Exchange Commission (“SEC”). Any forward-looking statement speaks only as of the date on which it is made. Except as required by law, we may not update forward-looking statements to reflect changes as they occur after the forward-looking statements are made, although our circumstances may change in the future. With respect to forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Available Information
 
    We maintain a website at www.dycomind.com where investors and other interested parties may access, free of charge, a copy of our Annual Report 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 (the “Exchange Act”), as amended, as soon as is reasonably practicable after we electronically file such material with, or furnish it 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 Form 10-K.

PART I
 

 
Item 1. Business.
 
    Dycom Industries, Inc., incorporated in the State of Florida in 1969, is a leading provider of specialty contracting services. These services are provided throughout the United States and 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 also provides services on a limited basis in Canada. For the fiscal year ended July 31, 2010, revenue by customer type from telecommunications, underground facility locating, and electric and gas utilities and other customers, was approximately 79.2%, 17.8%, and 3.0%, respectively. Additional financial infor mation for each of the years ended July 31, 2010, July 25, 2009 and July 26, 2008 is included in the consolidated financial statements and notes thereto in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report on Form 10-K.
 
    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”), Comcast Corporation (“Comcast”), Verizon Communications Inc. (“Verizon”), CenturyLink, Inc. (“CenturyLink”), Time Warner Cable Inc. (“Time Warner Cable”), Charter Communications, Inc. (“Charter”), Windstream Corporation (“Windstream”), Cablevision Systems Corporation (“Cablevision”), and Qwest Communications International Inc. (“Qwest”).



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-a ided 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. We also install fiber optic cable to cell sites. 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 multiple system operators, our services also include the installation and maintenance of customer premise equipment, including set top boxes and modems.
 
    Premise Wiring.   Premise wiring services are provided to various corporations and state and local governments. These services are predominantly limited to 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 for these utility companies.< /div>
 
    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 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
 
        The following table represents the percentage of total contract revenues from continuing operations by type of customer:


   
Fiscal Year Ended
 
   
2010
   
2009
   
2008
 
Telecommunications
    79.2 %     77.7 %     76.2 %
Underground facility locating
    17.8 %     16.7 %     17.7 %
Electric and gas utilities and other customers
    3.0 %     5.6 %     6.1 %
Total contract revenues
    100.0 %     100.0 %     100.0 %




Business Strategy
 
    Capitalize on Long-Term Growth Drivers.   We are well positioned to benefit from increased demand for reliable video, voice, and data services. As telecommunications networks experience increased demand for services, 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 the telephone and cable companies converge, with each offering reliable, competitively priced voice, video, and data services to consumers. Due to the declining cost and expanding capabilities of telecommunications equipment, telecommunications network operators are abl e to enhance their network infrastructure more cost effectively than in the past. Our customers’ networks are increasingly facing demands for greater capacity and reliability, which in turn, increases the demand for our services.
 
    Selectively Increase Market Share.   We believe our reputation for high quality service and our ability to provide services nationally create opportunities for expanding 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. Significant financial resources enable us to address larger opportunities which some of our relatively capital constrained competitors may be unable to perform. However, 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 and purchase 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 invest in information technology and development efforts that are designed to support and to enhance our operating efficiency. We decentralize the recording of transactions and the financia l reporting necessary for timely operational decisions which, we believe secures greater accountability for business outcomes from our local decision makers. We also maintain a decentralized approach to marketing, 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-held 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 those 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.

Customer Relationships
 
    Our current customers include leading telephone companies such as AT&T, Verizon, CenturyLink, Windstream, Qwest, and Frontier Communications Corporation. We also provide telecommunications engineering, construction, installation and maintenance services to a number of cable television multiple system operators, including Comcast, Time Warner Cable, Charter, Cablevision, and Cox Communications, Inc. Premise wiring services are provided to various corporations and state and local governments. Underground facility locating services are provided to telecommunication providers and to a variety of utility and gas companies, including Atmos Energy Corporation, Washington Gas Light Company, Baltimore Gas and Electric, AGL Services Company, and Questar Gas Company.
 
    Our customer base is highly concentrated with our top five customers accounting for approximately 64% of our total revenues from continuing operations in each of fiscal 2010, 2009, and 2008. During fiscal 2010, approximately 20.4% of our total revenues was derived from AT&T, 14.3% from Comcast, 11.5% from Verizon, and 10.1% from CenturyLink. 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 currently a party to over 200 of these agreements. 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 these ag reements for convenience with written notice.
 
    A customer’s decision to engage us with respect to a specific construction or maintenance project is often made by local customer management working with our subsidiaries. As a result, although our project work is concentrated among relatively few customers, our relationships with these 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. Management of our subsidiaries possess intimate knowledge of their particular markets and we believe our decentralized operations allow us to be more responsive in addressing customer needs. Our sales and marketing efforts are the responsibility of our management and that of our subsidiaries. These marketing efforts tend to focus on contacts with managers within our customers’ organizations.


 
Backlog
 
    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 long-term requirements 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. 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 not prove to be accurate, particularl y in light of the current economic conditions and the uncertainty that imposes on changes in our customer’s requirements for our services.
 
    Our backlog totaled $1.114 billion and $935.4 million at July 31, 2010 and July 25, 2009, respectively. We expect to complete 57.5% of the July 31, 2010 backlog during fiscal 2011.
 
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 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, including 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 operating margins. If we experience insurance claims in excess of our umbrella coverage limit, our business could be materially and adversely affected. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 8 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 held, local competitors. We also face competition from the in-house service organizations of our existing or prospective customers, particularly telecommunications providers that employ personnel who perform some of the same services that we provide. Although a significant portion of these services is currently outsourced by our customers and we have been performing specialty contracting services for over 25 years, our existing or prospective customers may elect to discontinue outsourcing specialty contracting services in the fut ure. 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 price their services aggressively to procure such business. Our competitors may also 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 compete favorably with our competitors on the basis of these factors.

Employees
 
    As of July 31, 2010, we employed 8,897 persons. Approximately 320 of our employees are represented by local collective bargaining units. The number of our employees varies according to 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 necessary materials and we provide the personnel, tools, and equipment necessary to perform installation and maintenance services. The customer determines the specifications of the materials and we are only responsible for the performance of the required services. Materials supplied by our customers, for which the customer retains the 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 dependent upon any one source for the materials that we customarily use to complete the job. We do not manufacture any significant amounts of material for resale. We are not presen tly experiencing, nor do we anticipate experiencing, any difficulties in procuring an adequate supply of materials.
 
    We use independent contractors to perform portions of the services that we provide; however, we are not dependent on any single independent contractor. These independent contractors typically are small locally owned companies. Independent contractors provide their own employees, vehicles, tools, and insurance coverage. We use independent contractors to help manage our work flow and reduce the amount that we may otherwise be required to spend on fixed assets.

Seasonality
 
    Our revenues are affected by 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 fis cal years.
 
Environmental Matters
 
    A significant portion of our work is performed underground. As a result, we are potentially subject to material liabilities related to encountering underground objects which may cause the release of hazardous materials or substances. Additionally, the environmental laws and regulations which relate to our business include those regarding the removal and remediation of hazardous substances and waste. These laws and regulations can impose significant fines and criminal sanctions for violations. Costs associated with the discharge of hazardous materials or 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.
 
           
Executive
Name
 
Age
 
Office
 
Officer Since
Steven E. Nielsen
   
47
   
Chairman, President and Chief Executive Officer
 
February 26, 1996
Timothy R. Estes
   
56
   
Executive Vice President and Chief Operating Officer
 
September 1, 2001
H. Andrew DeFerrari
   
41
   
Senior Vice President and Chief Financial Officer
 
November 22, 2005
Richard B. Vilsoet
   
57
   
Vice President, General Counsel and Corporate Secretary
 
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 LLP.
 
    Richard B. Vilsoet has been the Company’s General Counsel and Corporate Secretary since June 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.


 
 
    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 (the "SEC"), 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.
 
    The economic downturn and challenges in the financial and credit markets may adversely impact our customers’ future spending.   The duration of the current economic weakness and the impact that it will have on our customers remain uncertain. The economic slowdown, when combined with developments in the financial and credit markets, has created a challenging business environment for us and our customers.  Slowing economic growth may 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 determ ination of our backlog. Our customers generally finance their projects through cash flow from operations, the incurrence of debt or the issuance of equity. As a result, volatility in the credit and equity markets could reduce the availability of debt or equity financing of our customers.   This may result in a reduction in our customers’ spending for our services, which could have an adverse effect on our operations.
 
    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. In fiscal 2010, our telecommunications customers accounted for over 79.2% of our revenues. Fiscal 2009 and fiscal 2010 results were impacted by customer reductions in near term spending plans and a slow growth environment may continue into fiscal 2011. During times of economic slowdown, our customers often reduce their capital expenditures and defer or cancel pending projects. Our underground facility lo cating services are required prior to underground excavation, which is dependent in part on construction activity, and accordingly, are also influenced by the level of overall economic activity. As a result of the foregoing, demand for our services may decline during periods of economic downturns and could adversely affect our operations, cash flows and liquidity.
 
    We derive a significant portion of our revenues from master service agreements which may be cancelled by our customers upon notice or which we may be unable to renew on negotiated terms.   During fiscal 2010, we derived approximately 76.0% of our revenues from master service agreements. By their terms, the majority of these contracts may be cancelled by our customers upon notice, even if we are not in default, and 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 and completed. During the last several years we have been able to r enew or extend some of our master service agreements on negotiated terms rather than through a competitive bidding process. Market conditions could change, however, and our customers could require the renewal of these contracts through competitive bidding. As a result of competitive bidding, we could be underbid by our competitors or required to lower the price charged under the contract being rebid. The loss of work obtained through master service agreements 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 needs. 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, such as wireless applications, could displace the wireline systems we install and that are used by our customers to deliver services to consumers. 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 64% of our total revenues from continuing operations in each of fiscal years 2010, 2009, and 2008. Our revenue may significantly decline if we were to lose one or more of our significant customers. In addition, revenues under our contracts with significant customers may vary from period-to-period depending on the timing and volume of work which those customers order or perform with their in-house service organ izations. Additionally, consolidations, mergers and acquisitions in the telecommunications industry have occurred in the past and may occur in the future. The consolidation, merger or acquisition of an existing customer may result in a change in procurement strategies by the surviving entity. Reduced demand for our services or a change in procurement strategy of a significant customer could adversely affect our results of operations, cash flows and liquidity.
 
    The specialty contracting services industry in which we operate is highly competitive.   We compete with other independent contractors, including numerous small, owner-operated private 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. 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 may also face competition from the in-house service organizations of our customers whose personnel perform some of the same services that we provide. Although our customers currently outsource a significant portion of these services to us and our industry competitors, 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, 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 data available. In some cases, these estimates are particularly uncertain and we must exercise significant judgme nt. Estimates are primarily used in our assessment of the recognition of revenue for costs and estimated earnings in excess of billings, the fair value of goodwill, the assessment of impairment of intangibles and other long-lived assets, income taxes, accrued insurance claims, asset lives used in computing depreciation and amortization, allowance for doubtful accounts, 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 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.
 
    Our profitability is based on our ability to deliver our services within the estimated costs used to establish the pricing of 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 costs 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 our management estimate the costs to be incurred by us in performing the contract. Our process for estimating costs is based upon the professional knowledge and experience of our project managers and financial professionals. However, any changes in original estimates, or the assumptions underpinning such estimates, may result in revisions to costs and income and their effects would be recognized in the period in which such revisions are determined. These changes could result in the reduction or elimination of previously reported profits, which could adversely affect our results of operations, cash flows and liquidity.
 
    We possess a significant amount of accounts receivable and costs and estimated earnings in excess of billings assets.   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 31, 2010, we had net accounts receivable of $110.1 million and costs and estimated earnings in excess of billings of $66.6 million. We periodically assess the credit risk of our customers and continuously monitor the timel iness of payments. Slowdowns 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. Further 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, reducing our cash flows and adversely impacting our liquidity and profitability. Additionally, we could incur losses in excess of current bad debt allowances.

 
    We retain the risk of loss for certain insurance related liabilities, which leaves us exposed to higher than expected 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. 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 frequency of future claims, the payment pattern of claims which have been incurred, changes in the me dical 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 of actual claims exceed what we have anticipated, our recorded reserves may not be sufficient, and we could incur substantial additional unanticipated charges. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Accrued Insurance Claims” and Note 8 to the consolidated financial statements in this Form 10-K.
 
    Our backlog is subject to reduction and/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 long-term requirements 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. In many instances, our customers are not contractually committed to procure specific volumes of services under a con tract. Our estimates of a customer’s requirements during a particular future period may not prove to be accurate, particularly in light of the current economic conditions and the uncertainty that imposes on changes in our customer’s requirements for our services. If our estimated backlog is significantly inaccurate or does not result in future profits, this could adversely affect our future growth and the price of our common stock.
 
    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, Goodwill and Other Intangible Assets (“ASC Topic 350”). Our reporting units and related indefinite-lived intangible assets are tested annually during 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 mo re 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 could adversely affect our results of operations. As a result of our interim impairment analysis during the second quarter of fiscal 2009, we recognized a non-cash charge of $94.4 million. The fiscal 2009 interim impairment charge 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. As the result of our annual impairment test of goodwill in fiscal 2008, we recognized non-cash charges of approximately $5.9 million related to our Stevens Communications repor ting unit and approximately $3.8 million related to our Nichols Construction reporting unit. Additionally, in fiscal 2005 and 2006, we recognized non-cash charges of approximately $29.0 million related to our White Mountain Cable Construction reporting unit and $14.8 million related to our Can-Am Communications, Inc. reporting unit, respectively. The impairment charges reduced the carrying value of goodwill related to these reporting units.
 
    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 within a limited number of customers, and the level of overall economic activity. Individual reporting units may be relatively more impacted by these factors than the company as a whole. Specifically, during times of economic slowdown, our customers may reduce their capital expenditures and defer or cancel pending projects. As a result, demand for the services of one or more of the reporting units could decline 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, including class action lawsuits, that are brought or threatened against us for alleged violations of the Fair Labor Standards Act (the “FLSA”) and state wage and hour laws. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. The ultimate resolution of these matters through settlement, mediation or court judgment could have a materia l adverse 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 “Legal Proceedings” and Note 18 of Notes to the Consolidated Financial Statements in this Form 10-K.


 
    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. Although we have entered into employment agreements with our executive officers and certain other key employees, we cannot guarantee that any of these or other key management personnel will remain employed by us for any length of time. The loss of key management could adversely affect the management of our operations. 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 having the skills we need and the level of compensation required to hire and retain qualified employees. In addition, we cannot be certain that our labor expenses will not increase as a result of shortages in the supply of these skilled personnel. As a result, our ability to maintain our productivity and profitability may be affected if we are unable to hire qualified employees and manage labor costs to retain employees.
 
    We may be unable to secure sufficient subcontractors to fulfill our obligations, or our subcontractors may fail to satisfy their obligations. We utilize subcontractors to complete work on a portion of our projects. We may be unable to secure the subcontractors necessary to perform work under a contract, thereby causing delay or increasing the cost of completing the work.  In addition, we may have disputes with these subcontractors arising from, among other things, the quality and timeliness of work performed by the subcontractor. Any of these factors could adversely affect the quality of our service, our ability to perform under c ertain 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 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 when renewing or bidding contracts to compensate us for rising costs. 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 i nstruments 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 are affected by seasonality since 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 les s activity during this period. As a result, we may experience reduced revenue in the second or third quarters of our fiscal years.
 
    We may be unable to generate internal growth.   Our internal growth may be affected by, among other factors, our ability to offer valuable services to existing customers, attract new customers, and hire and retain qualified employees or subcontractors. Many of the factors affecting our ability to generate internal growth may be beyond our control, such as the capital budgets of our customers and the availability of qualified employees. 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 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 impairme nt of acquired intangible assets. Our ability to sustain our growth and maintain our competitive position may be affected by our ability to successfully integrate any businesses acquired.
 
    Unanticipated changes in our tax rates or exposure to additional income tax 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 could reduce our profitability. In addition, the amount of income and other taxes we pay is subject to ongoing audits in various juri sdictions, and a material assessment by a governing tax authority could affect our profitability.

 
 
    Our senior subordinated notes and revolving credit facility impose restrictions on us which may prevent us from engaging in beneficial transactions.   At July 31, 2010, we had $135.35 million in senior subordinated notes (the “Notes”) outstanding due October 2015. The Notes were issued under an indenture dated as of October 11, 2005. The indenture governing the Notes contains 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 consol idate with another entity; sell certain assets; and enter into transactions with affiliates.
 
    On June 4, 2010, we entered into a new five-year revolving credit agreement ( the “Credit Agreement”) with a syndicate of banks. The Credit Agreement replaces the Company’s prior credit facility which was due to expire in September 2011. The Credit Agreement has an expiration date of June 4, 2015 and provides for a maximum borrowing of $225.0 million, including a sublimit of $100.0 million for the issuance of letters of credit. The Credit Agreement requires us to: (i) maintain a consolidated leverage ratio of not greater than 3.00 to 1.00, as measured at the end of each fiscal quarter and (ii) maintain a consolidated interest coverage ratio of not less than 2.75 to 1.00 for fiscal quarters ending July 31, 2010 through April 28, 2012 and not less than 3.00 to 1.00 for the fiscal qua rter ending July 28, 2012 and each fiscal quarter thereafter, as measured at the end of each fiscal quarter. The Credit Agreement also contains certain affirmative and negative covenants, including limitations with respect to indebtedness, liens, investments, distributions, mergers and acquisitions, disposition of assets, sale-leaseback transactions, transactions with affiliates and capital expenditures. A default under our Credit Agreement or the indenture 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 the addition of 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 the application of its regulations to telecommunication companies from the way such regulations are currently applied and may further 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 cust omers may reduce expenditures for our specialty contracting services.
 
    Legislative actions and initiatives relating to telecommunications may not result in an increase in demand for our services. The American Recovery and Reinvestment Act of 2009 (“ARRA”) originally allocated $7.2 billion in funding to accelerate broadband deployment in rural areas of the country that have been without high-speed infrastructure. However, we cannot predict the actual benefits to us from the implementation of ARRA programs. For example, significant additional contracts resulting from investments for rural broadband deployment under the ARRA may not be awarded to us.
 
    We may incur liabilities or suffer negative financial impacts 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 with high voltage lines. As such, they are subject to potential injury to themselves or others in the vicinity of work being performed. 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 can cel our contracts and or not award us future business.
 
    Our failure to comply with environmental laws could result in significant liabilities.   Our operations consist, in part, of work performed underground. As a result, we are potentially subject to material liabilities related to encountering underground objects which may cause the release of hazardous materials or substances. The environmental laws and regulations that relate to our business include those regarding the removal and remediation of hazardous substances and waste. These laws and regulations can impose significant fines and criminal sanctions for violations. Costs associated with the discharge of hazardous materials or substances may include clean-up costs and related damages or l iabilities. These costs could be significant and could adversely affect our results of operations and cash flows.
 
    In addition, new laws and regulations, changed 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 become the basis for 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 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, and if we seek more debt we may be required to agree to additional covenants that limit our operational and financial flexibility. If we seek additional debt or equity financings, we cannot be certain that additional debt or equity will be available to us 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 requirements. An increase in 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 rise in health care costs or additional costs as a result of the Health Care Reform Laws could have a negative impact on our financial position and results of operations.
 
    The market price of our common stock has been, and may continue to be, highly volatile.   During fiscal 2009 and 2010, our common stock fluctuated from a high of $18.12 per share to a low of $3.67 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 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 weakness on the credit and stock markets and on our customers’ demand for our services.
 
    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, provisions in our articles of incorporation and by-laws and our shareholder rights plan 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 boa rd 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. We have also adopted a shareholder rights plan, which may make it more difficult to effect a change in control. 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, even if such change would be beneficial to stockholders. This could adversely affect the market price of our common stock.






 
    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 Alberta, Canada. Our leased properties operate under both non-cancelable and cancelable leases. We believe that our facilities are adequate for our current operations and additional facilities would be available on commercially reasonable terms, if necessary.


 
    In June 2010, a former employee of Prince Telecom, LLC (“Prince”), a wholly-owned subsidiary of the Company, commenced a lawsuit against Prince, the Company and certain unnamed U.S. affiliates of Prince and the Company (the “Affiliates”) in the United States District Court for the Southern District of New York. The lawsuit alleges that Prince, the Company and the Affiliates violated the Fair Labor Standards Act by failing to comply with applicable overtime pay requirements. The plaintiff seeks unspecified damages and other relief on behalf of himself and a putative class of similarly situated current and former employees of Prince, the Company and/or the Affiliates. 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.
 
    In May 2009, the Company and Prince were named as defendants in a lawsuit in the U.S. District Court for the Western District of Washington. The plaintiffs, all former employees of the subsidiary, alleged various wage and hour claims, including that employees were not paid for all hours worked and were subject to improper wage deductions. Plaintiffs sought to certify as a class current and former employees of the subsidiary who worked in the State of Washington. In November 2009, the plaintiffs’ attorneys, the Company and the subsidiary entered into a memorandum of understanding pursuant to which the parties agreed to the terms of a proposed settlement with respect to the lawsuit.  In January 2010, the Court granted preliminary approval of the proposed settlement. Notice of the terms of the proposed settlement and claim forms were mailed to members of the plaintiffs’ class in February 2010. The Court held a hearing regarding the plaintiffs’ Motion for Final Approval of the Class Action Settlement in April 2010, at which time it entered an Order approving the settlement and dismissed the action with prejudice subject to final administration of the terms of the settlement.  Excluding our legal expenses, approximately $1.6 million was incurred pursuant to the settlement and was paid in June 2010.
   
    From time to time, the Company and our subsidiaries are parties to various other claims and legal proceedings. Additionally, 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. For these claims, the effect on our financial statements is generally limited to the amount needed to satisfy our insurance deductibles or retentions. It is the opinion of management, based on information available at this time, that none of such other pending claims or proceedings will have a material effect on our consolidated financial statements.



 
PART II
 

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 the high and low closing sales prices for each quarter within the last two fiscal years as reported on the NYSE.



   
Fiscal 2010
   
Fiscal 2009
 
   
High
   
Low
   
High
   
Low
 
First Quarter
  $ 14.18     $ 10.59     $ 18.12     $ 7.55  
Second Quarter
  $ 10.87     $ 7.79     $ 9.11     $ 5.13  
Third Quarter
  $ 10.79     $ 7.75     $ 7.91     $ 3.67  
Fourth Quarter
  $ 11.13     $ 7.95     $ 12.26     $ 7.35  

 
    As of August 31, 2010, there were approximately 617 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 2010
 
    The following table summarizes the Company’s purchases of its common stock during the three months ended July 31, 2010:


Period
 
Total Number of Shares Purchased
   
Average Price Paid Per Share
   
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 25, 2010 - May 22, 2010
    105 (a)   $ 8.54       -  
(b)
May 23, 2010 - June 19, 2010
    -       -       -  
(b)
June 20, 2010 - July 31, 2010
    -       -       -  
(b)
                           
(a) Shares were withheld to satisfy tax withholding obligations that arose on the vesting of restricted share units.
   
     
(b) On February 23, 2010, the Board of Directors authorized the repurchase of up to $20.0 million of its common stock to be made through August 2011 in open market or private transactions. This repurchase program replaced the Company’s existing program, which expired in February 2010. The Company repurchased 475,602 shares during fiscal 2010 at an average price of $9.44 per share. These shares were subsequently cancelled. As of July 31, 2010, approximately $15.5 million of the authorized amount remains for the repurchase of common stock.

 
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 30, 2005. For comparing total returns on our common stock, a peer group consisting of MasTec, Inc. Quanta Services, Inc., and Pike Electric Corporation has been used. The comparisons in the graph are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of possible future performance of our common stock.
 

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Dycom Industries, Inc. the S&P 500 Index
and a Peer group
 
 
      
*$100 invested on 7/31/05 in stock or index, including reinvestment of dividends. Fiscal year ending on the last Saturday in July.
  Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.



 
Dividend Policy
 
    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.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
    The information required by this item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A.


We use a fiscal year ending on the last Saturday in July. Fiscal 2010 consisted of 53 weeks. Fiscal 2009, 2008, 2007, and 2006 consisted of 52 weeks. The following selected financial data is derived from the audited consolidated financial statements for the applicable fiscal years.
 
Amounts set forth in our selected financial data include the results and balances of acquired companies from their respective date of acquisition. This data should be read in conjunction with our consolidated financial statements and notes thereto, and with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
 
   
Fiscal Year
 
   
2010 (1)
   
2009 (2)
   
2008 (3)
   
2007 (4)
   
2006 (5)
 
   
(In thousands, except per share amounts)
 
Operating Data:
                             
Revenues
  $ 988,623     $ 1,106,900     $ 1,229,956     $ 1,137,812     $ 994,973  
Income (loss) from continuing operations
  $ 5,849     $ (53,094 )   $ 24,404     $ 42,202     $ 18,040  
Net income (loss)
  $ 5,849     $ (53,180 )   $ 21,678     $ 41,884     $ 18,180  
Earnings (Loss) Per Common Share From Continuing Operations:
                                       
Basic
  $ 0.15     $ (1.35 )   $ 0.60     $ 1.04     $ 0.43  
Diluted
  $ 0.15     $ (1.35 )   $ 0.60     $ 1.04     $ 0.43  
Earnings (Loss) Per Common Share:
                                       
Basic
  $ 0.15     $ (1.35 )   $ 0.54     $ 1.04     $ 0.43  
Diluted
  $ 0.15     $ (1.35 )   $ 0.53     $ 1.03     $ 0.43  
Balance Sheet Data (at end of period):
                                       
Total assets
  $ 679,556     $ 693,457     $ 801,272     $ 802,000     $ 701,931  
Long-term liabilities (6)
  $ 187,798     $ 192,804     $ 225,715     $ 230,117     $ 200,682  
Stockholders’ equity (7)
  $ 394,555     $ 390,623     $ 444,093     $ 444,631     $ 389,455  

­­­­­­­­­­­­­­­­­_______________

(1)  
During 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 in Notes to the Consolidated Financial Statements).
 
(2)  
During fiscal 2009, we recognized a goodwill impairment charge of $94.4 million that included impairments at the following reporting units: Broadband Installation Services (formerly Cable Express and now known as Broadband Express) 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. This impairment charge was a result of an interim impairment test of goodwill. See Note 7 in Notes to the Consolidated Financial Statements.
 
(3)  
During fiscal 2008, we incurred charges of approximately $8.2 million for amounts to be paid to current and former employees of our UtiliQuest, S.T.S., and Locating subsidiaries in connection with the settlement of litigation and charges of approximately $1.2 million in discontinued operations for the settlement of litigation at our Apex Digital, LLC subsidiary (see Note 2 in Notes to the Consolidated Financial Statements). Fiscal 2008 results also include goodwill impairment charges of $5.9 million and $3.8 million related to our Stevens Communications reporting unit and our Nichols Construction reporting unit, respectively, as a result of our annual assessment of goodwill. See Note 7 in Notes to the Consolidated Financial Statements.
 
(4)  
Includes the results of Broadband Installation Services (formerly Cable Express and now known as Broadband Express) (acquired September 2006) and certain operations of Cavo Communications (acquired March 2007) since their acquisition dates.
 
(5)  
Includes the results of Prince Telecom Holdings (acquired December 2005) since its acquisition date. In addition, during fiscal 2006 we incurred a goodwill impairment charge of $14.8 million related to our Can-Am Communications, Inc. reporting unit as the result of an interim impairment test of goodwill.
 
(6)  
During fiscal 2009, the Company repurchased a principal amount of $14.65 million of its 8.125% senior subordinated notes due 2015 for $11.3 million.
 
(7)  
The Company repurchased and cancelled 475,602 shares for $4.5 million in fiscal 2010 at an average price per share of $9.44 and repurchased and cancelled 450,000 shares for $2.9 million in fiscal 2009 at an average price per share of $6.48. In fiscal 2008, the Company repurchased and cancelled 1,693,500 shares for $25.2 million at an average price of $14.83 per share. The Company repurchased and cancelled 8.76 million shares pursuant to a “Dutch auction” tender offer in fiscal 2006 at a purchase price of $21.00 per share.




 
    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. These services are provided throughout the United States and 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. Additionally, we provide services on a limited basis in Canada. For the fiscal year ended July 31, 2010, the percentage of our revenue by customer type from telecommunications, underground facility locating, and electric and gas utilities and other customers, was approximately 79.2%, 17.8%, and 3.0%, 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 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 currently a party to over 200 of these agreements. 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 these agreements 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 under 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 significant 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 from continuing operations:


   
Fiscal Year Ended
 
   
2010
   
2009
   
2008
 
Multi-year master service agreements
    76.0 %     69.5 %     70.3 %
Other long-term contracts
    14.6 %     17.2 %     17.9 %
Total long-term contracts
    90.6 %     86.7 %     88.2 %

 
    The percentage of revenue from long-term contracts varies between periods depending on the mix of volume of work performed under our contracts.  During fiscal 2010, revenue from total long-term contracts increased compared to the prior year as more work was performed for contracts with original terms greater than one year.  Revenue during fiscal 2009 included revenue for services performed under short-term contracts related to the hurricanes that impacted the Southern United States during September 2008 and winter storms during the third quarter of fiscal 2009.


 
   A significant portion of our revenue comes 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 from continuing operations in fiscal 2010, 2009 or 2008:



   
Fiscal Year Ended
 
   
2010
   
2009
   
2008
 
AT&T Inc.
    20.4 %     18.2 %     18.9 %
Comcast Corporation
    14.3 %     14.9 %     11.9 %
Verizon Communications Inc.
    11.5 %     16.5 %     18.4 %
CenturyLink*
    10.1 %     6.6 %     6.4 %
Time Warner Cable Inc.
    8.0 %     7.6 %     8.8 %
Charter Communications, Inc.
    6.2 %     4.9 %     5.3 %
Windstream Corporation
    3.4 %     4.2 %     2.3 %
Qwest Communications International Inc.
    1.5 %     2.7 %     3.2 %


*For comparison purposes, CenturyLink, Inc. and Embarq Corporation revenues have been combined for periods prior to their July 2009 merger.
 
    Cost of earned revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by subcontractors, operation of capital equipment (excluding depreciation and amortization), direct material and insurance claims and other related 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 per form, our customers provide all necessary materials and we provide the personnel, tools, and equipment necessary to perform installation and maintenance services. Materials supplied by our customers, for which the customer retains financial and performance risk, are not included in our revenue or costs of sales. In addition, cost of earned revenues for the fiscal years 2010 and 2008 includes a $1.6 million charge and a $8.2 million charge, respectively, related to the settlement of legal matters.
 
    General and administrative costs include all of our corporate costs, as well as costs of our subsidiaries’ management personnel and administrative overhead. 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 performance of our services under customer contracts.  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. In December 2009, the United States Patent and Trademark Office granted our first patent as a result of these efforts.
 
    We are subject to concentrations of credit risk relating primarily to our cash and equivalents, trade accounts receivable 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, 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 the current economic climate 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 rela ted to the collectability of amounts due for services performed. We believe that none of our significant customers were experiencing financial difficulties that would impact the collectability of our trade accounts receivable and costs in excess of billings as of July 31, 2010.
 
     In June 2010, a former employee of Prince Telecom, LLC (“Prince”), a wholly-owned subsidiary of the Company, commenced a lawsuit against Prince, the Company and certain unnamed U.S. affiliates of Prince and the Company (the “Affiliates”) in the United States District Court for the Southern District of New York. The lawsuit alleges that Prince, the Company and the Affiliates violated the Fair Labor Standards Act by failing to comply with applicable overtime pay requirements. The plaintiff seeks unspecified damages and other relief on behalf of himself and a putative class of similarly situated current and former employees of Prince, the Company and/or the Affiliates. It is too early to evaluate the likelihood of an outcome to this ma tter or estimate the amount or range of potential loss, if any. We intend to vigorously defend ourselves against this lawsuit.
 
       In May 2009, the Company and Prince were named as defendants in a lawsuit in the U.S. District Court for the Western District of Washington. The plaintiffs, all former employees of the subsidiary, alleged various wage and hour claims, including that employees were not paid for all hours worked and were subject to improper wage deductions. Plaintiffs sought to certify as a class current and former employees of the subsidiary who worked in the State of Washington. In November 2009, the plaintiffs’ attorneys, the Company and the subsidiary entered into a memorandum of understanding pursuant to which the parties agreed to the terms of a proposed settlement with respect to the lawsuit.  In January 2010, the Court granted preliminary approval of the proposed settlement. Notice of the terms of the proposed settlement and claim forms were mailed to members of the plaintiffs’ class in February 2010. The Court held a hearing regarding the plaintiffs’ Motion for Final Approval of the Class Action Settlement in April 2010, at which time it entered an Order approving the settlement and dismissed the action with prejudice subject to final administration of the terms of the settlement.  Excluding our legal expenses, approximately $1.6 million was incurred pursuant to the settlement and was paid in June 2010.
 
       

   During fiscal 2007, we were contacted by counsel representing current and former employees alleging violations of the Fair Labor Standards Act and state wage and hour laws at our UtiliQuest, LLC, S.T.S., LLC and Locating, Inc. subsidiaries. The claims included periods dating primarily from September 2003 through January 31, 2007 and covered a number of states where these subsidiaries conducted business. During fiscal 2008, these subsidiaries reached an agreement to settle these claims through a structured mediation process. Excluding legal expenses, approximately $8.6 million was incurred pursuant to the settlement in fiscal 2008 and was paid in October 2008.

       In December 2006, two former employees of Apex Digital, LLC (“Apex”), a wholly-owned subsidiary that was previously discontinued, commenced a lawsuit against the subsidiary in Illinois State Court on behalf of themselves and purporting to represent other similarly situated employees in Illinois. The lawsuit alleged that Apex violated certain minimum wage laws under the Fair Labor Standards Act and related state laws by failing to comply with applicable minimum wage and overtime pay requirements. In fiscal 2008, the subsidiary reached an agreement to settle these claims through a structured mediation process and incurred a charge of approximately $1.2 million for the settlement and was paid in January 2009.
   
   From time to time, we and our subsidiaries are parties to various other claims and legal proceedings. Additionally, 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. For these claims, the effect on our financial statements is generally limited to the amount needed to satisfy our insurance deductibles or retentions. It is the opinion of our management, based on information available at this time, that none of such other pending claims or proceedings will have a material effect on its consolidated financial statements.
 
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.


Discontinued Operations
 
    During fiscal 2007, Apex Digital, LLC (“Apex”), a wholly-owned subsidiary, notified its primary customer of its intention to cease performing installation services in accordance with its contractual rights. Effective December 2006, this customer, a satellite broadcast provider, transitioned its installation service requirements to others and Apex ceased providing these services. As a result, we have discontinued the operations of Apex and presented its results separately in the accompanying consolidated financial statements for all periods presented. The cessation of these installation services has not had any material effect on our consolidated financial position or results of operations.


Outlook
 
    The telecommunications industry has undergone and continues to undergo significant changes due to governmental deregulation, advances in technology, increased competition as the telephone and cable companies converge, and growing consumer demand for enhanced and bundled services. 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 fac tors drive customer demand for our services.
 
    Telecommunications network operators are increasingly relying on the deployment of fiber optic cable technology deeper into their networks and closer to consumers 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 likelihood that other telephone companies pursue similar strategies present opportunities for us.
 
    Telecommunication companies have undertaken additional projects relating to the deployment of fiber optic cable to cell sites. As wireless carriers have successfully marketed smart phones and other wireless data devices, the amount of cellular traffic that must be “backhauled” from cell sites to wired telecommunications networks has increased dramatically. Traditional copper based networks are incapable of cost effectively addressing the data traffic expected as wireless carriers begin to roll out advanced fourth generation wireless data services. The increase in fiber backhaul services is expected to continue during fiscal 2011, resulting in demand for the type of services we provide.
 
    The American Recovery and Reinvestment Act of 2009 (“ARRA”) originally allocated $7.2 billion in funding to accelerate broadband deployment in rural areas of the country that have been without the high-speed infrastructure.  To date, approximately $6.1 billion has been awarded under the provisions of the ARRA, including awards to many of our current and former customers. The projects funded by these awards are targeted for completion over the next several years. We believe that broadband stimulus funding will create demand by many of our customers for the services we provide.
 
   


    Underground excavation is involved in a substantial portion of overall economic activity, including 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. Utility line locating is required prior to underground excavation. We provide underground facility locating services to a variety of utility companies, including telecommunication providers. The trend for outsourcing this requirement, along with the pace of overall economic activity influence the demand for underground facility locating services.
 
    General economic conditions continue to be weak.  Although recent indicators suggest a recovery in overall economic conditions, the strength and duration of this improvement and the impact that it will have on our customers remain uncertain. The economic slowdown (when combined with developments in the financial and credit markets), has created a challenging business environment for us and our customers. We are closely monitoring the effects that changes in economic and market conditions may have on our customers and our business and we continue to manage those areas of the business we can control in response to these changes. These areas include, b ut are not limited to, deploying appropriate workforce levels and supervisory employees, practicing sound safety procedures, managing fuel consumption levels and maintaining the investment in our fleet of vehicles and equipment to support current and future business opportunities.
 
Critical Accounting Policies and Estimates
 
    The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements 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 in excess of billings, the fair value of goodwill, the assessment of impairment of intangibles and other long-lived assets, income taxes, accrued insurance claims, asset lives used in computing depreciation and amortization, allow ance for doubtful accounts, 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 in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. We have discussed the development, selection and application of our critical accounting policies with the Audit Committee of our Board of Directors, and our Audit Committee has reviewed the disclosure relating to our critical accounting policies in this “Management’s Discussi on and Analysis of Financial Condition and Results of Operations.”
 
    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 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 significant 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 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 “Bil lings 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 upon the professional 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 revisions to costs and income and their effects are recogn ized 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.
 
    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 actuarially determined and reflected in the consolidated financial statements as accrued insurance claims. As of July 31, 2010, the liability for accrued claims and related accrued processing costs was $52.9 million compared to $57.1 million at July 25, 2009. Based on payment patterns of simi lar prior claims, we expect $28.1 million of the amount accrued at July 31, 2010 to be paid within the next 12 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 frequency 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. The decrease in accrued insurance claims at July 31, 2010 was primarily due to decreased operating levels and the timing of claims payments.


 
    With regard to losses occurring in fiscal 2010 and fiscal 2011, we have retained the risk of loss of up to $1.0 million on a per occurrence basis for automobile liability, general liability and workers’ compensation. These annual 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 the Company participates in a state sponsored insurance fund. Aggregate stop loss coverage for automobile liability, general liability and workers’ compensation claims is $43.8 million and $37.3 million for fiscal 2010 and fiscal 2011, respectively.   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.  The stop-loss agreement is subject to renewal from time to time, generally on an annual basis.  The current policy was in place during fiscal 2010 and expires on December 31, 2010.
 
    Goodwill and Intangible Assets — As of July 31, 2010, we had $157.9 million of goodwill, $4.7 million of indefinite-lived intangible assets and $44.9 million of finite-lived intangible assets, net of accumulated amortization. As of July 25, 2009, we had $157.9 million of goodwill, $4.7 million of indefinite-lived intangible assets and $51.4 million of finite-lived intangible assets, net of accumulated amortization. During fiscal 2009, goodwill was reduced by approximately $94.4 million for the impairment charge described below and also decreased by approximately $0.1 million for the reversal of income tax liabilities no longer required. There was no goodwill impairment during fiscal 2010.
 
    We account for goodwill in accordance with ASC Topic 350. Our reporting units and related indefinite-lived intangible assets are tested annually during 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 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. 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 within a limited number of customers, and the level of overall economic activity. During times of economic slowdown, our customers may reduce their 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 test in the fourth quarter of fiscal 2010 and there was no impairment of goodwill or indefinite lived-intangible assets. Our estimate of the fair value of our reporting units was based on projections 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 and operational strategies. The key assumptions impacting the fair value of our reporting units during the fiscal 2010 annual impairment analysis were: (a) expected cash flow for a period of seven years; (b) terminal value based on terminal growth rates of between 1% and 3%; and (c) a discount rate of 15% which was based on our best estimate of the weighted average cost of capital adjusted for risks associated with the reporting units. The discount rate reflects risk inherent within each reporting unit operating individually, which is greater than the risk inherent in the company as a whole. The discount rate used in the fiscal 2010 analysis decreased compared to the rate used in our fiscal 2009 interim analysis since the fiscal 2009 analysis reflected increased risk due to volatility in economic conditions as of January 24, 2009. We believe the assumptions used in the fiscal 2010 impairment analysis are consistent with the risks inherent in the business models of our reporting units and within our industry.
 
    During the second quarter of fiscal 2009, our market capitalization was significantly impacted by the extreme volatility in the U.S. equity and credit markets and was below the book value of shareholders’ equity by a substantial margin. As a result, we evaluated whether the decrease in our market capitalization reflected factors that would more likely than not reduce the fair value of the reporting units below their carrying value. Based on a combination of factors, including the economic environment, the sustained period of decline in our market capitalization, and the implied valuation and discount rate assumptions in our industry, we concluded there were sufficient indicators to perform an interim impairment test of the reporting units and related intangible assets as of January 24, 2009.  As a result of this impairment test, we recognized a preliminary goodwill impairment charge of $94.4 million during the second quarter of fiscal 2009. The fiscal 2009 second quarter charge included impairments at the following reporting units: Broadband Installation Services (now Broadband Express) for $14.8 million, C-2 for $9.2 million, Ervin for $15.7 million, Nichols for $2.0 million, Stevens for $2.4 million and UtiliQuest for $50.5 million. The interim impairment analysis was finalized during the third quarter of fiscal 2009 and no further charges were incurred. We performed our annual impairment test in the fourth quarter of fiscal 2009 and there was no impairment of goodwill or indefinite-lived intangible assets.


 
    The fiscal 2009 analysis used the same valuation techniques described for the fiscal 2010 annual analysis. The key assumptions impacting the fair value of our reporting units during the fiscal 2009 interim impairment analysis were: (a) expected cash flow for a period of seven years; (b) terminal value based on terminal growth rates of between 2% and 4%; and (c) a discount rate of 18% which was based on our best estimate of the weighted average cost of capital adjusted for risks associated with the reporting units. The discount rate used in the fiscal 2009 analysis increased compared to the rate used in our fiscal 2008 annual analysis described below due to economic conditions and lower industry valuation comparisons. This increase in the discount rate caused a substantial decline in the calcul ated estimate of fair value of the reporting units. We believe the assumptions used in the fiscal 2009 interim impairment analysis were consistent with the risks inherent in the business models of our reporting units and within our industry.
 
    As a result of our fiscal 2008 annual impairment analysis, we determined that the goodwill of our Stevens reporting unit and Nichols reporting unit were impaired and consequently recognized goodwill impairment charges of approximately $5.9 and $3.8 million, respectively, during the fourth quarter of fiscal 2008. The fiscal 2008 analysis used the same valuation techniques described for the fiscal 2010 annual and fiscal 2009 interim analysis. The key assumptions used to determine the fair value of our reporting units during the fiscal 2008 annual impairment analysis were: (a) expected cash flow for a period of seven years; (b) terminal value based on terminal growth rates of between 2% and 4%; and (c) a discount rate of 12% which was based on our best estimate during the period of the weighted average cost of capita l adjusted for risks associated with the reporting units. The assumptions used in the fiscal 2008 annual impairment analysis were consistent with the risks inherent in the business models of our reporting units at the time the analysis was performed. The fiscal 2008 impairment of Stevens and Nichols was primarily the result of a change in management’s expectations of long-term cash flows from customers of these reporting units. As disclosed in our previous filings with the Securities and Exchange Commission, each of these reporting units has a concentration of revenues from a limited number of customers. Changes in anticipated demand had an adverse impact on the expected future cash flows of the reporting units used in the annual impairment analysis performed during the fourth quarter of fiscal 2008. The reduction in demand is the result of customers allocating their capital spending away from work management anticipated would be performed by these reporting units. In performing the ASC Topic 350 impai rment assessment, management determined that this shift in demand was more than temporary, consequently impacting the expected cash flows over the seven year period used in our goodwill analysis.
 
    For fiscal 2009 and 2010, none of the reporting units incurred operating losses which would impact our overall financial position in a material manner. 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 our 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. For example, a change in the estimated discount rate used would have impacted the amount of the goodwill impairment char ges recorded during fiscal 2009. Additionally, adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of our reporting units. We can provide no assurances that, if such conditions occur, they will not trigger additional impairments of goodwill and other intangible assets in future periods.
 
    As of July 31, 2010, we believe the carrying value of our goodwill and other indefinite-lived intangible asset is recoverable; however, there can be no assurances that they will not be impaired in future periods. Certain of our reporting units also have other intangible assets including tradenames and customer relationship intangibles. As of July 31, 2010, management 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 may become impaired.
 
    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 grant stock options, time-based and performance-based restricted share units to certain employees and officers. 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. The fair value of restricted share units is estimated on the date of grant and is generally equal to the closing stock price on the date of grant. Time vesting restricted share units vest ratably over a period of four years and are settled in one share of our common stock on the vesting date . Performance vesting restricted share units vest over a three year period from the date of grant, if certain performance goals are achieved. 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 the probability of achieving the performance goals at each reporting period and recognize compensation costs based on our estimate of the shares that are expected to vest.


 
    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. In June 2006, the FASB issued ASC Topic 740, Income Taxes (“ASC Topic 740”) (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109). ASC Topic 740 prescribes a two-step process for the financial statement recognition and measurement of income ta x 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. In May 2007, the FASB issued an amendment of ASC Topic 740 to provide guidance that a Company may recognize a previously unrecognized tax benefit if the tax position is effectively (as opposed to “ultimately”) settled through examination, negotiation, or litigation. We adopted the provisions of ASC Topic 740 on July 29, 2007, the first day of fiscal 2008.
 
    Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Management analyzes the collectability of accounts receivable balances on a regular basis. 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 collecta ble 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 are experiencing significant financial difficulty as of July 31, 2010 that will materially affect our accounts receivable or allowance for doubtful accounts.
 
    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 within the range for the contingency based on our best estimate. 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 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. Fiscal 2010 consisted of 53 weeks, with the fourth quarter having 14 weeks of operations, while fiscal 2009 and 2008 consisted of 52 weeks. 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):


   
Fiscal Year Ended
 
   
2010
   
2009
   
2008
 
   
(Dollars in millions)
 
Revenues
  $ 988.6   100.0 %   $ 1,106.9   100.0 %   $ 1,230.0   100.0 %
Expenses:
                                   
Cost of earned revenue, excluding depreciation and amortization
    810.1   81.9       894.9   80.8       1,011.2   82.2  
General and administrative
    98.1   9.9       98.7   8.9       98.9   8.0  
Depreciation and amortization
    63.6   6.4       65.4   5.9       67.3   5.5  
Goodwill impairment charge
    -   -       94.4   8.5       9.7   0.8  
Total
    971.8   98.3       1,153.5   104.2       1,187.1   96.5  
Interest income
    0.1   -       0.3   -       0.7   0.1  
Interest expense
    (14.3 ) (1.4 )     (14.7 ) (1.3 )     (13.1 ) (1.1 )
Other income, net
    8.1   0.8       6.6   0.6       7.2   0.6  
Income (loss) from continuing operations before income taxes
    10.7   1.1       (54.5 ) (4.9 )     37.6   3.1  
Provision (benefit) for income taxes
    4.9   0.5       (1.4 ) (0.1 )     13.2   1.1  
Income (loss) from continuing operations
    5.8   0.6       (53.1 ) (4.8 )     24.4   2.0  
Loss from discontinued operations, net of tax
    -   -       (0.1 ) -       (2.7 ) (0.2 )
Net income (loss)
  $ 5.8   0.6 %   $ (53.2 ) (4.8 ) %   $ 21.7   1.8 %


Year Ended July 31, 2010 Compared to Year Ended July 25, 2009
 
    Revenues. As a result of our fiscal year end date, fiscal 2010 has 53 weeks compared to 52 weeks in fiscal 2009. The following table presents information regarding total revenues by type of customer for the fiscal years ended July 31, 2010 and July 25, 2009, including the additional week in fiscal 2010 (totals may not add due to rounding):


   
Fiscal Year Ended
             
   
2010
   
2009
         
%
 
   
Revenue
   
% of Total
   
Revenue
   
% of Total
   
Decrease
   
Decrease
 
   
(Dollars in millions)
             
Telecommunications
  $ 783.6       79.2 %   $ 860.0       77.7 %   $ (76.4 )     (8.9 )%
Underground facility locating
    176.3       17.8 %     184.5       16.7 %     (8.1 )     (4.4 )%
Electric and gas utilities and other customers
    28.7       3.0 %     62.5       5.6 %     (33.8 )     (54.1 )%
Total contract revenues
  $ 988.6       100.0 %   $ 1,106.9       100.0 %   $ (118.3 )     (10.7 )%
 
    Revenues decreased $118.3 million, or 10.7%, during fiscal 2010 as compared to fiscal 2009. The decrease was the result of a $76.4 million decrease in specialty contracting services provided to telecommunications customers, a $33.8 million decrease in revenues from construction and maintenance services provided to electric and gas utilities and other customers, and a $8.1 million decrease in underground facility locating customers.
 
    Specialty construction services provided to telecommunications companies were $783.6 million during fiscal 2010 which included an additional week required by our fiscal calendar, compared to $860.0 million during fiscal 2009, a decrease of 8.9%. During fiscal 2009, we performed restoration services totaling $23.0 million related to the hurricanes that impacted the Southern United States in 2008 and related to the winter storms during the third fiscal quarter of 2009. There were minimal storm restoration services performed during fiscal 2010. We also experienced decreases as a result of reduced spending by a number of our significant customers, including a $70.6 million decrease for a customer engaged in a fiber deployment project, and a $9.8 million net decrease for installation, mai ntenance and construction services provided to leading cable multiple system operators. Additionally, there was a $7.8 million decrease in work performed for a significant telephone customer maintaining and upgrading their network as compared to the prior year. Partially offsetting these decreases was a $27.0 million increase in services to a significant telephone customer that merged with another telephone customer in July 2009 and a $6.2 million increase for a significant telephone customer upgrading and deploying fiber to their network. Other customers had net increases of $1.6 million during fiscal 2010 as compared to fiscal 2009.
 
    Total revenues from underground facility locating customers during fiscal 2010 were $176.3 million which included an additional week required by our fiscal calendar, compared to $184.5 million during fiscal 2009, a decrease of 4.4%. The decrease resulted from declines in customer demand levels as general economic weakness continued during the fiscal year resulting in a lower level of construction activity and from difficult weather conditions that impacted the third quarter of fiscal 2010. Additionally, revenue during fiscal 2009 included $0.9 million of restoration work related to the hurricanes that impacted the Southern United States.


 
    Total revenues from electric and gas utilities and other construction and maintenance customers during fiscal 2010 were $28.7 million which included an additional week required by our fiscal calendar, compared to $62.5 million during fiscal 2009, a decrease of 54.1%.  The decrease was primarily attributable to a decline in construction work performed for gas customers, including gas pipeline projects for two customers that were completed during fiscal 2009. Additionally, during fiscal 2009 we performed $0.4 million of restoration work related to the hurricanes that impacted the Southern United States compared to none during fiscal 2010.
 
    Costs of Earned Revenues. Costs of earned revenues were $810.1 million during fiscal 2010 which included an additional week required by our fiscal calendar, compared to $894.9 million during 2009, a decrease of $84.8 million. Included in costs of earned revenues for fiscal 2010 is a $1.6 million charge in connection with the settlement of a legal matter. Excluding such charge, there was a net $86.4 million decrease in costs of earned revenues. This decline was composed of variances in direct labor and subcontractor costs taken together, and other direct costs which decreased $76.1 million, and $13.6 million, respectively, partially offset by a $3.3 million increase in direct materials. The decrease in total cost of earned revenues was pr imarily due to lower levels of operations during fiscal 2010 as compared to fiscal 2009.
 
    Costs of earned revenues as a percentage of contract revenues increased 1.1% for fiscal 2010 as compared to fiscal 2009 due in part to the $1.6 million charge related to the legal settlement referred to above, or 0.2% of contract revenues. Excluding the legal settlement charge, costs of earned revenues as a percentage of contract revenues increased 0.9% for fiscal 2010 compared to fiscal 2009.  During fiscal 2010, our mix of work included a higher level of projects where we provided materials to the customer. As a result, direct materials increased 1.0% as a percentage of total revenue. In addition, labor and subcontractor costs represented a lower percentage of total revenue in fiscal 2010 and decreased 0.4% compared to the same period last year. The overall decrease in labor and su bcontractor costs as a percentage of revenue was net of the impact of reduced efficiency from lower operating levels in fiscal 2010 and generally higher training costs. Fuel costs increased 0.3% as a percentage of contract revenues as compared to the same period last year due to increases in the price of gasoline and diesel fuel during fiscal 2010.
 
    General and Administrative Expenses. General and administrative expenses decreased $0.6 million to $98.1 million during fiscal 2010 as compared to $98.7 million for fiscal 2009. The decrease in total general and administrative expenses primarily resulted from a reduction of incentive pay expense due to lower operating results and from a reduction in legal and professional fees. The decrease was offset by the impact of 53 weeks of results included in fiscal 2010 as compared to 52 weeks in fiscal 2009. Additionally, stock-based compensation expense decreased to $3.4 million during fiscal 2010 as compared to $3.9 million during fiscal 2009 from reduced performance-based restricted stock expense as a result of not meeting fiscal 2010 perform ance criteria.
 
    General and administrative expenses as a percentage of contract revenues were 9.9% and 8.9% for fiscal 2010 and fiscal 2009, respectively. The increase in general and administrative expenses as a percentage of contract revenues reflects lower absorption of office and support costs and certain payroll costs.
 
    Depreciation and Amortization.   Depreciation and amortization decreased to $63.6 million during fiscal 2010 from $65.4 million during fiscal 2009 and increased as a percentage of contract revenues to 6.4% compared to 5.9% from fiscal year 2009. The decrease in amount was primarily a result of certain assets becoming fully depreciated and certain assets being sold during fiscal 2009 and fiscal 2010. Amortization expense of intangible assets also decreased during fiscal 2010 as compared to the prior year periods as certain assets became fully amortized.
 
    Goodwill Impairment Charge. During fiscal 2010, there were no goodwill impairment charges. During the second quarter of fiscal 2009, we recognized a goodwill impairment charge of $94.4 million that included impairments at the following reporting units: Broadband Installation Services (now Broadband Express) for $14.8 million, C-2 Utility Contractors for $9.2 million, Ervin Cable Construction for $15.7 million, Nichols Communications for $2.0 million, Stevens Communications for $2.4 million and UtiliQuest for $50.5 million. This charge was the result of an interim test for impairment reflecting valuation assumptions as of the end of our second quarter of fiscal 2009. Our interim analysis was finalized in the third quarter of fiscal 2009 a nd no further charges were incurred during fiscal 2009.
 
    Interest Income and Expense. Interest income was less than $0.1 million during fiscal 2010 as compared to $0.3 million during fiscal 2009. The decrease is the result of lower interest yield earned on cash balances during the period.
 
    Interest expense was $14.3 million for fiscal 2010 as compared to $14.7 million for fiscal 2009. The decrease reflects reduced interest expense on our senior subordinated notes as a result of the buyback of $14.65 million principal amount of the notes during fiscal 2009 and reduced balances for letters of credit. Additionally, we had no borrowings under our Credit Agreement during 2010 compared to $30.0 million which was borrowed and repaid during 2009. 


 
    Other Income, Net. Other income increased to $8.1 million during fiscal 2010 from $6.6 million during fiscal 2009. During fiscal 2009, other income included a gain of $3.0 million on extinguishment of debt related to the buyback of $14.65 million principal amount of our senior subordinated notes due 2015.  Additionally, other income during fiscal 2009 includes a charge of $0.6 million for the write-off of deferred financing costs when we replaced the existing credit agreement during the first quarter of fiscal 2009. Excluding these items, other income increased $4.0 million as the result of a greater number of assets sold and improved pricing during the current year as compared to the prior year.
 
    Income Taxes. The following table presents our income tax expense and effective income tax rate for continuing operations for fiscal 2010 and 2009:


   
Fiscal Year Ended
 
   
2010
   
2009
 
   
(dollars in millions)
 
Income tax provision (benefit)
  $ 4.9     $ (1.4 )
Effective income tax rate
    45.5 %     2.6 %

 
    Our effective income tax rates for fiscal 2010 and fiscal 2009 differ from the statutory rate for the tax jurisdictions where we operate as a result of several factors. Specifically, during fiscal 2010 and fiscal 2009, the provision for income taxes included the reversal of $1.2 million and $1.5 million, respectively, of certain income tax liabilities which were no longer required due to the expiration of statutes of limitation.  In addition, in 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. Further, only a portion of the fiscal 2009 goodwill impairment charge was deductible for income tax purposes. Other variations in our tax rate are attributable to tax credits recognized and the impact of non-deductible and non-taxable items in relation to our pre-tax results during the period.  As of July 31, 2010, we had total unrecognized tax benefits of approximately $2.0 million, which would reduce our effective tax rate during the periods recognized if it is determined that those liabilities are not required.
 
    Income (loss) from Continuing Operations. Income from continuing operations was $5.8 million for fiscal 2010 as compared to a loss of $53.1 million for fiscal 2009.
 
    Discontinued Operations. During fiscal 2007, a wholly-owned subsidiary of the Company, Apex notified its primary customer of its intention to cease performing installation services in accordance with its contractual rights. Effective December 2006, this customer, a satellite broadcast provider, transitioned its installation service requirements to others and Apex ceased providing these services. As a result, we discontinued the operations of Apex.  Apex did not have material operations in fiscal 2009 or 2010.
 
    Net Income (loss). Net income was $5.8 million for fiscal 2010 as compared to a net loss of $53.2 million for fiscal 2009.

Year Ended July 25, 2009 Compared to Year Ended July 26, 2008
 
    Revenues. The following table presents information regarding total revenues by type of customer for the fiscal years ended July 25, 2009 and July 26, 2008 (totals may not add due to rounding):


   
Fiscal Year Ended
             
   
2009
   
2008
         
%
 
   
Revenue
   
% of Total
   
Revenue
   
% of Total
   
Decrease
   
Decrease
 
   
(Dollars in millions)
             
Telecommunications
  $ 860.0       77.7 %   $ 937.0       76.2 %   $ (77.0 )     (8.2 )%
Underground facility locating
    184.5       16.7 %     217.6       17.7 %     (33.2 )     (15.2 )%
Electric and gas utilities and other customers
    62.5       5.6 %     75.3       6.1 %     (12.9 )     (17.1 )%
Total contract revenues
  $ 1,106.9       100.0 %   $ 1,230.0       100.0 %   $ (123.1 )     (10.0 )%

 
    Revenues decreased $123.1 million, or 10.0%, during fiscal 2009 as compared to fiscal 2008. The decrease was the result of a $77.0 million decrease in specialty contracting services provided to telecommunications customers, a $33.2 million decrease in underground facility locating services revenue, and a $12.9 million decrease in revenues from construction and maintenance services provided to electric utilities and other customers.


 
    Specialty construction services provided to telecommunications companies were $860.0 million during fiscal 2009, compared to $937.0 million during fiscal 2008, a decrease of 8.2%. This decrease was the result of customer reductions in spending, including a $37.9 million decline for three significant telephone customers, a $35.8 million decrease for installation, maintenance and construction services provided to two cable multiple system operators, and a $35.7 million decrease for a customer engaged in a multi-year fiber deployment project. Offsetting these decreases was an $18.3 million increase for work provided to a significant customer maintaining and upgrading their network. Services to this customer included work on areas of their network that were impacted by winter storms in the Southea stern United States during January 2009. Other increases in revenues provided to telecommunications companies included a $7.7 million increase for installation, maintenance and construction services provided to a cable multiple system operator, and $17.1 million of restoration work performed during fiscal 2009 related to hurricanes that impacted the United States during September 2008. Other customers had net declines of $10.7 million during fiscal 2009.
 
    Total revenues from underground utility facility locating for fiscal 2009 were $184.5 million compared to $217.6 million for fiscal 2008, a decrease of 15.2%. The decrease resulted from a reduction of $15.4 million of work from two significant customers in markets where we reduced operations and from general declines in customer demand levels. Other customers had net declines of $18.7 million during fiscal 2009 resulting from the slower pace of the overall economy, including housing and related construction activity. Offsetting these decreases was $0.9 million of restoration work performed during fiscal 2009 related to the hurricanes that impacted the Southern United States during September 2008.
 
    Our total revenues from electric utilities and other construction and maintenance services decreased $12.9 million, or 17.1%, during fiscal 2009 as compared to fiscal 2008. The decrease was primarily attributable to a net decline in construction work performed for gas customers. Offsetting this decrease was $0.4 million of restoration work performed during fiscal 2009 related to the hurricanes that impacted the Southern United States during September of 2008.
 
    Costs of Earned Revenues. Costs of earned revenues decreased $116.3 million to $894.9 million during fiscal 2009 from $1,011.2 million during fiscal 2008. Included in costs of earned revenues for fiscal 2008 was a charge of $8.2 million for a wage and hour class action settlement and a $1.7 million reversal of a pre-acquisition liability associated with payroll related accruals of a subsidiary acquired in fiscal 2007. The primary components of the remaining $109.8 million net decrease in costs of earned revenues were direct labor and subcontractor costs taken together, other direct costs, and direct materials which decreased $68.2 million, $39.4 million, and $0.6 million, respectively. The net decrease in costs of earned revenues was pri marily due to lower levels of operations during fiscal 2009 as compared to fiscal 2008.
 
    Costs of earned revenues as a percentage of contract revenues decreased 1.4% for fiscal 2009 as compared to fiscal 2008. Excluding the $8.2 million wage and hour class action settlement charge in fiscal 2008, or 0.7% of contract revenues, labor and subcontractor costs as a percentage of contract revenues increased 0.6% as the result of higher labor costs in relation to work volume during fiscal 2009. Fuel costs decreased 1.0% as a percentage of contract revenues compared to fiscal 2008. Excluding the $1.7 million reversal of a pre-acquisition liability in fiscal 2008, or 0.1% of contract revenues, we experienced a decrease in other direct costs of 0.9% compared to fiscal 2008 primarily due to lower vehicle and equipment costs, and improved safety performance during fiscal 2009 which lowered ou r claims costs. Offsetting these decreases was a 0.5% increase in direct materials as a percentage of contract revenue resulting from a higher portion of projects where we provided materials to the customer.
 
    General and administrative expenses. General and administrative expenses decreased $0.2 million to $98.7 million for fiscal 2009 as compared to $98.9 million for fiscal 2008. General and administrative expenses as a percentage of contract revenues were 8.9% and 8.0% for fiscal 2009 and fiscal 2008, respectively. The decline in the amount of general and administrative expenses primarily resulted from a reduction in stock-based compensation expense, which decreased to $3.9 million during fiscal 2009 from $5.2 million for fiscal 2008. Partially offsetting the dollar amount of the decline was an increase in expenses related to information technology and development initiatives including payroll, professional fees and other expenses. These in itiatives are designed to reduce operating costs and improve efficiency and contributed to the increase in general and administrative expenses as a percentage of contract revenues. Additionally, some of our expenses, such as certain office and support costs and certain payroll costs, do not proportionately change as fluctuations in revenue occur. During fiscal 2009, these types of costs contributed to the increase in general and administrative expenses as a percentage of contract revenues as compared to fiscal 2008.
 
    Depreciation and Amortization. Depreciation and amortization decreased to $65.4 million for fiscal 2009 from $67.3 million for fiscal 2008 and increased as a percentage of contract revenues to 5.9% compared to 5.5% from fiscal year 2008. The decrease in amount was primarily a result of certain assets becoming fully depreciated in fiscal 2009 and certain assets being sold during fiscal 2009. Amortization expense also decreased in fiscal 2009 as the result of reduced amortization of customer relationship intangible assets related to certain prior acquisitions.


 
    Goodwill impairment charge. During the second quarter of fiscal 2009, we recognized a goodwill impairment charge of $94.4 million that included impairments at the following reporting units: Broadband Installation Services for $14.8 million, C-2 for $9.2 million, Ervin for $15.7 million, Nichols for $2.0 million, Stevens for $2.4 million and UtiliQuest for $50.5 million. This charge was the result of an interim test for impairment reflecting valuation assumptions as of the end of our second quarter of fiscal 2009. Our interim analysis was finalized in the third quarter of fiscal 2009 and no further charges were incurred during fiscal 2009. During fiscal 2008, we recognized a goodwill impairment charge of approximately $9.7 million in tota l related to our Nichols Construction reporting units and our Stevens Communications reporting unit as a result of our fiscal 2008 annual impairment analysis.
 
    Interest Income. Interest income decreased to $0.3 million during fiscal 2009 as compared to $0.7 million during fiscal 2008. The decrease is primarily a result of lower interest yields earned on cash balances during the periods.
 
    Interest Expense. Interest expense was $14.7 million for fiscal 2009 as compared to $13.1 million for fiscal 2008. The increase in interest expense reflects borrowings under our prior $210.0 million credit agreement during the period and higher overall borrowing costs. These increases were partially offset by reduced interest expense on our senior subordinated notes as a result of the buyback of $14.65 million principal amount of the notes during fiscal 2009.
 
    Other Income, Net. Other income decreased to $6.6 million for fiscal 2009 compared to $7.2 million for fiscal 2008. Other income for fiscal 2009 included a gain of $3.0 million on the extinguishment of debt resulting from the buyback of $14.65 million principal amount of our senior subordinated notes due 2015 and a charge of $0.6 million for the write-off of deferred financing costs. Excluding these items, other income decreased $3.1 million as the result of fewer assets being sold during fiscal 2009 compared to fiscal 2008.
 
    Income Taxes. The following table presents our income tax expense and effective income tax rate for continuing operations for fiscal 2009 and 2008 (dollars in millions):


   
Fiscal Year Ended
 
   
2009
   
2008
 
   
(dollars in millions)
 
Income tax provision (benefit)
  $ (1.4 )   $ 13.2  
Effective income tax rate
    2.6 %     35.1 %


    Our effective income tax rates for fiscal 2009 and 2008 differ from the statutory rates primarily due to the impact of certain items. Specifically, during fiscal 2009 and fiscal 2008, the provision for income taxes included the reversal of certain income tax liabilities of $1.5 million and $2.0 million, respectively, related to unrecognized tax benefits which were no longer required. In addition, only a portion of the fiscal 2009 and fiscal 2008 goodwill impairment charge was deductible for income tax purposes during the periods. Other variations in our tax rate are attributable to the impact of non-deductible and non-taxable items in relation to our pre-tax income during the period.
 
    Income (loss) from Continuing Operations. Loss from continuing operations was $53.1 million for fiscal 2009 as compared to income of $24.4 million for fiscal 2008.
 
    Discontinued Operations. The following table presents our results from discontinued operations for fiscal 2009 and 2008:


   
Fiscal Year Ended
 
   
2009
   
2008
 
   
(Dollars in thousands)
 
Contract revenues of discontinued operations
  $ -     $ -  
Loss of discontinued operations before income taxes
  $ (144 )   $ (4,524 )
Loss of discontinued operations, net of tax
  $ (86 )   $ (2,726 )

   
    The operations of Apex were discontinued in December 2006 and there were no contract revenues earned during fiscal 2009 or fiscal 2008. The loss from discontinued operations for the fiscal 2008 period was primarily the result of a $1.2 million legal charge associated with a legal settlement.

    Net Income (loss). Net loss was $53.2 million for fiscal 2009 as compared to net income of $21.7 million for fiscal 2008.


 
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 upon our level of operations and generally increase with higher levels of revenues. Our working capital is also impacted by the time it takes us to collect our accounts receivable for work performed for customers. Cash and cash equivalents totaled $103.3 million at July 31, 2010 compared to $104.7 million at July 25, 2009.  Cash decreased for fiscal 2010 primarily as a result of capital expenditures and share repurchases, offset by cash provided from operations. Workin g capital (total current assets less total current liabilities) increased by $8.4 million to $225.6 million at July 31, 2010 compared to $217.2 million at July 25, 2009.
   
    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 credit facility based on our cash requirements. Additionally, to the extent we make acquisitions that involve consideration other than our stock, buyback our common stock or repurchase or call our senior subordinated notes, our capital requirements may increase. We believe that none of our major customers are experiencing significant financial difficulty as of July 31, 2010 that will materially affect our cash flows or liquidity.


   
Fiscal Year Ended
 
   
2010
   
2009
   
2008
 
      (Dollars in millions)  
 Provided by operating activities
  $ 54.1     $ 126.6     $ 104.3  
 Used in investing activities
  $ (46.6 )   $ (25.4 )   $ (62.1 )
 Used in financing activities
  $ (8.9 )   $ (18.6 )   $ (39.0 )

 
    Cash from operating activities. During fiscal 2010, net cash provided by operating activities was $54.1 million. Non-cash items during fiscal 2010 were primarily depreciation and amortization, gain on disposal of assets, stock-based compensation, and deferred income taxes. Changes in working capital (excluding cash) and changes in other long term assets and liabilities contributed $14.2 million of operating cash flow during fiscal 2010. Working capital changes that contributed operating cash flow during fiscal 2010 included decreases in accounts receivable and net costs and estimated earnings in excess of billings of $4.6 million and $0.8 million, respectively. Additionally, cash increased by $3.3 million as a result of the receipt of fi scal 2009 income tax refunds.  Working capital changes that used operating cash flow during fiscal 2010 were declines in other accrued liabilities and accrued insurance claims of $14.0 million due to reduced level of operations. Additionally, we had decreases in accounts payable of $1.6 million due to the timing of applicable payments. Other uses of working capital included net increases in other current and other non-current assets of $7.4 million primarily for increased levels of inventory and other prepaid assets.
 
    Based on average daily revenue during the applicable quarter, days sales outstanding calculated for accounts receivable, net was 38 days as of July 31, 2010 compared to 39 days of as July 25, 2009. Days sales outstanding calculated for costs and estimated earnings in excess of billings, net of billings in excess of costs and estimated earnings, were 23 days as of July 31, 2010 and July 25, 2009.  The decrease in combined days sales outstanding for accounts receivable and costs and estimated earnings in excess of billings is due to overall improvement in billing and collection activities and the payment practices of our customers.
 
    During fiscal 2009, net cash provided by operating activities was $126.6 million. Non-cash items that impacted our net loss during fiscal 2009 were primarily depreciation and amortization, goodwill impairment charges, gain on disposal of assets, stock-based compensation, gain on debt extinguishment, write-off of deferred financing costs and deferred income taxes. Changes in working capital (excluding cash) and changes in other long term assets and liabilities contributed $26.9 million of operating cash flow during fiscal 2009. The primary working capital sources during fiscal 2009 were decreases in accounts receivable and net costs and estimated earnings in excess of billings of $29.5 million and $26.8 million, respectively. These decreases relate primarily to reduced fiscal 2009 period billin g as a result of a decline in revenue and the collection activity and payment patterns of our customers. Based on average daily revenue during the applicable quarter, days sales outstanding calculated for accounts receivable, net was 39 days as of July 25, 2009 compared to 41 days at July 26, 2008. Days sales outstanding calculated for costs and estimated earnings in excess of billings, net of billings in excess of costs and estimated earnings, were 23 days as of July 25, 2009 compared to 26 days at July 26, 2008.  The decrease in combined days sales outstanding for accounts receivable and costs and estimated earnings in excess of billings in fiscal 2009 as compared to fiscal 2008 was due to an overall improvement in billing and collection activities and an increased percentage of revenues from customers with faster payment patterns. We also had net increases in other current and other noncurrent assets of $1.8 million primarily as a result of a decrease in prepaid insurance and other prepaid costs . Working capital changes that used operating cash flow during fiscal 2009 included decreases in accrued insurance claims and other liabilities of $27.2 million. These decreases were primarily attributable to payments of approximately $8.6 million in connection with a wage and hour class action settlement, $1.2 million for the settlement of a legal claim at Apex, payments totaling $4.7 million for a group of accrued insurance claims, and overall decreases in other accrued liabilities due to the reduced level of operations during fiscal 2009 as compared to fiscal 2008. Additionally, there were decreases in accounts payable of $3.0 million due to the timing of the receipt and payment of invoices and an increase in income tax receivables of $1.0 million due to the timing of applicable tax payments.


 
    During fiscal 2008, net cash provided by operating activities was $104.3 million, comprised primarily of net income, adjusted for non-cash items. Non-cash items during fiscal 2008 primarily included depreciation and amortization, gain on disposal of assets, stock based compensation, and a goodwill impairment charge. Changes in working capital and changes in other long term assets and liabilities provided $9.1 million of operating cash flow during fiscal 2008. Decreases in accounts receivable and costs and estimated earnings in excess of billings, net, contributed $0.5 million and $0.9 million, respectively, due to fiscal 2008 period billing and collection activity and the payment patterns of our customers. Based on fourth quarter revenues, days sales outstanding for accounts receivable, net wa s 41 days as of July 26, 2008 compared to 42 days at July 28, 2007. Based on fourth quarter revenues, days sales outstanding for costs and estimated earnings in excess of billings, net of billings in excess of costs and estimated earnings, was 26 days as of July 26, 2008 compared to 27 days at July 28, 2007. The decrease in combined days sales outstanding for accounts receivable and costs and estimated earnings in excess of billings in fiscal 2008 as compared to fiscal 2007 was due to overall improvement in billing and collection activities and the payment practices of our customers. Other components of the working capital changes and other long term asset and liability changes that contributed operating cash flow during fiscal 2008 were increases in accounts payable of $2.2 million due to the timing of the receipt and payment of invoices, increases in accrued liabilities of $8.5 million due to the legal settlements described above, and increases in accrued insurance claims due to higher levels of incurred c laims in relation to payments made during the period. The payment of income taxes used operating cash flows of $3.0 million during fiscal 2008.
 
    Cash used in investing activities. During fiscal 2010, net cash used in investing activities was $46.6 million.  Capital expenditures of $55.4 million were offset in part by proceeds from the sale of assets of $8.8 million, primarily vehicles and equipment.  Capital expenditures increased primarily as a result of our replacement of assets and spending on equipment to address new work opportunities.
 
    During fiscal 2009, net cash used in investing was $25.4 million. Capital expenditures were $30.5 million offset in part by $5.2 million in proceeds from the sale of assets. Capital expenditures declined in fiscal 2009 compared to fiscal 2008 as we replaced fewer assets and sized our fleet of assets to reflect lower work volume. Restricted cash, primarily related to funding provisions of our insurance claims program, decreased less than $0.1 million.
 
    During fiscal 2008 net cash used in investing activities was $62.1 million. Capital expenditures were $72.1 million offset in part by $9.7 million in proceeds from the sale of assets. Increases in restricted cash during fiscal 2008 related to funding provisions of our insurance claims program resulted in the use of $0.3 million. During fiscal 2008, we received $0.5 million in satisfaction of indemnification claims in connection with the acquisition of Broadband Installation Services (formerly Cable Express).
 
    Cash used in financing activities. Net cash used in financing activities was $8.9 million for fiscal 2010.  During fiscal 2010, we paid $3.2 million for debt issuance costs in connection with entering into a new five-year $225.0 million Credit Agreement in June 2010. In addition, we paid $1.0 million for principal payments on capital leases. During fiscal 2010, we repurchased 475,602 shares of our common stock, at an average price of $9.44 per share, in open market transactions. Payments for the repurchase of these shares totaled $4.5 million. In addition, we withheld shares of restricted share 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 received less than $0.1 million from the exercise of stock options and received excess tax benefits of less than $0.1 million from the vesting of restricted share units.
 
    Net cash used in financing activities was $18.6 million for fiscal 2009. During fiscal 2009, we paid $1.8 million for debt issuance costs in connection with entering into our prior credit facility in September 2008 and we borrowed and repaid $30.0 million under the facility. In addition, we paid $2.3 million for principal amounts owed on capital leases and purchased $14.65 million principal amount of our senior subordinated notes due 2015 for $11.3 million. During fiscal 2009, we repurchased 450,000 shares of our common stock in open market transactions for $2.9 million at an average price of $6.48 per share. In addition, during fiscal 2009, we withheld shares of restricted units and paid $0.2 million to tax authorities in order to meet payroll tax withholding obligations on restricted share u nits that vested to certain of our officers and employees during those periods.
 
    During fiscal 2008, net cash used in financing activities was $39.0 million. This included total borrowings of $30.0 million and repayments of $40.0 million against outstanding borrowings under our previous credit agreement. In addition, we paid $3.5 million for principal payments on our capital leases. During fiscal 2008, we repurchased 1,693,500 shares of our common stock for $25.2 million in open market transactions at an average price of $14.83 per share. During fiscal 2008, we withheld 81,680 shares of restricted stock/units and paid approximately $2.1 million to the appropriate tax authorities in order to meet payroll tax withholding obligations on restricted stock and restricted share units that vested to our o fficers and employees. We received $1.3 million from the exercise of stock options for fiscal 2008 and received excess tax benefits of $0.5 million from the exercise of stock options and vesting of restricted share units.


 
    Compliance with Notes and Credit Agreement
 
    The indenture governing our senior subordinated notes contains 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.
 
    As of July 31, 2010, the principal amount outstanding under the Notes was $135.35 million and we were in compliance with the covenants and conditions under the indenture governing the Notes.
 
    On June 4, 2010, the Company entered into a new five-year $225.0 million Credit Agreement with a syndicate of banks. The Credit Agreement has an expiration date of June 4, 2015 and provides for a maximum borrowing of $225.0 million, including a sublimit of $100.0 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 in an aggregate amount not to exceed $75.0 million, either by increasing the revolving commitments under the Credit Agreement and/or in the form of term loans. The Credit Agreement replaces the Company’s prior credit facility (the “Prior Agreement”) which was due to expire in September 2011.  
 
    Borrowings under the Credit Agreement (other than swingline loans) 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 federal funds rate plus 0.50%; (ii) the administrative agent’s prime rate; and (iii) the eurodollar rate (described in the Credit Agreement as the British Bankers Association LIBOR Rate, divided by one (1) minus a reserve percentage (as described in the Credit Agreement) plus 1.00%, or (b) the eurodollar rate, plus, in each case, an applicable margin based on our consolidated leverage ratio.  Swingline loans bear interest at a rate equal to the administrative agent’s base rate plus a margin based on our consolidated leverage ratio.  Based on our curre nt consolidated leverage ratio, revolving borrowings would be eligible for a margin of 1.50% for borrowings based on the administrative agent’s base rate and 2.50% for borrowings based on the eurodollar rate.
 
    We pay a quarterly facility fee, at rates that range from 0.500% to 0.625% of the unutilized commitments depending on our leverage ratio. The Credit Agreement also requires the payment of fees for outstanding letters of credit and unutilized commitments, in each case based on our consolidated leverage ratio. Based on our current consolidated leverage ratio, fees for outstanding letters of credit and fees for unutilized commitments would be 1.250% and 0.50% per annum, respectively. Our obligations under the Credit Agreement are guaranteed by certain subsidiaries and secured by a pledge of (i) 100% of the equity of our material domestic subsidiaries and (ii) 100% of the non-voting equity and 65% of the voting equity of first-tier material foreign subsidiaries, if any, in each case excluding certain unrestricted subsidiaries.
 
    The Credit Agreement contains certain affirmative and negative covenants, including limitations with respect to indebtedness, liens, investments, distributions, mergers and acquisitions, dispositions of assets, sale-leaseback transactions, transactions with affiliates and capital expenditures.  The Credit Agreement contains financial covenants that require us to (i) maintain a consolidated leverage ratio of not greater than 3.00 to 1.00, as measured at the end of each fiscal quarter and (ii) maintain a consolidated interest coverage ratio of not less than 2.75 to 1.00 for fiscal quarters ending July 31, 2010 through April 28, 2012 and not less than 3.00 to 1.00 for the fiscal quarter ending July 28, 2012 and each fiscal quarter thereafter, as measured at the end o f each fiscal quarter. As of July 31, 2010, we had no outstanding borrowings and $44.1 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 31, 2010, we had additional borrowing availability of up to $124.1 million, as determined by the most restrictive covenants of the Credit Agreement, and we were in compliance with the financial covenants.


 
    Contractual Obligations.  The following tables set forth our outstanding contractual obligations, including related party leases, as of July 31, 2010:

   
Less than 1 Year
   
Years 1-3
   
Years 3 - 5
   
Greater than 5 Years
   
Total
 
   
(Dollars in thousands)
 
Senior subordinated notes due 2015
  $ -     $ -     $ -     $ 135,350     $ 135,350  
Interest payments on debt (excluding capital leases)
    10,997       21,994       21,994       5,499       60,484  
Capital lease obligations (including interest)
    47       -       -       -       47  
Operating lease obligations
    8,313       11,245       6,783       3,894       30,235  
Employment agreements
    2,962       1,719       -       -       4,681  
Purchase and other contractual obligations
    10,609       -       -       -       10,609  
Total
  $ 32,928     $ 34,958     $ 28,777     $ 144,743     $ 241,406  

 
    Purchase and other contractual obligations in the above table primarily include vehicles and equipment ordered under contract but not yet received by the Company.
 
    Our consolidated balance sheet as of July 31, 2010 includes a long term liability of approximately $24.8 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 of the Notes to our Consolidated Financial Statements for additional information regarding our accrued insurance claims liability.
 
    The liability for unrecognized tax benefits for uncertain tax positions at July 31, 2010 was $2.0 million and is included in other liabilities in our 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.  We have obligations under performance 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 obligations under a contract.  As of July 31, 2010, we had $44.4 million of outstanding performance bonds and no events have occurred in which customers have exercised their rights under the performance bonds.
 
    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 Notes and borrowings, 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 buyback our common st ock or repurchase or call our senior subordinated notes, our capital requirements may increase.
 
    Although the distress in the financial markets has not significantly impacted our financial position as of July 31, 2010, management continues to monitor the financial markets and assess general economic conditions. If further 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 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 long-term requirements 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. 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 not prove to be accurate, particularly in light of the current economic conditions and the uncertainty that imposes on changes in our customer’s requirements for our services.
 
    Our backlog totaled $1.114 billion and $935.4 million at July 31, 2010 and July 25, 2009, respectively. We expect to complete 57.5% of the July 31, 2010 backlog during fiscal 2011.


 
Seasonality and Quarterly Fluctuations
 
    Our revenues are affected by 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 years.
 
    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:

 
our fiscal year which ends on the last Saturday in July, and as a result, fiscal 2010 consisted of 53 weeks with the fourth quarter having 14 weeks of operations, as compared to other fiscal years consisting of 52 weeks with the fourth quarter having 13 weeks;

 
the timing and volume of customers’ construction and maintenance projects;

 
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 withholding obligations;

 
changes in the 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 and non-deductible items.
 
    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 of Notes to the Consolidated Financial Statements for a discussion of recent accounting standards and pronouncements.




 
    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. A hypothetical 100 basis point increase in interest rates would result in an increase to annual earnings of approximately $1.0 million if our cash and equivalents held as of July 31, 2010 were to be fully invested in interest bearing financial instruments.
 
    Our revolving credit facility permits borrowings at a variable rate of interest; however, we had no outstanding borrowings as of July 31, 2010. Outstanding long-term debt at July 31, 2010 included approximately $135.35 million of our senior subordinated notes due in 2015, which bear a fixed rate of interest of 8.125%. 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 totaled approximately $134.3 million as of July 31, 2010, based on quoted market prices. 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 $3.0 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 31, 2010, the market risk for foreign currency exchange rates was not significant as our operations in Canada have not been material.

 
    Our consolidated financial statements and related notes and Report of Independent Registered Public Accounting Firm follow on subsequent pages of this report.


 
 
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 2010 AND JULY 25, 2009
   
             
   
July 31,
   
July 25,
 
   
2010
   
2009
 
   
(Dollars in thousands)
 
ASSETS
           
CURRENT ASSETS:
           
Cash and equivalents
  $ 103,320     $ 104,707  
Accounts receivable, net
    110,117       116,968  
Costs and estimated earnings in excess of billings
    66,559       67,111  
Deferred tax assets, net
    14,944       15,779  
Income taxes receivable
    3,626       7,016  
Inventories
    16,058       8,303  
Other current assets
    8,137       7,323  
     Total current assets
    322,761       327,207  
                 
PROPERTY AND EQUIPMENT, NET
    136,028       142,132  
GOODWILL
    157,851       157,851  
INTANGIBLE ASSETS, NET
    49,625       56,056  
OTHER
    13,291       10,211  
     TOTAL NON-CURRENT ASSETS
    356,795       366,250  
     TOTAL
  $ 679,556     $ 693,457  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable
  $ 25,881     $ 28,977  
Current portion of debt
    47       926  
Billings in excess of costs and estimated earnings
    376       151  
Accrued insurance claims
    28,086       27,386  
Other accrued liabilities
    42,813       52,590  
     Total current liabilities
    97,203       110,030  
                 
LONG-TERM DEBT
    135,350       135,377  
ACCRUED INSURANCE CLAIMS
    24,844       29,759  
DEFERRED TAX LIABILITIES, NET NON-CURRENT
    24,159       22,910  
OTHER LIABILITIES
    3,445       4,758  
     Total liabilities
    285,001       302,834  
                 
COMMITMENTS AND CONTINGENCIES, Notes 10, 11, 16 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: 38,656,190 and 38,998,513 issued and outstanding, respectively
    12,885       12,999  
Additional paid-in capital
    170,209       172,112  
Accumulated other comprehensive income
    169       69  
Retained earnings
    211,292       205,443  
     Total stockholders' equity
    394,555       390,623  
     TOTAL
  $ 679,556     $ 693,457  
                 
See notes to the consolidated financial statements.
 





DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
FOR THE YEARS ENDED JULY 31, 2010, JULY 25, 2009, AND JULY 26, 2008
 
                   
             
   
2010
   
2009
   
2008
 
   
(Dollars in thousands, except per share amounts)
 
             
REVENUES:
                 
Contract revenues
  $ 988,623     $ 1,106,900     $ 1,229,956  
                         
EXPENSES:
                       
Costs of earned revenues, excluding depreciation and amortization
    810,064       894,885       1,011,219  
  General and administrative  (including stock-based compensation  expense of $3.4 million, $3.9 million, and $5.2 million, respectively)
    98,140       98,732       98,942  
Depreciation and amortization
    63,607       65,435       67,288  
Goodwill impairment charge
    -       94,429       9,672  
Total
    971,811       1,153,481       1,187,121  
                         
Interest income
    97       261       691  
Interest expense
    (14,272 )     (14,743 )     (13,096 )
Other income, net
    8,093       6,564       7,154  
                         
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    10,730       (54,499 )     37,584  
                         
PROVISION (BENEFIT) FOR INCOME TAXES:
                       
Current
    2,960       4,796       15,221  
Deferred
    1,921       (6,201 )     (2,041 )
Total
    4,881       (1,405 )     13,180  
                         
INCOME (LOSS) FROM CONTINUING OPERATIONS
    5,849       (53,094 )     24,404  
                         
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX
    -       (86 )     (2,726 )
                         
NET INCOME (LOSS)
  $ 5,849     $ (53,180 )   $ 21,678  
                         
EARNINGS (LOSS) PER COMMON SHARE - BASIC:
                       
                         
Income (loss) from continuing operations
  $ 0.15     $ (1.35 )   $ 0.60  
Loss from discontinued operations
    -       -       (0.07 )
Net income (loss)
  $ 0.15     $ (1.35 )   $ 0.54  
                         
EARNINGS (LOSS) PER COMMON SHARE - DILUTED:
                       
                         
Income (loss) from continuing operations
  $ 0.15     $ (1.35 )   $ 0.60  
Loss from discontinued operations
    -       -       (0.07 )
Net income (loss)
  $ 0.15     $ (1.35 )   $ 0.53  
                         
SHARES USED IN COMPUTING EARNINGS (LOSS) PER COMMON SHARE:
                       
Basic
    38,931,029       39,254,813       40,417,945  
                         
Diluted
    38,996,866       39,254,813       40,601,739  
                         
                         
See notes to the consolidated financial statements.
 


DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 2010, JULY 25, 2009, AND JULY 26, 2008
                               
                               
                     
Accumulated Other
 
   
Common Stock
   
Additional
   
Comprehensive
   
Retained
 
   
Shares
   
Amount
   
Paid-in Capital
   
Income (Loss)
   
Earnings
 
   
(Dollars in thousands)
                   
                               
Balances at July 28, 2007
    41,005,106     $ 13,668     $ 191,837     $ 75     $ 239,051  
Adoption of ASC Topic 740 (formerly FASB Interpretation No. 48)
    -       -       -       -       (2,106 )
Stock options exercised
    63,878       21       1,318       -       -  
Tax benefit from stock option and restricted stock plans
    -       -       590       -       -  
Stock-based compensation expense
    -       -       5,040       -       -  
Restricted stock repurchased for tax withholdings
    (81,680 )     (27 )     (2,120 )     -       -  
Issuance of restricted stock, net of cancellations
    58,216       20       96       -       -  
Repurchase of common stock
    (1,693,500 )     (565 )     (24,594 )     -       -  
Other comprehensive income
    -       -       -       111       -  
Net income
    -       -       -       -       21,678  
Balances at July 26, 2008
    39,352,020       13,117       172,167       186       258,623  
Stock options exercised
    1,200       1       16       -       -  
Tax deficit from stock option and restricted stock plans
    -       -       (925 )     -       -  
Stock-based compensation expense
    -       -       3,798       -       -  
Restricted stock repurchased for tax withholdings
    (33,597 )     (11 )     (236 )     -       -  
Issuance of restricted stock, net of cancellations
    128,890       42       57       -       -  
Repurchase of common stock
    (450,000 )     (150 )     (2,765 )     -       -  
Other comprehensive loss
    -       -       -       (117 )     -  
Net loss
    -       -       -       -       (53,180 )
Balances at July 25, 2009
    38,998,513       12,999       172,112       69       205,443  
Stock options exercised
    4,841       2       31       -       -  
Tax deficit from stock option and restricted stock plans
    -       -       (603 )     -       -  
Stock-based compensation expense
    -       -       3,316       -       -  
Restricted stock repurchased for tax withholdings
    (31,749 )     (11 )     (263 )     -       -  
Issuance of restricted stock, net of cancellations
    160,187       54       (54 )     -       -  
Repurchase of common stock
    (475,602 )     (159 )     (4,330 )     -       -  
Other comprehensive income
    -       -       -       100       -  
Net income
    -       -       -       -       5,849  
Balances at July 31, 2010
    38,656,190     $ 12,885     $ 170,209     $ 169     $ 211,292  
                                         
See notes to the consolidated financial statements.




DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 2010, JULY 25, 2009, AND JULY 26, 2008
                   
   
2010
   
2009
   
2008
 
   
(Dollars in thousands)
       
OPERATING ACTIVITIES:
                 
Net income (loss)
  $ 5,849     $ (53,180 )   $ 21,678  
Adjustments to reconcile net income (loss) to net cash inflow from operating activities:
         
Depreciation and amortization
    63,607       65,435       67,288  
Bad debt expense (recovery), net
    198       317       (43 )
Gain on sale of fixed assets
    (7,677 )     (3,942 )     (6,724 )
Gain on extinguishment of debt, net
    -       (3,027 )     -  
Write-off of deferred financing costs
    -       551       -  
Deferred income tax provision (benefit)
    1,921       (5,693 )     (2,342 )
Stock-based compensation
    3,351       3,897       5,156  
Amortization of debt issuance costs
    1,114       958       820  
Goodwill impairment charge
    -       94,429       9,672  
Excess tax benefit from share-based awards
    (69 )     -       (479 )
Other
    52       26       120  
Change in operating assets and liabilities:
                       
Accounts receivable, net
    4,617       29,478       482  
Costs and estimated earnings in excess of billings, net
    776       26,827       893  
Other current assets and inventory
    (6,348