DY Q3 FY 2015 10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 25, 2015
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

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

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

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

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

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

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

Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
 
There were 34,083,058 shares of common stock with a par value of $0.33 1/3 outstanding at May 18, 2015.
 




Dycom Industries, Inc.
Table of Contents
 
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
 

2


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
April 25, 2015
 
July 26, 2014
 
(Dollars in thousands)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
22,542

 
$
20,672

Accounts receivable, net
265,772

 
272,741

Costs and estimated earnings in excess of billings
247,979

 
230,569

Inventories
45,205

 
49,095

Deferred tax assets, net
19,278

 
19,932

Other current assets
20,112

 
12,727

Total current assets
620,888

 
605,736

 
 
 
 
Property and equipment, net
226,328

 
205,413

Goodwill
269,465

 
269,088

Intangible assets, net
110,031

 
116,116

Other
30,404

 
16,001

Total non-current assets
636,228

 
606,618

Total assets
$
1,257,116

 
$
1,212,354

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
64,463

 
$
63,318

Current portion of debt

 
10,938

Billings in excess of costs and estimated earnings
14,271

 
13,882

Accrued insurance claims
38,036

 
32,260

Other accrued liabilities
78,224

 
76,134

Total current liabilities
194,994

 
196,532

 
 
 
 
Long-term debt (including debt premium of $2.9 million and $3.2 million at April 25, 2015 and July 26, 2014, respectively)
446,692

 
446,863

Accrued insurance claims
39,487

 
33,782

Deferred tax liabilities, net non-current
48,815

 
45,361

Other liabilities
4,942

 
4,882

Total liabilities
734,930

 
727,420

 
 
 
 
COMMITMENTS AND CONTINGENCIES, Note 17


 


 
 
 
 
Stockholders' equity:
 

 
 

Preferred stock, par value $1.00 per share: 1,000,000 shares authorized: no shares issued and outstanding

 

Common stock, par value $0.33 1/3 per share: 150,000,000 shares authorized: 34,076,566 and 33,990,589 issued and outstanding, respectively
11,359

 
11,330

Additional paid-in capital
119,233

 
131,819

Accumulated other comprehensive loss
(846
)
 
(158
)
Retained earnings
392,440

 
341,943

Total stockholders' equity
522,186

 
484,934

Total liabilities and stockholders' equity
$
1,257,116

 
$
1,212,354

 
 
 
 
See notes to the condensed consolidated financial statements.

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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
For the Three Months Ended
 
April 25, 2015
 
April 26, 2014
 
(Dollars in thousands, except per share amounts)
REVENUES:
 
 
 
Contract revenues
$
492,363

 
$
426,284

 
 
 
 
EXPENSES:
 

 
 

Costs of earned revenues, excluding depreciation and amortization
388,239

 
350,352

General and administrative (including stock-based compensation expense of $3.2 million and $2.7 million, respectively)
44,707

 
39,162

Depreciation and amortization
23,985

 
22,726

Total
456,931

 
412,240

 
 
 
 
Interest expense, net
(6,646
)
 
(6,563
)
Other income, net
3,471

 
5,593

Income before income taxes
32,257

 
13,074

 
 
 
 
Provision (benefit) for income taxes:
 

 
 

Current
9,346

 
7,094

Deferred
2,653

 
(1,915
)
Total provision for income taxes
11,999

 
5,179

 
 
 
 
Net income
$
20,258

 
$
7,895

 
 
 
 
Earnings per common share:
 

 
 

Basic earnings per common share
$
0.59

 
$
0.23

 
 
 
 
Diluted earnings per common share
$
0.58

 
$
0.23

 
 
 
 
Shares used in computing earnings per common share:
 
 
 

Basic
34,107,262

 
33,860,832

 
 
 
 
Diluted
35,028,956

 
34,763,035

 
 
 
 
See notes to the condensed consolidated financial statements.


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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
(Dollars in thousands, except per share amounts)
REVENUES:
 
 
 
Contract revenues
$
1,443,833

 
$
1,329,522

 
 
 
 
EXPENSES:
 

 
 
Costs of earned revenues, excluding depreciation and amortization
1,147,136

 
1,087,824

General and administrative (including stock-based compensation expense of $10.8 million and $9.7 million, respectively)
131,218

 
120,799

Depreciation and amortization
70,179

 
69,713

Total
1,348,533

 
1,278,336

 
 
 
 
Interest expense, net
(20,126
)
 
(20,249
)
Other income, net
7,001

 
8,200

Income before income taxes
82,175

 
39,137

 
 
 
 
Provision (benefit) for income taxes:
 

 
 

Current
27,654

 
16,666

Deferred
4,024

 
(1,017
)
Total provision for income taxes
31,678

 
15,649

 
 
 
 
Net income
$
50,497

 
$
23,488

 
 
 
 
Earnings per common share:
 

 
 

Basic earnings per common share
$
1.48

 
$
0.70

 
 
 
 
Diluted earnings per common share
$
1.44

 
$
0.68

 
 
 
 
Shares used in computing earnings per common share:
 
 
 

Basic
34,081,381

 
33,707,957

 
 
 
 
Diluted
35,091,644

 
34,767,400

 
 
 
 
See notes to the condensed consolidated financial statements.


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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
For the Three Months Ended
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
April 25, 2015
 
April 26, 2014
 
(Dollars in thousands)
Net income
$
20,258

 
$
7,895

 
$
50,497

 
$
23,488

Foreign currency translation gains (losses), net of tax
38

 
(46
)
 
(688
)
 
(332
)
Comprehensive income
$
20,296

 
$
7,849

 
$
49,809

 
$
23,156

 
 
 
 
 
 
 
 
See notes to the condensed consolidated financial statements.


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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
(Dollars in thousands)
OPERATING ACTIVITIES:
 
 
 
Net income
$
50,497

 
$
23,488

Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions:
 
 
 
Depreciation and amortization
70,179

 
69,713

Bad debt expense, net
308

 
519

Gain on sale of fixed assets
(6,249
)
 
(7,904
)
Deferred income tax provision (benefit)
4,024

 
(1,017
)
Stock-based compensation
10,773

 
9,721

Amortization of premium on long-term debt
(296
)
 
(275
)
Amortization of debt issuance costs and other
1,490

 
1,428

Excess tax benefit from share-based awards
(5,224
)
 
(2,837
)
Change in operating assets and liabilities:
 
 
 
Accounts receivable, net
8,602

 
18,406

Costs and estimated earnings in excess of billings, net
(17,225
)
 
5,381

Other current assets and inventory
(2,041
)
 
(13,242
)
Other assets
(7,511
)
 
(646
)
Income taxes receivable/payable
(1,317
)
 
(8,827
)
Accounts payable
(1,224
)
 
(5,506
)
Accrued liabilities, insurance claims, and other liabilities
18,798

 
9,089

Net cash provided by operating activities
123,584

 
97,491

 
 
 
 
INVESTING ACTIVITIES:
 
 
 

Cash paid for acquisitions, net of cash acquired
(9,821
)
 
(700
)
Capital expenditures
(76,825
)
 
(70,585
)
Proceeds from sale of assets
6,764

 
9,425

Changes in restricted cash
(541
)
 
(305
)
Other investing activities
(4,000
)
 

Net cash used in investing activities
(84,423
)
 
(62,165
)
 
 
 
 
FINANCING ACTIVITIES:
 
 
 

Proceeds from borrowings on senior credit agreement, including term loan
310,750

 
337,000

Principal payments on senior credit agreement, including term loan
(321,563
)
 
(375,469
)
Debt issuance costs
(3,527
)
 

Repurchases of common stock
(30,687
)
 
(9,999
)
Exercise of stock options
6,842

 
14,010

Restricted stock tax withholdings
(4,330
)
 
(3,590
)
Excess tax benefit from share-based awards
5,224

 
2,837

Net cash used in financing activities
(37,291
)
 
(35,211
)
 
 
 
 
Net increase in cash and equivalents
1,870

 
115

 
 
 
 
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
20,672

 
18,607

 
 
 
 
CASH AND EQUIVALENTS AT END OF PERIOD
$
22,542

 
$
18,722

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Continued)
(Unaudited)
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
 

 
 

Cash paid during the period for:
 

 
 

Interest
$
14,241

 
$
14,160

Income taxes
$
29,659

 
$
26,106

Purchases of capital assets included in accounts payable or other accrued liabilities at period end
$
4,160

 
$
4,328

 
 
 
 
See notes to the condensed consolidated financial statements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Accounting Policies

Basis of Presentation

Dycom Industries, Inc. ("Dycom" or the "Company") is a leading provider of specialty contracting services throughout the United States and in Canada. The Company's services include engineering, construction, maintenance and installation services to telecommunications providers, underground facility locating services to various utilities, including telecommunications providers, and other construction and maintenance services to electric and gas utilities.

The accompanying unaudited condensed consolidated financial statements include the results of Dycom and its subsidiaries, all of which are wholly-owned. All intercompany accounts and transactions have been eliminated and the financial statements reflect all adjustments, consisting of only normal recurring accruals that are, in the opinion of management, necessary for a fair presentation of such statements. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Operating results for the interim period are not necessarily indicative of the results expected for any other interim period or for the full fiscal year. These condensed consolidated financial statements and accompanying notes should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this report and the Company's audited financial statements for the year ended July 26, 2014 included in the Company's Annual Report on Form 10-K for the year ended July 26, 2014, filed with the SEC on September 9, 2014.

Segment Information – The Company operates in one reportable segment as a specialty contractor, providing engineering, construction, maintenance and installation services to telecommunications providers, underground facility locating services to various utilities, including telecommunications providers, and other construction and maintenance services to electric and gas utilities. The Company's services are provided by its operating segments, each of which consists of a subsidiary (or in limited instances, the combination of two or more subsidiaries). Management of the operating segments report to the Company's Chief Operating Officer who reports to the Chief Executive Officer, the chief operating decision maker. All of the Company's operating segments have been aggregated into one reportable segment due to their similar economic characteristics, nature of services and production processes, type of customers, and service distribution methods. The Company's operating segments provide services throughout the United States and in Canada. Revenues from services provided in Canada were approximately $2.0 million and $9.8 million during the three and nine months ended April 25, 2015, respectively, and $2.5 million and $7.9 million during the three and nine months ended April 26, 2014, respectively. The Company had no material long-lived assets in Canada at April 25, 2015 or July 26, 2014.

Accounting Period – The Company uses a fiscal year ending on the last Saturday in July. As a result, each fiscal year may be comprised of fifty-two weeks or fifty-three weeks (with an additional week of operations occurring in the fourth quarter).

Significant Accounting Policies & Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. At the time they are made, the Company believes that such estimates are fair when considered in conjunction with the consolidated financial position and results of operations taken as a whole. However, actual results could differ materially from those estimates. There have been no material changes to the Company's significant accounting policies and critical accounting estimates described in the Company's Annual Report on Form 10-K for the year ended July 26, 2014.

Restricted Cash – As of April 25, 2015 and July 26, 2014, the Company had approximately $4.5 million and $4.0 million, respectively, in restricted cash which is held as collateral in support of the Company's insurance obligations. Restricted cash is included in other current assets and other assets in the condensed consolidated balance sheets and changes in restricted cash are reported in cash flows used in investing activities in the condensed consolidated statements of cash flows.

Fair Value of Financial Instruments – The Company's financial instruments consist primarily of cash and equivalents, restricted cash, accounts receivables, income taxes receivable and payable, accounts payable and certain accrued expenses, and long-term debt. The carrying amounts of these items approximate fair value due to their short maturity, except for the Company's outstanding 7.125% senior subordinated notes due 2021 (the "2021 Notes") which are based on observable market-

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based inputs (Level 2) as of April 25, 2015 and July 26, 2014. See Note 10, Debt, for further information regarding the fair value of the 2021 Notes. The Company's cash and equivalents are based on quoted market prices in active markets for identical assets (Level 1) as of April 25, 2015 and July 26, 2014. During the three and nine months ended April 25, 2015 and April 26, 2014 the Company had no material non-recurring fair value measurements of assets or liabilities subsequent to their initial recognition.

Other Assets Other assets consists of deferred financing costs, long-term deposits, contract acquisition costs and other non-current assets. During the third quarter of fiscal 2015, the Company made an investment of $4.0 million in non-voting senior units of a customer. The investment was made in connection with this customer's restructuring plan and will accrue dividends at a rate of 5.25% per year.
 
Recently Issued Accounting Pronouncements

Accounting Standards Not Yet Adopted

In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08"). ASU 2014-08 changes the criteria for reporting discontinued operations. In accordance with ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. ASU 2014-08 also requires expanded disclosures about the assets, liabilities, income, and expenses of discontinued operations as well as disclosure of the pre-tax income rising from a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. ASU 2014-08 will be effective for the Company beginning in fiscal 2016 and interim reporting periods within that year. Early adoption is permitted only for disposals that have not been reported in financial statements previously issued or available for issuance. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), ("ASU 2014-09"). ASU 2014-09 requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 requires entities to disclose both qualitative and quantitative information that enables users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including disclosure of significant judgments affecting the recognition of revenue. ASU 2014-09 will be effective for the Company beginning in fiscal 2018 and interim reporting periods within that year, using either the retrospective or cumulative effect transition method. Early adoption is not permitted. The Company is currently evaluating the effect of the adoption of this guidance on the consolidated financial statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of one year after the date that financial statements are issued. If such conditions or events exist, an entity should disclose that there is substantial doubt about the entity’s ability to continue as a going concern for a period of one year after the date that financial statements are issued. Disclosure should include the principal conditions or events that raise substantial doubt, management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, and management’s plans that are intended to mitigate those conditions or events. ASU 2014-15 will be effective for the Company beginning in fiscal 2017 and interim reporting periods within that year. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.

In January 2015, the FASB issued Accounting Standards Update No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items ("ASU 2015-01"). ASU 2015-01 eliminates the concept of an extraordinary item from GAAP. As a result, an entity is no longer required to separately classify, present, or disclose extraordinary events and transactions; however, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained. ASU 2015-01 will be effective for the Company beginning in fiscal 2016 and interim reporting periods within that year. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs ("ASU2015-03"), which requires debt issuance costs to be

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presented as a direct deduction from the associated debt liability on the balance sheet. ASU 2015-03 will be effective for the Company in fiscal 2017 and interim reporting periods within that year, using the retrospective method. Early adoption is permitted. See Note 10, Debt, for further information regarding the Company’s debt financing.

2. Computation of Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share:
 
For the Three Months Ended
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
April 25, 2015
 
April 26, 2014
 
(Dollars in thousands, except per share amounts)
Net income available to common stockholders (numerator)
$
20,258

 
$
7,895

 
$
50,497

 
$
23,488

 
 
 
 
 
 
 
 
Weighted-average number of common shares (denominator)
34,107,262

 
33,860,832

 
34,081,381

 
33,707,957

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.59

 
$
0.23

 
$
1.48

 
$
0.70

 
 
 
 
 
 
 
 
Weighted-average number of common shares
34,107,262

 
33,860,832

 
34,081,381

 
33,707,957

Potential common stock arising from stock options, and unvested restricted share units
921,694

 
902,203

 
1,010,263

 
1,059,443

Total shares-diluted (denominator)
35,028,956

 
34,763,035

 
35,091,644

 
34,767,400

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
0.58

 
$
0.23

 
$
1.44

 
$
0.68

 
 
 
 
 
 
 
 
Anti-dilutive weighted shares excluded from the calculation of earnings per common share
158,113

 
576,257

 
159,484

 
570,859


3. Acquisitions

Fiscal 2015 - During the first quarter of fiscal 2015, the Company acquired Hewitt Power & Communications, Inc. ("Hewitt") for $8.0 million, net of cash acquired. Hewitt provides specialty contracting services primarily for telecommunications providers in the Southeastern United States. The preliminary purchase price allocation of Hewitt includes working capital items, property and equipment, and $5.9 million of customer relationship intangible assets. The Company also acquired the assets of two cable installation contractors for an aggregate purchase price of $1.5 million during the second quarter of fiscal 2015.

Fiscal 2014 - During the third quarter of fiscal 2014, the Company acquired a telecommunications specialty construction contractor in Canada for $0.7 million. The Company also acquired Watts Brothers Cable Construction, Inc. ("Watts Brothers") for $16.4 million during the fourth quarter of fiscal 2014. Watts Brothers provides specialty contracting services primarily for telecommunications providers in the Midwest and Southeastern United States. The purchase price allocation included $2.6 million of working capital items, $3.7 million of property and equipment, $8.5 million of customer relationship intangible assets and $1.6 million of goodwill.

The results of these acquisitions are included in the consolidated financial statements from their respective closing dates. None of these acquisitions were considered material, individually or in the aggregate, to the Company's condensed consolidated financial statements. As a result, no pro forma information has been provided.

Purchase price allocations of businesses acquired during fiscal 2015 are preliminary and will be completed during fiscal 2015 when the valuations are finalized for intangible assets and other amounts.


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4. Accounts Receivable
 
Accounts receivable consisted of the following:
 
April 25,
2015
 
July 26,
2014
 
(Dollars in thousands)
Contract billings
$
246,876

 
$
258,254

Retainage and other receivables
19,894

 
15,323

Total
266,770

 
273,577

Less: allowance for doubtful accounts
(998
)
 
(836
)
Accounts receivable, net
$
265,772

 
$
272,741

 
The Company grants credit under normal payment terms, generally without collateral, to its customers. The Company expects to collect the outstanding balance of accounts receivable, net, including retainage and amounts on which it has filed construction liens, within the next twelve months. The increase in retainage during fiscal 2015 is the result of higher levels of work performed under contracts containing standard retainage provisions. Except as described below, there were no material accounts receivable amounts representing claims or other similar items subject to uncertainty as of April 25, 2015 or July 26, 2014.

In April 2014, Pauley Construction, Inc. ("Pauley"), a wholly-owned subsidiary of the Company, halted work and filed construction liens with respect to approximately $17.7 million of past due balances from a customer on a rural project. The project was being funded primarily by the Rural Utilities Service agency of the United States Department of Agriculture (the "RUS") under the American Recovery and Reinvestment Act of 2009. During the third quarter of fiscal 2015, the Company made an investment of $4.0 million in non-voting senior units of the customer in connection with the customer's restructuring plan with the RUS. In addition, the Company collected approximately $7.1 million of past due balances and re-started work on the project during the third quarter of fiscal 2015. As of April 25, 2015, the Company's accounts receivable includes approximately $13.1 million of past due balances from the customer. During May 2015, approximately $5.8 million of the past due balances was subsequently collected. The Company expects to collect the remaining accounts receivable balances from the customer within the next twelve months. A significant portion of the outstanding balance is secured by construction liens. In the event the customer does not pay the balances owed, the Company may enforce its liens rights or take other actions necessary for collection. Amounts realized from these actions would depend on the fair value of the assets as well as the amount owed to, and priority of, other creditors at the time of resolution. See Note 17, Commitments and Contingencies, for further information regarding the construction liens and related litigation.

The Company maintains an allowance for doubtful accounts for estimated losses on uncollected balances. During the three and nine months ended April 25, 2015 and April 26, 2014, write-offs to the allowance for doubtful accounts, net of recoveries, were not material.

5. Costs and Estimated Earnings in Excess of Billings
 
Costs and estimated earnings in excess of billings ("CIEB") includes revenue for services from contracts based both on the units-of-delivery and the cost-to-cost measures of the percentage of completion method. Amounts consisted of the following:
 
April 25,
2015
 
July 26,
2014
 
(Dollars in thousands)
Costs incurred on contracts in progress
$
228,683

 
$
234,766

Estimated to date earnings
65,324

 
57,335

Total costs and estimated earnings
294,007

 
292,101

Less: billings to date
(60,299
)
 
(75,414
)
 
$
233,708

 
$
216,687

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

 
 

Costs and estimated earnings in excess of billings
$
247,979

 
$
230,569

Billings in excess of costs and estimated earnings
(14,271
)
 
(13,882
)
 
$
233,708

 
$
216,687



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As of April 25, 2015, the Company expects that substantially all of its CIEB will be billed to customers and collected in the normal course of business within the next twelve months. Additionally, there were no material CIEB amounts representing claims or other similar items subject to uncertainty as of April 25, 2015 or July 26, 2014.

6. Property and Equipment
 
Property and equipment consisted of the following:
 
Estimated Useful Lives
 
April 25,
2015
 
July 26,
2014
 
(Years)
 
(Dollars in thousands)
Land
 
$
3,408

 
$
3,408

Buildings
10-35
 
11,655

 
11,589

Leasehold improvements
1-10
 
6,950

 
5,335

Vehicles
1-5
 
308,887

 
279,631

Computer hardware and software
3-10
 
84,235

 
73,349

Office furniture and equipment
2-7
 
8,244

 
7,790

Equipment and machinery
1-10
 
191,323

 
177,608

Total
 
 
614,702

 
558,710

Less: accumulated depreciation
 
 
(388,374
)
 
(353,297
)
Property and equipment, net
 
 
$
226,328

 
$
205,413

 
Depreciation expense was $19.8 million and $18.6 million for the three months ended April 25, 2015 and April 26, 2014, respectively, and $57.8 million and $55.7 million for the nine months ended April 25, 2015 and April 26, 2014, respectively.

7. Goodwill and Intangible Assets

Goodwill

The Company's goodwill balance was $269.5 million and $269.1 million as of April 25, 2015 and July 26, 2014, respectively. The increase in goodwill during fiscal 2015 is the result of preliminary purchase price allocations and final working capital adjustments associated with businesses acquired in fiscal 2014. Changes in the carrying amount of goodwill for fiscal 2015 were as follows:
 
Goodwill
 
Accumulated Impairment Losses
 
Total
 
(Dollars in thousands)
Balance as of July 26, 2014
$
464,855

 
$
(195,767
)
 
$
269,088

Purchase price allocation adjustments
377

 

 
377

Balance as of April 25, 2015
$
465,232

 
$
(195,767
)
 
$
269,465


The Company's goodwill and other indefinite-lived intangible assets are assessed annually for impairment as of the first day of the fourth fiscal quarter of each year, or more frequently if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value. The Company's goodwill resides in multiple reporting units. The profitability of individual reporting units may suffer periodically from downturns in customer demand and other factors resulting from the cyclical nature of the Company's business, the high level of competition existing within the Company's industry, the concentration of the Company's revenues from a limited number of customers, and the level of overall economic activity, including in particular construction and housing activity. During times of slowing economic conditions, the Company's customers may reduce capital expenditures and defer or cancel pending projects. Individual reporting units may be more impacted by these factors than the Company as a whole. As a result, the performance of the Company's reporting units could decline, resulting in an impairment of goodwill or intangible assets.

As a result of the fiscal 2014 annual impairment analysis, the Company concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit. During fiscal 2014, qualitative assessments were performed by the Company as the primary assessment method on reporting units comprising less than 20% of its consolidated goodwill balance. The qualitative assessments indicated that it was more likely than not that fair value exceeded carrying value for those reporting units. For the remaining reporting units, the Company performed the first step of the quantitative analysis described in

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ASC Topic 350, Intangibles-Goodwill and Other. The key valuation assumptions used in determining the fair value estimates of the Company's reporting units were (a) a discount rate of 11.5% based on the Company's best estimate of the weighted average cost of capital adjusted for risks associated with the reporting units; (b) terminal value based on terminal growth rates ranging from 1.5% to 3.0%; and (c) seven expected years of cash flow before the terminal value for each annual test.

In the fiscal 2014 impairment analysis, the fair value for three of the reporting units acquired in fiscal 2013 exceeded their carrying value by less than 25% each. The goodwill balances for these reporting units were $10.6 million$4.8 million and $3.6 million. Recent operating performance, along with assumptions for specific customer and industry opportunities, were considered in the key assumptions used during the fiscal 2014 impairment analysis. Management has determined that the goodwill balance of these reporting units may have an increased likelihood of impairment if the long-term outlook for their cash flows were adversely impacted by a prolonged downturn in customer demand or if the reporting units were not able to execute against customer opportunities. Furthermore, changes in the long-term outlook may result in changes to other valuation assumptions. Factors monitored by management which could result in a change to the reporting units' estimates include the outcome of customer requests for proposals and subsequent awards, strategies of competitors, labor market conditions and levels of overall economic activity, including construction and housing activity. As of April 25, 2015, the Company believes the goodwill is recoverable for all of the reporting units; however, there can be no assurances that goodwill will not be impaired in future periods.

Intangible Assets

The Company's intangible assets consisted of the following:
 
April 25,
2015
 
July 26,
2014
 
(Dollars in thousands)
Carrying amount:
 
 
 
Customer relationships
$
179,859

 
$
173,594

Contract backlog
8,076

 
15,285

Trade names
8,200

 
8,200

UtiliQuest trade name
4,700

 
4,700

Non-compete agreements
400

 
400

 
201,235

 
202,179

Accumulated amortization:
 

 
 

Customer relationships
79,531

 
69,048

Contract backlog
7,121

 
13,490

Trade names
4,328

 
3,361

Non-compete agreements
224

 
164

 
91,204

 
86,063

Net Intangible Assets
$
110,031

 
$
116,116


During fiscal 2015, the carrying amount of customer relationship intangible assets increased $5.9 million as a result of the preliminary purchase price allocation for Hewitt and $0.4 million as a result of the preliminary purchase price allocation for businesses acquired during the second quarter of fiscal 2015. The carrying amount of contract backlog and the associated accumulated amortization decreased $7.2 million during fiscal 2015 as the intangible assets became fully amortized. This decrease did not impact the net carrying value of intangible assets as of April 25, 2015.

Amortization of the Company's customer relationships and contract backlog intangible assets is recognized on an accelerated basis as a function of the expected economic benefit. Amortization for the Company's other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life of the intangible asset. Amortization expense for finite-lived intangible assets was $4.1 million for each of the three months ended April 25, 2015 and April 26, 2014, and $12.4 million and $14.1 million for the nine months ended April 25, 2015 and April 26, 2014, respectively.

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Estimated total amortization expense for existing intangible assets for the remainder of fiscal 2015 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):
Period
 
Amount
Three months ending July 25, 2015
 
$
4,147

2016
 
15,918

2017
 
14,403

2018
 
12,212

2019
 
9,792

2020
 
8,855

Thereafter
 
40,004

Total
 
$
105,331


As of April 25, 2015, the Company believes that the carrying amounts of its intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment and the assets could be impaired.

8. Accrued Insurance Claims
 
Within its insurance program the Company retains the risk of loss, up to certain limits, for claims relating to automobile liability, general liability, workers’ compensation, employee group health, and damages relating to underground facility locating services. With respect to losses occurring in fiscal 2015, the Company retains the risk of loss up to $1.0 million on a per occurrence basis for automobile liability, general liability and workers’ compensation. These retention amounts are applicable to all of the states in which the Company operates, except with respect to workers’ compensation insurance in two 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 within 2015 is $59.5 million.

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

The liability for total accrued insurance claims and related processing costs was $77.5 million and $66.0 million at April 25, 2015 and July 26, 2014, respectively, of which, $39.5 million and $33.8 million, respectively, is reflected in non-current liabilities in the condensed consolidated financial statements.

9. Other Accrued Liabilities
 
Other accrued liabilities consisted of the following:
 
April 25,
2015
 
July 26,
2014
 
(Dollars in thousands)
Accrued payroll and related taxes
$
16,974

 
$
18,429

Accrued employee benefit and incentive plan costs
21,060

 
17,677

Accrued construction costs
21,175

 
20,689

Accrued interest and related bank fees
5,591

 
872

Other current liabilities
13,424

 
18,467

Total other accrued liabilities
$
78,224

 
$
76,134


Other current liabilities within the above table includes income taxes payable of $5.2 million as of July 26, 2014.


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10. Debt
 
The Company’s outstanding indebtedness consisted of the following:
 
April 25,
2015
 
July 26,
2014
 
(Dollars in thousands)
Credit Agreement - Revolving facility (matures April 2020)
$
16,250

 
$
63,000

Credit Agreement - Term Loan (matures April 2020)
150,000

 
114,063

7.125% senior subordinated notes due 2021
277,500

 
277,500

Long-term debt premium on 7.125% senior subordinated notes (amortizes to interest expense through January 2021)
2,942

 
3,238

 
446,692

 
457,801

Less: current portion

 
(10,938
)
Long-term debt
$
446,692

 
$
446,863


Senior Subordinated Notes Due 2021

As of April 25, 2015 and July 26, 2014, Dycom Investments, Inc., (the "Issuer"), a wholly-owned subsidiary of the Company, had outstanding an aggregate principal amount of $277.5 million of 7.125% senior subordinated notes due 2021 that were issued under an indenture dated January 21, 2011 (the "Indenture"). In addition, the 2021 Notes had a debt premium of $2.9 million and $3.2 million as of April 25, 2015 and July 26, 2014, respectively.

The 2021 Notes are guaranteed by the Issuer's parent company and substantially all of the Company's subsidiaries. For additional information regarding these guarantees see Note 18, Supplemental Consolidating Financial Statements. The Indenture contains covenants that limit, among other things, the Company's ability to incur additional debt and issue preferred stock, make certain restricted payments, consummate specified asset sales, enter into transactions with affiliates, incur liens, impose restrictions on the ability of its subsidiaries to pay dividends or make payments to the Company and its restricted subsidiaries, merge or consolidate with another person, and dispose of all or substantially all of its assets.

The Company determined that the fair value of the 2021 Notes as of April 25, 2015 was approximately $289.6 million based on quoted market prices, compared to a $280.4 million carrying value (including the debt premium of $2.9 million). As of July 26, 2014, the fair value of the 2021 Notes was $297.6 million compared to a carrying value of $280.7 million (including the debt premium of $3.2 million).

Senior Credit Agreement

On April 24, 2015, Dycom Industries, Inc. and certain of its subsidiaries amended its existing credit agreement dated as of December 3, 2012 (as so amended by the "Amendment," the "Credit Agreement"), with various lenders named therein. The Amendment extends the maturity date of the credit agreement to April 24, 2020 and, among other things, increases the maximum revolver commitment from $275 million to $450 million and increases the term loan facility to $150 million. The Amendment also increases the sublimit for the issuance of letters of credit from $150 million to $200 million. Subject to certain conditions, the Amendment provides the Company the ability to enter into one or more incremental facilities, up to the greater of (i) $150 million and (ii) an amount such that, after giving effect to such incremental facility on a pro forma basis (assuming that the amount of the incremental commitments is fully drawn and funded), the consolidated senior secured leverage ratio does not exceed 2.25 to 1.00. The incremental facilities can be in the form of revolving commitments under the credit agreement and/or in the form of term loans. The payments under the Credit Agreement are guaranteed by substantially all of the Company's subsidiaries and secured by the stock of each wholly-owned, domestic subsidiary (subject to specified exceptions).

Borrowings under the Credit Agreement (other than Swingline Loans (as defined in the Credit Agreement)) will bear interest at a rate equal to either (a) the Eurodollar rate (based on LIBOR) plus an applicable margin, or (b) the administrative agent’s base rate, described in the Credit Agreement as the highest of (i) the administrative agent’s prime rate, (ii) the Federal Funds Rate plus 0.50%, and (iii) the Eurodollar rate plus 1.00%, plus an applicable margin. In each case, the applicable margin is based upon the Company's consolidated leverage ratio. In addition, the Company will pay a fee for unused revolver balances based upon the Company's consolidated leverage ratio. As of April 25, 2015, borrowings under the Credit Agreement were eligible for an applicable margin of 1.75% for borrowings based on the Eurodollar rate and 0.75% for borrowings based on the administrative agent's base rate. As of July 26, 2014, and up until the date of the amendment, borrowings under the credit agreement were at an applicable margin of 2.00% for borrowings based on the Eurodollar rate and 1.00% for borrowings based

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on the administrative agent's base rate. Swingline loans, if any, will bear interest at a rate equal to the administrative agent’s base rate plus an applicable margin based upon the Company's consolidated leverage ratio.

The Amendment also amends the financial covenant which requires the Company to maintain a consolidated leverage ratio of not greater than 3.50 to 1.00, as measured at the end of each fiscal quarter. In addition, the Amendment provides for certain increases to this ratio in connection with permitted acquisitions on the terms and conditions specified in the Credit Agreement.

The Company incurs fees under the Credit Agreement for the unutilized commitments at rates that range from 0.25% to 0.40% per annum, fees for outstanding standby letters of credit at rates that range from 1.25% to 2.00% per annum and fees for outstanding commercial letters of credit at rates that range from 0.625% to 1.000% per annum, in each case based on the Company's consolidated leverage ratio.

The Company had $150.0 million and $114.1 million of outstanding principal amount under the term loan as of April 25, 2015 and July 26, 2014, respectively, which accrued interest at 1.93% per annum and 2.15% per annum, as of April 25, 2015 and July 26, 2014, respectively. Additionally, outstanding revolver borrowings were $16.3 million and $63.0 million as of April 25, 2015 and July 26, 2014, respectively. Revolver borrowings were comprised of borrowings at the applicable Eurodollar rate or the base rate and accrued interest at a weighted average rate of approximately 3.20% per annum and 2.55% per annum as of April 25, 2015 and July 26, 2014, respectively.

Standby letters of credit of approximately $54.4 million and $49.4 million, issued as part of the Company's insurance program, were outstanding under the Credit Agreement as of April 25, 2015 and July 26, 2014, respectively. Interest on outstanding standby letters of credit accrued at 1.75% and 2.00% per annum at April 25, 2015 and July 26, 2014, respectively. The unused facility fee was 0.35% of unutilized commitments at both April 25, 2015 and July 26, 2014.

At April 25, 2015 and July 26, 2014, the Company was in compliance with the financial covenants of the Credit Agreement and had additional borrowing availability of $379.3 million and $162.6 million, respectively, as determined by the most restrictive covenants of the Credit Agreement.

11. Income Taxes

The Company accounts for income taxes under the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company’s effective income tax rate differs from the statutory rate for the tax jurisdictions where it operates primarily as the result of the impact of non-deductible and non-taxable items and tax credits recognized in relation to pre-tax results. Measurement of certain aspects of the Company’s tax positions are based on the applicable statutes, federal and state case law, and the Company's interpretations of tax regulations.

The Company is subject to federal income taxes in the United States, the income taxes of multiple state jurisdictions and in Canada. There were immaterial amounts of pre-tax income related to Canadian operations for the three and nine months ended April 25, 2015 and April 26, 2014. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian income tax examinations for fiscal years ended 2010 and prior. The Company believes its provision for income taxes is adequate; however, any assessment would affect the Company’s results of operations and cash flows. Income tax receivables totaling $3.2 million and $2.2 million are included in other current assets as of April 25, 2015 and July 26, 2014. Income tax payables totaling $5.2 million are included in other accrued liabilities as of July 26, 2014.

As of both April 25, 2015 and July 26, 2014, the Company had total unrecognized tax benefits of $2.4 million resulting from uncertain tax positions. The Company’s effective tax rate will be reduced during future periods if it is determined that these tax benefits are realizable. The Company had approximately $0.9 million and $0.8 million for the payment of interest and penalties accrued at April 25, 2015 and July 26, 2014, respectively. Interest expense related to unrecognized tax benefits was immaterial during the three and nine months ended April 25, 2015 and April 26, 2014.


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12. Other Income, Net

The components of other income, net, were as follows:
 
For the Three Months Ended
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
April 25, 2015
 
April 26, 2014
 
(Dollars in thousands)
Gain on sale of fixed assets
$
3,067

 
$
5,469

 
$
6,249

 
$
7,904

Miscellaneous income, net
404

 
124

 
752

 
296

Total other income, net
$
3,471

 
$
5,593

 
$
7,001

 
$
8,200


13. Capital Stock

During the nine months ended April 25, 2015, the Company repurchased 763,768 shares of its common stock in open market transactions for approximately $30.7 million, an average price of $40.18 per share, under authorized share repurchase programs. During fiscal 2014, the Company repurchased 360,900 shares of its common stock in open market transactions for approximately $10.0 million, an average price of $27.71 per share, under authorized share repurchase programs. All shares repurchased have been subsequently canceled. As of April 25, 2015, approximately $26.5 million of the $40.0 million authorized on February 24, 2015 remained available for repurchases through August 2016.

During the nine months ended April 25, 2015 and April 26, 2014, the Company withheld shares to meet the payroll tax withholdings obligations that arose on the vesting of restricted units. Approximately 138,535 shares and 130,195 shares, totaling $4.3 million and $3.6 million, respectively, were withheld during the nine months ended April 25, 2015 and April 26, 2014, respectively. All shares withheld have been canceled. Shares withheld for tax withholdings do not reduce the Company’s total share repurchase authority.
 
14. Stock-Based Awards

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

Compensation expense for stock-based awards is based on fair value at the measurement date and fluctuates over time as a result of the Company's performance, as measured by the criteria set forth in the performance-based awards, as well as the vesting period of all stock-based awards. The expense is included in general and administrative expenses in the condensed consolidated statements of operations and the amount of expense ultimately recognized is based on the number of awards that actually vest. For performance share units ("Performance RSUs"), the Company evaluates compensation expense quarterly and recognizes expense for performance-based awards only if management determines it is probable that performance criteria for the awards will be met. Accordingly, the amount of compensation expense recognized during any fiscal year may not be representative of future stock-based compensation expense.

Stock-based compensation expense and the related tax benefit recognized related to stock options and restricted share units during the three and nine months ended April 25, 2015 and April 26, 2014 were as follows:
 
For the Three Months Ended
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
April 25, 2015
 
April 26, 2014
 
(Dollars in thousands)
Stock-based compensation
$
3,219

 
$
2,671

 
$
10,773

 
$
9,721

Tax benefit recognized in the statement of operations
$
1,248

 
$
1,071

 
$
4,221

 
$
3,736


As of April 25, 2015, unrecognized compensation expense related to stock options, time-based restricted share units ("RSUs") and target Performance RSUs (based on the Company's estimate of performance goal achievement) was $3.5 million, $6.9 million, and $15.5 million, respectively. This expense will be recognized over a weighted-average period of 2.7 years, 2.5 years and 1.6 years, respectively, which is based on the average remaining service periods of the awards. As of April 25, 2015, the Company may recognize an additional $5.3 million in compensation expense related to Performance RSUs if the maximum amount of restricted share units are earned based on certain performance goals being met.


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Stock Options

The following table summarizes stock option award activity during the nine months ended April 25, 2015:

 
Stock Options
 
Shares
 
Weighted Average Exercise Price
 
 
 
 
Outstanding as of July 26, 2014
2,044,893

 
$
18.68

Granted
90,686

 
$
31.46

Options exercised
(536,538
)
 
$
12.75

Forfeited or canceled
(484,126
)
 
$
34.48

Outstanding as of April 25, 2015
1,114,915

 
$
15.72

 
 
 
 
Exercisable options as of April 25, 2015
856,647

 
$
12.77


RSUs and Performance RSUs

The following table summarizes RSU and Performance RSU activity during the nine months ended April 25, 2015:

 
Restricted Stock
 
RSUs
 
Performance RSUs
 
Share Units
 
Weighted Average Grant Price
 
Share Units
 
Weighted Average Grant Price
 
 
 
 
 
 
 
 
Outstanding as of July 26, 2014
398,931

 
$
20.61

 
1,190,184

 
$
21.73

Granted
100,360

 
$
31.15

 
416,987

 
$
31.03

Share units vested
(134,764
)
 
$
19.55

 
(317,908
)
 
$
21.59

Forfeited or canceled
(13,781
)
 
$
19.27

 
(333,977
)
 
$
19.98

Outstanding as of April 25, 2015
350,746

 
$
24.09

 
955,286

 
$
26.45

 
The granted Performance RSUs in the above table is comprised of 357,331 target shares, granted to officers and employees, and 59,656 supplemental shares granted to officers. During fiscal 2015, the Company canceled 312,163 Performance RSUs outstanding as of July 26, 2014, including 48,313 target shares and 263,850 supplemental shares, as a result of the fiscal 2014 performance criteria not being fully met. The total amount of Performance RSUs outstanding as of April 25, 2015 is comprised of 725,438 target shares and 229,848 supplemental shares.


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15. Related Party Transactions

The Company leases certain administrative offices and equipment from entities related to officers of the Company’s subsidiaries. Additionally, the Company pays for certain subcontracting services and materials to entities related to officers of the Company’s subsidiaries. Expenses under these arrangements for the three and nine months ended April 25, 2015 and April 26, 2014 were as follows:

 
For the Three Months Ended
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
April 25, 2015
 
April 26, 2014
 
(Dollars in thousands)
Real property and equipment leases
$
648

 
$
562

 
$
1,952

 
$
1,731

Subcontractors and materials expense
$
792

 
$
366

 
$
1,981

 
$
994


The Company believes that all related party transactions have been conducted on an arms-length basis and the terms are similar to those that would be available from third parties.

16. Concentration of Credit Risk

The Company’s customer base is highly concentrated, with its top five customers in each period accounting for approximately 60.1% and 58.5% of its total revenues during the nine months ended April 25, 2015 and April 26, 2014, respectively. Customers whose revenues exceeded 10% of total revenue during the three or nine months ended April 25, 2015 or April 26, 2014 were as follows:
 
For the Three Months Ended
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
April 25, 2015
 
April 26, 2014
AT&T Inc.
21.3%
 
20.8%
 
21.5%
 
18.9%
CenturyLink, Inc.
13.9%
 
12.8%
 
13.7%
 
14.3%
Comcast Corporation
13.3%
 
12.1%
 
13.0%
 
11.5%

Customers representing 10% or more of combined amounts of trade accounts receivable and costs and estimated earnings in excess of billings, net ("CIEB, net") as of April 25, 2015 or July 26, 2014 had the following outstanding balances and the related percentage of the Company’s total outstanding balances:
 
April 25, 2015
 
July 26, 2014
 
Amount
 
% of Total
 
Amount
 
% of Total
 
 
 
(Dollars in millions)
 
 
AT&T Inc.
$
103.5

 
20.7
%
 
$
87.6

 
17.9
%
CenturyLink, Inc.
$
56.2

 
11.2
%
 
$
48.2

 
9.8
%
Comcast Corporation
$
55.5

 
11.1
%
 
$
48.9

 
9.9
%

In addition, another customer represented $51.0 million, or 10.2%, of combined amounts of trade accounts receivable and CIEB, net as of April 25, 2015 and $20.5 million, or 4.7%, as of July 26, 2014.

17. Commitments and Contingencies

Pauley Construction, Inc. ("Pauley"), a wholly-owned subsidiary of the Company, filed construction liens on several parcels of land with respect to past due balances from a customer on a rural project funded primarily by the RUS (See Note 4, Accounts Receivable). In April 2014, R&R Taylor Construction, Inc. ("R&R") filed suit against this customer in the Montana Eighteenth Judicial District Court alleging that the customer failed to pay for construction services and materials. In its lawsuit, R&R seeks to foreclose on its construction lien and, ultimately, to foreclose on the parcel of land on which the lien was filed. In July 2014, R&R amended its lawsuit to include Pauley, alleging that its lien on this parcel has priority over Pauley's lien on the parcel. Pauley has filed an answer to this amended complaint, a counterclaim against R&R and a cross-claim against the customer, alleging that Pauley's lien is superior to all other liens on such parcel of land. It is too early to evaluate the likelihood of an outcome to this matter. The Company intends to vigorously defend itself against this lawsuit as part of ongoing efforts to collect amounts due from this customer.

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Table of Contents


In November 2013, the wife of a former employee of Nichols Construction, LLC (“Nichols”), a wholly-owned subsidiary of the Company, commenced a lawsuit against Nichols in the Circuit Court of Barbour County, West Virginia. The lawsuit, which the plaintiff filed on behalf of her husband’s estate, is based upon a “deliberate intent” claim pursuant to West Virginia Code in connection with the death of her husband who was struck by a falling tree while at work. The plaintiff seeks unspecified damages and other relief. In December 2012, Nichols removed the case to the United States District Court for the Northern District of West Virginia, and in January 2015, Nichols filed a motion for summary judgment with respect to certain of the “deliberate intent” issues in the lawsuit. The District Court has not ruled on the motion for summary judgment. Trial is currently scheduled for June 2015. Plaintiff’s expert has estimated economic damages of up to $2.6 million, exclusive of damages for emotional distress. The Company believes that it has meritorious defenses and intends to vigorously defend itself against this lawsuit.

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

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

Commitments

Performance Bonds and Guarantees - The Company has obligations under performance and other surety contract bonds related to certain of its customer contracts. Performance bonds generally provide a customer with the right to obtain payment and/or performance from the issuer of the bond if the Company fails to perform its contractual obligations. As of April 25, 2015 and July 26, 2014, the Company had $308.7 million and $446.8 million of outstanding performance and other surety contract bonds, respectively. There has been no material impact on the Company's financial statements as a result of customers exercising their rights under the bonds.

The Company has periodically guaranteed certain obligations of its subsidiaries, including obligations in connection with obtaining state contractor licenses and leasing real property and equipment.
 
Letters of Credit - The Company has standby letters of credit issued under its Credit Agreement as part of its insurance program. These standby letters of credit collateralize the Company’s obligations to its insurance carriers in connection with the settlement of potential claims. As of April 25, 2015 and July 26, 2014, the Company had $54.4 million and $49.4 million, respectively, of outstanding standby letters of credit issued under the Credit Agreement.

Multi-Employer Benefit Plans - The Company contributes to several multi-employer defined benefit pension plans under the terms of collective bargaining agreements that cover certain employees represented by unions. The Company has not incurred withdrawal liabilities related to any plan as of April 25, 2015 or July 26, 2014.

18. Supplemental Consolidating Financial Statements

On April 25, 2015 and July 26, 2014, Dycom Investments, Inc. (the "Issuer") had outstanding an aggregate principal amount of $277.5 million of 2021 Notes. The 2021 Notes are guaranteed by Dycom Industries, Inc. (the "Parent") and substantially all of the Company's subsidiaries. Each guarantor and non-guarantor subsidiary is 100% owned, directly or indirectly, by the Issuer and the Parent. The 2021 Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and Parent. The Indenture contains certain release provisions for the guarantor subsidiaries and the Parent. With respect to the guarantor subsidiaries, these provisions include release upon (i) the sale or other disposition of all or substantially all of the assets of a guarantor or a sale or other disposition of all of the capital stock of a guarantor, in each case, to a person that is not the Issuer, the Parent or a restricted subsidiary of the Parent, (ii) the designation of a restricted subsidiary that is a guarantor as an unrestricted subsidiary, (iii) the legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture, and (iv) the release of a guarantor of its guarantee of any credit facility. The Parent may not be released from its guarantee under any circumstances, except in the event of legal or covenant defeasance of the 2021 Notes or of satisfaction and discharge of the Indenture or pursuant to a provision of the Indenture which limits the Parent’s liability under its guarantee in order to prevent a fraudulent conveyance. There are no contractual restrictions limiting transfers of cash from guarantor and non-guarantor subsidiaries to Issuer or Parent, within the meaning of Rule 3-10 of Regulation S-X.

21

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

22

Table of Contents

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
 April 25, 2015
 
Parent
 
Issuer
 
Subsidiary Guarantors
 
Non- Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Dycom Consolidated
 
(Dollars in thousands)
ASSETS
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and equivalents
$

 
$

 
$
21,279

 
$
1,263

 
$

 
$
22,542

Accounts receivable, net

 

 
264,290

 
1,482

 

 
265,772

Costs and estimated earnings in excess of billings

 

 
246,539

 
1,440

 

 
247,979

Inventories

 

 
45,205

 

 

 
45,205

Deferred tax assets, net
3,191

 

 
16,161

 
76

 
(150
)
 
19,278

Other current assets
11,673

 
36

 
7,716

 
687

 

 
20,112

Total current assets
14,864

 
36

 
601,190

 
4,948

 
(150
)
 
620,888

 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
20,272

 

 
186,187

 
19,869

 

 
226,328

Goodwill

 

 
269,465

 

 

 
269,465

Intangible assets, net

 

 
109,492

 
539

 

 
110,031

Deferred tax assets, net non-current
375

 
52

 
3,556

 
333

 
(4,316
)
 

Investment in subsidiaries
860,114

 
2,003,652

 
1,660

 

 
(2,865,426
)
 

Intercompany receivables

 

 
1,082,143

 

 
(1,082,143
)
 

Other
18,229

 
5,118

 
2,960

 
4,097

 

 
30,404

Total non-current assets
898,990

 
2,008,822

 
1,655,463

 
24,838

 
(3,951,885
)
 
636,228

Total assets
$
913,854

 
$
2,008,858

 
$
2,256,653

 
$
29,786

 
$
(3,952,035
)
 
$
1,257,116

 
 
 
 
 
 
 
 
 
 
 
 
 LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,494

 
$

 
$
61,803

 
$
1,166

 
$

 
$
64,463

Current portion of debt

 

 

 

 

 

Billings in excess of costs and estimated earnings

 

 
14,271

 

 

 
14,271

Accrued insurance claims
166

 

 
37,827

 
43

 

 
38,036

Deferred tax liabilities

 
80

 
14

 
56

 
(150
)
 

Other accrued liabilities
10,959

 
5,458

 
60,911

 
896

 

 
78,224

Total current liabilities
12,619

 
5,538

 
174,826

 
2,161

 
(150
)
 
194,994

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
166,250

 
280,442

 

 

 

 
446,692

Accrued insurance claims
56

 

 
39,402

 
29

 

 
39,487

Deferred tax liabilities, net non-current

 
485

 
51,128

 
1,518

 
(4,316
)
 
48,815

Intercompany payables
209,597

 
862,279

 

 
10,267

 
(1,082,143
)
 

Other liabilities
3,146

 

 
1,792

 
4

 

 
4,942

Total liabilities
391,668

 
1,148,744

 
267,148

 
13,979

 
(1,086,609
)
 
734,930

Total stockholders' equity
522,186

 
860,114

 
1,989,505

 
15,807

 
(2,865,426
)
 
522,186

Total liabilities and stockholders' equity
$
913,854

 
$
2,008,858

 
$
2,256,653

 
$
29,786

 
$
(3,952,035
)
 
$
1,257,116


23

Table of Contents

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JULY 26, 2014
 
Parent
 
Issuer
 
Subsidiary Guarantors
 
Non- Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Dycom Consolidated
 
(Dollars in thousands)
ASSETS
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and equivalents
$

 
$

 
$
19,739

 
$
933

 
$

 
$
20,672

Accounts receivable, net

 

 
269,760

 
2,981

 

 
272,741

Costs and estimated earnings in excess of billings

 

 
228,541

 
2,028

 

 
230,569

Inventories

 

 
49,095

 

 

 
49,095

Deferred tax assets, net
3,822

 

 
16,193

 
87

 
(170
)
 
19,932

Other current assets
4,956

 
16

 
7,237

 
518

 

 
12,727

Total current assets
8,778

 
16

 
590,565

 
6,547

 
(170
)
 
605,736

 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
18,108

 

 
171,158

 
16,147

 

 
205,413

Goodwill

 

 
269,088

 

 

 
269,088

Intangible assets, net

 

 
115,483

 
633

 

 
116,116

Deferred tax assets, net non-current
182

 

 
3,884

 
15

 
(4,081
)
 

Investment in subsidiaries
809,617

 
1,540,338

 
1,621

 

 
(2,351,576
)
 

Intercompany receivables

 

 
628,443

 

 
(628,443
)
 

Other
7,748

 
5,636

 
2,466

 
151

 

 
16,001

Total non-current assets
835,655

 
1,545,974

 
1,192,143

 
16,946

 
(2,984,100
)
 
606,618

Total assets
$
844,433

 
$
1,545,990

 
$
1,782,708

 
$
23,493

 
$
(2,984,270
)
 
$
1,212,354

 
 
 
 
 
 
 
 
 
 
 
 
 LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 

 
 

 
 

 
 

 
 

 
 

Accounts payable
$
3,083

 
$

 
$
58,970

 
$
1,265

 
$

 
$
63,318

Current portion of debt
10,938

 

 

 

 

 
10,938

Billings in excess of costs and estimated earnings

 

 
13,882

 

 

 
13,882

Accrued insurance claims
612

 

 
31,599

 
49

 

 
32,260

Deferred tax liabilities

 
80

 
66

 
24

 
(170
)
 

Other accrued liabilities
12,668

 
566

 
61,284

 
1,616

 

 
76,134

Total current liabilities
27,301

 
646

 
165,801

 
2,954

 
(170
)
 
196,532

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
166,125

 
280,738

 

 

 

 
446,863

Accrued insurance claims
778

 

 
32,959

 
45

 

 
33,782

Deferred tax liabilities, net non-current

 
432

 
48,593

 
417

 
(4,081
)
 
45,361

Intercompany payables
162,127

 
454,557

 

 
11,759

 
(628,443
)
 

Other liabilities
3,168

 

 
1,711

 
3

 

 
4,882

Total liabilities
359,499

 
736,373

 
249,064

 
15,178

 
(632,694
)
 
727,420

Total stockholders' equity
484,934

 
809,617

 
1,533,644

 
8,315

 
(2,351,576
)
 
484,934

Total liabilities and stockholders' equity
$
844,433

 
$
1,545,990

 
$
1,782,708

 
$
23,493

 
$
(2,984,270
)
 
$
1,212,354


24

Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED April 25, 2015
(Dollars in thousands)
 
Parent
 
Issuer
 
Subsidiary Guarantors
 
Non- Guarantor Subsidiaries
 
Eliminations
 
Dycom Consolidated
Contract revenues
$

 
$

 
$
490,351

 
$
2,012

 
$

 
$
492,363

Costs of earned revenues, excluding depreciation and amortization

 

 
386,689

 
1,550

 

 
388,239

General and administrative
13,249

 
131

 
28,552

 
2,775

 

 
44,707

Depreciation and amortization
1,410

 

 
21,344

 
1,231

 

 
23,985

Intercompany charges (income), net
(16,294
)
 

 
16,877

 
(583
)
 

 

Interest expense, net
(1,635
)
 
(5,002
)
 
(9
)
 

 

 
(6,646
)
Other income, net

 

 
3,438

 
33

 

 
3,471

Income (loss) before income taxes and equity in earnings (losses) of subsidiaries

 
(5,133
)
 
40,318

 
(2,928
)
 

 
32,257

Provision (benefit) for income taxes:

 
(1,889
)
 
14,965

 
(1,077
)
 

 
11,999

Net income (loss) before equity in earnings of subsidiaries

 
(3,244
)
 
25,353

 
(1,851
)
 

 
20,258

Equity in earnings (losses) of subsidiaries
20,258

 
23,502

 
(10
)
 

 
(43,750
)
 

Net income (loss)
$
20,258

 
$
20,258

 
$
25,343

 
$
(1,851
)
 
$
(43,750
)
 
$
20,258

Foreign currency translation gains, net of tax
38

 
38

 

 
38

 
(76
)
 
38

Comprehensive income (loss)
$
20,296

 
$
20,296

 
$
25,343

 
$
(1,813
)
 
$
(43,826
)
 
$
20,296



CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 26, 2014
(Dollars in thousands)
 
Parent
 
Issuer
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Dycom Consolidated
Contract revenues
$

 
$

 
$
423,853

 
$
2,431

 
$

 
$
426,284

Costs of earned revenues, excluding depreciation and amortization

 

 
348,602

 
1,750

 

 
350,352

General and administrative
9,878

 
211

 
26,308

 
2,765

 

 
39,162

Depreciation and amortization
1,164

 

 
20,506

 
1,056

 

 
22,726

Intercompany charges (income), net
(12,608
)
 

 
12,669

 
(61
)
 

 

Interest expense, net
(1,566
)
 
(4,997
)
 

 

 

 
(6,563
)
Other income, net

 

 
5,554

 
39

 

 
5,593

Income (loss) before income taxes and equity in earnings of subsidiaries

 
(5,208
)
 
21,322

 
(3,040
)
 

 
13,074

Provision (benefit) for income taxes

 
(2,063
)
 
8,447

 
(1,205
)
 

 
5,179

Net income (loss) before equity in earnings of subsidiaries

 
(3,145
)
 
12,875

 
(1,835
)
 

 
7,895

Equity in earnings of subsidiaries
7,895

 
11,040

 
70

 

 
(19,005
)
 

Net income (loss)
$
7,895

 
$
7,895

 
$
12,945

 
$
(1,835
)
 
$
(19,005
)
 
$
7,895

Foreign currency translation losses, net of tax
(46
)
 
(46
)
 

 
(46
)
 
92

 
(46
)
Comprehensive income (loss)
$
7,849

 
$
7,849

 
$
12,945

 
$
(1,881
)
 
$
(18,913
)
 
$
7,849




25

Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED APRIL 25, 2015
(Dollars in thousands)
 
Parent
 
Issuer
 
Subsidiary Guarantors
 
Non- Guarantor Subsidiaries
 
Eliminations
 
Dycom Consolidated
Contract revenues
$

 
$

 
$
1,434,010

 
$
9,823

 
$

 
$
1,443,833

Costs of earned revenues, excluding depreciation and amortization

 

 
1,139,962

 
7,174

 

 
1,147,136

General and administrative
38,056

 
371

 
83,222

 
9,569

 

 
131,218

Depreciation and amortization
3,953

 

 
62,715

 
3,511

 

 
70,179

Intercompany charges (income), net
(47,124
)
 

 
48,799

 
(1,675
)
 

 

Interest expense, net
(5,115
)
 
(15,001
)
 
(10
)
 

 

 
(20,126
)
Other income (expense), net

 

 
7,132

 
(131
)
 

 
7,001

Income (loss) before income taxes and equity in earnings of subsidiaries

 
(15,372
)
 
106,434

 
(8,887
)
 

 
82,175

Provision (benefit) for income taxes:

 
(5,926
)
 
41,030

 
(3,426
)
 

 
31,678

Net income (loss) before equity in earnings (loss) of subsidiaries

 
(9,446
)
 
65,404

 
(5,461
)
 

 
50,497

Equity in earnings (loss) of subsidiaries
50,497

 
59,943

 
(261
)
 

 
(110,179
)
 

Net income (loss)
$
50,497

 
$
50,497

 
$
65,143

 
$
(5,461
)
 
$
(110,179
)
 
$
50,497

Foreign currency translation losses, net of tax
(688
)
 
(688
)
 

 
(688
)
 
1,376

 
(688
)
Comprehensive income (loss)
$
49,809

 
$
49,809

 
$
65,143

 
$
(6,149
)
 
$
(108,803
)
 
$
49,809



CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED APRIL 26, 2014
(Dollars in thousands)
 
Parent
 
Issuer
 
Subsidiary Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Dycom Consolidated
Contract revenues
$

 
$

 
$
1,321,684

 
$
7,838

 
$

 
$
1,329,522

Costs of earned revenues, excluding depreciation and amortization

 

 
1,081,975

 
5,849

 

 
1,087,824

General and administrative
31,398

 
651

 
80,574

 
8,176

 

 
120,799

Depreciation and amortization
3,058

 

 
63,357

 
3,298

 

 
69,713

Intercompany charges (income), net
(39,713
)
 

 
40,049

 
(336
)
 

 

Interest expense, net
(5,260
)
 
(14,985
)
 
(4
)
 

 

 
(20,249
)
Other income, net
3

 

 
8,130

 
67

 

 
8,200

Income (loss) before income taxes and equity in earnings of subsidiaries

 
(15,636
)
 
63,855

 
(9,082
)
 

 
39,137

Provision (benefit) for income taxes

 
(6,252
)
 
25,533

 
(3,632
)
 

 
15,649

Net income (loss) before equity in earnings of subsidiaries

 
(9,384
)
 
38,322

 
(5,450
)
 

 
23,488

Equity in earnings of subsidiaries
23,488

 
32,872

 
70

 

 
(56,430
)
 

Net income (loss)
$
23,488

 
$
23,488

 
$
38,392

 
$
(5,450
)
 
$
(56,430
)
 
$
23,488

Foreign currency translation (losses), net of tax
(332
)
 
(332
)
 

 
(332
)
 
664

 
(332
)
Comprehensive income (loss)
$
23,156

 
$
23,156

 
$
38,392

 
$
(5,782
)
 
$
(55,766
)
 
$
23,156



26

Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED APRIL 25, 2015 (Dollars in thousands)
 
Parent
 
Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Elim-inations
 
Dycom Consolidated
Net cash provided by (used in) operating activities
$
(9,001
)
 
$
(4,350
)
 
$
136,999

 
$
(64
)
 
$

 
$
123,584

Cash flows from investing activities:
 
 
 

 
 

 
 

 
 

 
 

Cash paid for acquisitions, net of cash acquired

 

 
(9,821
)
 

 

 
(9,821
)
Capital expenditures
(7,171
)
 

 
(63,421
)
 
(6,233
)
 

 
(76,825
)
Proceeds from sale of assets

 

 
6,756

 
8

 

 
6,764

Return of capital from subsidiaries

 
2,149

 

 

 
(2,149
)
 

Investment in subsidiaries

 
(406,749
)
 
(400
)
 

 
407,149

 

Changes in restricted cash
(541
)
 

 

 

 

 
(541
)
Other investing activities

 

 

 
(4,000
)
 

 
(4,000
)
Net cash used in investing activities
(7,712
)

(404,600
)

(66,886
)

(10,225
)

405,000

 
(84,423
)
Cash flows from financing activities:
 
 
 

 
 

 
 

 
 

 
 

Borrowings on senior Credit Agreement
310,750

 

 

 

 

 
310,750

Principal payments on senior Credit Agreement
(321,563
)
 

 

 

 

 
(321,563
)
Debt issuance costs
(3,527
)
 

 

 

 

 
(3,527
)
Repurchases of common stock
(30,687
)
 

 

 

 

 
(30,687
)
Exercise of stock options
6,842

 

 

 

 

 
6,842

Restricted stock tax withholdings
(4,330
)
 

 

 

 

 
(4,330
)
Excess tax benefit from share-based awards
5,224

 

 

 

 

 
5,224

Intercompany funding
54,004

 
408,950

 
(460,517
)
 
(2,437
)
 

 

Receipt of capital contributions, net

 

 
391,944

 
13,056

 
(405,000
)
 

Net cash (used in) provided by financing activities
16,713

 
408,950


(68,573
)

10,619


(405,000
)

(37,291
)
Net increase in cash and equivalents

 


1,540


330



 
1,870

CASH AT BEGINNING OF PERIOD

 

 
19,739

 
933

 

 
20,672

CASH AND EQUIVALENTS AT END OF PERIOD
$

 
$


$
21,279


$
1,263


$

 
$
22,542

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED APRIL 26, 2014 (Dollars in thousands)
 
Parent
 
Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Elim-inations
 
Dycom Consolidated
Net cash provided by (used in) operating activities
$
2,007

 
$
(4,261
)
 
$
102,153

 
$
(2,408
)
 
$

 
$
97,491

Cash flows from investing activities:
 
 
 

 
 

 
 

 
 

 
 

Cash paid for acquisition, net of cash acquired

 

 

 
(700
)
 

 
(700
)
Capital expenditures
(6,901
)
 

 
(59,504
)
 
(4,180
)
 

 
(70,585
)
Proceeds from sale of assets

 

 
7,813

 
1,612

 

 
9,425

Return of capital from subsidiaries

 
683

 

 

 
(683
)
 

Investment in subsidiaries

 
(4,635
)
 
(185
)
 

 
4,820

 

Changes in restricted cash
(305
)
 

 

 

 

 
(305
)
Net cash used in investing activities
(7,206
)
 
(3,952
)
 
(51,876
)
 
(3,268
)
 
4,137

 
(62,165
)
Cash flows from financing activities:
 
 
 

 
 

 
 

 
 

 
 

Borrowings on senior credit agreement
337,000

 

 

 

 

 
337,000

Principal payments on senior credit agreement
(375,469
)
 

 

 

 

 
(375,469
)
Repurchases of common stock
(9,999
)
 

 

 

 

 
(9,999
)
Exercise of stock options
14,010

 

 

 

 

 
14,010

Restricted stock tax withholdings
(3,590
)
 

 

 

 

 
(3,590
)
Excess tax benefit from share-based awards
2,837

 

 

 

 

 
2,837

Intercompany funding
40,410

 
8,213

 
(50,434
)
 
5,948

 
(4,137
)
 

Net cash (used in) provided by financing activities
5,199

 
8,213

 
(50,434
)
 
5,948

 
(4,137
)
 
(35,211
)
Net increase (decrease) in cash and equivalents

 

 
(157
)
 
272

 

 
115

CASH AT BEGINNING OF PERIOD

 

 
18,166

 
441

 

 
18,607

CASH AND EQUIVALENTS AT END OF PERIOD
$

 
$

 
$
18,009

 
$
713

 
$

 
$
18,722


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Cautionary Note Concerning Forward-Looking Statements
 
This Quarterly Report on Form 10-Q, including any documents incorporated by reference or deemed to be incorporated by reference herein, contains "forward-looking statements." These statements relate to future events, our future financial performance, strategies, expectations, and competitive environment. Words such as "outlook," "believe," "expect," "anticipate," "estimate," "intend," "forecast," "may," "should," "could," "project," "target" and similar expressions, as well as statements in future tense, identify forward-looking statements.

You should not consider forward-looking statements as guarantees of future performance or results. These statements do not necessarily indicate accurately whether such performance or results will be achieved or, if achieved, when. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief at that time with respect to future events. Such statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors, assumptions, uncertainties, and risks that could cause such differences are discussed within Item 1, Business, Item 1A, Risk Factors and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 9, 2014 and other risks outlined in our periodic filings with the Securities and Exchange Commission. Our forward-looking statements are expressly qualified in their entirety by this cautionary statement. Our forward-looking statements are only made as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update these forward-looking statements to reflect new information, or events or circumstances arising after such date.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended July 26, 2014. Our Annual Report on Form 10-K for the year ended July 26, 2014, was filed with the Securities and Exchange Commission ("SEC") on September 9, 2014 and is available on the SEC's website at www.sec.gov and on our website at www.dycomind.com.

Introduction

We are a leading provider of specialty contracting services throughout the United States and in Canada. Our services are provided by our subsidiary companies 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. Our subsidiaries provide the labor, tools and equipment necessary to design, engineer, locate, maintain, expand, install and upgrade the telecommunications infrastructure of our customers.

Significant changes in the telecommunications industry continue to drive increasing demands on the networks of our customers for more capacity and greater reliability. Telecommunications providers outsource a significant portion of their engineering, construction, maintenance, and installation requirements, driving demand for our services.

Telecommunications network operators are increasingly deploying fiber optic cable technology deeper into their networks and closer to consumers and businesses in order to respond to consumer demand, competitive realities, and public policy support. Several large telephone companies have pursued fiber-to-the-premise and fiber-to-the-node initiatives to compete actively with cable operators. Further, many industry participants are deploying networks designed to provision 1 gigabit speeds to individual consumers. Cable companies, with increasing urgency, continue to increase the speeds of their services to residential customers and to deploy fiber to business customers.

Opportunities exist to improve rural networks as a result of Phase II of the Connect America Fund. This six year program, administered by the Federal Communications Commission, will provide $1.675 billion in funding per year to price cap carriers and others to expand and support broadband deployments in rural areas. This program is expected to contribute to demand for services in our industry.

Additionally, significant demand for wireless broadband is driven by the proliferation of smart phones and other mobile data devices. Wireless carriers are actively spending on their networks to respond to the significant increase in wireless data traffic, upgrade network technologies to improve performance and efficiency and consolidate disparate technology platforms. Further, the demand for mobile broadband has increased bandwidth requirements on the wired networks of our customers.

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These trends are driving the demand for our services and increasing wireless data traffic is prompting further wireline deployments.

Demand for our services may be impacted by the cyclical nature of the industry we serve. Our revenues and results of operations are influenced by the capital expenditure and maintenance budgets of our customers, including seasonal budgetary spending patterns and timing of their budget approvals, as well as the timing and volume of customers' construction and maintenance projects. The capital expenditures and maintenance budgets of our telecommunications customers may be impacted by their business demands and the demands of their consumers, the introduction of new communication technologies, the physical maintenance needs of their infrastructure, the actions of our government and the Federal Communications Commission, and overall economic conditions. Changes in our mix of customers, contracts and business activities, as well as changes in the general level of construction activity, also drive cyclical variations in revenues and results of operations.

Customer Relationships and Contractual Arrangements

We have established relationships with many leading telecommunications providers, including telephone companies and cable television multiple system operators, telecommunication equipment and infrastructure providers, and electric and gas utilities. Our customer base is highly concentrated, with our top five customers in each period accounting for approximately 60.1% and 58.5% of our total revenues for the nine months ended April 25, 2015 and April 26, 2014, respectively. The following reflects the percentage of total revenue from customers who contributed at least 2.5% to our total revenue during the three and nine months ended April 25, 2015 or April 26, 2014:

 
For the Three Months Ended
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
April 25, 2015
 
April 26, 2014
AT&T Inc.
21.3%
 
20.8%
 
21.5%
 
18.9%
CenturyLink, Inc.
13.9%
 
12.8%
 
13.7%
 
14.3%
Comcast Corporation
13.3%
 
12.1%
 
13.0%
 
11.5%
Verizon Communications Inc.
7.5%
 
7.9%
 
7.1%
 
8.2%
Time Warner Cable Inc.
4.7%
 
5.5%
 
4.9%
 
5.6%
Windstream Corporation
4.6%
 
6.2%
 
4.5%
 
5.3%
Charter Communications, Inc.
3.0%
 
4.9%
 
3.4%
 
4.6%
Corning Incorporated
2.8%
 
0.1%
 
2.4%
 
0.2%

In addition, another customer contributed 6.3% and 3.3% to our total revenue during the three months ended April 25, 2015 and April 26, 2014, respectively, and 4.5% and 2.4% to our total revenue during the nine months ended April 25, 2015 and April 26, 2014, respectively.

We generally have multiple agreements with each of our significant customers. To the extent that such agreements specify exclusivity, there are often a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, the performance of work with the customer's own employees, and the use of other service providers when jointly placing facilities with another utility. In most cases, a customer may terminate an agreement for convenience with written notice. Historically, multi-year master service agreements have been awarded primarily through a competitive bidding process; however, we are occasionally able to extend some of these agreements through negotiations. Revenues from multi-year master service agreements were 63.5% and 66.2% of total contract revenues during the three months ended April 25, 2015 and April 26, 2014, respectively, and 66.1% and 65.6% of total contract revenues during the nine months ended April 25, 2015 and April 26, 2014, respectively.

The remainder of our services are provided pursuant to contracts for specific projects. Revenues from long-term contracts for specific projects (contracts having a term of greater than one year) were 16.3% and 13.1% of total contract revenues during the three months ended April 25, 2015 and April 26, 2014, respectively, and 13.4% and 13.3% of total contract revenues during the nine months ended April 25, 2015 and April 26, 2014, respectively. Short-term contracts for specific projects are generally three to four months in duration. A portion of our contracts include retainage provisions by which 5% to 10% of the invoiced amounts may be withheld by the customer pending project completion.


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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.

Fiscal 2015 - During the first quarter of fiscal 2015, we acquired Hewitt Power & Communications, Inc. ("Hewitt") for $8.0 million, net of cash acquired. Hewitt provides specialty contracting services primarily for telecommunications providers in the Southeastern United States. We also acquired the assets of two cable installation contractors for an aggregate purchase price of $1.5 million during the second quarter of fiscal 2015.

Fiscal 2014 - During the third quarter of fiscal 2014, we acquired a telecommunications specialty construction contractor in Canada for $0.7 million. We also acquired Watts Brothers Cable Construction, Inc. ("Watts Brothers") for $16.4 million during the fourth quarter of fiscal 2014. Watts Brothers provides specialty contracting services primarily for telecommunications providers in the Midwest and Southeastern United States.

The results of these acquisitions are included in the consolidated financial statements from their respective closing dates. None of these acquisitions were considered material, individually or in the aggregate, to our condensed consolidated financial statements. Purchase price allocations of businesses acquired during fiscal 2015 are preliminary and will be completed during fiscal 2015 when the valuations are finalized for intangible assets and other amounts.

Understanding Our Results of Operations

The following information is presented in order for the reader to better understand certain factors impacting our results of operations and profitability and should be read in conjunction with Critical Accounting Policies and Estimates within Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as Note 1, Accounting Policies, in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on September 9, 2014.

Revenues. We recognize revenues under the percentage of completion method of accounting using the units-of-delivery or cost-to-cost measures. A majority of our services are performed under master service agreements with customers which contain customer-specified service requirements, such as discrete pricing for individual tasks. Revenue is recognized under these arrangements based on units-of-delivery and revenue is recognized as each unit is completed. There were no material amounts of unapproved change orders or claims recognized during the nine months ended April 25, 2015 or April 26, 2014. 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 and represented less than 10% of our contract revenues during the nine months ended April 25, 2015 and April 26, 2014. In addition, we have an immaterial amount of revenue from time and materials contracts, where revenue is recognized as the work is performed. The current asset "Costs and estimated earnings in excess of billings" represents revenues recognized in excess of amounts billed. The current liability "Billings in excess of costs and estimated earnings" represents billings in excess of revenues recognized.

Cost of Earned Revenues. Cost of earned revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, other direct costs and insurance claims. For insurance claims, we retain the risk of loss, up to certain limits, related to automobile liability, general liability, workers' compensation, employee group health, and damages relating to underground facility locating services. A change in claims experience or actuarial assumptions related to these risks could materially affect our results of operations.

General and Administrative Expenses. General and administrative expenses 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, acquisition and integration costs of businesses acquired, and other costs that are not directly related to the provision 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 enhance our operating efficiency. To protect our rights, we have filed for patents on certain of our innovations.


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Seasonality and Quarterly Fluctuations. Our revenues and results of operations exhibit seasonality as a significant portion of our work is performed outdoors. Consequently, our operations are impacted by extended periods of adverse weather which are more likely to occur during the winter season, impacting our second and third fiscal quarters. Also, a disproportionate percentage of paid holidays fall within our second fiscal quarter, which decreases the number of available workdays. Additionally, our customer premise equipment installation activities for cable providers historically decrease around the calendar year-end holidays as their customers generally require less activity during this period. As a result of these factors, we may experience reduced revenue and profitability in the second and/or third quarters of our fiscal year.

We have experienced and expect to continue to experience quarterly variations in revenues and results of operations as a result of other factors as well. Such factors include fluctuations in insurance expense due to changes in claims experience and actuarial assumptions, variances in incentive pay and stock-based compensation expense as a result of operating performance and vesting provisions, and changes in the employer portion of payroll taxes as a result of reaching the limitation on payroll withholdings obligations. Other factors that may contribute to quarterly variations in results of operations include interest expense due to levels of borrowings, other income as a result of the timing and levels of capital assets sold during the period, and income tax expense due to levels of taxable earnings, the impact of non-deductible items and tax credits, and the impact of disqualifying dispositions of incentive stock option expenses.

Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any subsequent fiscal period.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. 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. There have been no material changes to our critical accounting policies and critical accounting estimates described in our Annual Report on Form 10-K for the year ended July 26, 2014.


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Results of Operations
 
The Company uses a fiscal year ending on the last Saturday in July. As a result, each fiscal year may be comprised of fifty-two weeks or fifty-three weeks (with an additional week of operations occurring in the fourth quarter). Fiscal 2015 and fiscal 2014 are each comprised of fifty-two weeks. The results of operations of businesses acquired are included in the accompanying condensed consolidated financial statements from their dates of acquisition. For a summary of our acquisitions, see Note 3, Acquisitions, in Notes to the Condensed Consolidated Financial Statements. The following table sets forth our condensed consolidated statements of operations for the periods indicated and the amounts as a percentage of revenue (totals may not add due to rounding):
 
For the Three Months Ended
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
April 25, 2015
 
April 26, 2014
 
(Dollars in millions)
Revenues
$
492.4

 
100.0
 %
 
$
426.3

 
100.0
 %
 
$
1,443.8

 
100.0
 %
 
$
1,329.5

 
100.0
 %
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of earned revenue, excluding depreciation and amortization
388.2

 
78.9

 
350.4

 
82.2

 
1,147.1

 
79.5

 
1,087.8

 
81.8

General and administrative
44.7

 
9.1

 
39.2

 
9.2

 
131.2

 
9.1

 
120.8

 
9.1

Depreciation and amortization
24.0

 
4.9

 
22.7

 
5.3

 
70.2

 
4.9

 
69.7

 
5.2

Total
456.9

 
92.8

 
412.2

 
96.7

 
1,348.5

 
93.4

 
1,278.3

 
96.2

Interest expense, net
(6.6
)
 
(1.3
)
 
(6.6
)
 
(1.5
)
 
(20.1
)
 
(1.4
)
 
(20.2
)
 
(1.5
)
Other income, net
3.5

 
0.7

 
5.6

 
1.3

 
7.0

 
0.5

 
8.2

 
0.6

Income before income taxes
32.3

 
6.6

 
13.1

 
3.1

 
82.2

 
5.7

 
39.1

 
2.9

Provision for income taxes
12.0

 
2.4

 
5.2

 
1.2

 
31.7

 
2.2

 
15.6

 
1.2

Net income
$
20.3

 
4.1
 %
 
$
7.9

 
1.9
 %
 
$
50.5

 
3.5
 %
 
$
23.5

 
1.8
 %

Revenues. Revenues increased to $492.4 million during the three months ended April 25, 2015 compared to $426.3 million during the three months ended April 26, 2014. Generally, revenues increased in the current period from customers deploying 1 gigabit networks and from new awards with significant customers. Additionally, a greater level of work was performed during the current period as a result of better weather conditions compared to the prior year period.

During the three months ended April 25, 2015, total revenues of $8.9 million were generated by businesses acquired during the fourth quarter of fiscal 2014 and the first quarter of fiscal 2015. Excluding amounts from these acquired businesses that were not owned for the full fiscal period in both years, revenues increased by approximately $57.2 million during the three months ended April 25, 2015 compared to the prior year period. Revenues increased by approximately $17.1 million to $31.0 million during the three months ended April 25, 2015 for services performed on a customer's fiber network. Revenues also increased by approximately $13.3 million for a leading cable multiple system operator from maintenance and construction services, including services to provision fiber to small and medium businesses as well as network improvements. Additionally, for the three months ended April 25, 2015 compared to the three months ended April 26, 2014, revenues increased by approximately $13.3 million for a customer for which we are performing fiber construction services on their end customer's network and by approximately $25.8 million, on a combined basis, for three significant telecommunications customers investing in improvements to their networks. Partially offsetting these increases, revenues related to stimulus work on projects funded in part by the American Recovery and Reinvestment Act of 2009 declined by approximately $17.3 million during the three months ended April 25, 2015 compared to the three months ended April 26, 2014 as the program nears completion. All other customers had net increases in revenues of $5.0 million for the three months ended April 25, 2015 compared to the three months ended April 26, 2014.

The percentage of our revenue by customer type from telecommunications, underground facility locating, and electric and gas utilities and other customers, was approximately 90.2%, 6.2% and 3.6%, respectively, for the three months ended April 25, 2015 compared to 88.3%, 6.9% and 4.8%, respectively, for the three months ended April 26, 2014.

Revenues increased to $1.444 billion during the nine months ended April 25, 2015 compared to $1.330 billion during the nine months ended April 26, 2014. Generally, revenues increased in the current period from customers deploying 1 gigabit networks and from new awards with significant customers. Additionally, a greater level of work was performed during the current period as a result of better weather conditions compared to the prior year period.

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During the nine months ended April 25, 2015, total revenues of $28.6 million were generated by businesses acquired during the fourth quarter of fiscal 2014 and the first quarter of fiscal 2015. Excluding amounts from these acquired businesses that were not owned for the full fiscal period in both years, revenues increased by approximately $85.8 million during the nine months ended April 25, 2015 compared to the prior year period. Revenues increased by approximately $44.1 million for a significant customer investing in improvements to its wireline and wireless networks. Revenues also increased by approximately $34.7 million for a leading cable multiple system operator from maintenance and construction services, including services to provision fiber to small and medium businesses as well as network improvements, and by approximately $31.0 million for a customer for which we are performing fiber construction services on their end customer's network. In addition, revenues increased by approximately $34.1 million to $65.5 million during the nine months ended April 25, 2015 for services performed on a customer's fiber network. Partially offsetting these increases, revenues related to stimulus work on projects funded in part by the American Recovery and Reinvestment Act of 2009 declined by approximately $47.6 million during the nine months ended April 25, 2015 compared to the nine months ended April 26, 2014 as the program nears completion. In addition, revenues for two cable multiple system operators declined $15.7 million, on a combined basis, and revenues for a large telecommunications customer declined $7.4 million. All other customers had net increases in revenues of $12.6 million for the nine months ended April 25, 2015 compared to the nine months ended April 26, 2014.

The percentage of our revenue by customer type from telecommunications, underground facility locating, and electric and gas utilities and other customers, was approximately 89.7%, 6.1% and 4.2%, respectively, for the nine months ended April 25, 2015 compared to 87.7%, 7.2% and 5.1%, respectively, for the nine months ended April 26, 2014.

Costs of Earned Revenues. Costs of earned revenues increased to $388.2 million for the three months ended April 25, 2015 compared to $350.4 million for the three months ended April 26, 2014. The primary components of the increase were a $31.6 million aggregate increase in direct labor and subcontractor costs, a $2.2 million increase in direct material costs, and a $5.7 million increase in other direct costs, including insurance claim expense. These increases were partially offset by a $1.7 million net decrease comprised of lower fuel prices offset in part by higher fuel consumption and higher equipment rental and maintenance costs for the three months ended April 25, 2015 compared to the three months ended April 26, 2014.
 
Costs of earned revenues as a percentage of contract revenue decreased 3.3% during the three months ended April 25, 2015 compared to the three months ended April 26, 2014. The decrease was partially due to improved operating efficiency and the mix of work performed, as well as increased productivity resulting from better weather conditions during the three months ended April 25, 2015 compared to the prior year period. Labor and subcontractor costs represented a lower percentage of total revenue for the three months ended April 25, 2015 and decreased 1.5% as a percentage of contract revenue compared to the prior year period as a result of improved operating efficiency and the mix of work performed. In addition, net costs decreased 1.1% as a percentage of contract revenue primarily due to lower fuel prices offset in part by higher fuel consumption and higher equipment rental and maintenance costs. Direct material costs decreased 0.9% as a percentage of contract revenue compared to the prior year period as our mix of work during the three months ended April 25, 2015 included a reduced portion of projects where we provided materials to the customer compared to the prior year period. Partially offsetting these decreases, other direct costs, including insurance claim expense, increased 0.2% as a percentage of contract revenue during the three months ended April 25, 2015 compared to the prior year period.

Costs of earned revenues increased to $1.147 billion for the nine months ended April 25, 2015 compared to $1.088 billion for the nine months ended April 26, 2014. The primary components of the increase were a $50.7 million aggregate increase in direct labor and subcontractor costs, $12.7 million increase in direct material costs, and a $4.0 million increase in other direct costs, including insurance claim expense. These increases were partially offset by a $8.1 million decrease from reduced equipment rental and maintenance costs, lower fuel consumption and lower fuel prices for the nine months ended April 25, 2015 compared to the nine months ended April 26, 2014.
 
Costs of earned revenues as a percentage of contract revenue decreased 2.4% during the nine months ended April 25, 2015 compared to the nine months ended April 26, 2014. The decrease was partially due to higher productivity resulting from better weather conditions during the second and third quarters of fiscal 2015 compared to the same prior year periods. Adverse weather conditions during the second and third quarters of fiscal 2014 negatively impacted productivity and margins during those periods. Labor and subcontractor costs represented a lower percentage of total revenue for the nine months ended April 25, 2015 and decreased 1.1% as a percentage of contract revenue compared to the prior year period as a result of improved operating efficiency and the mix of work performed. In addition, costs decreased 1.0% from reduced equipment rental and maintenance costs, lower fuel consumption and lower fuel prices. Other direct costs decreased 0.4% as a percentage of contract revenue compared to the prior year period. Partially offsetting these decreases, direct material costs increased 0.1% as a percentage of contract revenue as our mix of work during the nine months ended April 25, 2015 included a greater level of projects where we provided materials to the customer compared to the prior year period.

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General and Administrative Expenses. General and administrative expenses increased to $44.7 million, or 9.1% as a percentage of contract revenue, during the three months ended April 25, 2015 compared to $39.2 million, or 9.2% as a percentage of contract revenue during the three months ended April 26, 2014. General and administrative expenses increased to $131.2 million, or 9.1% as a percentage of contract revenue, during the nine months ended April 25, 2015 compared to $120.8 million, or 9.1% as a percentage of contract revenue during the nine months ended April 26, 2014. The increase in total general and administrative expenses during the three and nine months ended April 25, 2015 resulted from increased payroll and performance-based costs, higher legal and other professional fees, and the costs of businesses acquired in fiscal 2014 and 2015. Additionally, stock-based compensation increased to $3.2 million and $10.8 million during the three and nine months ended April 25, 2015, respectively, from $2.7 million and $9.7 million during the three and nine months ended April 26, 2014, respectively, as a result of increased restricted share unit expense.

Depreciation and Amortization. Depreciation and amortization increased to $24.0 million during the three months ended April 25, 2015 from $22.7 million during the three months ended April 26, 2014 and totaled 4.9% and 5.3% of contract revenue, respectively. Amortization expense was $4.1 million during each of the three months ended April 25, 2015 and April 26, 2014. Depreciation and amortization increased to $70.2 million during the nine months ended April 25, 2015 from $69.7 million during the nine months ended April 26, 2014 and totaled 4.9% and 5.2% of contract revenue, respectively. Amortization expense decreased to $12.4 million during the nine months ended April 25, 2015 from $14.1 million during the nine months ended April 26, 2014. This decrease in amortization was partially offset by incremental depreciation expense arising from the addition of fixed assets during fiscal 2015 and the fourth quarter of fiscal 2014.

Interest Expense, Net. Interest expense, net was $6.6 million during each of the three months ended April 25, 2015 and April 26, 2014. Interest expense, net was $20.1 million during the nine months ended April 25, 2015 compared to $20.2 million during the nine months ended April 26, 2014.
 
Other Income, Net. Other income was $3.5 million and $5.6 million during the three months ended April 25, 2015 and April 26, 2014, respectively, and $7.0 million and $8.2 million during the nine months ended April 25, 2015 and April 26, 2014, respectively. These decreases were primarily a function of the number of assets sold and prices obtained for those assets during the current and prior year periods.
 
Income Taxes. The following table presents our income tax provision and effective income tax rate for the three and nine months ended April 25, 2015 and April 26, 2014:
 
For the Three Months Ended
 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
April 25, 2015
 
April 26, 2014
 
(Dollars in millions)
Income tax provision
$
12.0

 
$
5.2

 
$
31.7

 
$
15.6

Effective income tax rate
37.2
%
 
39.6
%
 
38.5
%
 
40.0
%
 
Variations in our effective income tax rate are primarily attributable to the impact of state income taxes in the areas we provide services, non-deductible and non-taxable items, disqualifying dispositions of incentive stock option exercises, and production-related tax credits recognized in relation to our pre-tax results during the period. Non-deductible and non-taxable items will generally have a reduced impact on the effective income tax rate in periods of greater pre-tax results. We had total unrecognized tax benefits of approximately $2.4 million as of both April 25, 2015 and July 26, 2014 that, if recognized, would favorably affect our effective tax rate.
   
Net Income. Net income was $20.3 million for the three months ended April 25, 2015 compared to $7.9 million for the three months ended April 26, 2014. Net income was $50.5 million for the nine months ended April 25, 2015 compared to $23.5 million for the nine months ended April 26, 2014.

Liquidity and Capital Resources

We are subject to concentrations of credit risk relating primarily to our cash and equivalents, accounts receivable, and costs and estimated earnings in excess of billings. Cash and equivalents primarily include balances on deposit with banks and totaled $22.5 million at April 25, 2015 compared to $20.7 million at July 26, 2014. 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.


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Sources of Cash. Our sources of cash have been operating activities, long-term debt, equity offerings, stock option proceeds, bank borrowings, and proceeds from the sale of idle and surplus equipment and real property. Cash flow from operations is primarily influenced by demand for our services and operating margins, but can also be influenced by working capital needs associated with the services that we provide. In particular, working capital needs may increase when we have growth in operations and where project costs, primarily associated with labor, equipment, materials and subcontractors, are required to be paid before the accounts receivables resulting from the work performed are invoiced and collected from the customer. Our working capital (total current assets less total current liabilities) was $425.9 million at April 25, 2015 compared to $409.2 million at July 26, 2014.

Capital resources are primarily used to purchase equipment and maintain sufficient levels of working capital in order to support our contractual commitments to customers. We periodically borrow from and repay our revolving credit facility depending on our cash requirements. Additionally, our capital requirements may increase to the extent we make acquisitions that involve consideration other than our stock, buy back our common stock, repay revolving borrowings, or repurchase or call our senior subordinated notes. We 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.

Sufficiency of Capital Resources. We believe that our capital resources, including existing cash balances and amounts available under our credit agreement, are sufficient to meet our financial obligations. These obligations include interest payments required on our senior subordinated notes and outstanding borrowings under our credit agreement, working capital requirements, and the normal replacement of equipment at our current level of operations for at least the next twelve months. Our capital requirements may increase to the extent we seek to grow by acquisitions that involve consideration other than our stock, or to the extent we repurchase our common stock, repay revolving borrowings, or repurchase or call our senior subordinated notes. Changes in financial markets or other areas of the economy could adversely impact our ability to access the capital markets, in which case we would expect to rely on a combination of available cash and the credit agreement to provide short-term funding.

Management regularly monitors the financial markets and assesses general economic conditions for any impact on our financial position. If changes in financial markets or other areas of the economy adversely impact our ability to access capital markets, we would expect to rely on a combination of available cash and the existing committed credit facility to provide short-term funding. We believe that our cash investment policies are prudent and we expect that any volatility in the capital markets would not have a material impact on our cash investments.
 
Net cash flows. The following table presents our net cash flows for the nine months ended April 25, 2015 and April 26, 2014:

 
For the Nine Months Ended
 
April 25, 2015
 
April 26, 2014
 
(Dollars in millions)
Net cash flows:
 
 
 
Provided by operating activities
$
123.6

 
$
97.5

Used in investing activities
$
(84.4
)
 
$
(62.2
)
Used in financing activities
$
(37.3
)
 
$
(35.2
)
 
Cash from Operating Activities. During the nine months ended April 25, 2015, net cash provided by operating activities was $123.6 million. Non-cash items during the nine months ended April 25, 2015 and April 26, 2014 were primarily depreciation and amortization, gain on sale of assets, stock-based compensation, and deferred income taxes. Changes in working capital (excluding cash) and changes in other long term assets and liabilities used $1.9 million of operating cash flow during the nine months ended April 25, 2015. Working capital changes that used operating cash flow during the nine months ended April 25, 2015 were increases in net costs and estimated earnings in excess of billings of $17.2 million. Net increases in other current and other non-current assets combined used $9.6 million of operating cash flow during the nine months ended April 25, 2015, primarily for pre-paid costs during the period. Additionally, decreases in accounts payable of $1.2 million and net increases in income tax receivables of $1.3 million used operating cash flow during the nine months ended April 25, 2015 due to the timing of payments. The primary working capital sources of cash flow during the nine months

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ended April 25, 2015 were decreases in accounts receivable of $8.6 million and changes in other accrued liabilities of $18.8 million primarily due to increased accrued insurance claims and accrued interest for semi-annual interest payable due on our 7.125% senior subordinated notes due 2021.

Our days sales outstanding ("DSO") for accounts receivable (based on ending accounts receivable divided by average daily revenue for the most recently completed quarter) was 49 days as of April 25, 2015 compared to 50 days as of April 26, 2014. Our payment terms for contracts of our subsidiaries vary by customer and primarily range from 30 to 60 days after invoicing the customer. Our DSO for costs and estimated earnings in excess of billings ("CIEB") was 43 days as of April 25, 2015 compared to 40 days as of April 26, 2014. The increase in our DSOs for CIEB compared to the prior year period resulted from longer billing process time for certain customers in relation to our growth during the quarter. During the three months ended April 25, 2015, we collected approximately $7.1 million of past due balances from a customer on a rural project funded in part by the American Recovery and Reinvestment Act of 2009. As of April 25, 2015, approximately $13.1 million of past due balances were owed to us by this customer. During May 2015, approximately $5.8 million of the past due balances was subsequently collected. The Company expects to collect the remaining accounts receivable balances from the customer within the next twelve months. A significant portion of the outstanding balance is secured by construction liens. In the event the customer does not pay the balances owed, we may enforce our liens rights or take other actions necessary for collection.

Our CIEB balances are maintained at a detailed task-specific or project level and are evaluated regularly for realizability. Such amounts are invoiced in the normal course of business according to contract terms, which consider the completion of specific tasks and the passage of time. Project delays for commercial issues such as permitting, engineering changes, incremental documentation requirements or difficult job site conditions can extend the time needed to complete certain tasks and may delay invoicing to the customer for the work performed. We were not experiencing any material project delays or other circumstances that would impact the realizability of the CIEB balance as of April 25, 2015. Additionally, there are no material amounts of CIEB related to claims or unapproved change orders as of April 25, 2015 or July 26, 2014. As of April 25, 2015, we believe that none of our significant customers was experiencing financial difficulties that would impact the realizability of our CIEB or the collectability of our trade accounts receivable.

During the nine months ended April 26, 2014, net cash provided by operating activities was $97.5 million. Changes in working capital (excluding cash) and changes in other long-term assets and liabilities provided $4.7 million of operating cash flow during the nine months ended April 26, 2014. The primary working capital sources of cash flow during the nine months ended April 26, 2014 were decreases in accounts receivable and net costs and estimated earnings in excess of billings of $18.4 million and $5.4 million, respectively. Additionally, increases in other accrued liabilities and accrued insurance claims provided $9.1 million of cash flow. Working capital changes that used operating cash flow during the nine months ended April 26, 2014 were decreases in accounts payable of $5.5 million and net increases in income tax receivables of $8.8 million due to the timing of required payments. Net increases in other current and other non-current assets combined used $13.9 million of operating cash flow during the nine months ended April 26, 2014, primarily for higher levels of inventory and for other prepaid costs during the nine months ended April 26, 2014.

Cash Used in Investing Activities. Net cash used in investing activities was $84.4 million during the nine months ended April 25, 2015 compared to $62.2 million during the nine months ended April 26, 2014. During the nine months ended April 25, 2015 we paid $9.8 million in connection with acquisitions during the period. During the nine months ended April 25, 2015 and April 26, 2014, capital expenditures of $76.8 million and $70.6 million, respectively, were offset in part by proceeds from the sale of assets of $6.8 million and $9.4 million, respectively. Additionally, in connection with a customer's restructuring plan, we made an investment during the third quarter of fiscal 2015 of $4.0 million in non-voting senior units of this customer that will accrue dividends at a rate of 5.25% per year. Restricted cash, primarily related to funding provisions of our insurance program, increased approximately $0.5 million and $0.3 million during the nine months ended April 25, 2015 and April 26, 2014, respectively.

Cash Used in Financing Activities. Net cash used in financing activities was $37.3 million during the nine months ended April 25, 2015 compared to $35.2 million during the nine months ended April 26, 2014. During the nine months ended April 25, 2015, net paydowns under our credit agreement were $10.8 million, including principal payments under the term loan. Additionally, during the nine months ended April 25, 2015, we paid $3.5 million of debt issuance costs in connection with the amendment of our credit agreement. See Compliance with Credit Agreement and Indenture below for further discussion on the terms of the amended credit agreement. During the nine months ended April 26, 2014, net paydowns under our credit agreement were $38.5 million, including principal payments under the term loan.

During the nine months ended April 25, 2015, we repurchased 763,768 shares of our common stock in open market transactions for approximately $30.7 million, an average price of $40.18 per share. During the nine months ended April 26, 2014, we repurchased 360,900 shares of our common stock in open market transactions for approximately $10.0 million, an

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average price of $27.71 per share. We received $6.8 million and $14.0 million from the exercise of stock options during the nine months ended April 25, 2015 and April 26, 2014, respectively. In addition, during the nine months ended April 25, 2015 and April 26, 2014 we received excess tax benefits of $5.2 million and $2.8 million, respectively, primarily from the exercises of stock options and vesting of restricted share units. We withheld shares of restricted units and paid $4.3 million and $3.6 million to tax authorities in order to meet payroll tax withholdings obligations on restricted units that vested during the nine months ended April 25, 2015 and April 26, 2014, respectively.

Compliance with Credit Agreement and Indenture. On April 24, 2015, we amended our existing credit agreement dated as of December 3, 2012 (as so amended by the "Amendment," the "Credit Agreement"), with various lenders named therein. The Amendment extends the maturity date of the credit agreement to April 24, 2020 and, among other things, increases the maximum revolver commitment from $275 million to $450 million and increases the term loan facility to $150 million. The Amendment also increases the sublimit for the issuance of letters of credit from $150 million to $200 million. Subject to certain conditions, the Amendment provides us the ability to enter into one or more incremental facilities, up to the greater of (i) $150 million and (ii) an amount such that, after giving effect to such incremental facility on a pro forma basis (assuming that the amount of the incremental commitments is fully drawn and funded), the consolidated senior secured leverage ratio does not exceed 2.25 to 1.00. The incremental facilities can be in the form of revolving commitments under the credit agreement and/or in the form of term loans. The payments under the Credit Agreement are guaranteed by substantially all of our subsidiaries and secured by the stock of each wholly-owned, domestic subsidiary (subject to specified exceptions).

Borrowings under the Credit Agreement (other than Swingline Loans (as defined in the Credit Agreement)) will bear interest at a rate equal to either (a) the Eurodollar rate (based on LIBOR) plus an applicable margin, or (b) the administrative agent’s base rate, described in the Credit Agreement as the highest of (i) the administrative agent’s prime rate, (ii) the Federal Funds Rate plus 0.50%, and (iii) the Eurodollar rate plus 1.00%, plus an applicable margin. In each case, the applicable margin is based upon our consolidated leverage ratio. In addition, we will pay a fee for unused revolver balances based upon the Company's consolidated leverage ratio. As of April 25, 2015, borrowings under the Credit Agreement were eligible for an applicable margin of 1.75% for borrowings based on the Eurodollar rate and 0.75% for borrowings based on the administrative agent's base rate. As of July 26, 2014, and up until the date of the amendment, borrowings under the credit agreement were at an applicable margin of 2.00% for borrowings based on the Eurodollar rate and 1.00% for borrowings based on the administrative agent's base rate. Swingline loans, if any, will bear interest at a rate equal to the administrative agent’s base rate plus an applicable margin based upon our consolidated leverage ratio.

The Amendment also amends the financial covenant which requires us to maintain a consolidated leverage ratio of not greater than 3.50 to 1.00, as measured at the end of each fiscal quarter. In addition, the Amendment provides for certain increases to this ratio in connection with permitted acquisitions on the terms and conditions specified in the Credit Agreement.

We incur fees under the Credit Agreement for the unutilized commitments at rates that range from 0.25% to 0.40% per annum, fees for outstanding standby letters of credit at rates that range from 1.25% to 2.00% per annum and fees for outstanding commercial letters of credit at rates that range from 0.625% to 1.000% per annum, in each case based on our consolidated leverage ratio.

We had $150.0 million and $114.1 million of outstanding principal amount under the term loan as of April 25, 2015 and July 26, 2014, respectively, which accrued interest at 1.93% per annum and 2.15% per annum, as of April 25, 2015 and July 26, 2014, respectively. Additionally, outstanding revolver borrowings were $16.3 million and $63.0 million as of April 25, 2015 and July 26, 2014, respectively. Revolver borrowings were comprised of borrowings at the applicable Eurodollar rate or the base rate and accrued interest at a weighted average rate of approximately 3.20% per annum and 2.55% per annum as of April 25, 2015 and July 26, 2014, respectively.

Standby letters of credit of approximately $54.4 million and $49.4 million, issued as part of our insurance program, were outstanding under the Credit Agreement as of April 25, 2015 and July 26, 2014, respectively. Interest on outstanding standby letters of credit accrued at 1.75% and 2.00% per annum at April 25, 2015 and July 26, 2014, respectively. The unused facility fee was 0.35% of unutilized commitments at both April 25, 2015 and July 26, 2014.

At April 25, 2015 and July 26, 2014, we were in compliance with the financial covenants of the Credit Agreement and had additional borrowing availability of $379.3 million and $162.6 million, respectively, as determined by the most restrictive covenants of the Credit Agreement.

As of April 25, 2015 and July 26, 2014, Dycom Investments, Inc., one of our subsidiaries, had outstanding an aggregate principal amount of $277.5 million of 7.125% senior subordinated notes due 2021 (the "2021 Notes") that were issued under an indenture dated January 21, 2011 (the "Indenture"). In addition, the 2021 Notes had a debt premium of $2.9 million and $3.2

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million as of April 25, 2015 and July 26, 2014, respectively. The 2021 Notes are guaranteed by Dycom Investments, Inc.'s parent company and substantially all of our subsidiaries. For additional information regarding these guarantees see Note 18, Supplemental Consolidating Financial Statements, in Notes to the Condensed Consolidated Financial Statements. The Indenture contains covenants that limit, among other things, our ability to incur additional debt and issue preferred stock, make certain restricted payments, consummate specified asset sales, enter into transactions with affiliates, incur liens, impose restrictions on the ability of our subsidiaries to pay dividends or make payments to us and our restricted subsidiaries, merge or consolidate with another person, and dispose of all or substantially all of its assets.

Contractual Obligations. The following table sets forth our outstanding contractual obligations, including related party leases, as of April 25, 2015:
 
Less than 1 Year
 
Years 1 – 3
 
Years 3 – 5
 
Greater than 5 Years
 
Total
 
(Dollars in thousands)
7.125% senior subordinated notes due 2021
$

 
$

 
$

 
$
277,500

 
$
277,500

Credit Agreement – revolving borrowings

 

 

 
16,250

 
16,250

Credit Agreement – Term Loan

 
15,000

 
26,250

 
108,750

 
150,000

Fixed interest payments on long-term debt (a)
19,772

 
39,544

 
39,544

 
19,771

 
118,631

Operating lease obligations
15,797

 
19,509

 
6,844

 
7,105

 
49,255

Employment agreements
5,425

 
2,174

 

 

 
7,599

Purchase and other contractual obligations
22,725

 

 

 

 
22,725

Total
$
63,719

 
$
76,227

 
$
72,638

 
$
429,376

 
$
641,960


(a)
Includes interest payments on our $277.5 million in aggregate principal amount of 2021 Notes outstanding and excludes any interest payments on our variable rate debt. Variable rate debt as of April 25, 2015 was comprised of $16.3 million outstanding on our Term Loan and $150.0 million in outstanding revolving borrowings under our Credit Agreement.

Purchase and other contractual obligations in the table above primarily represent obligations under agreements to purchase vehicles and equipment which have not been received as of April 25, 2015. We have excluded contractual obligations under the multi-employer defined pension plans that cover certain of our employees as these obligations are determined based on our future union employee payrolls, which cannot be reliably determined as of April 25, 2015.
 
Our condensed consolidated balance sheet as of April 25, 2015 includes a long-term liability of approximately $39.5 million for accrued insurance claims. This liability has been excluded from the above table as the timing of any cash payments is uncertain.
 
The liability for unrecognized tax benefits for uncertain tax positions was $2.4 million at both April 25, 2015 and July 26, 2014, respectively, and is included in other liabilities in the condensed consolidated balance sheet. This amount has been excluded from the contractual obligations table because we are unable to reasonably estimate the timing of the resolution of the underlying tax positions with the relevant tax authorities.
 
Off-Balance Sheet Arrangements. Performance Bonds and Guarantees – We have obligations under performance and other surety contract bonds related to certain of our customer contracts. Performance bonds generally provide a customer with the right to obtain payment and/or performance from the issuer of the bond if we fail to perform our contractual obligations. As of April 25, 2015, we had $308.7 million of outstanding performance and other surety contract bonds. The estimated cost to complete projects secured by our outstanding performance and other surety contract bonds was approximately $77.6 million as of April 25, 2015. There has been no material impact on our financial statements as a result of customers exercising their rights under the bonds. Additionally, we have periodically guaranteed certain obligations of our subsidiaries, including obligations in connection with obtaining state contractor licenses and leasing real property and equipment.
 
Letters of Credit – We have standby letters of credit issued under our Credit Agreement as part of our insurance program. These letters of credit collateralize our obligations to our insurance carriers in connection with the settlement of potential claims. As of April 25, 2015 and July 26, 2014 we had $54.4 million and $49.4 million, respectively, outstanding standby letters of credit issued under the Credit Agreement.
 

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Backlog. Our backlog consists of the estimated uncompleted portion of services to be performed under contractual agreements with our customers and totaled $2.912 billion and $2.331 billion at April 25, 2015 and July 26, 2014, respectively. The increase in backlog from July 26, 2014 is primarily related to new awards and extensions during fiscal 2015. We expect to complete 55.6% of the April 25, 2015 backlog during the next twelve months. Our backlog estimates represent amounts under master service agreements and other contractual agreements for services projected to be performed over the terms of the contracts and are based on contract terms, our historical experience with customers and, more generally, our experience in similar procurements. The significant majority of our backlog estimates comprise services under master service agreements and long-term contracts.

Revenue estimates included in our backlog can be subject to change as a result of project accelerations, cancellations or delays due to various factors, including but not limited to commercial issues and adverse weather. These factors can also cause revenue amounts to be realized in periods and at levels different than originally projected. In many instances, our customers are not contractually committed to procure specific volumes of services under a contract. While we did not experience any material cancellations during fiscal 2014 or the nine months ended April 25, 2015, the majority of our contracts may be canceled by our customers upon notice regardless of whether or not we are in default. Our estimates of a customer's requirements during a particular future period may prove to be inaccurate. The amount of backlog related to uncompleted projects in which a provision for estimated losses was recorded was not material.

Backlog is not a measure defined by United States generally accepted accounting principles; however, it is a common measurement used in our industry. Our methodology for determining backlog may not be comparable to the methodologies used by others.

Legal Proceedings

In April 2014, Pauley Construction, Inc. (“Pauley”), a wholly-owned subsidiary of the Company, halted work and filed construction liens with respect to approximately $17.7 million for past due balances from a customer on a rural project funded primarily by the Rural Utilities Service agency of the United States Department of Agriculture under the American Recovery and Reinvestment Act of 2009. In April 2014, R&R Taylor Construction, Inc. ("R&R") filed suit against this customer alleging that the customer failed to pay for construction services and materials. In its lawsuit, R&R seeks to foreclose on its construction lien and, ultimately, to foreclose on the parcel of land on which the lien was filed. Pauley had performed work on this parcel as part of its work on the rural project described above. In July 2014, R&R amended its lawsuit to include Pauley, alleging that its lien has priority over Pauley’s construction lien. Pauley has filed an answer to this amended complaint in the Montana Eighteenth Judicial District Court, a counterclaim against the construction company and a cross-claim against the customer, alleging that Pauley’s lien is superior to all other liens on such parcel of land. Pauley has restarted work on the project. As of April 25, 2015, the Company’s accounts receivable includes approximately $13.1 million of past due balances from this customer, of which approximately $5.8 million was collected during May 2015. It is too early to evaluate the likelihood of an outcome to this matter. We intend to vigorously defend ourselves against this lawsuit as part of ongoing efforts to collect the past due amounts from this customer.

In November 2013, the wife of a former employee of Nichols Construction, LLC (“Nichols”), a wholly-owned subsidiary of the Company, commenced a lawsuit against Nichols in the Circuit Court of Barbour County, West Virginia. The lawsuit, which the plaintiff filed on behalf of her husband’s estate, is based upon a “deliberate intent” claim pursuant to West Virginia Code in connection with the death of her husband who was struck by a falling tree while at work. The plaintiff seeks unspecified damages and other relief. In December 2012, Nichols removed the case to the United States District Court for the Northern District of West Virginia, and in January 2015, Nichols filed a motion for summary judgment with respect to certain of the “deliberate intent” issues in the lawsuit. The District Court has not ruled on the motion for summary judgment. Trial is currently scheduled for June 2015. Plaintiff’s expert has estimated economic damages of up to $2.6 million, exclusive of damages for emotional distress. We believe that we have meritorious defenses and intend to vigorously defend ourselves against this lawsuit.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There were no material changes during the quarter ended April 25, 2015 with respect to the information appearing in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the year ended July 26, 2014.

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Item 4. Controls and Procedures.
 
Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of April 25, 2015, the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of April 25, 2015, the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and (2) accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

In April 2014, Pauley Construction, Inc. (“Pauley”), a wholly-owned subsidiary of the Company, halted work and filed construction liens with respect to approximately $17.7 million for past due balances from a customer on a rural project funded primarily by the Rural Utilities Service agency of the United States Department of Agriculture under the American Recovery and Reinvestment Act of 2009. In April 2014, R&R Taylor Construction, Inc. ("R&R") filed suit against this customer alleging that the customer failed to pay for construction services and materials. In its lawsuit, R&R seeks to foreclose on its construction lien and, ultimately, to foreclose on the parcel of land on which the lien was filed. Pauley had performed work on this parcel as part of its work on the rural project described above. In July 2014, R&R amended its lawsuit to include Pauley, alleging that its lien has priority over Pauley’s construction lien. Pauley has filed an answer to this amended complaint in the Montana Eighteenth Judicial District Court, a counterclaim against the construction company and a cross-claim against the customer, alleging that Pauley’s lien is superior to all other liens on such parcel of land. Pauley has restarted work on the project. As of April 25, 2015, the Company’s accounts receivable includes approximately $13.1 million of past due balances from this customer, of which approximately $5.8 million was collected during May 2015. It is too early to evaluate the likelihood of an outcome to this matter. We intend to vigorously defend ourselves against this lawsuit as part of ongoing efforts to collect the past due amounts from this customer.

In November 2013, the wife of a former employee of Nichols Construction, LLC (“Nichols”), a wholly-owned subsidiary of the Company, commenced a lawsuit against Nichols in the Circuit Court of Barbour County, West Virginia. The lawsuit, which the plaintiff filed on behalf of her husband’s estate, is based upon a “deliberate intent” claim pursuant to West Virginia Code in connection with the death of her husband who was struck by a falling tree while at work. The plaintiff seeks unspecified damages and other relief. In December 2012, Nichols removed the case to the United States District Court for the Northern District of West Virginia, and in January 2015, Nichols filed a motion for summary judgment with respect to certain of the “deliberate intent” issues in the lawsuit. The District Court has not ruled on the motion for summary judgment. Trial is currently scheduled for June 2015. Plaintiff’s expert has estimated economic damages of up to $2.6 million, exclusive of damages for emotional distress. We believe that we have meritorious defenses and intend to vigorously defend ourselves against this lawsuit.

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

Item 1A. Risk Factors.

Our business is subject to a variety of risks and uncertainties. These risks are described elsewhere in this Quarterly Report on Form 10-Q or our other filings with the Securities and Exchange Commission, including Part I, Item 1A of our Annual Report on Form 10-K for the year ended July 26, 2014. The risks identified in such reports have not changed in any material respect.


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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) During the three months ended April 25, 2015, we did not sell any of our equity securities that were not registered under the Securities Act of 1933.

(b) Not applicable.

(c) The following table summarizes the Company's purchase of its common stock during the three months ended April 25, 2015:

Period
Total Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 25, 2015 - February 21, 2015
-
-
-
(a)
February 22, 2015 - March 21, 2015
-
-
-
(a)
March 22, 2015 - April 25, 2015
275,000
$49.24
-
(a)

(a) On February 24, 2015, the Company announced that its Board of Directors authorized $40.0 million to repurchase shares of the Company's outstanding common stock through August 2016 in open market or private transactions. The repurchase authorization replaces the Company's previous repurchase authorization. As of February 24, 2015, approximately $26.5 million remained available for repurchases.


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Item 6. Exhibits and Financial Statement Schedules.

Exhibits furnished pursuant to the requirements of Form 10-Q:

Exhibit Number
 
 
10.1
First Amendment to Credit Agreement, dated as of April 24, 2015, among Dycom Industries, Inc., as the Borrower, the subsidiaries of Dycom Industries, Inc. identified therein, certain lenders named therein, Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, Bank of America Merrill Lynch and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Managers, Wells Fargo Bank, National Association, as Syndication Agent, and Suntrust Bank, PNC Bank, National Association and Branch Banking and Trust Company, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on April 27, 2015).
 
 
12.1 +
Computation of Ratio of Earnings to Fixed Charges.
 
 
31.1 +
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2 +
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1 +
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2 +
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101++**
The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 25, 2015, formatted in eXtensible Business Reporting Language: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements.
+
Filed herewith
++
Furnished herewith
**
Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for the purposes of section 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchanges Act of 1934, as amended, and otherwise is not subject to liability under these sections.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
DYCOM INDUSTRIES, INC.
 
 
 
Registrant
 
 
 
 
Date:
May 21, 2015
 
/s/ Steven E. Nielsen
 
 
 
Name: Steven E. Nielsen
Title: President and Chief Executive Officer
 
 
 
 
Date:
May 21, 2015
 
/s/ H. Andrew DeFerrari
 
 
 
Name: H. Andrew DeFerrari
Title: Senior Vice President and Chief Financial Officer

 
 
 
 


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