UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number 0-5423

DYCOM INDUSTRIES, INC.

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 report(s), and (2) has been subject to such filing requirements for the past 90 days.

Yes   [ X ]                No   [   ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

DYCOM INDUSTRIES, INC.

INDEX

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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

See notes to condensed consolidated financial statements – unaudited

3

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

See notes to condensed consolidated financial statements – unaudited

4

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

     See notes to condensed consolidated financial statements – unaudited

5

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

See notes to condensed consolidated financial statements – unaudited

6

     See notes to condensed consolidated financial statements – unaudited.

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1.     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited

The accompanying condensed consolidated balance sheets of Dycom Industries, Inc. (“Dycom” or the “Company”) as of April 27, 2002 and July 28, 2001, and the related condensed consolidated statements of operations for the three and nine months ended April 27, 2002 and April 28, 2001 and the condensed consolidated statements of cash flows for the nine months ended April 27, 2002 and April 28, 2001 reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three and nine months ended April 27, 2002 are not necessarily indicative of the results which may be expected for the entire year.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION – The condensed consolidated financial statements are unaudited. These statements include Dycom Industries, Inc. and its subsidiaries, all of which are wholly owned.

During fiscal 2002, the Company acquired Arguss Communications, Inc. (“Arguss”). During fiscal 2001, the Company acquired Point to Point Communications, Inc. (“PTP”), Stevens Communications, Inc. (“SCI”), and Nichols Holding, Inc. (“NCI”). These transactions were accounted for using the purchase method of accounting. The Company’s results include the results of these acquisitions from their respective acquisition dates until April 27, 2002. See Note 4.

The Company’s operations consist primarily of providing specialty contracting services to the telecommunications and electrical utility industries. All material intercompany accounts and transactions have been eliminated.

CHANGE IN FISCAL YEAR – On September 29, 1999, the Company changed to a fiscal year with 52 or 53 week periods ending on the last Saturday of July. This Quarterly Report presents financial information for the first, second, and third quarters of fiscal 2002, beginning July 29, 2001 and ending April 27, 2002.

USE OF ESTIMATES – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements.

Estimates are used in the Company’s revenue recognition of work-in-process, allowance for doubtful accounts, self-insured claims liability, and asset lives used in computing depreciation and amortization, including intangibles.

REVENUE – Income on short-term contracts is recognized as the related work is completed. Work-in-process on unit contracts is based on work performed but not billed. Income on long-term contracts is recognized on the percentage-of-completion method based primarily on the ratio of contract costs incurred to date to total estimated contract costs. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is accrued.

“Costs and estimated earnings in excess of billings” primarily relates to revenues for completed but unbilled units under unit based contracts, as well as revenues recognized under the percentage-of-completion method for long-term contracts. For those contracts in which billings exceed contract revenues recognized to date, such excesses are included in the caption “billings in excess of costs and estimated earnings.”

CASH AND EQUIVALENTS – Cash and equivalents include cash balances on deposit in banks, overnight repurchase agreements, certificates of deposit, commercial paper, and various other financial instruments having an original maturity of three months or less. For purposes of the consolidated statements of cash flows, the Company considers these amounts to be cash equivalents.

INVENTORIES – Inventories consist primarily of materials and supplies used to complete certain of the Company’s business. The Company values these inventories using the first-in, first-out method. The Company periodically reviews the appropriateness of the carrying value of its inventories. The Company records a reserve for obsolescence if inventories are not expected to be used in the Company’s normal course of business. No reserve has been recorded in the periods presented.

PROPERTY AND EQUIPMENT – Property and equipment is stated at cost. Depreciation and amortization are computed over the estimated useful life of the assets utilizing the straight-line method. The estimated useful service lives of the assets are: buildings —20-31 years; leasehold improvements — the term of the respective lease or the estimated useful life of the improvements, whichever is shorter; vehicles — 3-7 years; equipment and machinery — 2-10 years; and furniture and fixtures — 3-10 years. Maintenance and repairs are expensed as incurred; expenditures that enhance the value of the property or extend its useful life are capitalized. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income.

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INTANGIBLE ASSETS – As of July 29, 2001, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill is no longer amortized but reviewed for impairment on an annual basis, or more frequently if indicators of impairment in value arise.

Under the transitional provisions of SFAS No. 142, the Company recorded a non-cash impairment charge of $99.0 million ($86.9 million after tax) as of the first quarter 2002. The impairment charge has been recorded as a cumulative effect of change in accounting principle on the accompanying Condensed Consolidated Statement of Operations for the nine months ended April 27, 2002. The following reporting units were identified as reporting units in which an impairment loss was recognized: Apex Digital, Inc., Globe Communications, Inc., Locating, Inc., Point to Point Communications, Inc., Tesinc, Inc., Nichols Construction, Inc., C-2 Utility Contractors, Inc., and Lamberts’ Cable Splicing Co. The valuation of goodwill was performed by a third party specialist, employing a combination of present value techniques to measure fair value corroborated by comparisons to estimated market multiples. Any subsequent impairment losses will be reflected in operating income or loss in the Consolidated Statements of Operations in the period the impairment is determined.

The following unaudited pro forma summary presents the Company’s net income and per share information as if the Company had been accounting for its goodwill under SFAS No. 142 for all periods presented:

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Goodwill is net of accumulated amortization of approximately $12.8 million at April 27, 2002 and July 28, 2001.

Information regarding the Company’s other intangible assets is as follows:

Intangible assets totaled $1,879,884, net of accumulated amortization of $672,106, and $286,797, net of accumulated amortization of $332,183 at April 27, 2002 and July 28, 2001, respectively. The intangibles at April 27, 2002 consist of licenses, covenants not to compete, and backlog obtained as part of the Arguss acquisition.

Amortization expense was $304,083 and $1,953,752 for the three months ended April 27, 2002 and April 28, 2001, respectively, and $340,549 and $4,554,875 for the nine months ended April 27, 2002 and April 28, 2001, respectively. Estimated amortization expense for each fiscal 2002 and each of the four succeeding fiscal years is as follows:

SELF-INSURED CLAIMS LIABILITY – The Company retains the risk, up to certain limits, for automobile and general liability, workers’ compensation, and employee group health claims. A liability for unpaid claims and the associated claim expenses, including incurred but not reported losses, is actuarially determined and reflected in the consolidated financial statements as an accrued liability. The self-insured claims liability includes incurred but not reported losses of $11,037,742 and $6,205,274 at April 27, 2002 and July 28, 2001, respectively, of which approximately $3.1 million of the increase at April 27, 2002 is attributable to the acquisition of Arguss. The determination of such claims and expenses and the appropriateness of the related liability is periodically reviewed and updated.

CUSTOMER ADVANCES – Under the terms of certain contracts, the Company receives advances from customers that may be offset against future billings by the Company. The Company has recorded these advances as liabilities and has not recognized any revenue for these advances.

INCOME TAXES – The Company and its subsidiaries file a consolidated federal income tax return. Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities.

PER SHARE DATA – Earnings per common share-basic is computed using the weighted average common shares outstanding during the period. Earnings per common share-diluted is computed using the weighted average common shares outstanding during the period and the dilutive effect of common stock options, using the treasury stock method. See Note 3.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS – In August 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Based on our current analysis of SFAS No. 144, management does not believe it will have a material impact on the financial results of the Company.

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In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which supersedes Accounting Principles Board (“APB”) Opinion No. 17, “Intangible Assets SFAS No. 142.” SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill. SFAS No. 142 instead sets forth methods to periodically evaluate goodwill for impairment. The Company adopted SFAS No. 142 in the first quarter of 2002, eliminating the amortization of goodwill. The Company completed its valuation of goodwill and as a result, recorded a non-cash impairment of $99.0 million ($86.9 million after tax) as of the first quarter 2002. The valuation was prepared by a third party specialist and employed a combination of present value techniques to measure fair value corroborated by comparisons to estimated market multiples. Any subsequent impairment losses will be reflected in operating income or loss in the Consolidated Statements of Operations.

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3.     COMPUTATION OF PER SHARE EARNINGS

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computation as required by SFAS No. 128.

Options to purchase 2,347,404 and 2,346,671 shares of common stock were outstanding at April 27, 2002 and April 28, 2001, respectively, but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common share for the quarter-to-date and year-to-date periods, respectively.

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4.     ACQUISITIONS

In December 2000, the Company acquired PTP for $52.2 million in cash and 312,312 shares of Dycom common stock for an aggregate purchase price of $65.3 million before various transaction costs.

In January 2001, the Company acquired SCI for $9.9 million in cash and 76,471 shares of Dycom common stock for an aggregate purchase price of $12.5 million before various transaction costs.

In April 2001, the Company acquired NCI for $11.5 million in cash and 437,016 shares of Dycom common stock for an aggregate purchase price of $17.7 million before various transaction costs.

In February 2002, the Company acquired 100% of the outstanding capital stock of Arguss for 4,839,479 shares of Dycom common stock for an aggregate purchase price of approximately $85.0 million before various transaction costs. Arguss provides infrastructure services to cable and telecommunication companies. This acquisition provides Dycom with greater customer diversification and expanded Dycom’s geographical presence. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in connection with the acquisition of Arguss at the date of acquisition as accounted for under Statement of Financial Accounting Standards (“SFAS”) No. 141 “ Business Combinations”. SFAS No. 141 was effective for all business combinations after June 30, 2001 and requires the use of the purchase method of accounting.

The purchase price of Arguss is summarized below:

The allocation of the purchase price as of February 21, 2002 is summarized below:

The above purchase price allocation is preliminary. The final allocation of the purchase price will be determined based on the fair value of assets acquired and the fair value of liabilities assumed as of the date that the acquisition was consummated. At this time, intangible assets have been identified which would be valued apart from goodwill in the amount of approximately $1.9 million. These intangible assets will be amortized over a 15 month period. The purchase price allocation will remain preliminary until Dycom is able to (a) complete a third party valuation of property, plant and equipment acquired, (b) conduct a detailed review of the value of deferred tax assets and liabilities of Arguss, and (c) evaluate the fair value of other net assets, including intangibles and liabilities acquired. The final determination of the purchase price is expected to be completed by the end of the fourth quarter of fiscal 2002.

As a result of the acquisition of Arguss, the Company is currently holding the manufacturing subsidiary of Arguss for sale. The subsidiary manufactures and sells computer-controlled equipment used in the surface mount electronics circuit assembly industry. The disposition of this subsidiary is expected to be completed by the end of fiscal 2002. The Company does not anticipate that the ultimate disposition of this business will result in a material effect on its results of operations, financial position or cash flow. The subsidiary produced an operating loss of approximately $200,000 for the 3 months ended April 27, 2002. This loss has been excluded from the results of operations for the Company.

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In February 2002, Dycom paid off the long-term debt of Arguss. The total amount paid was approximately $58.0 million and was paid from available cash.

The Company has recorded all of the acquisitions referred to above using the purchase method of accounting. Under SFAS No. 142, goodwill associated with these acquisitions is no longer being amortized, but will be reviewed annually for impairment. The operating results of the companies acquired are included in the accompanying consolidated condensed financial statements from their respective date of purchase.

The following unaudited pro forma summaries present the consolidated results of operations of the Company as if the foregoing acquisitions had occurred on July 30, 2000:

In connection with certain of the acquisitions referred to above, the Company entered into employment contracts with certain executive officers varying in length from three to five years.

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5.     ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

For the periods indicated, the allowance for doubtful accounts changed as follows: