UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

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

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements—unaudited.

3

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements—unaudited.

4

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements—unaudited.

5

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements— unaudited.

6

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements—unaudited.

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

1. Basis of Presentation

     Dycom Industries, Inc. (“Dycom” or the “Company”) is a leading provider of specialty contracting services throughout the United States. These services 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. The Company uses a fiscal year ending the last Saturday in July. Fiscal year 2005 consists of 52 weeks, while fiscal year 2004 consisted of 53 weeks.

     The condensed consolidated financial statements are unaudited and include the results of Dycom and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated. The accompanying condensed consolidated balance sheets of the Company and the related condensed consolidated statements of operations and cash flows for the three and nine months 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 nine months ended April 30, 2005 are not necessarily indicative of the results that may be expected for the entire year. For a better understanding of the Company and its financial statements, the Company recommends reading these condensed consolidated financial statements in conjunction with the Company’s audited financial statements for the year ended July 31, 2004, which are included in Dycom’s 2004 Annual Report on Form 10-K, filed on October 12, 2004.

     Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. For the Company, key estimates include revenue recognition for work in progress, allowance for doubtful accounts, self-insured claims liability, valuation of goodwill and intangible assets, asset lives used in computing depreciation and amortization, including amortization of intangibles, and accounting for income taxes, contingencies and litigation. While 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, the actual results could differ from those estimates and such differences may be material to the financial statements.

     Restricted Cash — At April 30, 2005 and July 31, 2004, the Company had approximately $5.2 million and $6.5 million, respectively, in restricted cash. This cash is included in other current assets and other assets on the consolidated balance sheets and is held as collateral in support of projected workers’ compensation, automobile and general liability obligations .

     Short-term Investments — Short-term investments consisted of market auction rate debt securities classified as “available for sale” securities. The Company maintains its investments with various financial institutions and minimizes its credit risk associated with investments by only investing in investment grade, liquid securities. The securities are reported at fair value and the Company uses market quotes provided by third parties to adjust the carrying value of its investments to fair value at the end of each period with any related unrealized gains and losses included as a separate component of stockholders’ equity, net of applicable taxes. Realized gains and losses and interest and dividends are included in interest income or interest expense, as appropriate. There were no material realized or unrealized gains or losses related to the securities for any of the periods presented. The Company has reclassified approximately $20.0 million of short-term investments as of July 31, 2004 that were previously presented as cash and equivalents to conform to current period presentation. Additionally, for the nine months ended April 30, 2005 and April 24, 2004, the net change in short-term investments of $20.0 million and $37.5 million, respectively, is included as a component of cash flows used in investing activities. The available for sale securities were classified as current based on the Company’s intent and practice of selling the securities at the scheduled auction dates within twelve months.

     Accounting for Stock-Based Compensation - Under Statement of Financial Accounting Standards (“SFAS”) No. 123 and No. 148, companies are permitted to continue to apply Accounting Principles Board (“APB”) Opinion No. 25. APB Opinion No. 25 recognizes compensation expense based on the intrinsic value of the equity instrument awarded. The Company continues to apply APB Opinion No. 25 to its stock-based compensation awards. The fair value of the options granted in fiscal 2005 and 2004 has been estimated at the date of grant using the Black-Scholes option-pricing model, which was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Company’s options do not have the characteristics of traded options and the option valuation models do not necessarily provide a reliable measure of the fair value as they require the use of subjective assumptions. Changes in these assumptions can materially impact the fair value of the Company’s options. No stock-based compensation cost for stock option grants is reflected in net income as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. During the nine months ended April 30, 2005 and April 24, 2004, 922,400 and 874,676 options were granted, respectively. The pro forma weighted average fair value of options granted during the nine months ended April 30, 2005 was $19.89 per share based on a risk-free interest rate of 3.6%, an expected life of six years, expected volatility of 58.7% and no expected dividends. The pro forma weighted average fair value of options granted during the nine months ended April 24, 2004 was $14.63 per share based on a risk-free interest rate of 3.6%, an expected life of six years, expected volatility of 59.6% and no expected dividends. The pro forma disclosures required by SFAS No. 148 are presented below.

8

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment,” which amended SFAS No. 123. SFAS No. 123(R) requires measurement of the cost of share-based payment transactions to employees at the fair value of the award on the grant date and recognition of expense over the requisite service or vesting period. Prior to SFAS No. 123(R), only certain pro-forma disclosures of fair value were required. The pro forma compensation expense presented in the table above and in prior filings by the Company has been calculated using the Black-Scholes option pricing model. Those expenses may not be indicative of amounts which should be expected in future periods.

     In March 2005, the SEC released Staff Accounting Bulletin 107, Share Based Payments (SAB 107). The interpretations in SAB 107 express views of the SEC staff regarding the application of SFAS No. 123(R). SAB 107 provides interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations, as well as provides the SEC’s views regarding the valuation of share-based payment arrangements. In April 2005, the SEC adopted a new rule amending the effective dates of SFAS No. 123(R) for public companies by issuing Release 33-8568. The new rule allows registrants to implement SFAS No. 123(R) at the beginning of their next fiscal year that beings after June 15, 2005. SFAS No. 123(R) is effective for the Company in the first quarter of fiscal 2006. The Company is currently evaluating the impact of SFAS No. 123(R) and SAB 107, and believes the standard could have a material impact on the financial statements of the Company commencing in fiscal 2006.

     Comprehensive Income — During the first nine months of fiscal 2005 and fiscal 2004 the Company did not have any changes in its equity resulting from non-owner sources and, accordingly, comprehensive income was equal to the net income amounts presented for the respective periods in the accompanying Consolidated Statements of Operations.

2. Earnings Per Share

     Basic earnings per common share is computed by dividing net income by the weighted average common shares outstanding during the period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period and potentially dilutive common stock equivalents. Potential common stock equivalents that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method. 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.

9

3. Acquisitions

     On November 25, 2003, the Company acquired substantially all of the assets and assumed certain of the liabilities associated with those assets of First South Utility Construction, Inc. (“First South”). Consideration consisted of approximately $50.3 million in cash, adjusted for cash received by the Company from the settlement of an escrow agreement in the second quarter of 2005, and 175,840 shares of Dycom’s common stock. In conjunction with the acquisition, the Company also paid approximately $9 million for excess working capital consisting primarily of accounts receivable and unbilled revenue. First South provided specialty contracting services to telecommunications customers.

     On December 3, 2003, the Company acquired UtiliQuest Holdings Corp. (“UtiliQuest”) for a cash purchase price of approximately $116.1 million. UtiliQuest is a provider of underground locating services. Under the terms of the purchase agreement, UtiliQuest merged with a newly-formed subsidiary of the Company and survived as a wholly owned subsidiary of the Company. In connection with the acquisition, the Company borrowed approximately $85.0 million under its previous credit agreement. This amount was repaid during fiscal 2004 .

     On September 21, 2004, the Company acquired certain assets and assumed certain liabilities of RJE Telecom, Inc. (“RJE”) for a purchase price of approximately $9.8 million in cash. RJE provides specialty contracting services primarily to telephone companies.

     The Company accounted for the acquisitions above using the purchase method of accounting. Accordingly, the purchase price has been allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values on the acquisition date. The purchase price allocation for the RJE acquisition is preliminary as the Company continues to assess the valuation of the acquired assets and liabilities. Purchase price in excess of the fair value of the net tangible and identifiable intangible assets acquired has been allocated to goodwill. The operating results of the companies acquired are included in the accompanying consolidated financial statements from their respective date of purchase. The purchase prices of the above acquisitions were allocated as follows:

10

     Management determined the fair values used in the purchase price allocation for intangible assets with the assistance of independent valuation specialists based on estimated discounted future cash flows, royalty rates and historical data, among other information. Goodwill of approximately $42.8 million and $37.0 million is expected to be deductible for tax purposes related to the acquisitions of First South and UtiliQuest, respectively. The purchase price of the acquisitions was allocated as follows:

11

     The following unaudited pro forma summaries present the Company’s consolidated results of operations as if RJE, First South and UtiliQuest acquisitions had occurred on July 27, 2003, the first day of the Company’s fiscal year 2004.

4. Accounts Receivable

     Accounts receivable consist of the following:

     The allowance for doubtful accounts changed as follows:

     As of April 30, 2005 and April 24, 2004, the Company expected to collect all retainage balances within the next twelve months.

     In the second quarter of fiscal 2004, the Company sold accounts receivable which consisted of pre-petition trade receivables due from Adelphia Communications Corporation with a carrying value of $21.6 million. The Company received proceeds on the sale of $34.2 million and recorded a gain on the sale, net of expenses, of $11.4 million. In the third quarter of fiscal 2004, the Company recorded $0.9 million for the recovery of previously written off accounts receivable.

12

5. Costs and Estimated Earnings on Contracts in Progress

     Costs and estimated earnings on contracts in progress, net of progress billings, are as follows:

6. Property and Equipment

     The accompanying consolidated balance sheets include the following property and equipment:

     Depreciation expense and repairs and maintenance expense for the three and nine months ended April 30, 2005 and April 24, 2004 were as follows:

13

7. Intangible Assets

     Intangible assets included in the accompanying consolidated balance sheets are as follows:

     Amortization expense was $838,991 and $663,667 for the three months ended April 30, 2005 and April 24, 2004, respectively, and $2,469,590 and $1,192,378 for the nine months ended April 30, 2005 and April 24, 2004, respectively. Amortization for the Company’s customer relationships is recognized on an accelerated basis related to the expected economic benefit while the amortization for other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life of the intangible assets. Estimated amortization expense for fiscal 2005 and each of the four succeeding years and thereafter is as follows:

8. Accrued Self-Insured Claims

     The Company retains the risk, up to certain limits, for automobile liability, general liability, workers’ compensation, employee group health claims, and locate damage 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 locate damage claims result from property and other damages arising in connection with the Company’s utility locating services. Claims are estimated and developed by the Company based on facts, circumstances and historical evidence. The self-insured claims liability includes incurred but not reported losses of approximately $24.5 million and $20.7 million at April 30, 2005 and July 31, 2004, respectively.

     Factors affecting the determination of amounts to be accrued for self-insured claims include, but are not limited to, the expected cost for existing and anticipated claims, the frequency of claims, payment patterns for incurred claims, the hazard level of our operations, the overall level of medical cost inflation, changes in the medical conditions of claimants, economic factors such as inflation, tort reform or other legislative changes, unfavorable jury decisions and court interpretations. The calculation of the estimated accrued liability for self-insured claims is subject to inherent uncertainty. If actual results significantly differ from estimates used to calculate the liability, the Company’s financial condition and results of operations may be materially impacted.

14

     With regard to losses occurring in fiscal year 2005, the Company has retained the risk to $1.0 million on a per occurrence basis for workers compensation and for automobile liability and to $250,000 for general liability with the exception of UtiliQuest. For UtiliQuest, the Company has retained the risk to $2.0 million for general liability. Within its umbrella coverage, the Company has retained the risk of loss for automobile liability and general liability and damage claims between $2.0 and $5.0 million, on a per occurrence basis, with an aggregate stop loss for this layer of $10.0 million. The retention amounts are applicable in those states in which the Company operates and is allowed to retain the risk. For fiscal year 2005, the Company has an aggregate stop loss coverage for these exposures at a stated retention of approximately $33.8 million and an umbrella liability coverage to a policy limit of $75.0 million.

     For losses under the Company’s employee health plan occurring during fiscal 2005, the Company has retained the risk, on an annual basis, of $200,000 per participant. For fiscal 2005, the Company has an aggregate stop loss coverage for this exposure at the stated retention of approximately $27.5 million.

     Accrued self-insured claims consist of the following:

9. Other Accrued Liabilities

     Other accrued liabilities consist of the following:

15

10. Notes and Capital Leases Payable

     Notes and capital leases payable are summarized as follows:

     During the second quarter of fiscal 2005, the Company and a syndicate of banks entered into a new five-year $300 million unsecured revolving Credit Agreement (“Credit Agreement”) that replaced the Company’s prior credit agreement. The Credit Agreement provides the Company with a commitment of $300 million for a five-year period and includes a $100 million sublimit for the issuance of letters of credit. As of April 30, 2005, the Company had $37.3 million of outstanding letters of credit issued under the Credit Agreement. The outstanding letters of credit are primarily issued to insurance companies as part of the Company’s self-insurance program.

     The Credit Agreement requires that the Company maintain certain financial covenants and imposes certain conditions including restricting its ability to encumber assets or incur certain types of indebtedness. The Company must maintain a leverage ratio of not greater than 2.75:1.00 and maintain an interest coverage ratio of not less than 2.75:1.00, in each case as measured at the end of each fiscal quarter. The Company must also maintain consolidated tangible net worth of not less than $200,000,000 plus the sum of (i) 50% of consolidated net income (if positive) from December 21, 2004 to the date of computation and (ii) 75% of the equity issuances made from December 21, 2004 to the date of computation. At April 30, 2005, the Company was in compliance with all financial covenants and conditions under the Credit Agreement.

     At the Company’s option, loans under the Credit Agreement bear interest, at either the bank’s Base Rate or LIBOR, plus a spread. This spread is predicated upon the Company’s current leverage ratio. The bank’s Base Rate is the greater of the lead bank’s prime rate or the federal funds rate plus 0.50%. At April 30, 2005, the Company’s borrowings would be at the bank’s Base Rate or LIBOR plus a spread of 1.0%. The Company deferred approximately $1.4 million of fees related to the Credit Agreement, which are being amortized over its five year term. In addition, the Company is required to pay a quarterly facility fee, at rates that range from 0.200% to 0.375% of the unutilized commitments depending on the Company’s leverage ratio. However, in the event the Company is utilizing less than one-third of the facility the fee will be .375% of the unutilized commitments. Obligations under the credit agreement are guaranteed by certain material subsidiaries of the Company.

     As part of the acquisition of UtiliQuest, the Company assumed the obligations of UtiliQuest under a long-term note to a former owner of a subsidiary of UtiliQuest in the amount of $3.6 million. This note bears interest at 6%, payable semi-annually on March 31 and September 30, and is due on November 16, 2006. Amounts due may be set-off against certain indemnification claims, if any, by UtiliQuest against the obligor. Additionally, as part of the acquisition, the Company acquired capital lease obligations with respect to certain vehicles and computer equipment that expire at various dates into fiscal 2007. Future minimum lease payments for the capital leases are as follows:

16

11. Other income, net

     The components of other income, net, are as follows:

12. Commitments and contingencies

     The federal employment tax returns for two of the Company’s subsidiaries have been audited by the Internal Revenue Service (“IRS”). As a result of the audit, the Company received an original proposed assessment from the IRS in March 2004. At issue, according to the examination reports, are the taxpayers’ characterization of certain employee reimbursements for the years 2000 and 2001. The Company reached an agreed assessment with the IRS regarding one of the two subsidiaries. The amount of the agreed assessment, which was paid in the first quarter of fiscal 2005, was recorded against the accrual for this matter that the Company established in fiscal 2004. Subsequent to this agreement, $7.4 million of the proposed assessment is still at issue. The Company continues to disagree with the amount of the proposed assessment with respect to the other subsidiary and is pursuing an administrative appeal of this matter which the Company intends to vigorously defend. The Company believes it has a number of legal defenses available that may substantially reduce the proposed assessment and has therefore not recorded any significant liability with respect to the remaining assessment.

     In the normal course of business, certain of the Company’s subsidiaries have pending claims and legal proceedings. It is the opinion of the Company’s management, based on information available at this time, that none of the current claims or proceedings will have a material effect on the Company’s consolidated financial statements.

13. Capital Stock

     On November 23, 2004 and January 3, 2005 the Company granted 3,500 and 46,500 restricted shares, respectively, of its common stock to the Chief Operating Officer of the Company, pursuant to his employment agreement. The restricted shares vest over a period of four years on December 31 of each year. Upon issuance of the restricted shares, deferred compensation aggregating $1.5 million was charged to stockholders’ equity for the fair value of the restricted stock and is being recognized as compensation expense ratably over the four year vesting period. Non-cash compensation expense of approximately $0.1 million was recognized during the three and nine months ended April 30, 2005 related to the vesting of the restricted shares.

     On November 25, 2003 and January 2, 2004, the Company granted 5,000 and 100,000 restricted shares, respectively, of its common stock to the Chief Executive Officer of the Company, pursuant to his employment agreement. The restricted shares vest over a period of four years on December 31 of each year. Upon issuance of the restricted shares, deferred compensation aggregating $2.8 million was charged to stockholders’ equity for the fair value of the restricted stock and is being recognized as compensation expense ratably over the four year vesting period. Non-cash compensation expense of approximately $0.2 million and $0.5 million was recognized during the three and nine months ended April 30, 2005, respectively, related to the vesting of the restricted shares.

     On November 25, 2003, the Company issued 175,840 shares of common stock in connection with the acquisition of substantially all of the assets of First South and the assumption of certain liabilities associated with those assets.

     On February 24, 2003, the Board of Directors authorized the repurchase of up to $25 million worth of the Company’s common stock over an eighteen-month period. No shares were repurchased under this program which expired in August 2004.

     On November 26, 2002, the shareholders of the Company approved the 2002 Directors Restricted Stock Plan whereby non-employee directors must elect to receive a minimum percentage of their annual retainer fees in restricted shares of the Company’s common stock. The Company has reserved 100,000 shares of its common stock for issuance under the plan. The number of restricted shares of the Company’s common stock to be granted is based on the fair market value of a share of common stock on the date such fees are payable. As of April 30, 2005, 9,778 shares had been issued under this plan at a weighted average market price of $21.90 per share.

17

14. Related Party Transactions

     The Company leases administrative offices from entities related to officers of certain of its subsidiaries. The total expense under these arrangements for the three months ended April 30, 2005 and April 24, 2004 was $313,038 and $372,905, respectively, and $943,292 and $1,184,062 for the nine months ended April 30, 2005 and April 24, 2004, respectively. The remaining future minimum lease commitments under these arrangements during each fiscal year through fiscal year 2009 and thereafter is as follows:

15. Segment Information

     The Company operates throughout the United States in one reportable segment as a specialty contractor. The Company provides 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. These services are provided by the Company’s various subsidiaries. All of the Company’s subsidiaries have been aggregated into one reporting segment due to their similar customer bases, products and production methods, and distribution methods. The following table presents information regarding contract revenues by type of customer:

18

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

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. 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 expenditure and maintenance budgets of our telecommunications customers may be impacted by consumer demands on telecom providers, actions of the Federal Communications Commission and general economic conditions, while the balance of our services are primarily impacted by general economic conditions. For the nine months ended April 30, 2005, specialty contracting services related to the telecommunications industry, underground utility locating and electric and other construction and maintenance to electric utilities and others contributed approximately 74.9%, 21.1% and 4.0%, respectively, to our total contract revenues.

     A significant portion of our services are covered by multi-year master service agreements and we are currently a party to approximately 200 master service agreements. Master service agreements generally have the following characteristics: contract periods of one or more years, exclusivity and customer specified service requirements. In addition, master service agreements typically provide that we will furnish a specified unit of service for a specified unit price (i.e., fiber optic cable will be installed underground for a specified rate of dollars per foot). In some cases, a customer may terminate these agreements for convenience with written notice. Recently master service agreements have tended to be obtained or extended on negotiated terms, while historically these agreements have primarily been awarded through a competitive bidding process.

     The remainder of our services are provided pursuant to contracts for particular jobs. Long-term contracts relate to specific projects with terms in excess of one year from the contract date. Short-term contracts generally are 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 subject to project completion and acceptance by the customer.

     The following table summarizes our contract revenues from long-term contracts, including multi-year master service agreements as a percentage of total contract revenues:

     For the three months ended April 30, 2005 and April 24, 2004, the percent of revenue derived from long-term contracts and multi-year master service agreements has remained relatively consistent. The percentage increase in revenue derived from long-term contracts, including multi-year master service agreements, for the nine months ended April 30, 2005 compared to April 24, 2004 is primarily due to agreements in place at UtiliQuest Holdings Corp. (“UtiliQuest”) which was acquired in December 2003. Many of the UtiliQuest agreements are multi-year master service agreements which have increased the number of multi-year service agreements as a percentage of all total long-term contracts.

     Revenues from services provided to customers are reported as earned and are recognized when services are performed. The majority of our contracts are based on the units of delivery method and revenue is recognized as the unit is completed. Revenue on other percentage of completion contracts is recognized based 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.

     We derive a significant amount of our revenue from telecommunications companies. During fiscal 2002 and into fiscal 2003, certain segments of the telecommunications industry suffered a severe downturn that resulted in certain of our customers experiencing financial difficulties. Several of our customers filed for bankruptcy protection, including Adelphia Communications Corporation (“Adelphia”) and WorldCom, Inc. (“WorldCom”). The downturn in the telecommunications industry in fiscal 2002 and 2003

19

adversely affected capital expenditures for infrastructure projects even among customers that were not experiencing financial difficulties. Generally, capital expenditures by telecommunications customers increased in fiscal 2004 and 2005. Although the Company does not believe that any of its significant customers are experiencing significant financial difficulty as of April 30, 2005, additional bankruptcies of companies in the telecommunications sector could reduce our cash flows and adversely impact our liquidity.

     A significant portion of our revenue comes from several large customers. The following table reflects the percentage of total contract revenue received from customers contributing at least 2.5% of our total contract revenue in either the three or nine month period ending April 30, 2005 or April 24, 2004:

     Cost of earned revenues includes all the direct costs of providing services under our contracts, including those for construction personnel, subcontractors, operation of capital equipment (excluding depreciation), and insurance. Our customers generally provide the materials that are to be used for a particular contract and we provide the personnel, tools, and equipment to perform the installation services. The materials supplied by our customers are not included in our revenue or costs of sales as the customer retains the financial and performance risk associated with the materials. We retain the risk, up to certain limits, for automobile liability, general liability, workers’ compensation, employee group health claims, and locate damage claims. A change in 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 subsidiary management personnel and administrative overhead. Our management personnel, including subsidiary management, perform substantially all sales and marketing functions as part of their management responsibilities and, accordingly, we have not incurred material selling expenses.

Acquisitions

     On November 25, 2003, we acquired substantially all of the assets and assumed certain of the liabilities associated with those assets of First South Utility Construction, Inc. (“First South”). Consideration consisted of approximately $50.3 million in cash, adjusted for cash we received from the settlement of an escrow agreement in the second quarter of 2005, and 175,840 shares of Dycom’s common stock. In conjunction with the acquisition, we also paid approximately $9 million for excess working capital consisting primarily of accounts receivable and unbilled revenue. The purchase price was paid from cash on hand. First South provided specialty contracting services to telecommunications customers.

20

     On December 3, 2003, we acquired UtiliQuest for a cash purchase price of approximately $116.1 million. UtiliQuest is a provider of underground locating services. Under the terms of the purchase agreement, UtiliQuest merged with a newly-formed subsidiary of the Company and survived as a wholly owned subsidiary of the Company. In connection with the acquisition, we borrowed approximately $85.0 million under our previous credit agreement. This amount was repaid during fiscal 2004.

     On September 21, 2004, we acquired certain assets and assumed certain liabilities of RJE Telecom Inc. (“RJE”), for a purchase price of approximately $9.8 million in cash. RJE provides specialty contracting services primarily to telephone companies.

     As part of our growth strategy, we may acquire companies that expand, complement, or diversify our business. We regularly review various strategic opportunities and periodically engage in discussions regarding such possible acquisitions. Our ability to sustain our growth and maintain our competitive position may be affected by our ability to achieve our acquisition strategy and successfully integrate any businesses acquired.

Critical Accounting Policies and Estimates

     The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate these estimates and assumptions, including those related to revenue recognition for work in progress, allowance for doubtful accounts, self-insured claims liability, valuation of goodwill and intangible assets, asset lives used in computing depreciation and amortization, including amortization of intangibles, and accounting for income taxes, contingencies and litigation. Application of these estimates and assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the year ended July 31, 2004 for further information regarding our critical accounting policies and estimates.

21

Results of Operations

The following table sets forth, as a percentage of contract revenues earned, certain items in our condensed consolidated statements of operations for the periods indicated: