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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to________
Commission file number 0-5423
DYCOM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Florida 59-1277135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4440 PGA Boulevard, Suite 600
Palm Beach Gardens, Florida 33410
(Address of principal executive office) (Zip Code)
(561) 627-7171
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of March 6, 1998
_____ __________________________________
Common Stock, par value $0.33 1/3 12,886,766
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DYCOM INDUSTRIES, INC.
INDEX
Page No.
________
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
January 31, 1998 and July 31, 1997 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
January 31, 1998 and 1997 4
Condensed Consolidated Statements of
Operations for the Six Months Ended
January 31, 1998 and 1997 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
January 31, 1998 and 1997 6-7
Notes to Condensed Consolidated
Financial Statements 8-15
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16-20
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holder 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
January 31, July 31,
1998 1997
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 29,454,502 $ 6,645,972
Accounts receivable, net 34,927,156 34,353,367
Costs and estimated earnings in
excess of billings 11,424,220 10,479,974
Deferred tax assets, net 2,114,249 2,168,763
Other current assets 1,800,469 1,550,545
Total current assets 79,720,596 55,198,621
PROPERTY AND EQUIPMENT, net 29,833,292 27,543,238
OTHER ASSETS:
Intangible assets, net 4,606,813 4,684,358
Deferred tax assets 304,980 424,205
Other 368,468 311,473
Total other assets 5,280,261 5,420,036
TOTAL $114,834,149 $ 88,161,895
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,195,512 $ 10,281,615
Notes payable 3,785,645 13,080,316
Billings in excess of costs and
estimated earnings 470,940
Accrued self-insured claims 1,712,575 2,011,622
Income taxes payable 20,061 1,230,376
Other accrued liabilities 9,716,462 11,904,304
Total current liabilities 21,430,255 38,979,173
NOTES PAYABLE 9,135,675 9,012,066
ACCRUED SELF-INSURED CLAIMS 6,426,246 6,418,400
Total liabilities 36,992,176 54,409,639
COMMITMENTS AND CONTINGENCIES, Note 10
STOCKHOLDERS' EQUITY:
Common stock, par value $.33 1/3 per share:
50,000,000 shares authorized; 12,883,071
and 10,867,877 shares issued and
outstanding, respectively 4,294,357 3,622,625
Additional paid-in capital 62,077,025 25,421,701
Retained earnings 11,470,591 4,707,930
Total stockholders' equity 77,841,973 33,752,256
TOTAL $114,834,149 $ 88,161,895
See notes to condensed consolidated financial statements--unaudited.
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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
January 31, January 31,
1998 1997
REVENUES:
Contract revenues earned $ 61,914,247 $ 57,128,034
Other, net 708,106 147,277
Total 62,622,353 57,275,311
Expenses:
Costs of earned revenues
excluding depreciation 48,418,138 46,254,920
General and administrative 6,497,794 5,404,650
Depreciation and amortization 2,289,409 2,040,334
Total 57,205,341 53,699,904
INCOME BEFORE INCOME TAXES 5,417,012 3,575,407
PROVISION (BENEFIT) FOR INCOME TAXES:
Current 1,809,833 1,592,992
Deferred 360,468 (331,751)
Total 2,170,301 1,261,241
NET INCOME $ 3,246,711 $ 2,314,166
EARNINGS PER COMMON SHARE:
Basic $0.26 $0.22
Diluted $0.25 $0.21
See notes to condensed consolidated financial statements--unaudited.
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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Six Months Ended
January 31, January 31,
1998 1997
REVENUES:
Contract revenues earned $132,422,006 $113,450,390
Other, net 994,038 239,333
Total 133,416,044 113,689,723
Expenses:
Costs of earned revenues
excluding depreciation 103,980,781 91,264,570
General and administrative 13,287,851 10,755,628
Depreciation and amortization 4,564,968 4,112,878
Total 121,833,600 106,133,076
INCOME BEFORE INCOME TAXES 11,582,444 7,556,647
PROVISION (BENEFIT) FOR INCOME TAXES:
Current 4,646,044 3,792,612
Deferred 173,739 (786,172)
Total 4,819,783 3,006,440
NET INCOME $ 6,762,661 $ 4,550,207
EARNINGS PER COMMON SHARE:
Basic $0.58 $0.42
Diluted $0.57 $0.42
See notes to condensed consolidated financial statements--unaudited.
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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
January 31, January 31,
1998 1997
Increase (Decrease) in Cash and Equivalents from:
OPERATING ACTIVITIES:
Net income $ 6,762,661 $ 4,550,207
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 4,564,968 4,112,878
(Gain) on disposal of assets (229,591) (86,606)
Deferred income taxes 173,739 (786,172)
Changes in assets and liabilities:
Accounts receivable, net (573,789) (7,795,048)
Unbilled revenues, net (1,415,186) (1,749,032)
Other current assets (249,924) (145,161)
Other assets (56,995) (41,221)
Accounts payable (4,086,103) 6,322,235
Accrued self-insured claims and
other liabilities (2,479,043) (1,057,930)
Accrued income taxes (1,015,832) 598,617
Net cash inflow from operating activities 1,394,905 3,922,767
INVESTING ACTIVITIES:
Capital expenditures (7,388,349) (6,017,905)
Proceeds from sale of assets 840,463 235,896
Net cash outflow from investing activities (6,547,886) (5,782,009)
FINANCING ACTIVITIES:
Borrowings on notes payable
and bank lines-of-credit 7,811,741 2,904,577
Principal payments on notes payable
and bank lines-of-credit (16,982,803) (2,968,385)
Exercise of stock options 173,955 278,437
Proceeds from stock offering 36,958,618
Net cash inflow from financing activities 27,961,511 214,629
NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES 22,808,530 (1,644,613)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 6,645,972 3,927,736
CASH AND EQUIVALENTS AT END OF PERIOD $ 29,454,502 $ 2,283,123
See notes to condensed consolidated financial statements--unaudited.
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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Six Months Ended
January 31, January 31,
1998 1997
SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest $ 890,852 $ 827,528
Income taxes 5,664,751 3,209,615
Property and equipment acquired and
financed with:
Capital lease obligation $ 601,024
Income tax benefit related to incentive
stock options exercised $ 194,483 $ 132,569
See notes to condensed consolidated financial statements--unaudited.
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DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--Unaudited
1. The accompanying condensed consolidated balance sheets of Dycom
Industries, Inc. ("Dycom" or the "Company") as of January 31, 1998 and July
31, 1997, and the related condensed consolidated statements of operations for
the three and six months ended January 31, 1998 and 1997 and the condensed
consolidated statements of cash flows for the six months ended January 31,
1998 and 1997 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 six months ended January 31, 1998 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. On July 29, 1997,
Communications Construction Group, Inc. ("CCG") was merged with and into the
Company through an exchange of common stock. The merger was accounted for as
a pooling of interests. Accordingly, the Company's condensed consolidated
financial statements include the results of CCG for all periods presented.
See Note 4.
The Company's operations consist primarily of engineering, construction and
maintenance services provided to the telecommunications industry as well as,
underground utility locating services and maintenance and construction services
provided to the electric utility industry. All material intercompany accounts
and transactions have been eliminated.
USE OF ESTIMATES-- The preparation of financial statements in conformity with
generally accepted accounting principles 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, deferred tax
asset valuation allowance, depreciation and amortization, and in the
estimated lives of assets, including intangibles.
REVENUE-- 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. As some of these contracts extend
over one or more years, revisions in cost and profit estimates during the
course of the work are reflected in the accounting period as the facts that
require the revision become known. At the time a loss on a contract becomes
known, the entire amount of the estimated ultimate loss is accrued. Income
on short-term unit contracts is recognized as the related work is completed.
Work-in-process on unit contracts is based on management's estimate of work
performed but not billed.
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"Costs and estimated earnings in excess of billings" represents the excess of
contract revenues recognized under the percentage-of-completion method of
accounting for long-term contracts and work-in-process on unit contracts over
billings to date. 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 deposits,
commercial paper, and various other financial instruments having a maturity
of three months or less. For purposes of the condensed consolidated
statements of cash flows, the Company considers these amounts to be cash
equivalents. The carrying amount reported in the condensed consolidated
balance sheets for cash and equivalents approximates its fair value.
PROPERTY AND EQUIPMENT-- Property and equipment is stated at cost, reduced in
certain cases by valuation reserves. Depreciation and amortization is
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--3-10 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.
INTANGIBLE ASSETS-- The excess of the purchase price over the fair market
value of the tangible net assets of acquired businesses (goodwill) is
amortized on a straight-line basis over 40 years. The appropriateness of the
carrying value of goodwill is reviewed periodically by the Company at the
subsidiary level. An impairment loss is recognized when the projected future
cash flows is less than the carrying value of goodwill. No impairment loss
has been recognized in the periods presented.
Amortization expense was $77,545 for each of the six month periods ended
January 31, 1998 and 1997. The intangible assets are net of accumulated
amortization of $1,228,903 at January 31, 1998 and $1,151,358 at July 31, 1997.
SELF-INSURED CLAIMS LIABILITY-- The Company is primarily self-insured, 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 condensed consolidated financial
statements as an accrued liability. The self-insured claims liability
includes incurred but not reported losses of $4,969,000 and $4,429,000 at
January 31, 1998 and July 31, 1997, respectively. The determination of such
claims and expenses and the appropriateness of the related liability is
continually reviewed and updated.
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.
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A valuation allowance is provided when it is more likely than not that some
portion of the Company's deferred tax assets will not be realized.
The valuation allowance recorded in the condensed consolidated financial
statements reduces deferred tax assets to an amount that represents
management's best estimate of the amount of deferred tax assets that more
likely than not will be realized. Management's estimate and conclusion is
based on the available evidence supporting the reversing deductible temporary
differences being offset by reversing taxable temporary differences and the
existence of sufficient taxable income within the current carryback periods.
Accordingly, at January 31, 1998 and July 31, 1997, deferred tax assets are
net of a valuation allowance of $475,185.
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 June 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income" which establishes
standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. This statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. This statement is
effective for fiscal years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information" which establishes standards for public
business enterprises to report information about operating segments in
interim financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes the standards for related
disclosures about products and services, geographic areas, and major
customers. This statement requires that a public business enterprise report
financial and descriptive information about its reportable operating
segments. The financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance. This
statement is effective for financial statements for periods beginning after
December 15, 1997.
Management is currently evaluating the requirements of SFAS No. 130 and 131,
respectively.
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3. ACCOUNTING CHANGE
In February 1997, the FASB issued SFAS No. 128 "Earnings per Share" which
changes the method of calculating earnings per share and was effective for
the Company in the quarter ended January 31, 1998. All periods presented
have been restated in accordance with the provisions of SFAS No. 128.
The following is a reconciliation of the numerators and denominators of the
basic and diluted per share computation as required by SFAS No. 128.
For the Three Months Ended For the Six Months Ended
January 31, January 31, January 31, January 31,
1998 1997 1998 1997
Net income
available to common
stockholders (numerator) $ 3,246,711 $ 2,314,166 $ 6,762,661 $ 4,550,207
Weighted-average number of
common shares (denominator) 12,613,004 10,734,652 11,741,418 10,726,173
Earnings per common
share - basic $0.26 $0.22 $0.58 $0.42
Weighted-average number of
common shares 12,613,004 10,734,652 11,741,418 10,726,173
Common stock equivalents
arising from stock options 191,060 188,034 187,272 213,836
Total shares (denominator) 12,804,064 10,922,686 11,928,690 10,940,009
Earnings per common
share - diluted $0.25 $0.21 $0.57 $0.42
4. ACQUISITION
On July 29, 1997, the Company consummated the CCG acquisition by merger. The
Company issued 2,053,242 shares of common stock in exchange for all the
outstanding capital stock of CCG. Dycom has accounted for the acquisition as
a pooling of interests and, accordingly, the Company's historical condensed
financial statements include the results of CCG for all periods presented.
Prior to the acquisition, CCG used a fiscal year ending May 31 and as of
July 31, 1997 adopted Dycom's fiscal year. The Company's three and six
months condensed consolidated statements of operations and cash flows for the
period ended January 31, 1997 combines the three and six months operations
and cash flows for the period ended November 30, 1996 of CCG.
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5. ACCOUNTS RECEIVABLE
Accounts receivable, net consist of the following:
January 31, July 31,
1998 1997
Contract billings $ 34,224,585 $ 32,586,289
Retainage 1,568,668 1,885,656
Other receivables 426,657 896,015
Total 36,219,910 35,367,960
Less allowance for doubtful accounts 1,292,754 1,014,593
Accounts receivable, net $ 34,927,156 $ 34,353,367
6. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS
The accompanying condensed consolidated balance sheets include costs and
estimated earnings on contracts in progress, net of progress billings as
follows:
January 31, July 31,
1998 1997
Costs incurred on contracts in progress $ 17,880,968 $ 16,894,451
Estimated earnings thereon 3,047,592 3,222,120
20,928,560 20,116,571
Less billings to date 9,504,340 10,107,537
$ 11,424,220 $ 10,009,034
Included in the accompanying condensed
consolidated balance sheets under
the captions:
Costs and estimated earnings in
excess of billings $ 11,424,220 $ 10,479,974
Billings in excess of costs and
estimated earnings (470,940)
$ 11,424,220 $ 10,009,034
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7. PROPERTY AND EQUIPMENT
The accompanying condensed consolidated balance sheets include the following
property and equipment:
January 31, July 31,
1998 1997
Land $ 1,632,755 $ 1,942,247
Buildings 2,350,868 2,346,993
Leasehold improvements 1,396,793 1,356,861
Vehicles 35,352,189 32,232,343
Equipment and machinery 24,751,747 23,674,176
Furniture and fixtures 5,656,439 5,011,660
Total 71,140,791 66,564,280
Less accumulated depreciation and
amortization 41,307,499 39,021,042
Property and equipment, net $ 29,833,292 $ 27,543,238
Certain subsidiaries of the Company entered into lease arrangements accounted
for as capitalized leases. The carrying value of capital leases at January
31, 1998 and July 31, 1997 was $634,595 and $838,137, respectively, net of
accumulated depreciation of $916,746 and $881,336, respectively. Capital
leases are included as a component of equipment and machinery.
8. NOTES PAYABLE
Notes payable are summarized by type of borrowings as follows:
January 31, July 31,
1998 1997
Bank Credit Agreements:
Revolving credit facility $ $ 10,113,484
Term-loan 7,650,000 8,550,000
Equipment term-loans 4,082,973 1,907,216
Capital lease obligations 524,961 722,927
Equipment loans 663,386 798,755
Total 12,921,320 22,092,382
Less current portion 3,785,645 13,080,316
Notes payable--non-current $ 9,135,675 $ 9,012,066
At January 31, 1998, the Company's credit agreement provides for (i) a five-year
term-loan in the principal amount of $9.0 million, (ii) a $6.0 million revolving
equipment facility, (iii) a $10.0 million revolving credit facility, and (iv)
a $10.0 million standby letter of credit facility. The revolving credit
facility, the revolving equipment facility and the standby letter of credit
facility are available for a one-year period.
<PAGE> 14
The outstanding principal under the term-loan bears interest at the prime
interest rate minus 0.50% (8.00% at January 31, 1998 and July 31, 1997).
Principal and interest is payable in quarterly installments through April
2002. At January 31, 1998, the outstanding amount under the term-loan was
$7.7 million. The loans outstanding under the revolving credit facility and
the revolving equipment facility bear interest, at the option of the Company,
at the prime interest rate minus 1.00% or LIBOR plus 1.50% and at the prime
interest rate minus 0.75% or LIBOR plus 1.75%, respectively. At January 31,
1998, the interest rates on the outstanding revolving equipment facility
loans were at the LIBOR options ranging from 7.531% to 7.813%. On November
28, 1997, the Company repaid the outstanding balance of the revolving credit
facility with proceeds from the public offering of its common stock.
The advances under the revolving equipment facility are converted to term-
loans with maturities not to exceed 48 months. The outstanding principal on
the equipment term-loans is payable in monthly installments through February
2001. At January 31, 1998, the outstanding amount owed under the revolving
equipment facility was $4.1 million.
At January 31, 1998, the Company had outstanding $9.1 million in standby
letters of credit issued to the Company's insurance administrators as part of
its self-insurance program.
The bank credit agreement contains restrictions which, among other things,
requires maintenance of certain financial ratios and covenants, restricts
encumbrances of assets and creation of indebtedness, and limits the payment
of cash dividends. Cash dividends are limited to 50% of each fiscal year's
after-tax profits. No cash dividends have been paid during the six month
period ended January 31, 1998. The credit facility is secured by the
Company's assets. At January 31, 1998, the Company was in compliance with
all financial covenants and conditions.
In addition to the borrowings under the bank credit agreement, certain
subsidiaries have outstanding obligations under capital leases and other
equipment financing arrangements. The obligations are payable in monthly
installments expiring at various dates through December 2001.
9. STOCK OFFERING
The Company concluded the public offering of 2,700,000 shares of its common
stock on November 4, 1997. The Company offered 1,573,378 shares and selling
shareholders offered 1,126,622 shares at an offering price of $20.00 per
share. The Company received $29,736,844 on November 10, 1997 which is net of
an underwriting discount of $1.10 per share. Additionally, the underwriters
exercised their option to purchase 405,000 shares to cover over-allotments.
The Company received $7,654,500 on November 25, 1997 as payment for the over-
allotments. The total offering proceeds, net of offering expenses of
$432,726, are included in stockholders' equity at January 31, 1998. On
November 28, 1997, the Company repaid the outstanding balance of its
revolving credit facility and will use the balance of the proceeds to fund the
Company's growth strategy, including acquisitions, working capital and capital
expenditures and for other general corporate purposes.
<PAGE> 15
10. COMMITMENTS AND CONTINGENCIES
In September 1995, the State of New York commenced a sales and use tax audit of
CCG for the years 1989 through 1995. As a result of the audit, certain
additional taxes were paid by CCG in fiscal 1996. In addition, the State of
New York concluded that cable television service providers are subject to New
York State sales taxes for the construction of cable television distribution
systems, and by a Notice dated January 1997, asserted amounts due from CCG
for sales taxes and interest for the periods through August 31, 1995,
aggregating approximately $1.3 million. Any sales taxes asserted against CCG
may be offset by use taxes already paid by the customers of CCG. The Company
intends to vigorously contest the assertion. The Company is unable to
assess the likelihood of any particular outcome at this time or to quantify the
effect a resolution of this matter may have on the Company's consolidated
financial statements.
In the normal course of business, certain subsidiaries of the Company have
pending and unasserted claims. Although the ultimate resolution and
liability of these claims cannot be determined, management believes the final
disposition of these claims will not have a material adverse impact on the
Company's consolidated financial statements.
11. SUBSEQUENT EVENTS
On February 23, 1998, the Company entered into merger agreements with
Installation Technicians, Inc. ("ITI") and CableCom Inc. ("CCI") pursuant to
which ITI and CCI will become wholly owned subsidiaries of the Company. Upon
consumation of such mergers, the stockholders of CCI and ITI will receive,
1.2 million and 600,000 shares of common stock of the Company.
CCI provides construction services to cable television multiple system operators
throughout the United States. ITI provides construction and engineering
services to local and long distance telephone companies throughout the United
States.
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated financial condition and results of operations. The discussion
should be read in conjunction with the condensed consolidated financial
statements and notes thereto.
Results of Operations
The following table sets forth, as a percentage of contract revenues earned,
certain items in the Company's Statement of Operations for the periods
indicated:
For the Three Months Ended For the Six Months Ended
January 31, January 31, January 31, January 31,
1998 1997 1998 1997
Revenues:
Contract revenues earned 100.0% 100.0% 100.0% 100.0%
Other, net 1.1 0.3 0.7 0.2
Total revenues 101.1 100.3 100.7 100.2
Expenses:
Cost of earned revenues,
excluding depreciation 78.2 81.0 78.5 80.4
General and
administrative 10.5 9.4 10.0 9.5
Depreciation and
amortization 3.7 3.6 3.5 3.6
Total expenses 92.4 94.0 92.0 93.5
Income before income taxes 8.7 6.3 8.7 6.7
Provision for income taxes 3.5 2.2 3.6 2.7
Net Income 5.2% 4.1% 5.1% 4.0%
Revenues. Contract revenues increased $4.8 million, or 8.4%, to $61.9
million in the quarter ending January 31, 1998 from $57.1 million in the
quarter ended January 31, 1997. Of this increase, $4.3 million was
attributable to the telecommunications services group and $0.9 million was
attributable to the underground utility locating services group, reflecting
an increased market demand for the Company's services. This increase was
offset by a decline of $0.4 million attributable to the electric services group.
During the quarter ended January 31, 1998, the Company recognized $53.2
million of contract revenues from the telecommunications services group as
compared to $48.9 million for the same period last year. The increase in the
Company's telecommunications services group contract revenues reflects
increased volume of projects and activities associated with cable television
construction services which increased by $5.0 million to $22.8 million in the
quarter ending January 31, 1998 from $17.8 million in the same period last
year. Also, the telecommunications services group experienced increased
volume in its telephone engineering services, the design and installation of
broadband networks and telephony splicing services which was offset by
declines in contract revenues in outside plant services and premise wiring
services. The Company recognized contract revenues of $4.9 million from
electric utilities services in the quarter ending January 31, 1998 as compared
to $5.3 million in the quarter ended January 31, 1997. This decline was a
result of lower volume associated with bid contracts. The Company recognized
contract revenues
<PAGE> 17
of $3.8 million from underground utility locating services in the quarter ending
January 31, 1998 as compared to $2.9 million in the same period last year, an
increase of 31.0%.
Contract revenues from long-term agreements in all service groups continues
to be a significant source of the Company's revenues, representing
approximately 85.5% of total contract revenues in the quarter ended January
31, 1998 compared to 79.7% for the same period last year. In addition,
contract revenues from master service agreements represented approximately
41.7% and 48.0% of total contract revenues in the quarter ended January 31,
1998 and 1997, respectively.
For the six month period ended January 31, 1998, contract revenues increased
16.7% to $132.4 million as compared to $113.5 million for the corresponding
period last year. Of this increase, $15.4 million was attributable to the
telecommunications services group, $1.8 million was attributable to the
electric services group and $1.7 million was attributable to the underground
utility locating services group, reflecting an increased market demand for
the Company's services.
During the six month period ended January 31, 1998, the Company recognized
$114.0 million of contract revenues from the telecommunications services
group as compared to $98.6 million for the same period last year, an increase
of 15.6%. The increase in the Company's telecommunications services group
contract revenues reflects increased volume of projects and activities
associated with cable television construction services which increased by
$11.9 million to $46.3 million in the six month period ended January 31, 1998
from $34.4 million in the same period last year. Also, the
telecommunications services group experienced increased volume in its
telephone engineering services, premise wiring, telephony splicing services
and the design and installation of broadband networks which was partially
offset by declines in contract revenues from outside plant services. The
Company recognized contract revenues of $9.9 million from electric utilities
services in the six month period ended January 31, 1998 as compared to
$8.0 million in the six month period ended January 31, 1997, an increase of
23.8%. The Company recognized contract revenues of $8.5 million from
underground utility locating services in the six month period ended January
31, 1998 as compared to $6.9 million in the same period last year, an
increase of 23.2%.
Contract revenues from long-term agreements represented approximately 84.1% of
total contract revenues in the six month period ended January 31, 1998 as
compared to 82.0% for the same period last year. In addition, contract
revenues from master service agreements represented approximately 42.5% and
51.0% of total contract revenues in the six month period ended January 31,
1998 and 1997, respectively.
Costs of Earned Revenues. Costs of earned revenues increased $2.1 million to
$48.4 million in the quarter ended January 31, 1998 from $46.3 million in the
quarter ended January 31, 1997, but decreased as a percentage of contract
revenues to 78.2% from 81.0%. Subcontractor, equipment, and insurance costs
declined as a percentage of contract revenues as a result of increased use of
employee labor resulting in a reduction in the use of outside services, the
buy-out of certain operating leases, and the effective management of the
Company's insurance claims and positive results of its corporate safety
program. For the six month period ended January 31, 1998, cost of earned
revenues increased $12.7 million to $104.0 million as compared to $91.3 for
the same period last year, but decreased as a percentage of contract revenues
to 78.5% from 80.4%. Subcontractor, equipment, insurance and other direct
costs declined as a percentage of contract revenues due to comparable factors
which impacted the quarter ended January 31, 1998.
<PAGE 18>
General and Administrative Expenses. General and administrative expenses
increased $1.1 million to $6.5 million in the quarter ending January 31, 1998
from $5.4 million in the quarter ended January 31, 1997. The increase in
general and administrative expenses for the quarter ended January 31, 1998,
as compared to the same period last year, was primarily attributable to an
increase in administrative salaries, bonuses, employee benefits and payroll
taxes of $0.8 million and an increase in legal and professional fees of
$0.2 million. For the six month period ended January 31, 1998, general and
administrative expenses increased $2.5 to $13.3 million as compared to
$10.8 million for the same period last year. The increase in general and
administrative expenses for the six month period ended January 31, 1998, as
compared to the same period last year, was primarily attributable to
increases in administrative salaries, bonuses, employee benefits and payroll
taxes of $1.5 million, legal and professional fees of $0.4 million and other
general and administrative expenses of $0.4 million.
Depreciation and Amortization. Depreciation and amortization increased $0.3
million to $2.3 million in the quarter ending January 31, 1998 as compared to
$2.0 million in same period last year. Depreciation and amortization
increased $0.5 million to $4.6 million in the six month period ended January
31, 1998 as compared to $4.1 million for the same period last year. These
increases in depreciation and amortization were due to the increase in
capital expenditures of $7.4 million in the six month period ended January
31, 1998 as compared to $6.0 million in the six month period ended January
31, 1997, an increase of $1.4 million. The increase represents capital
expenditures acquired in the ordinary course of business and the buy-out of
certain operating leases on terms favorable to the Company.
Income Taxes. The provision for income taxes was $4.8 million in the six month
period ended January 31, 1998 as compared to $3.0 million in the same period
last year. The Company's effective tax rate was 41.6% in the six month
period ended January 31, 1998 as compared to 39.8% in the same period last
year. The effective tax rate differs from the statutory rate due to state
income taxes, the amortization of intangible assets that do not provide a tax
benefit and other non-deductible expenses for tax purposes.
Liquidity and Capital Resources
The Company's needs for capital are attributable primarily to its needs for
equipment to support its contractual commitments to customers and its needs
for working capital sufficient for general corporate purposes. Capital
expenditures have been financed by operating leases, capital leases and bank
borrowings. The Company's sources of cash have historically been from
operating activities, bank borrowings and proceeds arising from the sale of
idle and surplus equipment and real property.
For the six month period ended January 31, 1998, net cash provided by operating
activities was $1.4 million compared to $3.9 million for the six month period
ended January 31, 1997. The decrease was primarily due to a decrease in
accounts payable, other accrued liabilities and accrued income taxes.
In the six month period ended January 31, 1998, net cash used in investing
activities was $6.5 million as compared to $5.8 million for the same period
last year. For the six month period ended January 31, 1998, capital
expenditures of $7.4 million were for the normal replacement of equipment and
the buy-out of certain operating leases on terms favorable to the Company.
In addition to equipment purchases, the Company obtained approximately $1.2
million of equipment under noncancellable operating leases in the six month
period ended January 31, 1998.
<PAGE> 19
In the six month period ended January 31, 1998, net cash provided from financing
activities was $28.0 million as compared to $0.2 million for the same period
last year. The increase was primarily due to the proceeds on the sale of the
Company's stock. On November 4, 1997, the Company concluded the public
offering of 2,700,000 shares of its common stock. The Company offered
1,573,378 shares and selling shareholders offered 1,126,622 shares at an
offering price of $20.00 per share. The Company received $29,736,844 on
November 10, 1997 which is net of an underwriting discount of $1.10 per
share. Additionally, the underwriters exercised their option to purchase
405,000 to cover over-allotments. The Company received $7,654,500 on
November 25,1997 as payment for the over-allotments. The total proceeds, net of
offering expenses of $432,726, are included in stockholders' equity at
January 31, 1998. The Company invested the proceeds, after paying off a
portion of its outstanding indebtedness, in various short-term instruments
having a maturity of three months or less.
Net cash from financing activities was also provided by borrowings on the
revolving equipment facility and the working capital facility. At July 31,
1997, the Company's newly acquired subsidiary, CCG, had a $6.6 million
working capital bank credit facility. This facility was an arrangement made
by CCG prior to the acquisition by Dycom. During the first quarter of the
current fiscal year, the Company paid off the outstanding balance of $6.6
million by borrowing $4.9 million under its revolving credit facility and
$1.7 million under its revolving equipment facility. During the quarter ended
January 31, 1998, the Company paid off the outstanding balance of the
revolving credit facility of $9.1 million, including the new borrowings for
CCG, with a portion of the stock offering proceeds. Also during the first
quarter of the current fiscal year, the Company borrowed $1.0 million under
the revolving equipment facility to buy-out certain existing operating leases
on terms favorable to the Company.
At January 31, 1998, the Company's credit agreement provides for (i) a
five-year term-loan in the principal amount of $9.0 million, (ii) a $6.0
million revolving equipment facility, (iii) a $10.0 million revolving credit
facility, and (iv) a $10.0 million standby letter of credit facility.
The term-loan facility has a five-year maturity and bears interest at the bank's
prime interest rate minus 0.50% (8.00% at January 31, 1998). The term-loan
principal and interest is payable in quarterly installments through April
2002. During the six months ended January 31, 1998, the Company repaid $0.9
million on this facility.
The revolving equipment acquisition facility is available for a one-year
period and bears interest, at the option of the Company, at the bank's prime
interest rate minus 0.75% or LIBOR plus 1.75%. At January 31, 1998, the
interest rates were at the LIBOR plus 1.75% option (7.531% to 7.813%).
During the six month period ended January 31, 1998, the Company repaid $0.5
million and has available borrowing capacity of $1.9 million under this
facility.
The revolving credit facility is available for a one-year period and bears
interest, at the option of the Company, at the bank's prime interest rate
minus 1.00% or LIBOR plus 1.50%. At January 31, 1998, there was no
outstanding balance on this facility resulting in an available borrowing
capacity of $10.0 million.
The standby letter of credit facility is available for a one-year period. At
January 31, 1998, the Company had $9.1 million in outstanding standby letters
of credit issued as security to the Company's insurance administrators as
part of its self-insurance program, leaving $0.9 million in available
borrowing capacity.
<PAGE> 20
The bank credit agreement requires the Company to maintain certain financial
covenants and conditions, as well as restricting the encumbrances of assets
and the creation of additional indebtedness and limits the payment of cash
dividends. At January 31, 1998, the Company was in compliance with all
covenants and conditions under the credit agreement.
The Company foresees its capital resources together with existing cash
balances to be sufficient to meet its financial obligations, including the
scheduled debt payments under the credit agreement and operating lease
commitments, and to support the Company's normal replacement of equipment at
its current level of business for at least the next twelve months. The
Company's future operating results and cash flows may be affected by a number
of factors including the Company's success in bidding on future contracts and
the Company's continued ability to effectively manage controllable costs.
Special Note Concerning Forward Looking Statements
This Quarterly Report on Form 10Q, including the Notes to Condensed Financial
Statements and this Management's Discussion and Analysis of Financial
Condition and Results of Operations, contains forward looking statements.
The words "believe," "expect," "anticipate," "intends," "forecast,"
" project," and similar expressions identify forward looking statements.
Such statements may include, but may not be limited to, the anticipated
outcome of contingent events, including litigation, projections of revenues,
income or loss, capital expenditures, plans for future operations, growth and
aquisitions, financial needs or plans and the availability of financing, and
plans relating to services of the Company, as well as assumptions relating to
the foregoing. Such forward looking statements are within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
<PAGE> 21
PART II. OTHER INFORMATION
__________________________
Item 4. Submission of Matters to a Vote of Security Holders.
An annual meeting of shareholders of the Company was held on November 24,
1997 to consider and take action on the election of two directors to the
Company's Board of Directors.
The Company's nominees, Messrs. Steven E. Nielsen and Ronald P. Younkin were
elected. Mr. Nielsen received 10,399,720 votes for and 10,866 against and
Mr. Younkin received 10,397,852 for and 12,734 against. The directors whose
terms continue after the annual meeting are Messrs. Adams, Pledger, Revell
and Roseman.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits furnished pursuant to the requirements of Form 10-Q:
Number Description
______ ___________
(11) Statement re computation of per share earnings
All information required by Exhibit 11 is presented
within Note 3 of the Company's condensed consolidated
financial statements in accordance with the provisions
of SFAS No. 128.
(27) Financial Data Schedule
(b) Reports On Form 8-K
No reports on Form 8-K were filed on behalf of the Registrant during the
quarter ended January 31, 1998.
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYCOM INDUSTRIES, INC.
Registrant
<TABLE>
<S> <C>
Date: March 10, 1998 /s/ Thomas R. Pledger
_________________ ____________________________
Thomas R. Pledger
Chairman and Chief Executive
Officer
Date: March 10, 1998 /s/ Steven Nielsen
_________________ ____________________________
Steven Nielsen
President and Chief Operating
Officer
Date: March 10, 1998 /s/ Douglas J. Betlach
_________________ ____________________________
Douglas J. Betlach
Vice President, Treasurer, and
Chief Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DYCOM
INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEET AT JANUARY 31, 1998 AND
THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000067215
<NAME> DYCOM INDUSTRIES, INC.
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<PERIOD-END> JAN-31-1998
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0
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