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Article by DailyStocks_admin    (03-16-08 12:43 PM)

Dycom Industries Inc. CEO STEVEN E NIELSEN bought 60, 000shares on 3-3-2008 at 4.89

BUSINESS OVERVIEW

Dycom Industries, Inc., founded in 1969, is a leading provider of specialty contracting services. These services are provided throughout the United States and include engineering, construction, maintenance and installation services to telecommunications providers, underground locating services to various utilities including telecommunications providers, and other construction and maintenance services to electric utilities and others. Additionally, we provide services on a limited basis in Canada. For the fiscal year ended July 28, 2007, specialty contracting services related to the telecommunications industry, underground utility locating, and electric and other construction and maintenance services to electric utilities and others contributed approximately 74.7%, 18.9%, and 6.4%, respectively, to our total revenues from continuing operations.

We have established relationships with many leading telephone companies, cable television multiple system operators, and electric utility companies. These companies include AT&T Inc. (“AT&T”), Verizon Communications Inc. (“Verizon”), Comcast Corporation (“Comcast”), Time Warner Cable Inc. (“Time Warner”), Embarq Corp. (“Embarq”), Charter Communications, Inc. (“Charter”), Qwest Communications International, Inc. (“Qwest”), Questar Gas Company (“Questar Gas”), and Windstream Corporation (“Windstream”).

Specialty Contracting Services

Telecommunications Services

Engineering. We provide outside plant engineers and drafters to telecommunication providers. These personnel design aerial, underground and buried fiber optic, copper, and coaxial cable systems that extend from the telephone company central office, or cable operator headend, to the consumer’s home or business. The engineering services we provide to telephone companies include: the design of service area concept boxes, terminals, buried and aerial drops, transmission and central office equipment, the proper administration of feeder and distribution cable pairs, and fiber cable routing and design. For cable television multiple system operators, we perform make-ready studies, strand mapping, field walk-out, computer-aided radio frequency design and drafting, and fiber cable routing and design. We obtain rights of way and permits in support of our engineering activities and those of others, and provide construction management and inspection personnel in conjunction with engineering services or on a stand-alone basis.

Construction, Maintenance, and Installation. We place and splice fiber, copper, and coaxial cables. In addition, we excavate trenches in which to place these cables; place related structures such as poles, anchors, conduits, manholes, cabinets and closures; place drop lines from main distribution lines to the consumer’s home or business; and maintain and remove these facilities. These services are provided to both telephone companies and cable television multiple system operators in connection with the deployment of new networks and the expansion or maintenance of existing networks. For cable television multiple system operators, our services also include the installation and maintenance of customer premise equipment, including set top boxes and cable modems.

Premise Wiring. Premise wiring services are provided to various corporations and state and local governments. These services are predominantly limited to the installation, repair and maintenance of telecommunications infrastructure within improved structures.

Underground Utility Locating Services

We provide underground utility locating services to a variety of utility companies including telecommunication providers. Under various state laws, excavators are required, prior to excavating, to request from utility companies the location of their underground facilities in order to prevent utility network outages and to safeguard the general public from the consequences of damages to underground utilities. Utilities are required to respond to these requests to mark underground and buried facilities within specified time periods. Our underground utility locating services include locating telephone, cable television, power and gas lines for these utility companies.

Electric Utilities and Other Construction and Maintenance Services

We perform construction and maintenance services for electric utilities and others. We perform these services primarily on a stand-alone basis which typically includes installing and maintaining overhead and underground power distribution lines. In addition, we periodically provide these services for the combined projects of telecommunication providers and electric utility companies, primarily in joint trenching situations, in which services are being delivered to new housing subdivisions. We also maintain and install underground natural gas transmission and distribution systems for gas companies.

Revenues by Type of Customer


Business Strategy

Capitalize on Long-Term Growth Drivers. We are well positioned to benefit from the increased demand for reliable video, voice, and data services. As telecommunications networks experience increased demand for services, our customers must continually expand the capacity, and improve the performance, of their existing networks and, in certain instances, deploy new networks. This is increasingly important as the service offerings of the telephone and cable industries converge, with each beginning to offer reliable, competitively priced voice, video, and data services to consumers. Due to the declining cost and expanding capabilities of telecommunications equipment, telecommunications network operators are more cost effectively able to make enhancements to their network infrastructure in order to provide these services. As a result of these factors, the networks of our customers increasingly face demands for more capacity and greater reliability, which in turn, increases the needs of our customers for the services we provide.

Selectively Increase Market Share. We believe our reputation for high quality service and our ability to provide services nationally create opportunities for expanding our market share. We believe that our decentralized operating structure and numerous points of contact within customer organizations position us favorably to win new opportunities with existing customers. In an environment of increasing customer demand, our financial resources enable us to address larger opportunities which some of our relatively capital constrained competition may be unable to perform. However, we will not increase market share by pursuing unprofitable work.

Pursue Disciplined Financial and Operating Strategies. We manage the financial aspects of our business by centralizing certain activities which allow us to reduce costs through leveraging our scope and scale while sustaining and enhancing our control environment. We continue to centrally maintain functions such as treasury, tax and risk management, the approval of capital equipment procurements, the design and purchase of employee benefit plans, as well as the review and promulgation of “best practices” in other aspects of our operations. Concurrently, we decentralize the recording of transactions and the financial reporting necessary for timely operational decisions. We believe this approach creates and requires greater accountability for business outcomes from our local decision makers. We also maintain a decentralized approach to marketing, operations, and ongoing customer service, empowering local managers to capture new business and execute contracts on a timely and cost-effective basis. We believe this approach enables us to utilize our capital resources effectively and efficiently, while retaining the organizational agility necessary to compete with our predominantly small, privately held local competitors.

Pursue Selective Acquisitions. We selectively pursue acquisitions when we believe doing so is operationally and financially beneficial, although we do not rely solely on acquisitions for growth. In particular, we pursue those acquisitions that provide us with incremental revenue and geographic diversification while complementing our existing operations. We generally target for acquisition companies that have defendable leadership positions in their market niches; profitability which meets or exceeds industry averages; proven operating histories; sound management; and certain clearly identifiable cost synergies.

Customer Relationships

Our current customers include leading telephone companies such as AT&T, Verizon, Embarq, Qwest, Windstream, and Citizens Communications Company. We also provide telecommunications engineering, construction, installation and maintenance services to a number of cable television multiple system operators, including Comcast, Time Warner, Charter, Cablevision Systems Corporation, Insight Communications Company, Inc., and Cox Communications, Inc. Premise wiring services are provided to various corporations and state and local governments. Utility locating services are provided to a variety of utility companies, including Atmos Energy Corporation, Baltimore Gas and Electric Co., Atlanta Gas Light Company, TXU Corp., and telecommunication providers.

Our customer base is highly concentrated with our top five customers in fiscal 2007, 2006, and 2005 accounting for approximately 63%, 64%, and 67%, respectively, of our total revenues from continuing operations. During fiscal 2007, approximately 19.2% of our total revenues from continuing operations were derived from AT&T, 17.9% from Verizon, and 11.6% from Comcast. We believe that a substantial portion of our total revenues and operating income will continue to be derived from a concentrated group of customers.

A significant portion of our services are covered by multi-year master service agreements and other arrangements with customers that have historically extended over multiple year periods. We are currently a party to approximately 200 of these agreements. Master service agreements generally are for contract periods of one or more years and contain customer specified service requirements, such as discrete unit pricing for individual tasks. To the extent that such contracts specify exclusivity, there are often a number of exceptions, including the ability by the customer to issue work orders to others valued above a specified dollar limit, the self-performance of the work by the customer’s in house workforce, and the ability to use others when jointly placing facilities with another utility. Our customers may have no obligation to assign a specific amount of work to us under these agreements and, in most cases, a customer may terminate these agreements for convenience with written notice.

A customer’s decision to engage us with respect to a specific construction or maintenance project is often made by local customer management working with our subsidiaries. As a result, although our project work is concentrated among relatively few customers, our relationships with these customers are generally broad and extend deeply into their organizations. Historically, master service agreements have been awarded primarily through a competitive bidding process; however, we have been able to extend some of these agreements on negotiated basis. We also enter into both long-term and short-term single project contracts with our customers.

Our markets are served locally by dedicated and experienced management personnel. Management of our subsidiaries possesses intimate knowledge of their particular markets and we believe our decentralized operations allow us to be more responsive in addressing regional customer needs. Our sales and marketing efforts are the responsibility of our management and that of our subsidiaries. These marketing efforts tend to focus on personal contacts with managers within our customer’s organizations.

Backlog

Our backlog consists of the uncompleted portion of services to be performed under job-specific contracts and the estimated value of future services that we expect to provide under long-term requirements contracts, including master service agreements. Many of our contracts are multi-year agreements, and we include in our backlog the amount of services projected to be performed over the terms of the contracts based on our historical experiences with customers and, more generally, our experience in procurements of this type. In many instances, our customers are not contractually committed to procure specific volumes of services under a contract. For certain multi-year projects relating to fiber deployments for one of our significant customers, we have included in the July 28, 2007 backlog amounts relating to anticipated work through the remainder of calendar year 2007. These fiber deployment projects, when initially installed, are not required for the day-to-day provision of services by that customer. Consequently, the fiber deployment projects of this customer generally have been subject to more uncertainty, as compared to those of our other customers, with regards to activity levels. Our estimates of a customer’s requirements during a particular future period may not be accurate at any point in time.

Our backlog totaled $1.388 billion and $1.425 billion at July 28, 2007 and July 29, 2006, respectively. We expect to complete 57% of the July 28, 2007 backlog during fiscal 2008.

Safety and Risk Management

We are committed to ensuring that our employees perform their work safely. We regularly communicate with our employees to reinforce that commitment and to instill safe work habits. The safety directors of our subsidiaries review all accidents and claims for our operations, examine trends and implement changes in procedures to address safety issues. Claims arising in our business generally include workers’ compensation claims, various general liability and damage claims, and claims related to vehicle accidents, including personal injury and property damage. We self insure against the risk of loss arising from our operations to certain deductible limits in substantially all of the states in which we operate. We also retain risk of loss, up to certain limits, under our self-insured employee health plan.

We carefully monitor claims and actively participate with our insurers in determining claims estimates and adjustments. We accrue the estimated costs of self-insured claims and the related processing costs as liabilities, including estimates for claims incurred but not reported. Due to fluctuations in our loss experience from year to year, insurance accruals have varied and affected operating margins. If we experience insurance claims in excess of our umbrella coverage limit, our business could be materially and adversely affected. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 9 of Notes to Consolidated Financial Statements.

Competition

The specialty contracting services industry in which we operate is highly fragmented. The industry is characterized by a large number of participants, including several large companies as well as a significant number of small, privately held, local competitors. We also face competition from the in-house service organizations of our existing or prospective customers, particularly telecommunications providers that employ personnel who perform some of the types of services that we provide. Although a significant portion of these services is currently outsourced and we have been performing specialty contracting services for over 20 years, our existing or prospective customers may elect to discontinue outsourcing specialty contracting services in the future. In addition, there are relatively few barriers to entry into the markets in which we operate. As a result, any organization that has adequate financial resources and access to technical expertise may become a competitor.

A significant portion of our revenue is currently derived from master service agreements and price is often an important factor in the award of such agreements. Accordingly, we may be underbid by our competitors if they elect to discount their services to procure such business. Our competitors may develop the expertise, experience and resources to provide services that are equal or superior in both price and quality to our services, and we may not be able to maintain or enhance our competitive position.

We believe that the principal competitive factors for our services include geographic presence, breadth of service offerings, worker and general public safety, price, quality of service, and industry reputation. We believe that we compete favorably with our competitors on the basis of these factors.

Employees

As of July 28, 2007, we employed 10,899 persons. Approximately 434 of our employees are represented by local collective bargaining units. The number of our employees varies according to the level of our work in progress. We maintain a nucleus of technical and managerial personnel to supervise all projects and add employees as needed to complete specific projects. We also utilize the services of subcontractors to assist with projects on a regular basis.

Materials and Subcontractors

For a majority of our contracts, our customers provide all necessary materials and we provide the personnel, tools, and equipment necessary to perform installation and maintenance services. The customer determines the specifications of the materials and we are only responsible for the performance of the required services. Materials supplied by our customers for which the customer retains the financial and performance risk associated with those materials are not included in our revenue or costs of sales. In contracts for which we are required to supply part or all of the materials, we are not dependent upon any one source for the materials that we customarily use to complete the job. We do not manufacture any significant amounts of material for resale. We are not presently experiencing, nor do we anticipate experiencing, any difficulties in procuring an adequate supply of materials.

We use independent contractors to perform portions of the services that we provide. These independent contractors typically are small, locally owned companies or sole proprietors. Independent contractors provide their own employees, vehicles, tools, and insurance coverage. We are not dependent on any single independent contractor. We use independent contractors to help manage our work flow and reduce the amount that we may otherwise be required to spend on fixed assets.

Seasonality

Our revenues are affected by seasonality as a significant portion of work is performed outdoors. Consequently, our operations are impacted by extended periods of inclement weather. Generally, inclement weather is more likely to occur during the winter season which falls during our second and third fiscal quarters. In addition, a disproportionate percentage of total paid holidays fall within our second quarter, which decreases the number of available workdays. Additionally, our customer premise equipment installation activities for cable providers historically decreases around calendar year end holidays as their customers generally require less activity during this period.

CEO BACKGROUND

Mr. Baxter has been an advisor of Churchill Ventures Ltd since July 2006. From October 2001 to January 2005 Mr. Baxter was President of Time Warner Cable, a division of Time Warner Inc. Mr. Baxter was President and Chief Executive Officer of Audible, Inc. from February 2000 to July 2001 and an operating partner of Evercore Partners, from 1998 to 2000. Mr. Baxter was a director of Dycom Industries, Inc. from January 1999 to December 2001.

Mr. Brennan has served as Chairman of the Board of Directors of MYR Group, Inc. since March 2006. Mr. Brennan was Chairman and Chief Executive Officer of MYR Group, Inc. from 1989 to April 2000. Mr. Brennan is a director of Rogers Corporation.

Mr. Chiddix has served as Vice Chairman of the Board of Directors of OpenTV Corp. since May 2007 and has been a director since 2004. Mr. Chiddix was Executive Chairman and Chief Executive Officer of OpenTV Corp. from May 2004 through April 2007 and President of Mystro TV (a business unit of Time Warner, Inc.) from July 2001 to January 2004. Mr. Chiddix is currently a director of Vyyo, Inc. and Symmetricom, Inc.

Mr. Coe was President of BellSouth Network Services, from 2000 to 2001. Mr. Coe is a director of Internap Network Services Corporation.

Mr. Coley was a Management Consultant with McKinsey & Company, Inc. from July 1975 to January 2004. Mr. Coley is a Director Emeritus of McKinsey & Company, Inc. and a director of Flagstone Reinsurance Holdings Limited.

Mr. Nielsen has been the President and Chief Executive Officer of the Company since March 1999; President and Chief Operating Officer from August 1996 to March 1999; and Vice President from February 1996 to August 1996. Mr. Nielsen is a director of SBA Communications Corporation.

Mr. Smith was a partner of Ernst & Young LLP from October 1984 to July 2005 and managing partner of the Jacksonville, Florida office from 1996 to July 2005.

COMPENSATION

Director Compensation

The Company’s compensation program for non-employee directors is designed to enable the Company to attract, retain and motivate highly qualified directors to serve on the Company’s Board of Directors. The program is also intended to further align the interests of the Company’s directors with those of the Company’s shareholders by compensating directors with a mix of cash and equity-based compensation. Directors who are employees of the Company receive no additional compensation for serving on the Board of Directors or its committees. The Compensation Committee periodically receives reports on the competitiveness of director compensation for non employee directors from its independent compensation consultant and is responsible for recommending to the Board of Directors changes in director compensation. The last such report was prepared by Mercer Human Resource Consulting in fiscal 2007. This report was considered in making the changes in director compensation on December 13, 2006 which are discussed below.

Narrative Accompanying Director Compensation Table

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


• Audit Committee Chairperson: $5,000 to $10,000

• Compensation Committee Chairperson: $2,500 to $7,500

• Corporate Governance Committee Chairperson: $2,500 to $5,000

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

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

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

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

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a leading provider of specialty contracting services. These services are provided throughout the United States and include engineering, construction, maintenance and installation services to telecommunications providers, underground locating services to various utilities including telecommunications providers, and other construction and maintenance services to electric utilities and others. Additionally, we provide services on a limited basis in Canada. For the fiscal year ended July 28, 2007, specialty contracting services related to the telecommunications industry, underground utility locating, and electric and other construction and maintenance services to electric utilities and others contributed approximately 74.7%, 18.9%, and 6.4%, respectively, to our total revenues from continuing operations.

We conduct operations through our subsidiaries. Our revenues may fluctuate as a result of changes in the capital expenditure and maintenance budgets of our customers, and changes in the general level of construction activity. The capital expenditures and maintenance budgets of our telecommunications customers may be impacted by consumer demands on telecommunication providers, the introduction of new communication technologies, the physical maintenance needs of their infrastructure, the actions of the Federal Communications Commission, and general economic conditions.

A significant portion of our services are covered by multi-year master service agreements and other arrangements with customers that have historically extended over multiple year periods. We are currently a party to approximately 200 of these arrangements. Master service agreements generally are for contract periods of one or more years and contain customer specified service requirements, such as discrete unit pricing for individual tasks. To the extent that such contracts specify exclusivity, there are often a number of exceptions, including the ability by the customer to issue work orders to others valued above a specified dollar limit, the self-performance of the work by the customer’s in house workforce, and the ability to use others when jointly placing facilities with another utility. In most cases, a customer may terminate these agreements for convenience with written notice.

The remainder of our services is provided pursuant to contracts for specific projects. Long-term contracts relate to specific projects with terms in excess of one year from the contract date. Short-term contracts for specific projects are generally three to four months in duration. A portion of our contracts include retainage provisions under which 5% to 10% of the contract invoicing is withheld by the customer subject to project completion.

We recognize revenues under the percentage of completion method of accounting using the units of delivery or cost-to-cost measures. A significant majority of our contracts are based on units of delivery and revenue is recognized as each unit is completed. Revenues from contracts using the cost-to-cost measures of completion are recognized based on the ratio of contract costs incurred to date to total estimated contract costs. Revenues from services provided under time and materials based contracts are recognized when the services are performed.

The percentage increase in revenue derived from multi-year master service agreements in fiscal 2007 as compared to fiscal 2006 is primarily due to agreements in place at Cable Express Holding Company (“Cable Express”) and Prince Telecom Holdings, Inc. (“Prince”) which were acquired in September 2006 and December 2005, respectively. Additionally, hurricane restoration service revenue was recognized during fiscal 2006 pursuant to short-term contracts. There was no hurricane restoration service revenue recognized during fiscal 2007.

Cost of earned revenues includes all direct costs of providing services under our contracts, including costs for construction personnel, subcontractors, operation of capital equipment (excluding depreciation), and insurance. For a majority of our contracts, our customers provide all necessary materials and we provide the personnel, tools, and equipment necessary to perform installation and maintenance services. Materials supplied by our customers, for which the customer retains the financial and performance risk, are not included in our revenue or costs of sales. We retain the risk of loss, up to certain limits, for claims related to automobile liability, general liability, workers’ compensation, employee group health, and locate damages. Locate damage claims result from property and other damages arising in connection with our utility locating services. A change in claims experience or actuarial assumptions related to these risks could materially affect our results of operations.

General and administrative costs include all of our costs at the corporate level, as well as costs of our subsidiaries’ management personnel and administrative overhead. These costs primarily consist of employee compensation and related expenses, including stock-based compensation, professional fees, provision or recoveries of bad debt expense, and other costs that are not directly related to the provision of services under customer contracts. Our senior management, including senior managers of our subsidiaries, performs substantially all sales and marketing functions as part of their management responsibilities and, accordingly, we have not incurred material sales and marketing expenses.

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 acquisition opportunities and successfully integrate any businesses acquired.

In September 2006, we acquired the outstanding common stock of Cable Express for a purchase price of approximately $55.2 million, including transaction fees, and assumed $9.2 million in capital lease obligations. During December 2005, we acquired the outstanding common stock of Prince for a purchase price of approximately $65.4 million, including transaction fees. Cable Express and Prince provide specialty contracting services for leading cable multiple system operators. These services include the installation and maintenance of customer premise equipment, including set top boxes and cable modems. During September 2004, we acquired certain assets and assumed certain liabilities of RJE Telecom, Inc. (“RJE”) for a cash purchase price of approximately $9.8 million. RJE provides specialty contracting services primarily to telephone companies.

In March 2007, we acquired certain assets and assumed certain liabilities, including $0.9 million in capital lease obligations, of Cavo Communications, Inc. (“Cavo”) for $5.5 million. Cavo provides specialty contracting services for leading cable multiple system operators. These services include the installation and maintenance of customer premise equipment, including set top boxes and cable modems. In January 2007, we acquired certain assets of a cable television operator for approximately $1.1 million. Neither of these two acquisitions was material to our revenue, results of operations or financial position.

Discontinued Operations

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

Outlook

The telecommunications industry has undergone and continues to undergo significant changes due to governmental deregulation, advances in technology, increased competition as the telephone and cable industries converge, and growing consumer demand for enhanced and bundled services. As a result of these factors, the networks of our customers increasingly face demands for more capacity and greater reliability which in turn, increases the needs of customers for the services we provide.

Telecommunications network operators are increasingly relying on the deployment of fiber optic cable technology deeper into their networks and closer to consumers in order to respond to demands for capacity, reliability, and product bundles of voice, video, and high speed data services. Fiber deployments have enabled an increasing number of cable companies to begin to offer voice services in addition to their traditional video and data services. These voice services from cable operators periodically require the upgrade of in home wiring and require the installation of customer premise equipment. Fiber deployments are also beginning to facilitate the provisioning of video services by local telephone companies in addition to their traditional voice and high speed data services. During 2004 and 2005, several large telephone companies announced fiber to the premise and fiber to the node initiatives as a means to begin to actively compete with cable operators. These initiatives continued through fiscal 2006 and 2007 resulting in demand for our services.

We believe the latest developments and trends in the telecommunications industry support our outlook for growth. Consistent with historical practice, telecommunications providers have continued to outsource a significant portion of their engineering, construction and maintenance requirements in order to reduce their investment in capital equipment, provide flexibility in workforce sizing, expand product offerings without large increases in incremental hiring and focus on those competencies they consider core to their business success.

We also provide underground utility locating services to a variety of utility companies including telecommunication providers. Underground excavation is involved in a substantial portion of overall economic activity, including the construction and maintenance of telephone, cable television, power and gas utility networks, the construction and maintenance of roads and highways as well as the construction of new and existing commercial and residential projects. Utility line locating is required prior to underground excavation. The trend for outsourcing this requirement, along with the pace of overall economic activity, primarily influences the demand for our utility line locating services.

Results of Operations

Year Ended July 28, 2007 Compared to Year Ended July 29, 2006

Revenues increased $142.8 million, or 14.4%, in fiscal 2007 as compared to fiscal 2006. Of this increase, $132.7 million was a result of an increase in specialty contracting services provided to telecommunications companies and $13.9 million was due to increased revenues from construction and maintenance services provided to electric utilities and other customers. These increases were partially offset by a $3.8 million decrease in underground utility locating services revenues. During fiscal 2007, telecommunications customer revenue included $204.8 million provided from services performed by companies we acquired during fiscal 2007 and fiscal 2006.

Excluding revenue from businesses acquired during or subsequent to fiscal 2006, revenues from specialty construction services provided to telecommunications companies were $645.1 million for fiscal 2007, compared to $651.4 million for fiscal year 2006, a decrease of 1.0%. During fiscal 2006, we earned approximately $61.1 million from hurricane restoration services for telecommunications customers. We did not perform any hurricane restoration services during the current fiscal year. Excluding revenue earned from hurricane restoration services during fiscal 2006, revenue increased by approximately $54.8 million compared to the same period in the prior year. This increase was primarily the result of approximately $19.1 million and $3.9 million, respectively, of additional work for two significant telephone customers maintaining and upgrading their respective networks, and $14.2 million of additional revenue from a significant customer engaged in a fiber deployment project. In addition, revenue increased by approximately $30.5 million for installation, maintenance and construction services provided to several cable multiple system operators, including work performed on the former Adelphia network assets acquired by certain of those customers. During fiscal 2006, we earned $17.6 million from work performed for Adelphia.

Total revenues from underground utility line locating for fiscal 2007 were $214.7 million compared to $218.4 million for fiscal 2006, a decrease of 1.7%. During fiscal 2006, we earned approximately $1.8 million for utility locating relating to hurricane restoration services. We did not perform any hurricane restoration services during fiscal 2007. The remaining decrease is a result of a decrease in the volume of work performed for both existing and new customers, including the termination of a contract for a telephone customer in January 2006.

Our total revenues from electric utilities and other construction and maintenance services increased $13.9 million, or 23.5%, in fiscal 2007 as compared to the fiscal 2006. The increase was primarily attributable to additional work performed for both existing and new customers, including on-going gas pipeline construction primarily for one customer.

Costs of Earned Revenues. Costs of earned revenues increased $104.0 million to $915.3 million in fiscal 2007 from $811.2 million in fiscal 2006. The primary components of this increase were direct labor and subcontractor costs taken together, other direct costs, and direct materials, which increased $78.3 million, $17.6 million, and $8.1 million, respectively. These increases were primarily due to higher levels of operations during fiscal 2007, including the operations of Cable Express and Prince since their acquisitions in September 2006 and December 2005, respectively. As a percentage of contract revenues, costs of earned revenues decreased 1.1% for fiscal 2007, as compared to the same period last year. Labor and labor related costs decreased 0.5% as a percent of contract revenues primarily as a result of less subcontracted labor in fiscal 2007 as compared to fiscal 2006. This decline was due to less subcontracted labor as a percentage of revenues in fiscal 2007 as compared to fiscal 2006, primarily as a result of the Prince and Cable Express acquisitions. Decreases in other direct costs contributed 0.7% of the total percent decrease primarily due to reduced vehicle rental, travel and other direct costs compared to higher amounts incurred during fiscal 2006 in connection with the hurricane restoration services and decreases in insurance costs as a result of reduced loss development activity for self-insured claims during fiscal 2007. These reductions were partially offset by increases in group health insurance costs and higher fuel costs. We also experienced an increase of 0.1% in direct materials due to an increase in the number of projects for which we provided materials to the customer during 2007 as compared to fiscal 2006.

General and Administrative Expenses. General and administrative expenses increased $11.6 million to $90.1 million for fiscal 2007 as compared to $78.5 million for fiscal 2006. The increase in total general and administrative expenses for fiscal 2007 compared to the prior year period was primarily attributable to the general and administrative costs of Cable Express and Prince, which were acquired in September 2006 and December 2005, respectively, increased legal and professional fees, increased payroll and related expenses as a result of the growth of our business in fiscal 2007, and an increase in stock-based compensation expenses as a result of the restricted stock awards granted during fiscal 2007 and 2006. The total amount of stock-based compensation expense for fiscal 2007 was $6.2 million as compared to $4.7 million for fiscal 2006. General and administrative expenses as a percentage of contract revenues were 7.9% for each of fiscal 2007 and fiscal 2006, respectively.

Depreciation and Amortization. Depreciation and amortization increased to $57.8 million for fiscal 2007 from $46.5 million for fiscal 2006 and increased as a percentage of contract revenues to 5.1% compared to 4.7% from fiscal year 2006. The dollar amount of the increase for fiscal 2007 compared to fiscal 2006 is primarily a result of increased capital expenditures and the addition of fixed assets and amortizing intangible assets relating to the acquisitions of Cable Express and Prince in September 2006 and December 2005, respectively.

Goodwill impairment charge. During the third quarter of fiscal 2006, we recognized a goodwill impairment charge of approximately $14.8 million related to our Can Am reporting unit. Although Can Am provides services to significant customers, it had underperformed compared to previous expectations due to its inability to achieve projected revenue growth and due to operational inefficiencies at the level of work performed. Management determined that these factors increased the uncertainty surrounding future levels of revenue expected from Can Am. We changed the senior management at Can Am during the later part of fiscal 2006, integrating certain of its operations with another of our subsidiaries in order to improve operational efficiency. The combination of the above factors had the effect of reducing the expected future cash flows of the Can Am reporting unit and were circumstances that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Accordingly, we performed an interim goodwill impairment test as of April 29, 2006. As a result of the impairment analysis, management determined that the estimated fair value of the reporting unit was less than its carrying value and, as a result, a goodwill impairment charge was recognized to write off Can Am’s goodwill.

Interest Income. Interest income decreased to $1.0 million for fiscal 2007 as compared to $1.9 million for fiscal 2006. The decrease is primarily a result of lower cash balances as compared to prior year due to the fiscal 2007 and fiscal 2006 acquisitions of Cable Express, Cavo, and Prince, and due to higher amounts of capital expenditures in fiscal 2007.

Interest Expense. Interest expense was $14.8 million for fiscal 2007 as compared to $12.0 million for fiscal 2006. Fiscal 2007 included a full year of interest on our $150.0 million of 8.125% senior subordinated notes (“Notes”) issued during October 2005. In addition, we incurred interest expense related to notes payable and capital leases assumed in the December 2005 acquisition of Prince and the September 2006 acquisition of Cable Express.

Other Income, Net. Other income increased to $8.6 million for fiscal 2007 as compared to $6.3 million for fiscal 2006. The increase was primarily the result of the sale of real estate during the third quarter of fiscal 2007 which resulted in a gain of approximately $2.5 million.

Our effective income tax rate for fiscal 2006 differed substantially from the statutory rate during the period due to the impact of the non-cash goodwill impairment charge of $14.8 million which was non deductible for income tax purposes (see Note 8 in the Notes to Consolidated Financial Statements). In addition, our effective tax rate for each period is impacted by other non-deductible and non-taxable items for tax purposes in relation to the levels of pre-tax earnings.

Income from Continuing Operations. Income from continuing operations was $42.2 million for fiscal 2007 as compared to $18.0 million for fiscal 2006.

As a result of the termination of the installation services effective December 2006, the level of activity and operating results of the discontinued operation declined in fiscal 2007 as compared to fiscal 2006.

Net Income. Net income was $41.9 million for fiscal 2007 as compared to $18.2 million for fiscal 2006.
MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Revenues increased $26.5 million, or 10.2%, during the three months ended January 26, 2008 as compared to three months ended January 27, 2007. However, during the latter part of the quarter ended January 26, 2008, we experienced a significant decline in customer spending which was a product of a noticeable softening in the intensity with which a broad range of customers executed near-term spending plans. This was evidenced by the delayed approval of calendar 2008 budgets by certain customers, the pace with which approved budgets were executed during January, overall volumes of available work, and in certain instances, customer-specific delays. This decline was not the consequence of any noteworthy customer project cancellations.
Of the $26.5 million increase during the quarter ended January 26, 2008 as compared to the prior year period, $18.9 million was a result of an increase in specialty contracting services provided to telecommunications companies, $5.2 million was due to increased revenues from construction and maintenance services provided to electric utilities and other customers, and $2.4 million was due to an increase in underground facility locating services revenues. During the three months ended January 26, 2008, telecommunications customer revenue included $3.5 million provided from services performed by companies we acquired subsequent to the first quarter of fiscal 2007. The following table presents revenue by type of customer excluding the amounts attributed to companies acquired subsequent to the first quarter of fiscal 2007:

Excluding revenue from businesses acquired subsequent to the first quarter of fiscal 2007, revenues from specialty construction services provided to telecommunications companies were $212.1 million during the three months ended January 26, 2008, compared to $196.7 million during the three months ended January 27, 2007, an increase of 7.8%. This increase was primarily the result of an increase of $9.0 million for installation, maintenance and construction services provided to several cable multiple system operators, and approximately $2.6 million from additional work for a significant telephone customer maintaining and upgrading its network. The remaining increase is primarily the result of additional work for both new and existing customers.

Total revenues from underground facility locating during the three months ended January 26, 2008 were $48.9 million compared to $46.5 million during the three months ended January 27, 2007, an increase of 5.1%. The increase is a primarily a result of additional work for a significant telephone customer related to a contract that began subsequent to January 27, 2007.
Our total revenues from electric utilities and other construction and maintenance services increased $5.2 million, or 34.8%, during the three months ended January 26, 2008 as compared to the three months ended January 27, 2007. The increase was primarily attributable to additional construction work performed for a gas customer.

Revenues increased $85.6 million, or 16.2%, during the six months ended January 26, 2008 as compared to six months ended January 27, 2007. Of this increase, $72.6 million was a result of an increase in specialty contracting services provided to telecommunications companies, $7.7 million was due to increased revenues from construction and maintenance services provided to electric utilities and other customers, and $5.3 million was due to an increase in underground facility locating services revenues. However, as discussed above, during the latter part of the quarter ended January 26, 2008 we experienced a significant decline in customer spending.
During the six months ended January 26, 2008, telecommunications customer revenue included $53.2 million provided from services performed by companies we acquired during fiscal 2007. The following table presents revenue by type of customer excluding the amounts attributed to companies acquired during fiscal 2007:

Excluding revenue from businesses acquired during fiscal 2007, revenues from specialty construction services provided to telecommunications companies were $408.0 million during the six months ended January 26, 2008, compared to $358.1 million during the six months ended January 27, 2007, an increase of 14.0%. This increase was primarily the result of an increase of approximately $35.9 million for installation, maintenance and construction services provided to several cable multiple system operators, $13.8 million of additional revenue from a significant customer engaged in a fiber deployment project, and approximately $12.7 million from additional work for a significant telephone customer maintaining and upgrading its network. We also experienced increases from additional work for both new and existing customers. Partially offsetting all of these increases was a decline in revenue of approximately $5.6 million from a telephone customer.
Total revenues from underground utility facility locating during the six months ended January 26, 2008 were $107.3 million compared to $102.0 million during the six months ended January 27, 2007, an increase of 5.2%. The increase is a primarily a result of additional work for a significant telephone customer related to a contract that began subsequent to January 27, 2007.
Our total revenues from electric utilities and other construction and maintenance services increased $7.7 million, or 20.2%, during the six months ended January 26, 2008 as compared to the six months ended January 27, 2007. The increase was primarily attributable to additional construction work performed for a gas customer.
Costs of Earned Revenues. Costs of earned revenues increased $37.1 million to $247.9 million during the three months ended January 26, 2008 compared to $210.8 million during the three months ended January 27, 2007. The primary components of this increase were direct labor and subcontractor costs taken together, other direct costs, and direct materials, which increased $27.2 million, $9.4 million, and $0.5 million, respectively. These increases were primarily due to higher levels of operations during the three months ended January 26, 2008 and $7.6 million recorded for the settlement of the legal matter described above. During the three months ended January 26, 2008, as compared to the same period last year, costs of earned revenues as a percentage of contract revenues increased 5.5%, of which 2.7% was due to the accrual of the settlement of the legal matter described under “Overview” above. During the latter part of the quarter ended January 26, 2008, the Company experienced a decline in customer spending. The Company was unable to meaningfully reduce its labor and other direct costs during the period due to the pace of the unanticipated drop in customer spending. As a result, the Company’s overall cost of earned revenue as a percentage of contract revenues was higher during the second quarter of fiscal 2008 as compared to the same period in the prior year. Increases in labor and labor-related costs contributed 1.4% to the increase in cost of earned revenue as a percentage of contract revenues primarily due to increased subcontracted labor as a percentage of contract revenues. Other direct costs increased 1.7% as a percentage of contract revenues primarily due to increased vehicle, fuel and equipment rental costs. Partially offsetting these increases was a decrease of 0.3% in direct materials due to a decrease in those projects for which we provide materials to the customer during the three months ended January 26, 2008 as compared to the three months ended January 27, 2007.
Costs of earned revenues increased $80.7 million to $509.2 million during the six months ended January 26, 2008 from $428.5 million during the six months ended January 27, 2007. The primary components of this increase were direct labor and subcontractor costs taken together, other direct costs, and direct materials, which increased $62.8 million, $16.5 million, and $1.4 million, respectively. These increases were primarily due to higher levels of operations during the six months ended January 26, 2008, including the operation of Cable Express since its acquisition in September 2006, and $7.6 million accrued for the settlement of the legal matter described under “Overview” above. During the six months ended January 26, 2008, as compared to the same period last year, costs of earned revenues as a percentage of contract revenues increased 1.8% which included a 1.2% increase from labor and labor-related costs directly related from the accrued settlement for the legal matter described above. Other increases were primarily a result of the impact of our cost structure in relation to the lower than anticipated revenues due to a decline in customer spending during the latter part of the quarter ended January 26, 2008. Of the total increase in costs of earned revenues as a percentage of contract revenues, 0.9% was in labor and labor-related costs primarily related to the increased use of subcontracted labor during the six months ended January 26, 2008 as compared to the six months ended January 27, 2007. We also experienced an increase in other direct costs of 0.2% primarily due to increased vehicle, fuel, and equipment rental costs during the six months ended January 26, 2008 as compared to the six months ended January 27, 2007. Partially offsetting these increases was a decrease in direct materials of 0.5% due to a decrease in those projects for which we provide materials to the customer during the six months ended January 26, 2008 as compared to the six months ended January 27, 2007.
General and Administrative Expenses. General and administrative expenses increased $0.9 million to $22.3 million during the three months ended January 26, 2008 as compared to $21.4 million for the three months ended January 27, 2007. The increase in total general and administrative expenses for the three months ended January 26, 2008 compared to the prior year period was primarily due to increased legal and professional fees. Partially offsetting these increases was a decrease in performance cash award accruals due to the decline in operating results for the quarter ended January 26, 2008. Additionally, stock-based compensation expense during the three months ended January 26, 2008 decreased to $1.0 million from $1.6 million for the three months ended January 27, 2007, as management determined that it was not probable that the performance criteria of certain of the stock-based awards would be achieved for the fiscal 2008 performance period. As a result, no stock-based compensation expense was recognized on these awards during the six month period ended January 26, 2008. General and administrative expenses increased $4.8 million to $47.9 million during the six months ended January 26, 2008 as compared to $43.1 million for the six months ended January 27, 2007. The increase in total general and administrative expenses for the six months ended January 26, 2008 compared to the prior year period was primarily attributable to increased payroll expenses as a result of the growth of our operations, the incremental costs of Cable Express (which was acquired in September 2006), and increased legal and professional fees. The total amount of stock-based compensation expense during the six months ended January 26, 2008 was $3.2 million as compared to $3.3 million for the six months ended January 27, 2007. During the six months ended January 26, 2008, the Company had additional stock-based compensation related to restricted share awards granted in fiscal 2008, offset by reduced compensation expense for certain performance-based restricted share awards that management believes will not vest due to the financial performance criteria of the awards.
General and administrative expenses as a percentage of contract revenues were 7.8% and 8.3% for the three months ended January 26, 2008 and January 27, 2007, respectively. General and administrative expenses as a percentage of contract revenues were 7.8% and 8.1% for the six months ended January 26, 2008 and January 27, 2007, respectively. The decrease in general and administrative expenses as a percentage of contract revenues for the three and six months ended January 26, 2008 as compared to the same periods in fiscal 2007 is primarily a result of reduced accrued performance cash awards as a percentage of contract revenues due to the decline in operating results for the quarter ended January 26, 2008. The decrease in the three months ended January 26, 2008 was partially offset by increases in legal and professional fees as a percentage of contract revenues.

Depreciation and Amortization . Depreciation and amortization increased to $16.9 million during the three months ended January 26, 2008 from $14.1 million during the three months ended January 27, 2007. Depreciation and amortization increased to $33.0 million during the six months ended January 26, 2008 from $26.6 million during the six months ended January 27, 2007. Depreciation and amortization as a percentage of contract revenues increased to 5.9% during the three months ended January 26, 2008 compared to 5.5% during the three months ended January 27, 2007. Depreciation and amortization as a percentage of contract revenues increased to 5.4% during the six months ended January 26, 2008 compared to 5.0% during the six months ended January 27, 2007. The dollar amount of the increase for the current three and six month periods is primarily a result of increased capital expenditures during fiscal 2007 and fiscal 2008 to support our organic growth. The addition of fixed assets and intangible assets relating to the acquisition of Cable Express in September 2006 also contributed to the increase for the six months ended January 26, 2008 as compared to the six months ended January 27, 2007.
Interest Income. Interest income was $0.2 million during each of the three month periods ended January 26, 2008 and January 27, 2007 . Interest income decreased to $0.4 million during the six months ended January 26, 2008 as compared to $0.6 million during the six months ended January 27, 2007. This decrease is primarily a result of lower cash balances related to the acquisition of Cable Express (which was acquired in September 2006) and as a result of increased capital expenditures.
Interest Expense. Interest expense was $3.6 million during the three months ended January 26, 2008 as compared to $4.0 million during the three months ended January 27, 2007. Interest expense was $7.1 million during the six months ended January 26, 2008 as compared to $7.7 million during the six months ended January 27, 2007. The decrease in the three and six month periods ended January 26, 2008 was due to lower outstanding borrowings on our Credit Agreement, notes payable and capital leases, partially offset by an additional $0.2 million and $0.4 million in interest expense during the three months and six months ended January 26, 2008, respectively, as a result of the adoption of
FIN 48.
Other Income, Net. Other income decreased to $0.8 million during the three months ended January 26, 2008 as compared to $1.1 million during the three months ended January 27, 2007. The decrease in the three months ended January 26, 2008 as compared to the same period in the prior year is primarily a result of a lesser number of assets sold during the current three month period. Other income increased to $2.4 million during the six months ended January 26, 2008 as compared to $1.6 million during the six months ended January 27, 2007. This increase is primarily a result of a greater number of assets sold during the first three months of fiscal 2008 compared to the same period in fiscal 2007.

Variations in our tax rate are primarily attributable to the impact of non-deductible and non-taxable items in relation to our pre-tax income (loss) during the three and six month periods ended January 26, 2008 as compared to such items in the same periods in fiscal 2007. As of January 26, 2008, we had total unrecognized tax benefits of approximately $6.8 million. If it is subsequently determined those liabilities are not required, approximately $6.2 million would reduce our effective tax rate and $0.6 million would reduce goodwill during the periods recognized.
Income (Loss) from Continuing Operations . Loss from continuing operations was $3.1 million during the three months ended January 26, 2008 as compared to income of $5.6 million during the three months ended January 27, 2007. Income from continuing operations was $12.1 million during the six months ended January 26, 2008 as compared to $15.2 million during the six months ended January 27, 2007.

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