<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1999
REGISTRATION NO. 333-76949
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
DYCOM INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
FLORIDA 59-1277135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
FIRST UNION CENTER
4440 PGA BOULEVARD, SUITE 500
PALM BEACH GARDENS, FLORIDA 33410
(561) 627-7171
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
---------------------
MARC R. TILLER, ESQ.
GENERAL COUNSEL AND CORPORATE SECRETARY
FIRST UNION CENTER
4440 PGA BOULEVARD, SUITE 500
PALM BEACH GARDENS, FLORIDA 33410
(561) 627-7171
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD B. VILSOET, ESQ. LAWRENCE R. SEIDMAN, ESQ.
SHEARMAN & STERLING PIPER & MARBURY L.L.P.
599 LEXINGTON AVENUE 36 SOUTH CHARLES STREET
NEW YORK, NEW YORK 10022 BALTIMORE, MARYLAND 21201-3018
(212) 848-4000 (410) 539-2530
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: as soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed without
notice. Dycom Industries, Inc. may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and Dycom
Industries, Inc. is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
Prospectus (Not Complete)
Issued April 28, 1999
2,700,000 Shares
(DYCOM LOGO)
COMMON STOCK
---------------------
Dycom Industries, Inc. is offering 2,500,000 shares of common stock and
selling stockholders are offering 200,000 shares of common stock in a firmly
underwritten offering. Dycom Industries, Inc. will not receive any proceeds from
the sale of the shares by the selling stockholders.
---------------------
Our common stock is listed on the New York Stock Exchange under the symbol
"DY." On April 27, 1999, the last reported sale price of our common stock on the
New York Stock Exchange was $46 5/8 per share.
---------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Offering Price.............................................. $ $
Discounts and Commissions to Underwriters................... $ $
Offering Proceeds to Company................................ $ $
Offering Proceeds to Selling Stockholders................... $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Dycom Industries, Inc. and the selling stockholders have granted the
underwriters the right to purchase up to 375,000 and 30,000 additional shares of
common stock, respectively, to cover any over-allotments. The underwriters can
exercise this right at any time within thirty days after the offering.
NationsBanc Montgomery Securities LLC expects to deliver the shares of common
stock to investors on , 1999.
NATIONSBANC MONTGOMERY SECURITIES LLC
MORGAN STANLEY DEAN WITTER
MORGAN KEEGAN & COMPANY, INC.
---------------------
, 1999
<PAGE> 3
(MAP OF THE UNITED STATES SHOWING LOCATION OF DYCOM OFFICES)
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 2
Risk Factors................................................ 7
Use of Proceeds............................................. 11
Price Range of Common Stock and Dividend Policy............. 11
Capitalization.............................................. 12
Summary Consolidated Financial Data......................... 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 25
Management.................................................. 34
Principal and Selling Stockholders.......................... 36
Description of Capital Stock................................ 37
Underwriting................................................ 40
Certain Legal Matters....................................... 41
Experts..................................................... 42
Where You Can Find More Information......................... 42
Incorporation of Certain Documents by Reference............. 42
Index to Consolidated Financial Statements.................. F-1
Index to Pro Forma Unaudited Condensed Consolidated
Financial Statements...................................... P-1
</TABLE>
FORWARD-LOOKING STATEMENTS
This prospectus (including the documents incorporated by reference in this
prospectus) contains forward-looking statements regarding our plans,
expectations, estimates and beliefs. Our actual results could differ materially
from those discussed in, or implied by, these forward-looking statements.
Forward-looking statements are identified by words such as "believes,"
"anticipates," "expects," "intends," "forecast," "project," "plans," "will,"
"may" and other similar expressions. In addition, any statements which refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. Forward-looking statements in
these documents include, but are not necessarily limited to, those relating to:
- industry trends;
- ability to carry out our growth strategies;
- our future operating performance;
- potential acquisitions;
- ability to win new customer contracts;
- availability of financing;
- year 2000 compliance; and
- the anticipated outcome of contingent events, including litigation.
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
(INCLUDING THE INFORMATION INCORPORATED BY REFERENCE IN THIS PROSPECTUS). WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "DYCOM,"
"WE," "US" AND "OUR" REFERS TO DYCOM INDUSTRIES, INC. (UNLESS THE CONTEXT
OTHERWISE REQUIRES).
1
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in the common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and the financial
statements and the related notes included herein. Unless otherwise indicated,
all references in this prospectus to pro forma financial information give effect
to our recent acquisitions of Locating, Inc., a Washington corporation
("Locating"), Ervin Cable Construction, Inc., a Kentucky corporation ("ECC"),
and Apex Digital TV, Inc., a Kentucky corporation ("Apex"), as if such
transactions had been consummated at the beginning of or as of the periods
indicated. See "Business -- Recent Acquisitions" and the Pro Forma Unaudited
Condensed Consolidated Financial Statements included in this prospectus. Unless
otherwise indicated, all information in this prospectus reflects a 3-for-2 stock
split effected in the form of a stock dividend by Dycom on January 4, 1999. The
information in this prospectus assumes no exercise of the over-allotment option
to purchase additional shares of common stock granted to the underwriters.
THE COMPANY
We are a leading provider of engineering, construction and maintenance
services to telecommunications and utility providers throughout the United
States. Our comprehensive range of services include:
- telecommunications services:
- the engineering, placement and maintenance of aerial, underground
and buried cable systems owned by telephone companies, competitive
access providers and cable television providers;
- the installation of integrated voice, data, and video local and
wide area networks within office buildings and similar structures;
- the installation of direct broadcast satellite systems;
- underground utility locating services used to map and mark
underground utilities; and
- power line construction and maintenance services.
For the six-month period ended January 31, 1999, telecommunications
services contributed approximately 90% of our contract revenues, underground
utility locating services contributed approximately 5% and electrical
construction and maintenance services contributed approximately 5%.
We operate through fourteen wholly-owned, independently operating
subsidiaries. We have long-standing relationships with telecommunications and
utility providers such as BellSouth Telecommunications, Inc., Comcast Cable
Communications, Inc., MediaOne, Inc., Tele-Communications, Inc., Sprint
Corporation, GTE Corporation, U.S. West Communications, Inc. and Florida Power
and Light Company. For the six-month period ended January 31, 1999,
approximately 88% of our revenues came from multi-year master service agreements
and other long-term agreements with large telecommunications providers and
electric utilities.
The telecommunications industry is undergoing rapid change due to
deregulation, increased competition and growing consumer demand for enhanced
telecommunications services, thereby creating demand for engineering and
construction of additional infrastructure for new and existing
telecommunications providers. To meet the increasing need for telecommunications
infrastructure, telecommunications providers have been increasingly outsourcing
their infrastructure engineering, construction and maintenance requirements to
reduce investment in capital equipment, improve flexibility in workforce
scheduling, expand geographically without incremental hiring and focus on their
core competencies. As a result, we believe there are significant opportunities
to expand our business internally and through acquisitions.
2
<PAGE> 6
Internal Growth Strategy: Our internal growth strategy has four principal
elements:
- Increase the volume of services to our existing customers;
- Expand the scope of services to our existing customers;
- Broaden our customer base; and
- Geographically expand our service area.
Acquisition Strategy: We have pursued a strategy of selective acquisitions
involving established, well respected construction and service companies. We
believe a variety of acquisition opportunities exist within our industry to
provide us with customer, geographic and product line diversification. Our key
acquisition criteria are profitability in excess of industry standards, stable
and growing customer base, proven operational and technical competence, and
experienced management that fits with our decentralized operating structure. We
recently acquired the following companies:
- Locating, Inc. In February 1999, we acquired this Washington
state-based company which provides underground utility locating
services used to map and mark utilities for cable television
providers, multiple system operators, telephone companies and
electrical and gas utilities. This acquisition expands our presence
in the underground utility locating services industry and our
geographic presence in the West Coast region of the United States.
- Ervin Cable Construction, Inc. In March 1999, we acquired this
Kentucky-based company, which builds and installs new cable
television systems and provides repair and expansion services to
cable television systems in several states. This acquisition expands
and diversifies our client base and furthers our presence in the
Midwest region of the United States.
- Apex Digital TV, Inc. In March 1999, we acquired this
Kentucky-based company, which installs direct broadcast satellite
systems and provides cable sales and repair services in several
Midwestern states. This acquisition provides us an extension into a
related new business line.
On a pro forma basis, these acquisitions would have provided us with additional
revenues of approximately $68.6 million and $33.8 million for the fiscal year
ended July 31, 1998 and the six-month period ended January 31, 1999,
respectively.
---------------------
We are incorporated under the laws of the State of Florida. Our principal
executive offices are located at First Union Center, 4440 PGA Boulevard, Suite
500, Palm Beach Gardens, Florida 33410. Our telephone number is (561) 627-7171.
3
<PAGE> 7
THE OFFERING
Common stock offered by Dycom....... 2,500,000 shares
Common stock offered by selling
stockholders........................ 200,000 shares
Total shares to be offered.......... 2,700,000 shares
Common stock outstanding after the
offering............................ 25,546,063 shares(1)
Use of proceeds..................... To fund our growth strategy, including
acquisitions, working capital and
capital expenditures, and for other
general corporate purposes. We also
intend to use the proceeds to repay
indebtedness under our revolving credit
facility, subject to reborrowing.
We will not receive any proceeds from
the sale of shares in the offering by
the selling stockholders.
New York Stock Exchange Symbol...... DY
- ---------------
(1) This does not include 886,865 shares of common stock issuable upon exercise
of outstanding options.
4
<PAGE> 8
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
Set forth below is certain of our historical consolidated financial
information as well as certain consolidated pro forma financial information.
The consolidated financial data as of January 31, 1999 and for the six
months ended January 31, 1998 and 1999 are derived from our unaudited
consolidated financial statements included elsewhere in this prospectus. In the
opinion of management, the unaudited financial statements have been prepared on
the same basis as the audited financial statements and include all adjustments,
which consist only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods.
The following pro forma consolidated statements of operations data present
our financial results adjusted for the acquisitions of Locating, ECC and Apex.
Such information is presented as if each of these acquisitions had occurred at
the beginning of the periods presented. The following pro forma consolidated
balance sheet data presents our financial position adjusted for the Locating,
ECC and Apex acquisitions as if each of these acquisitions had occurred as of
January 31, 1999.
The supplemental pro forma financial data presents our statements of
operations adjusted to reflect a provision for income taxes on pooled companies
which were previously "S Corporations" and recorded no provision for federal
income taxes.
The summary pro forma financial data does not purport to be indicative of
the results of operations that would have been achieved had such acquisitions
been consummated as of the assumed dates, nor are the results intended to be
indicative of our future results of operations. The following information should
be read in conjunction with our consolidated financial statements and notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Pro Forma Unaudited Condensed Consolidated
Financial Statements included in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JULY 31, JANUARY 31,
------------------------------------------------------ ----------------------------------------
1996 1997 1998 1998 1999
----------- ----------- -------------------------- ----------- --------------------------
ACTUAL PRO FORMA(3) ACTUAL PRO FORMA(3)
----------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues................ $ 247,295 $ 312,419 $ 371,363 $ 439,941 $ 172,897 $ 206,757 $ 240,570
Income before income taxes.... 14,055 23,770 36,081 39,838 15,655 23,777 25,514
Net income.................... 9,922 15,814 23,036 24,959 10,604 14,144 14,821
Earnings per common share:(1)
Basic........................ $ 0.53 $ 0.84 $ 1.09 $ 1.14 $ 0.52 $ 0.64 $ 0.65
=========== =========== =========== =========== =========== =========== ===========
Diluted...................... $ 0.52 $ 0.83 $ 1.07 $ 1.12 $ 0.51 $ 0.63 $ 0.64
=========== =========== =========== =========== =========== =========== ===========
SUPPLEMENTAL PRO FORMA
FINANCIAL DATA(2):
Income before income taxes.... $ 14,055 $ 23,770 $ 36,081 $ 15,655
Pro forma provision for income
taxes........................ 4,860 9,841 14,420 6,515
----------- ----------- ----------- -----------
Pro forma net income.......... $ 9,195 $ 13,929 $ 21,661 $ 9,140
=========== =========== =========== ===========
Pro forma earnings per common
share:(1)
Basic........................ $ 0.49 $ 0.74 $ 1.02 $ 0.45
=========== =========== =========== ===========
Diluted...................... $ 0.48 $ 0.73 $ 1.01 $ 0.44
=========== =========== =========== ===========
Shares used in computing
earnings per common share and
pro forma earnings per common
share:(1)
Basic........................ 18,624,564 18,863,987 21,172,025 21,946,219 20,312,127 22,144,794 22,918,988
Diluted...................... 18,989,729 19,123,034 21,482,634 22,256,828 20,593,035 22,525,818 23,300,012
</TABLE>
(footnotes
on following page)
5
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<TABLE>
<CAPTION>
JANUARY 31, 1999
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PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
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(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 33,986 $ 35,810 $110,368
Working capital....................................... 78,149 73,826 158,363
Total assets.......................................... 180,740 255,928 330,487
Long-term debt, including current portion............. 15,925 48,476 12,750
Total stockholders' equity............................ 114,732 146,890 257,174
</TABLE>
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(1) Earnings per common share-basic is calculated by dividing the net income
applicable to common shares by the weighted average shares outstanding
during the period. Earnings per common share-diluted includes the dilutive
effect of common stock options.
(2) The provision for income taxes and net income have been adjusted to reflect
a pro forma tax provision for pooled companies which were previously "S
Corporations" and recorded no provision for income taxes. See Note 1 of the
Notes to our Consolidated Financial Statements.
(3) The statement of operations data has been adjusted to reflect the
acquisitions of Locating, ECC and Apex as if they occurred at the beginning
of the periods presented and the consolidated balance sheet data has been
adjusted to reflect these acquisitions as if they occurred on January 31,
1999. In addition to cash consideration, we issued 774,194 shares of our
common stock in connection with these acquisitions. See "Business -- Recent
Acquisitions" and the Pro Forma Unaudited Condensed Consolidated Financial
Statements included in this prospectus.
(4) The pro forma consolidated balance sheet data has been adjusted to give
effect to our estimated net proceeds from the offering and the application
of those proceeds.
6
<PAGE> 10
RISK FACTORS
Investing in the common stock will provide you with an equity ownership
interest in Dycom. Before you invest in the common stock, you should be aware of
the various risks associated with an investment in our common stock. Such risks
may materially and adversely affect our business, financial condition or results
of operations. In such case, the trading price of the common stock could
decline, and you could lose all or part of your investment. You should carefully
consider the following factors as well as other information contained in this
prospectus before deciding to invest in the common stock.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY
We have experienced and expect to continue to experience quarterly
variations in revenues and net income as a result of many factors, including:
- the timing and volume of customers' construction and maintenance
projects,
- budgetary spending patterns of customers,
- the commencement or termination of master service agreements and
other long-term agreements with our customers,
- costs incurred to support growth internally or through acquisitions,
- fluctuations in results of operations caused by acquisitions,
- changes in our mix of customers, contracts and business activities,
and
- fluctuations in insurance expense accruals due to changes in claims
experience and actuarial assumptions.
Revenues and net income in our second quarter and, occasionally, our third
quarter have in the past been, and may in the future be, adversely affected by
weather conditions and year-end budgetary spending patterns of our customers.
WE DEPEND ON A SMALL GROUP OF KEY CUSTOMERS
Our customer base is highly concentrated. Our top five customers in fiscal
1996, 1997, 1998 and the six months ended January 31, 1999 accounted in the
aggregate for approximately 68%, 63%, 65% and 62%, respectively, of our total
contract revenues. During fiscal 1998 and the six months ended January 31, 1999,
approximately 22% and 23%, respectively, of our total contract revenues were
derived from BellSouth Telecommunications, Inc., 24% and 21%, respectively, from
Comcast Cable Communications, Inc. and 7% and 5%, respectively, from GTE
Corporation. We believe that a substantial portion of our contract revenues and
operating income will continue to be derived from a concentrated group of key
customers. The loss of any key customer, if not replaced, could have a material
adverse effect on our business.
OUR MASTER SERVICE AGREEMENTS MAY BE TERMINATED OR MAY NOT BE RENEWED
We derive a substantial portion of revenues pursuant to multi-year master
service agreements. We are currently a party to 52 master service agreements,
including 33 such agreements with BellSouth Telecommunications, Inc., GTE
Corporation, Sprint Corporation, U.S. West Communications, Inc. and Florida
Power and Light Company, collectively. Under the terms of these agreements, our
customers can typically terminate the agreement on 90 days prior written notice.
The termination of any such agreements or our failure to renew master service
agreements with our customers could have a material adverse effect on our
business.
OUR CUSTOMERS' FUTURE REQUIREMENTS MAY BE LESS THAN OUR BACKLOG ESTIMATE
Our backlog is comprised of the uncompleted portion of services to be
performed under job-specific agreements and the estimated value of future
services that we expect to provide our customers under
7
<PAGE> 11
master service agreements. Our master service agreements are generally exclusive
requirements contracts with certain exceptions, including the customer's option
to perform the services with its own regularly employed personnel. Accordingly,
there can be no assurance as to our customers' requirements during a particular
period or that our estimates of such requirements, including those used to
formulate backlog, are accurate at any point in time.
WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR ACQUISITION STRATEGY
As part of our growth strategy, we may acquire companies that expand,
complement or diversify our business. We regularly review various strategic
acquisition opportunities and periodically engage in discussions regarding such
possible acquisitions. We cannot assure you that we will be able to identify
attractive acquisition candidates, enter into acceptable acquisition agreements
or close any such transactions. Currently, we are not party to any agreements,
understandings or arrangements regarding any material acquisitions. Failure to
achieve our acquisition strategy could materially and adversely affect our
ability to sustain growth and maintain our competitive position. In addition,
increased competition for acquisition candidates could increase the cost of
making acquisitions and reduce the number of attractive companies to be
acquired. Although we maintain a decentralized operating structure, we may
encounter difficulties in integrating acquired companies or their management
teams. We may also encounter difficulties in retaining key personnel or
customers. These difficulties could increase the cost of any acquisition or
reduce or eliminate any expected benefit. In addition, acquisitions may have
adverse effects on our results of operations caused by amortization of acquired
intangible assets or unanticipated liabilities or contingencies.
We may be required to incur debt or issue equity to pay for any future
acquisitions, and these sources of financing may not be available to us on
favorable terms or at all. In addition, if we use common stock to pay for future
acquisitions, the value of your common stock may become diluted. If we cannot
use common stock or borrow sufficient funds to pay for future acquisitions, our
growth strategy could be limited.
WE FACE INTENSE COMPETITION
The telecommunications services industry is highly competitive and we
compete with other companies in most of the markets in which we operate. Some of
our competitors may have greater financial, technical and marketing resources
than we do. A significant portion of our revenues are currently derived from
master service agreements and price is often an important factor in the award of
such agreements. Accordingly, we could be outbid by our competitors in an effort
to procure such business. Despite the current trend toward outsourcing, we may
also face competition from existing or prospective customers who employ in-house
personnel to perform some of the same types of services as we provide. In
addition, there are relatively few, if any, significant barriers to entry into
the markets in which we operate and, as a result, any organization that has
adequate financial resources and access to technical expertise may become one of
our competitors.
FUTURE DEVELOPMENTS IN THE TELECOMMUNICATIONS INDUSTRY MAY REDUCE DEMAND FOR OUR
SERVICES
Certain factors related to the telecommunications industry may affect the
demand for the services which we provide. The telecommunications providers may
be unable to raise the capital necessary to develop the telecommunications
networks. There may be a disappointing public demand for Internet access and
other interactive multimedia services or decreases in the preference of our
customers toward outsourcing telecommunications engineering, construction and
maintenance services. In addition, wireline telecommunications systems may be
displaced by other technologies, such as wireless technologies, and improvements
in technology may allow telecommunications providers to significantly improve
their networks without physically upgrading them. Although changes in
telecommunications regulations do not affect us directly, the effect of such
regulations on our customers may, in turn, adversely impact our business and
results of operations.
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WE MAY FACE RISKS RELATED TO YEAR 2000 PROBLEMS
Year 2000 technology risks refer to the potential harm resulting from
computer programs that identify dates by the last two digits of the year rather
than using the full four digits. As such, dates as of January 1, 2000 could be
misidentified and such programs could fail. We have reviewed our computer
systems to identify those areas that could be adversely affected by year 2000
software failures. We have converted approximately 85% of our information
systems to be year 2000 compliant. We have incurred approximately $1.4 million
through January 31, 1999 and will incur approximately $0.5 million in the
remainder of fiscal 1999 to complete the information system conversions,
including the implementation and conversion costs of our recently acquired
subsidiaries. Although we expect that any additional expenditures that may be
required for the year 2000 conversions will not be material, there can be no
assurance in this regard. Additionally, we believe that the year 2000 problem
could have a negative impact on certain of our customers and other entities with
which we transact business, which may have a material adverse effect on our
business.
WE ARE SELF-INSURED AGAINST POTENTIAL LIABILITIES
We are primarily self-insured, up to a limited amount, for automobile,
general liability, workers' compensation and employee group health claims. A
liability for unpaid claims and associated expenses, including incurred but not
reported losses, is actuarially determined and reflected in our consolidated
balance sheet as an accrued liability. The determination of such claims and
expenses and the extent of the accrued liability are continually reviewed and
updated. If we were to experience insurance claims or costs above our estimates
and were unable to offset such increases with earnings, our business could be
materially and adversely affected.
WE ARE DEPENDENT ON KEY PERSONNEL
We are highly dependent upon the continued services and experience of our
senior management team, including Thomas R. Pledger, our Executive Chairman and
Chairman of the Board of Directors, Steven Nielsen, our President and Chief
Executive Officer, and one or more managers of key operating subsidiaries. The
loss of the services of these individuals or other members of our senior
management could have a material adverse effect on our business.
OUR COMMON STOCK PRICE MAY BE VOLATILE
The market price for our common stock has been, and may continue to be,
highly volatile. Numerous factors could have a significant effect on the market
price of our common stock. Such factors include the announcements of
fluctuations in operating results, new contracts or customers and acquisitions
by either us or one of our competitors. The market price of our common stock is
also influenced by market conditions for telecommunications or
telecommunications services company stocks in general and by changes in
recommendations or earnings estimates by securities analysts. In addition, the
stock market has experienced significant price and volume fluctuations in recent
years that have been unrelated or disproportionate to the operating performance
of companies. These broad fluctuations may adversely affect the market price of
our common stock.
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE
Future sales of substantial amounts of our common stock in the public
market, including the shares covered by this prospectus, or the perception that
such sales could occur, could adversely affect the market price of our common
stock. As of April 27, 1999, we had outstanding 23,046,063 shares of common
stock, plus 886,865 shares of common stock reserved for issuance upon exercise
of outstanding options, including 80,868 options which are currently
exercisable. Substantially all of the outstanding shares of our common stock are
either freely salable or salable subject to certain volume and manner of sale
restrictions pursuant to Rule 144 of the Securities Act of 1933.
9
<PAGE> 13
In connection with the acquisition of Communications Construction Group,
Inc. ("CCG"), Cable Com Inc. ("CCI"), Installation Technicians, Inc. ("ITI"),
ECC and Apex, we issued an aggregate of 6,554,057 shares of common stock to
their stockholders. As of April 27, 1999, 1,817,046 of these shares were still
available for future sale by such holders. Holders who received these shares
hold their shares subject to the limitations of Rule 144. We have granted these
holders certain registration rights. Former stockholders of CCI, ITI, ECC and
Apex have the right to have their shares of common stock included in certain
registration statements covering the sale of securities by Dycom or the sale of
common stock by selling stockholders.
ANTI-TAKEOVER PROVISIONS MAY INHIBIT CHANGES OF CONTROL
Our articles of incorporation and by-laws contain provisions which may
deter, discourage or make more difficult a takeover or change of control of
Dycom by another corporation. These anti-takeover provisions include:
- the authority of our board of directors to issue up to 1,000,000
shares of preferred stock without stockholder approval on such terms
and with such rights as our board of directors may determine, and
- the requirement of a classified board of directors serving staggered
three-year terms.
We have also adopted a shareholder rights plan and have executed change of
control agreements with key officers, which may make it more difficult to effect
a change in control of Dycom and replace incumbent management. Lastly, we are
subject to certain anti-takeover provisions of the Florida Business Corporation
Act. These anti-takeover provisions could discourage or prevent a change of
control even if such change of control would be beneficial to stockholders and
could adversely affect the market price of our common stock.
10
<PAGE> 14
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the
2,500,000 shares of common stock offered by us, assuming a public offering price
of $46 5/8 per share and after deducting underwriting discounts and estimated
expenses payable by us, of $110.3 million ($126.9 million if the underwriters'
over-allotment options are exercised in full). We will not receive any proceeds
from the sale of shares of common stock offered by the selling stockholders.
We intend to use the net proceeds of the offering to fund our growth
strategy, including acquisitions, working capital and capital expenditures and
for other general corporate purposes. We also intend to use the net proceeds of
the offering to repay approximately $35.7 million of indebtedness under our
revolving credit facility, subject to reborrowings.
The indebtedness to be repaid out of the net proceeds from the offering
bears interest averaging 6.8% per annum and its maturity is up to 45 months.
This indebtedness was incurred under our revolving credit facility in connection
with the acquisitions of Locating and ECC. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 8 of the Notes to Consolidated Financial Statements
for a further description of our indebtedness.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is traded on the New York Stock Exchange under the symbol
"DY." The following table sets forth, for the periods indicated, the high and
low closing sale prices of our common stock as reported on the New York Stock
Exchange. The table has been adjusted to reflect the 3-for-2 stock split
effected in the form of a stock dividend and paid in January 1999.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED JULY 31, 1997
First Quarter............................................. $ 9 5/8 $ 7 11/16
Second Quarter............................................ 8 3/16 6 3/16
Third Quarter............................................. 8 3/16 6 11/16
Fourth Quarter............................................ 12 6 3/16
FISCAL YEAR ENDED JULY 31, 1998
First Quarter............................................. 18 5/16 11
Second Quarter............................................ 17 5/8 12 13/16
Third Quarter............................................. 19 5/16 15 5/16
Fourth Quarter............................................ 24 3/4 16 13/16
FISCAL YEAR ENDING JULY 31, 1999
First Quarter............................................. 23 13/16 17 7/8
Second Quarter............................................ 39 3/4 23 5/16
Third Quarter (through April 27).......................... 48 31 3/8
</TABLE>
On April 27, 1999, the closing sale price of our common stock as reported
on the New York Stock Exchange was $46 5/8 per share. The number of stockholders
of record on April 27, 1999 was approximately 640.
Since 1982 we have not paid any cash dividends and we currently intend to
continue to retain future earnings. Our board of directors will determine any
future change in dividend policies based on financial conditions, profitability,
cash flow, capital requirements, and business outlook, as well as other factors
relevant at the time. Our credit facility expressly limits the payment of cash
dividends to fifty percent of each fiscal year's net income. The credit
facility's restrictions regarding our debt to net worth, quick and current
ratios also affect our ability to pay dividends.
11
<PAGE> 15
CAPITALIZATION
The following table sets forth our capitalization (i) on an actual basis as
of January 31, 1999, (ii) on a pro forma basis to reflect the acquisitions of
Locating, ECC and Apex and (iii) on a pro forma as adjusted basis to give effect
to our receipt of the estimated net proceeds from the sale of 2,500,000 shares
of common stock offered by us at an estimated public offering price of $46 5/8
per share and the application of the estimated net proceeds therefrom. The
information set forth in the table below should be read in conjunction with our
Consolidated Financial Statements and the notes thereto and the Pro Forma
Unaudited Condensed Consolidated Financial Statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1999
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Long-term debt, including current portion(1)......... $ 15,925,238 $ 48,475,649 $ 12,750,000
Stockholders' equity:
Preferred Stock, $1.00 par value, 1,000,000 shares
authorized; no shares issued and outstanding.... -- -- --
Common Stock, $0.33 1/3 par value; 50,000,000
shares authorized; 22,240,400 shares issued and
outstanding; 23,014,594 shares issued and
outstanding pro forma; and 25,514,594 shares
issued and outstanding pro forma as
adjusted(2)..................................... 7,413,466 7,671,531 8,504,864
Additional paid-in capital......................... 62,198,781 94,098,799 203,549,841
Retained earnings.................................. 45,119,412 45,119,412 45,119,412
------------ ------------ ------------
Total stockholders' equity................. 114,731,659 146,889,742 257,174,117
------------ ------------ ------------
Total capitalization....................... $130,656,897 $195,365,391 $269,924,117
============ ============ ============
</TABLE>
- ---------------
(1) Long-term debt, including current maturities of $4,743,624, actual,
$12,978,924, pro forma, and $3,000,000, pro forma as adjusted. For
information concerning our long-term debt, see Note 8 of the Notes to
Consolidated Financial Statements.
(2) This information is based on shares outstanding at January 31, 1999 and does
not include 886,865 shares of common stock issuable upon exercise of
outstanding options.
12
<PAGE> 16
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data for
the periods indicated including certain consolidated pro forma financial
information.
The summary consolidated financial data as of July 31, 1997 and 1998 and
for each of the three years in the period ended July 31, 1998 are derived from
our consolidated financial statements included elsewhere in this prospectus that
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is included elsewhere in this prospectus. The summary
consolidated balance sheet data as of July 31, 1996 has also been derived from
audited financial statements. The financial statements of CCG (consolidated with
our financial statements, and not presented herein) have been audited by Nowalk
& Associates, independent auditors, as stated in their report, which is included
herein and incorporated by reference herein. Our Consolidated Financial
Statements and all financial and operating data derived therefrom have been
combined for all periods presented to include the financial condition and
results of operations of CCG, CCI and ITI.
The summary consolidated financial data as of January 31, 1999 and for the
six months ended January 31, 1998 and 1999 are derived from our unaudited
financial statements included elsewhere in this prospectus and include all
adjustments (consisting only of normal recurring adjustments) which are
necessary to present fairly the results of operations and financial position for
such periods. The results for the six months ended January 31, 1999 are not
necessarily indicative of the results to be expected for the full year.
The pro forma statements of operations data present our financial position
adjusted for the acquisitions of Locating, ECC and Apex. Such information is
presented as if each of these acquisitions had occurred at the beginning of the
periods presented. The pro forma balance sheet data presents our financial
position adjusted for the Locating, ECC and Apex acquisitions as if each of
these acquisitions had occurred as of January 31, 1999.
The supplemental pro forma data presents our statements of operations
adjusted to reflect a provision for income taxes on pooled companies which were
previously "S Corporations" and recorded no provision for income taxes.
The summary pro forma data does not purport to be indicative of the results
of operations that would have been achieved had such acquisitions been
consummated as of the assumed dates, nor are the results intended to be
indicative of our future results of operations. The following data should be
read in conjunction with, and is qualified in its entirety by reference to, our
consolidated financial statements and notes thereto, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Pro Forma
Unaudited Condensed Consolidated Financial Statements included elsewhere in this
prospectus and the individual financial statements and notes thereto of certain
acquired businesses incorporated by reference herein.
13
<PAGE> 17
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, SIX MONTHS ENDED JANUARY 31,
------------------------------------------------------ ----------------------------------------
1996 1997 1998 1998 1999
----------- ----------- -------------------------- ----------- --------------------------
ACTUAL PRO FORMA(4) ACTUAL PRO FORMA(4)
----------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Contract revenues
earned................. $ 245,937 $ 311,238 $ 368,714 $ 436,411 $ 171,813 $ 205,340 $ 238,754
Other, net............... 1,358 1,181 2,649 3,530 1,084 1,417 1,816
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues..... $ 247,295 $ 312,419 $ 371,363 $ 439,941 $ 172,897 $ 206,757 $ 240,570
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Cost of earned revenues,
excluding
depreciation........... $ 198,438 $ 246,026 $ 285,038 $ 334,811 $ 134,957 $ 154,649 $ 179,130
General and
administrative......... 24,368 30,809 36,747 47,873 15,962 20,214 25,843
Depreciation and
amortization........... 10,434 11,814 13,497 17,419 6,323 8,117 10,083
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses..... 233,240 288,649 335,282 400,103 157,242 182,980 215,056
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income
taxes.................... 14,055 23,770 36,081 39,838 15,655 23,777 25,514
Provision for income
taxes(1)................. 4,133 7,956 13,045 14,879 5,051 9,633 10,693
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income................. $ 9,922 $ 15,814 $ 23,036 $ 24,959 $ 10,604 $ 14,144 $ 14,821
=========== =========== =========== =========== =========== =========== ===========
Earnings per common
share:(2)
Basic.................... $ 0.53 $ 0.84 $ 1.09 $ 1.14 $ 0.52 $ 0.64 $ 0.65
----------- ----------- ----------- ----------- ----------- ----------- -----------
Diluted.................. $ 0.52 $ 0.83 $ 1.07 $ 1.12 $ 0.51 $ 0.63 $ 0.64
=========== =========== =========== =========== =========== =========== ===========
SUPPLEMENTAL PRO FORMA
FINANCIAL DATA(3):
Income before income
taxes.................... $ 14,055 $ 23,770 $ 36,081 $ 15,655
Pro forma provision for
income taxes(1).......... 4,860 9,841 $ 14,420 6,515
----------- ----------- ----------- -----------
Pro forma net income....... $ 9,195 $ 13,929 $ 21,661 $ 9,140
=========== =========== =========== ===========
Pro forma earnings per
common share:(1)
Basic.................... $ 0.49 $ 0.74 $ 1.02 $ 0.45
----------- ----------- ----------- -----------
Diluted.................. $ 0.48 $ 0.73 $ 1.01 $ 0.44
=========== =========== =========== ===========
Shares used in computing
earnings per common share
and pro forma earnings
per common share:(2)
Basic.................... 18,624,564 18,863,987 21,172,025 21,946,219 20,312,127 22,144,794 22,918,988
Diluted.................. 18,989,729 19,123,034 21,482,634 22,256,828 20,593,035 22,525,818 23,300,012
</TABLE>
<TABLE>
<CAPTION>
JULY 31, JANUARY 31, 1999
--------------------------- ------------------------------------------
PRO FORMA
1996 1997 1998 ACTUAL PRO FORMA(4) AS ADJUSTED (5)
------- ------- ------- --------- ------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 3,060 $ 5,276 $35,927 $33,986 $35,810 $110,368
Working capital.............................. 12,360 20,903 81,211 78,149 73,826 158,363
Total assets................................. 82,483 112,512 166,318 180,740 255,928 330,487
Long-term debt, including current portion.... 24,507 31,308 18,136 15,925 48,476 12,750
Total stockholders' equity................... 27,785 42,427 98,379 114,732 146,890 257,174
</TABLE>
- ---------------
(1) The results of operations for fiscal 1996, 1997 and 1998 include a $1.1
million, $0.3 million and $0.4 million reduction in the deferred tax
valuation allowance, respectively.
(2) Earnings per common share-basic is calculated by dividing the net income
applicable to common shares by the weighted average shares outstanding
during the period. Earnings per common share-diluted includes the dilutive
effect of common stock options.
(3) The provision for income taxes and net income have been adjusted to reflect
a pro forma tax provision for pooled companies which were previously "S
Corporations" and recorded no provision for income taxes. See Note 1 of the
Notes to Consolidated Financial Statements.
(4) The statement of operations data has been adjusted to reflect the
acquisitions of Locating, ECC and Apex as if they occurred at the beginning
of the periods presented and the consolidated balance sheet data has been
adjusted to reflect these acquisitions as if they occurred on January 31,
1999. In addition to cash consideration, we issued 774,194 shares of our
common stock in connection with these acquisitions. See "Business -- Recent
Acquisitions" and the Pro Forma Unaudited Condensed Consolidated Financial
Statements included in this prospectus.
(5) The pro forma consolidated balance sheet data has been adjusted to give
effect to our estimated net proceeds from the offering and the application
of those proceeds.
14
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We derive most of our contract revenues earned from engineering,
construction and maintenance services to the telecommunications industry.
Additionally, we provide similar services related to the installation of
integrated voice, data and video, local and wide area networks within office
buildings and similar structures and also perform underground utility locating
and electric utility contracting services. We currently perform work for more
than 25 local exchange carriers, cable television multiple system operators,
long distance carriers, competitive access providers, and electric utilities
throughout the United States. We expect that future growth in contract revenues
earned will be generated from (i) increasing the volume of services to existing
customers; (ii) expanding the scope of services to existing customers; (iii)
broadening our customer base; and (iv) geographically expanding our service
area. We expect to grow through internal sources as well as through
acquisitions. Other revenues include interest income and gain on sale of surplus
equipment.
In July 1997, we completed the acquisition of CCG and in April 1998, we
completed the acquisitions of CCI and ITI. Each of these transactions was
accounted for as a pooling of interests. Our financial statements and all
financial and operating data derived therefrom have been combined for all
periods presented herein to include the financial condition and results of
operations of CCG, CCI and ITI. CCG and CCI provide construction services to
cable television multiple system operators, and ITI provides construction and
engineering services to local and long distance telephone companies.
We provide services to our customers pursuant to multi-year master service
agreements and other long- and short-term contracts for particular projects.
Under master service agreements, we agree to provide, for a period of several
years, all specified service requirements to our customer within a given
geographical territory. Under the terms of such agreements, the customer can
typically terminate the agreement with 90 days prior written notice. The
customer, with certain exceptions, agrees to purchase such requirements from us.
Materials to be used in these jobs are generally provided by the customer.
Master service agreements generally provide that we will furnish a specified
unit of service for a specified unit price (e.g., fiber optic cable will be
installed underground for a specified rate of dollars per foot). We recognize
revenue under master service agreements as the related work is performed. We are
currently a party to 52 master service agreements, which may be either bid or
negotiated. Master service agreements are typically bid initially and may be
extended by negotiation. The remainder of our services are provided pursuant to
contracts for particular jobs. Long-term contracts relating to specific projects
have terms in excess of one year from the contract date. Short-term contracts
are generally from three to four months in duration from the contract date,
depending upon the size of the project. Contract revenues from multi-year master
service agreements and other long-term agreements represented 90% and 88%,
respectively, of total contract revenues in fiscal 1998 and for the six-month
period ended January 31, 1999. Contract revenues for fiscal 1998 and for the
six-month period ended January 31, 1999 from multi-year master service
agreements represented 49% and 47%, respectively, of total contract revenues.
Cost of earned revenues includes all direct costs of providing services
under our contracts, other than depreciation on fixed assets owned by us or
utilized by us under capital leases, which are included in depreciation and
amortization expense. Cost of earned revenues includes all costs of construction
personnel, subcontractor costs, all costs associated with operation of
equipment, excluding depreciation, materials not supplied by the customer and
insurance. Because we are primarily self-insured for automobile and general
liability, workers' compensation, and employee group health claims, a change in
experience or actuarial assumptions that did not affect the rate of claims
payments could nonetheless materially adversely affect results of operations in
a particular period. General and administrative costs include all costs of
holding company and subsidiary management personnel, rent, utilities, travel and
centralized costs such as insurance administration, interest on debt,
professional costs and certain clerical and administrative overhead. Our
management personnel, including subsidiary management, undertake all
15
<PAGE> 19
sales and marketing functions as part of their management responsibilities and,
accordingly, we do not incur material selling expenses.
We were founded in 1969 and witnessed significant growth during the 1980's
as the result of increasing competitive growth in the long distance telephone
market and the needs of the long distance carriers to replace their copper
cabling with fiber optic cable. Through 1990, we acquired nine operating
subsidiaries. As long distance carriers completed most of their long haul lines
in the late 1980's, we shifted our focus to the local exchange carrier market.
During the early 1990's, our results of operations were materially adversely
affected by a number of internal developments, including (i) adjustments taken
to insurance reserves in fiscal 1991, (ii) write-offs of intangible assets,
including goodwill, of $24.3 million and $1.4 million in fiscal 1993 and fiscal
1994, respectively, incurred in connection with four acquisitions, which
contributed to substantial net losses in those years, and (iii) significant
costs and distraction of management attention associated with a range of
litigation and a governmental investigation, including shareholder litigation
and protracted litigation with a former officer involved in a takeover effort.
All of these matters were concluded in or before fiscal 1995. We do not believe
that any of the events or circumstances we faced in the early 1990's are
indicative of the manner in which we currently operate or future prospects.
RECENT ACQUISITIONS
In February 1999, we acquired Locating, a Washington state-based company,
for $10.0 million. Locating provides underground utility locating services used
to map and mark utilities for cable television providers, multiple system
operators, telephone companies and electrical and gas utilities. Locating will
operate as a wholly-owned subsidiary of Dycom.
In March 1999, we completed the acquisitions of ECC, a Kentucky-based
company that builds and installs new cable television systems and provides
repair and expansion services to cable television systems in several states, and
Apex, also a Kentucky-based company, which installs direct broadcast satellite
systems and provides cable sales and repair services in several states, for an
aggregate purchase price of $21,750,000 and 774,194 shares of our common stock.
Prior to the acquisitions of ECC and Apex, the three stockholders of ECC owned
80% of the outstanding shares of common stock of Apex. Both ECC and Apex will
operate as wholly-owned subsidiaries of Dycom.
On a pro forma basis, these acquisitions would have provided us with
additional revenues of $68.6 million and $33.8 million for the fiscal year ended
July 31, 1998 and the six-month period ended January 31, 1999, respectively. See
the Pro Forma Unaudited Condensed Consolidated Financial Statements included in
this prospectus.
16
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of contract revenues
earned, certain items in our statement of operations for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
JULY 31, JANUARY 31,
----------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
REVENUES:
Contract revenues earned....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Other, net..................................... 0.6 0.4 0.7 0.6 0.7
----- ----- ----- ----- -----
Total revenues......................... 100.6 100.4 100.7 100.6 100.7
EXPENSES:
Cost of earned revenues, excluding
depreciation................................ 80.7 79.0 77.3 78.5 75.3
General and administrative..................... 9.9 9.9 10.0 9.3 9.8
Depreciation and amortization.................. 4.3 3.8 3.6 3.7 4.0
----- ----- ----- ----- -----
Total expenses......................... 94.9 92.7 90.9 91.5 89.1
----- ----- ----- ----- -----
Income before income taxes....................... 5.7 7.7 9.8 9.1 11.6
Provision for income taxes....................... 1.7 2.6 3.6 2.9 4.7
----- ----- ----- ----- -----
Net income....................................... 4.0 5.1 6.2 6.2 6.9%
=====
Pro forma adjustment to income tax
provision(1)................................... 0.3 0.6 0.3 0.9
----- ----- ----- -----
Pro forma net income(1).......................... 3.7% 4.5% 5.9% 5.3%
===== ===== ===== =====
</TABLE>
- ---------------
(1) Reflects a provision for federal income taxes on pooled companies which were
previously "S Corporations" and recorded no provision for federal income
taxes. See Note 1 of the Notes to Consolidated Financial Statements.
SIX MONTHS ENDED JANUARY 31, 1999 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1998
Revenues. For the six-month period ended January 31, 1999, contract
revenues increased $33.5 million, or 19.5%, to $205.3 million as compared to
$171.8 million for the corresponding period in the previous fiscal year. Of this
increase, $32.3 million was attributable to the telecommunications services
group, $1.0 million was attributable to the underground utility locating
services group, and $0.2 million was attributable to the electrical construction
and maintenance services group, reflecting an increased market demand for our
services.
During the six-month period ended January 31, 1999, we recognized $185.7
million of contract revenues from the telecommunications services group as
compared to $153.4 million for the same period in the previous fiscal year, an
increase of 21.1%. The increase in our telecommunications services group
contract revenues reflects increased volume of projects and activities
associated with cable television construction services which increased by $10.8
million to $84.0 million in the six-month period ended January 31, 1999. Of the
remaining $21.5 million increase in telecommunications contract revenues, $16.1
million related to geographic expansion and an increased volume of services to
existing customers under the terms of several new master service agreements.
Contract revenues recognized from the electrical construction and maintenance
services group was $10.1 million and $9.9 million, respectively, for the six
months ended January 31, 1999 and 1998. We recognized contract revenues of $9.5
million from the underground utility locating services group in the six months
ended January 31, 1999 as compared to $8.5 million in the same period last year,
an increase of 11.2%.
Contract revenues from multi-year master service agreements and other
long-term agreements represented 88% and 89% of total contract revenues in the
six months ended January 31, 1999 and 1998, respectively. Contract revenues from
multi-year master service agreements represented 47% of total contract revenues
in each of the six months ended January 31, 1999 and 1998.
17
<PAGE> 21
Costs of Earned Revenues. Costs of earned revenues increased $19.6 million
to $154.6 million in the six months ended January 31, 1999 from $135.0 million
in the six months ended January 31, 1998, but decreased as a percentage of
contract revenues to 75.3% from 78.5%. Insurance and equipment costs declined as
a percentage of contract revenues as a result of effective management of
insurance claims, positive results of the corporate safety program, and the
buy-out of certain operating leases. Other factors affecting the improved
operating margin include increased productivity of our labor force combined with
the effective utilization of subcontractors to meet labor demands.
General and Administrative Expenses. General and administrative expenses
increased $4.2 million to $20.2 million in the six months ended January 31, 1999
from $16.0 million in the six months ended January 31, 1998. The increase in
general and administrative expenses for the six months ended January 31, 1999,
as compared to the same period last year, was primarily attributable to
increases in administrative salaries, employee benefits and payroll taxes of
$3.0 million, registration costs of $0.4 million, and other general and
administrative expenses of $1.2 million offset by a reduction in interest costs
of $0.4 million associated with the declining balance of notes payable.
Depreciation and Amortization. Depreciation and amortization increased
$1.8 million to $8.1 million in the six months ending January 31, 1999 as
compared to $6.3 million in the same period last year. The increase in
depreciation and amortization was due to capital expenditures of $22.8 million
in the six-month period ended January 31, 1999 as compared to $10.0 million in
the six-month period ended January 31, 1998, an increase of $12.8 million. The
increased purchases represent capital expenditures in the ordinary course of
business, equipment purchased for the start-up of certain long-term contracts,
and the buy-out of operating leases on terms favorable to us.
Income Taxes. The provision for income taxes was $9.6 million in the
six-month period ended January 31, 1999 as compared to $5.1 million in the same
period last year. Our effective tax rate was 40.5% in the six-month period ended
January 31, 1999 as compared to 32.3% in the same period last year. The
effective tax rate differs from the statutory rate due to state income taxes,
income of Subchapter S Corporations (CCI and ITI) being taxed to their
stockholders, the amortization of intangible assets that do not provide a tax
benefit, and other non-deductible expenses for tax purposes. For the six-month
period ended January 31, 1998, the provision for income taxes has been adjusted
to reflect a pro forma tax provision for pooled companies which were previously
Subchapter S Corporations. The pro forma provision for income taxes was $6.5
million and the pro forma effective tax rate was 41.6% for the six month period
ended January 31, 1998.
Net Income. Net income increased to $14.1 million for the six-month period
ended January 31, 1999 as compared with net income of $10.6 million in the
corresponding period in fiscal year 1998, a 33.4% increase.
YEAR ENDED JULY 31, 1998 COMPARED TO YEAR ENDED JULY 31, 1997
Revenues. Contract revenues increased $57.5 million, or 18.5%, to $368.7
million in fiscal 1998 from $311.2 million in fiscal 1997. Of this increase,
$51.8 million was attributable to the telecommunications services group, $2.8
million was attributable to the electrical construction and maintenance services
group and $2.9 million was attributable to the underground utility locating
services group, reflecting an increased overall market demand for our services.
During fiscal 1998, we recognized $330.6 million of contract revenues from
the telecommunications services group as compared to $278.8 million in fiscal
1997. The increase in our telecommunications services group contract revenues
reflects an increased volume of projects and activity in fiscal 1998 associated
with cable television services, which increased by $36.9 million to $153.5
million in fiscal 1998 from $116.6 million in fiscal 1997. Contract revenues in
the telecommunications services group also increased for services performed in
the design and installation of broadband networks, telephone engineering
services, telephony splicing services, premise wiring services, and revenues
from services performed under master service agreements. We recognized contract
revenues of $20.2 million from the electrical construction and maintenance
services group in fiscal 1998 as compared to $17.4 million fiscal
18
<PAGE> 22
1997, an increase of 16.1%. We recognized contract revenues of $17.9 million
from underground utility locating services in fiscal 1998 as compared to $15.0
million in fiscal 1997, an increase of 19.3%.
Contract revenues from multi-year master service agreements and other
long-term agreements represented 90% of total contract revenues in fiscal 1998
as compared to 84% in fiscal 1997, of which contract revenues from multi-year
master service agreements represented 49% of total contract revenues in fiscal
1998 as compared to 51% in fiscal 1997.
Cost of Earned Revenues. Cost of earned revenues increased $39.0 million
to $285.0 million in fiscal 1998 from $246.0 million in fiscal 1997, but
decreased as a percentage of contract revenues to 77.3% from 79.0%. Direct
materials, equipment costs, and other direct costs declined slightly as a
percentage of contract revenues as a result of improved productivity and the
utilization of more modern equipment.
General and Administrative Expenses. General and administrative expenses
increased $5.9 million to $36.7 million in fiscal 1998 from $30.8 million in
fiscal 1997, and increased slightly as a percentage of contract revenues to
10.0% from 9.9%. The increase in general and administrative expenses was
primarily attributable to a $2.4 million increase in administrative salaries,
bonuses, employee benefits and payroll taxes and an increase of $1.2 million in
the provision for doubtful accounts. Acquisition and merger related expenses
charged to general and administrative expenses were $0.6 million and $0.4
million in fiscal 1998 and 1997, respectively.
Depreciation and Amortization. Depreciation and amortization expense
increased $1.7 million to $13.5 million in fiscal 1998 from $11.8 million in
fiscal 1997, but decreased as a percentage of contract revenues to 3.6% from
3.8%. The increase in amount reflects the depreciation of additional capital
expenditures incurred in the ordinary course of business.
Income Taxes. The provision for income taxes was $13.0 million in fiscal
1998 as compared to $8.0 million in fiscal 1997. The provision for income taxes
for 1998 reflects a reduction of $0.4 million in a valuation allowance relative
to certain deferred tax assets. Our effective tax rate was 36.2% in fiscal 1998
as compared to 33.5% in fiscal 1997. The effective tax rate differs from the
statutory tax rate due to state income taxes, income of Subchapter S
Corporations (CCI and ITI) being taxed to their stockholders, the amortization
of intangible assets that do not provide a tax benefit, other non-deductible
expenses for tax purposes and the reduction in a valuation allowance relative to
certain deferred tax assets. As of the date of the merger, CCI and ITI
recognized a combined deferred tax liability of $0.6 million which was included
in the results of operations for the quarter ended April 30, 1998.
The pro forma provision for income taxes to give effect to pooled S
Corporations was $14.4 million in fiscal 1998 as compared to $9.8 million in
fiscal 1997. The pro forma effective tax rate was 40.0% in fiscal 1998 and 41.4%
in fiscal 1997.
Net Income. Net income increased to $23.0 million in fiscal 1998 from
$15.8 million in fiscal 1997, a 45.7% increase. Pro forma net income increased
to $21.7 million in fiscal 1998 from $13.9 million in fiscal 1997, a 55.5%
increase.
YEAR ENDED JULY 31, 1997 COMPARED TO YEAR ENDED JULY 31, 1996
Revenues. Contract revenues increased $65.3 million, or 26.6%, to $311.2
million in fiscal 1997 from $245.9 million in fiscal 1996. Of this increase,
$57.3 million was attributable to the telecommunications services group, $6.7
million was attributable to the electrical construction and maintenance services
group and $1.3 million was attributable to the underground utility locating
services group, reflecting an increased overall market demand for our services.
During fiscal 1997, we recognized $278.8 million of contract revenues from the
telecommunications services group as compared to $221.5 million in fiscal 1996.
The increase in our telecommunications services group reflects an increased
volume of projects and activity in fiscal 1997 associated with cable television
services, which increased by $32.4 million to $116.6 million in fiscal 1997 from
$84.2 million in fiscal 1996, the design and installation of broadband networks,
telephony engineering services, and premise wiring services, partially offset by
a slight decline in contract revenues from services performed under master
service agreements. Contract revenues from master service
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<PAGE> 23
agreements were a significant source of our revenues, representing approximately
51% of total contract revenues in fiscal 1997 as compared to 56% in fiscal 1996.
We recognized contract revenues of $17.4 million from electrical construction
and maintenance services in fiscal 1997 as compared to $10.7 million in fiscal
1996, an increase of 62.6%. We recognized contract revenues of $15.0 million
from underground utility locating services in fiscal 1997 as compared to $13.7
million in fiscal 1996, an increase of 9.5%.
Contract revenues from long-term agreements represented 84% of total
contract revenues in fiscal 1997 as compared to 87% in fiscal 1996. In addition,
contract revenues from master service agreements continued to be a significant
source of our revenues, representing 51% of total contract revenues in fiscal
1997 as compared to 56% in fiscal 1996.
Costs of Earned Revenues. Costs of earned revenues increased $47.6 million
to $246.0 million in fiscal 1997 from $198.4 million in fiscal 1996, but
decreased as a percentage of contract revenues to 79.0% from 80.7%. Direct
labor, equipment and materials costs declined slightly as a percentage of
contract revenues as a result of improved productivity in the labor force and
the utilization of more modern equipment. Additionally, insurance costs declined
by approximately $1.6 million as a result of fewer claims arising in fiscal
1997.
General and Administrative Expenses. General and administrative expenses
increased $6.4 million to $30.8 million in fiscal 1997 from $24.4 million in
fiscal 1996, but remained stable at 9.9% of contract revenues. The increase in
general and administrative expenses was primarily attributable to a $4.1 million
increase in administrative salaries, bonuses, employee benefits and payroll
taxes. We also incurred professional and related expenses associated with the
CCG Acquisition of $0.4 million in fiscal 1997.
Depreciation and Amortization. Depreciation and amortization expense
increased $1.4 million to $11.8 million in fiscal 1997 from $10.4 million in
fiscal 1996, but decreased as a percentage of contract revenues to 3.8% from
4.3%. The increase in amount reflects the depreciation of additional capital
expenditures incurred in the ordinary course of business.
Income Taxes. The provision for income taxes was $8.0 million in fiscal
1997 as compared to $4.1 million in fiscal 1996. The provision for income taxes
for fiscal 1996 reflects a reduction of $1.1 million in a valuation allowance
relative to certain deferred tax assets. Our effective tax rate was 33.5% in
fiscal 1997 as compared to 29.4% in fiscal 1996. The effective tax rate differs
from the statutory tax rate due to state income taxes, taxable income of
Subchapter S Corporations (CCI and ITI) being taxed to their stockholders, the
amortization of intangible assets that do not provide a tax benefit, other
non-deductible expenses for tax purposes and, in fiscal 1996, the reduction in a
valuation allowance relative to certain deferred tax assets.
The pro forma provision for income taxes to give effect to pooled S
Corporations was $9.8 million in fiscal 1997 as compared to $4.9 million in
fiscal 1996. The pro forma effective tax rate was 41.4% in fiscal 1997 and 34.6%
in fiscal 1996.
Net Income. Net income increased to $15.8 million in fiscal 1997 from $9.9
million in fiscal 1996, a 59.4% increase.
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<PAGE> 24
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth historical financial data for the fiscal
quarters of 1997, 1998 and 1999 through January 31, 1999. This quarterly
information is unaudited, but has been prepared on a basis consistent with our
audited financial statements presented elsewhere herein and, in our opinion,
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information for the quarters presented.
The operating results for any quarter are not necessarily indicative of the
results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
FISCAL YEAR 1997 FISCAL YEAR 1998
----------------------------------------- -------------------
OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31,
1996 1997 1997 1997 1997 1998
-------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues..................... $72.2 $71.8 $80.8 $87.6 $91.4 $81.5
Income before income taxes......... 5.1 4.0 6.1 8.6 8.4 7.3
Net income......................... 3.4 2.6 4.2 5.6 5.7 4.9
Earnings per share:
Basic............................ $0.18 $0.14 $0.22 $0.30 $0.30 $0.23
Diluted.......................... 0.18 0.13 0.22 0.29 0.30 0.22
Pro forma net income(1)............ $ 2.9 $ 2.5 $ 3.6 $ 4.9 $ 4.8 $ 4.3
Pro forma earnings per share:(1)
Basic............................ $0.15 $0.13 $0.19 $0.26 $0.25 $0.20
Diluted.......................... 0.15 0.13 0.19 0.26 0.25 0.20
AS A PERCENTAGE OF TOTAL REVENUES:
Total revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Income before income taxes......... 7.1 5.5 7.5 9.9 9.2 8.9
Net income......................... 4.7 3.6 5.2 6.5 6.3 6.0
Pro forma net income(1)............ 4.0 3.5 4.5 5.6 5.3 5.3
<CAPTION>
QUARTER ENDED
-----------------------------------------
FISCAL YEAR 1998 FISCAL YEAR 1999
------------------- -------------------
APR. 30, JULY 31, OCT. 31, JAN. 31,
1998 1998 1998 1999
-------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues..................... $96.9 $101.6 $109.3 $97.5
Income before income taxes......... 8.8 11.6 12.6 11.2
Net income......................... 5.3 7.1 7.5 6.7
Earnings per share:
Basic............................ $0.24 $ 0.32 $ 0.34 $0.30
Diluted.......................... 0.24 0.32 0.33 0.29
Pro forma net income(1)............ $ 5.4
Pro forma earnings per share:(1)
Basic............................ $0.25
Diluted.......................... 0.24
AS A PERCENTAGE OF TOTAL REVENUES:
Total revenues..................... 100.0% 100.0% 100.0% 100.0%
Income before income taxes......... 9.1 11.4 11.6 11.5
Net income......................... 5.5 7.0 6.9 6.9
Pro forma net income(1)............ 5.6
</TABLE>
- ---------------
(1) Reflects a provision for federal income taxes on pooled companies which were
previously "S Corporations" and recorded no provision for federal income
taxes. See Note 1 of the Notes to Consolidated Financial Statements.
We have historically experienced variability in revenues, income before
income taxes and net income on a quarterly basis. A significant amount of this
variability is due to the fact that our business is subject to seasonal
fluctuations, with activity in our second and occasionally third fiscal quarters
(the quarters ended January 31 and April 30 in a given fiscal year) being
adversely affected by weather. For example, our revenues, income before income
taxes and net income for the second quarter of fiscal 1997 and 1998 were
adversely affected by severe winter weather, including significant snowfall,
experienced during that time. In addition, budgetary spending patterns of
significant customers, which often run on a calendar year basis, have resulted
in greater volatility of second fiscal quarter results. We have witnessed
increased sales of engineering services in recent years, and an increase in the
level of such services may offset the effect of these seasonal factors, although
no assurance can be given.
We have experienced and expect to continue to experience quarterly
fluctuations in revenues, income before income taxes and net income as a result
of other factors, including the timing and volume of customers' construction and
maintenance projects, the commencement, renewal or termination of master service
agreements, safety performance and the timing of additional costs to support
growth by acquisition or otherwise.
LIQUIDITY AND CAPITAL RESOURCES
Our needs for capital are attributable primarily to our needs for equipment
to support our contractual commitments to customers and our needs for working
capital sufficient for general corporate purposes. Capital expenditures have
been financed by operating and capital leases, bank borrowings and internal cash
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<PAGE> 25
flow. To the extent that we seek to grow by acquisitions that involve
consideration other than our stock, our capital requirements may increase,
although we are not currently subject to any commitments or obligations with
respect to any acquisitions. Our sources of cash have historically been from
operating activities, bank borrowings, proceeds arising from the sale of idle
and surplus equipment and real property, and the public offering of our common
stock.
For fiscal 1998, net cash provided by operating activities was $30.6
million compared to $12.8 million for fiscal 1997 and $19.5 million for fiscal
1996. Net income and non-cash charges are the primary sources of operating cash
flow. The increase in net cash provided by operating activities in fiscal 1998
was due primarily to an increase in net income and other non-cash expenses. The
increase was also attributable to funds advanced by a customer for materials and
start-up expenses related to certain long-term construction contracts. The
amounts advanced at July 31, 1998 were $9.4 million. For the six-month period
ended January 31, 1999, net cash provided by operating activities was $24.3
million compared to $10.4 million for the six-month period ended January 31,
1998. Working capital items contributed $2.2 million to operating cash flow for
the six-month period ended January 31, 1999 principally through a decrease in
accounts receivable and an increase in accounts payable offset by an increase in
other current assets and unbilled revenues and a decrease in income taxes
payable.
For fiscal 1998, net cash used in investing activities for capital
expenditures was $21.5 million, compared to $16.1 million in fiscal 1997 and
$13.5 million in fiscal 1996. For fiscal 1998 and fiscal 1997, these capital
expenditures were for the normal replacement of equipment and the buy out of
certain operating leases on terms favorable to us. For fiscal 1996, these
capital expenditures were for normal equipment replacement and for additional
equipment purchases made by the underground utility locating group to service
new geographic areas. In addition to equipment purchases, we obtained
approximately $2.2 million of equipment in fiscal 1998, $3.3 million of
equipment in fiscal 1997, and $3.0 million of equipment in fiscal 1996 under
noncancellable operating leases. In the six-month period ended January 31, 1999,
net cash used in investing activities was $26.0 million as compared to $9.0
million for the same period last year. For the six-month period ended January
31, 1999, capital expenditures of $22.8 million were for the normal replacement
of equipment in the ordinary course of business, equipment purchased for the
start up of certain long-term contracts, and the buy-out of operating leases on
terms favorable to us.
In August 1998, we purchased a 13.0% equity interest in Witten
Technologies, Inc. ("Witten") for $3.0 million. Witten has developed, and is the
owner of, various proprietary technologies and materials relating to
ground-penetrating radar and the use of other electromagnetic frequencies. In
addition to the equity received, we have acquired an exclusive license to market
certain technologies within the United States and Canada. Witten is being
accounted for as an unconsolidated affiliate. Additionally, we purchased assets
of a business, which included a non-compete agreement, for $750,000 for use in
the telecommunications services group.
At January 31, 1999, we had outstanding borrowings of $15.4 million against
our $85.0 million credit facility consisting of (i) $2.6 million of advances
under the equipment and small business purchase facility and (ii) $12.8 million
outstanding under the term-loan facility. The interest rate on the outstanding
equipment advances was at LIBOR plus 1.75% or 7.0% and the interest rate on the
outstanding term loan was at the bank's prime interest rate minus 0.50% or
7.25%. In addition, we had $11.4 million in outstanding letters of credit issued
as security to our insurance administrators as part of our self-insurance
program. At January 31, 1999, we had available borrowing capacity of $22.4
million under the revolving equipment acquisition and small business purchase
facility, $30.0 million under the revolving working capital facility and $3.6
million under the standby letter of credit facility. During the six months ended
January 31, 1999, we repaid $1.5 million on this facility.
Subsequent to January 31, 1999, we utilized the available credit facility
to finance the cash portion of the Locating and ECC acquisitions. The total cash
portion of these acquisitions was $31.8 million.
On April 27, 1999, we signed a $90.25 million amendment to our credit
facility which increases the level of available financing to $175.25 million and
extends the facility's maturity to April 2002. The credit agreement is with a
syndicate of banks led by Dresdner Bank Lateinamerika AG Miami Agency (the
22
<PAGE> 26
"Bank") and provides for (i) a $17.5 million standby letter of credit facility,
(ii) a $50.0 million revolving working capital facility, (iii) a $12.75 million
five-year term loan, and (iv) a $95.0 million equipment acquisition and small
business purchase facility. The revolving working capital facility bears
interest at either the LIBOR rate plus 1.25% per annum or the Bank's prime rate
minus 1.125% per annum. The term loan bears interest at either the LIBOR rate
plus 1.75% per annum or the Bank's prime rate minus 0.50% per annum. The
equipment acquisition and small business purchase facility bears interest at
either the LIBOR rate plus 1.50% per annum or the Bank's prime rate minus 0.75%
per annum. The obligations under the amended credit agreement are guaranteed by
our subsidiaries and secured by security interests in certain property and
assets of us and our subsidiaries.
The amended credit agreement requires us to maintain certain financial
covenants and conditions. The amended credit agreement restricts encumbrances on
assets and the creation of additional indebtedness and limits the payment of
cash dividends to fifty percent of each fiscal year's net income. All
obligations under this credit agreement are guaranteed by our subsidiaries and
secured by certain property and assets of Dycom and its subsidiaries.
Our acquired subsidiaries, CCI and ITI, had outstanding credit facilities
prior to our acquisition of such companies. CCI had a $5.2 million revolving
credit facility for funding working capital and a $2.0 million term note
incurred to purchase equipment. ITI had a $2.0 million revolving credit facility
for funding working capital and a $0.5 million multiple advance term facility
for equipment acquisitions. During the fourth quarter of fiscal 1998, we paid
off the outstanding balances of $8.1 million under these facilities with
existing cash balances and subsequently terminated such facilities.
In the six-month period ended January 31, 1999, net cash used in financing
activities was $0.2 million which was primarily attributable to normal debt
payments, under the terms of our bank credit agreement, of $2.4 million offset
by funds received from the exercise of stock options of $2.2 million during the
period.
We foresee our capital resources together with existing cash balances to be
sufficient to meet our financial obligations, including the scheduled debt
payments under our credit agreement and operating lease commitments, and to
support our normal replacement of equipment at our current level of business for
at least the next twelve months. Our future operating results and cash flows may
be affected by a number of factors including our success in bidding on future
contracts and our continued ability to effectively manage controllable costs.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued 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 annual
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
23
<PAGE> 27
in assessing performance. This statement is effective for financial statements
for periods beginning after December 15, 1997.
In February 1998, the FASB issued SFAS No. 132 "Employees Disclosures About
Pension and Other Postretirement Benefits," which revises certain disclosures
about pension and other postretirement benefit plans. This statement does not
change the measurement and recognition methods for pensions or postretirement
benefits costs reported in financial statements. This statement is effective for
fiscal years beginning after December 15, 1997.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which establishes standards for the
accounting and reporting of derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for financial statements for periods beginning after June 15, 1999.
We are currently evaluating the requirements and related disclosures of
SFAS No. 130, 131, 132 and 133.
YEAR 2000 COMPLIANCE
We have reviewed our computer systems to identify those areas that could be
adversely affected by year 2000 software failures. We have converted
approximately 85% of our information systems to be year 2000 compliant. We have
incurred approximately $1.4 million through January 31, 1999 and will incur
approximately $0.5 million in the remainder of fiscal 1999 to complete the
information system conversions, including the implementation and conversion cost
of our recently acquired subsidiaries. We believe that our systems are year 2000
compliant and any additional expenditures that may be required in connection
with the year 2000 issue are not expected to be material. In addition, we
believe that many of our customers, particularly local exchange and long
distance carriers and cable multiple system operators, are also impacted by the
year 2000 issue, which in turn could affect us. We are assessing the compliance
efforts of our major customers and suppliers. If the systems of certain of our
customers and suppliers, particularly the local exchange and long distance
carriers and cable multiple system operators and others on whose services we
depend or with whom our systems interface, are not year 2000 compliant, it could
have a material adverse effect on us. We will be formulating a contingency plan
prior to the end of the current fiscal year to address the possible side
effects, if any, of our customers and suppliers experiencing year 2000 problems.
24
<PAGE> 28
BUSINESS
OVERVIEW
We are a leading provider of engineering, construction and maintenance
services to telecommunications and utility providers throughout the United
States. Our comprehensive range of telecommunications services include the
engineering, placement and maintenance of aerial, underground, and buried
fiber-optic, coaxial and copper cable systems owned by local and long distance
telephone companies, competitive local exchange carriers, and cable television
multiple system operators. Additionally, we provide similar services related to
the installation of integrated voice, data, and video local and wide area
networks within office buildings and similar structures and the installation of
direct broadcast satellite systems. We also perform underground utility locating
and electric utility contracting services. For fiscal 1998 and for the six-month
period ended January 31, 1999, telecommunications services contributed
approximately 90% of our contract revenues, underground utility locating
services contributed approximately 5% and electrical construction and
maintenance services contributed approximately 5%.
Through our fourteen wholly-owned and independently operating subsidiaries,
we have long-standing relationships with many leading local exchange carriers,
long distance providers, competitive access providers, cable television multiple
system operators and electric utilities. Such key customers include BellSouth
Telecommunications, Inc., Comcast Cable Communications, Inc., MediaOne, Inc.,
Tele-Communications, Inc., Sprint Corporation, GTE Corporation, U.S. West
Communications, Inc. and Florida Power and Light Company. During fiscal 1998 and
the six-month period ended January 31, 1999, approximately 90% and 88%,
respectively, of our revenues came from multi-year master service agreements and
other long-term agreements with large telecommunications providers and electric
utilities.
RECENT ACQUISITIONS
In July 1997, we acquired CCG, a Pennsylvania-based provider of
construction services to cable television multiple system operators. In April
1998, we acquired CCI, a Georgia-based firm that provides construction services
to cable television multiple system operators, and ITI, a Missouri-based firm
that provides construction and engineering services to local and long distance
telephone companies. Each of these acquisitions was accounted for as a pooling
of interests. These transactions have diversified our telephone company customer
base to include a broader mix of work for cable television multiple system
operators. The acquisition of CCG also created a greater geographic presence for
us in the Mid-Atlantic, Midwest and Northeast regions of the United States,
while the acquisitions of CCI and ITI have further expanded our operations in
the Midwest, Upper Midwest, Rocky Mountain and West Coast regions of the United
States.
In February 1999, we acquired Locating, a Washington state-based company,
for $10.0 million. Locating provides underground utility locating services used
to map and mark utilities for cable television providers, multiple system
operators, telephone companies and electrical and gas utilities. Our acquisition
of Locating expands our presence in the underground utility locating services
industry and our geographic presence in the West Coast region of the United
States.
On March 31, 1999, we completed the acquisitions of ECC, a Kentucky-based
company that builds and installs new cable television systems and provides
repair and expansion services to cable television systems in several states, and
Apex, also a Kentucky-based company, which installs direct broadcast satellite
systems and provides cable sales and repair services in several Midwestern
states, for an aggregate purchase price of $21,750,000 and 774,194 shares of our
common stock. Prior to the acquisitions of ECC and Apex, the three stockholders
of ECC owned 80% of the outstanding shares of common stock of Apex. Both ECC and
Apex will operate as wholly-owned subsidiaries of Dycom.
In connection with the acquisitions of CCG, CCI, ITI, Locating and ECC we
entered into five year employment contracts with certain executive officers and
selling stockholders of each of the acquired companies.
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<PAGE> 29
INDUSTRY OVERVIEW
The telecommunications industry is undergoing rapid change. Deregulation,
competitive deployment of networks and growth in consumer demand for enhanced
telecommunications services create the need for the construction of additional
telecommunications infrastructure for new and existing providers. As a result of
this increased need for upgraded and expanded telecommunications infrastructure
and the focus on reducing costs, telecommunications providers have been
outsourcing and are expected to continue to outsource their telecommunications
infrastructure engineering, construction and maintenance requirements.
Deregulation. The Telecom Act, enacted on February 8, 1996, substantially
revised the Federal Communications Act of 1934. It established a dual
federal-state regulatory framework for eliminating certain barriers to
competition faced by competitors of incumbent local exchange carriers. Among
other things, it preempts state and local government control over access to the
telecommunications market and opens such market to new entrants. The elimination
of entry barriers will lead to increased construction of competing
telecommunications networks as competitive telecommunications providers,
existing as well as new, expand into new markets and offer services that once
were reserved for incumbents. The competition generated by the Telecom Act is
expected to continue to spur existing service providers to expand and improve
their existing facilities.
While the Telecom Act significantly removed barriers to competition, many
state regulatory commissions have modified regulation of telecommunications
providers. Historically, telecommunications providers were limited by state
regulations to earning a predetermined return on capital investments. Since
1994, most of the states have repealed such regulations, substituting
regulations which limit the price telecommunications providers may charge
consumers, while eliminating the caps on the profits they may earn. These new
state regulatory frameworks eliminate profit guarantees for telecommunications
providers, while offering the potential for enhanced profitability. The combined
effect of increased competition and the prospects for greater profitability will
lead new and existing telecommunications providers to become increasingly
efficient in constructing and maintaining telecommunications infrastructure.
Competitive Deployment of Networks. Telecommunications providers and cable
television multiple system operators are actively expanding networks to provide
their customers with a combined offering of voice, video and data communications
services. Additionally, electric utilities are currently using fiber optic
technology to develop and maintain demand monitoring systems. These systems can
be used as a means of controlling the need to build additional generation
capacity and also provide electric utilities opportunities to market excess
communications capacity to telecommunications providers. Once built, these
systems will require continuous maintenance and periodic upgrading. Such
additional telecommunications infrastructure will also permit long distance
carriers and content providers to connect customers without the need to pay
exchange access fees to their competitors, local exchange carriers or cable
companies.
Growth in Consumer Demand. Increasing consumer demand is also spurring
growth in the telecommunications industry. Not only has the amount of
traditional telephone voice traffic increased, but the growth of personal
computers and modems has created significant data traffic from a wide variety of
sources. For example, businesses with multiple locations increasingly require
geographically dispersed local area networks to be linked in sophisticated wide
area networks handling large volumes of telecommunications traffic. In addition,
the Internet has expanded beyond its traditional data transmission and
file-sharing functions to offer e-mail, new data sources, commercial services,
transaction processing, independent bulletin boards, the World Wide Web and
voice transmission. To handle the growing volume of communications traffic and
to provide faster and higher quality transmission, telecommunications providers
will be required to upgrade and expand their telecommunications networks and
related infrastructure.
Consumer demand for services provided over fiber optic cable has resulted
in a demand for broader bandwidth. Limited by the size of the cable or other
facilities through which communications flow, bandwidth controls both the speed
and breadth of voice, video and data communications. Because of the physical
limitations of the existing network facilities, there is an immediate need to
upgrade facilities with new and innovative technology, expanding and, in many
cases, replacing existing telecommunications
26
<PAGE> 30
infrastructure to allow for increased bandwidth and the resultant faster and
greater volume of communications flow.
Even local governments are increasingly becoming directly involved in
telecommunications network construction because of the perception that
telecommunications infrastructure is essential to economic growth. Local
governments spur increased demand for cable television construction services by
imposing requirements for improved services as a precondition to renewal of
franchises. Additionally, in some cases, local governments view the construction
of such infrastructure as an appropriate governmental response to private
enterprises' failure to act in a timely manner, and the cost of expanding and
upgrading telecommunications infrastructure is appearing more frequently in
governmental budgets.
Increased Outsourcing. The need to upgrade and expand telecommunications
infrastructure as a result of deregulation, competitive deployment of networks
and the growth in consumer demand for enhanced telecommunications services is
expected to continue to stimulate telecommunications providers to increase the
current level of outsourcing to independent contractors who serve the industry.
The outsourcing trend has largely been driven by the efforts of
telecommunications providers to reduce costs and to focus on their core
competencies. Independent contractors, such as us, typically have lower cost
structures than the telecommunications providers, primarily as a result of the
independent contractors' lower direct and overhead cost structures. In addition,
we believe that telecommunications providers are seeking comprehensive solutions
to their infrastructure needs by utilizing fewer qualified contractors to
provide a full range of telecommunications infrastructure services.
Participant Consolidation. Historically, our industry has been highly
fragmented. Although industry annual revenues are estimated to be several
billions of dollars, few of these companies are publicly traded. Most companies
in our industry are small, privately-held companies with annual revenues of less
than $100 million. While the industry has attracted some participation in the
past from pipeline and power plant construction firms, to date these firms have
not significantly impacted the industry.
In response to the newly deregulated operating environment, the industry
has experienced some increase in business combinations among the smaller private
firms. The resulting combinations, for the most part, however, may be unable,
due to resource constraints, to adequately meet the standards demanded by
telecommunications providers seeking to outsource their telecommunications
infrastructure services function. Going forward, service firms will need
significant management expertise, technical capabilities and capital resources
to provide the level of service necessary to gain significant market share. As a
result, we believe that the industry will experience consolidation in the future
and that strategic acquisition opportunities will continue to become available.
THE DYCOM SOLUTION
We provide a comprehensive solution to telecommunications providers
throughout the United States who need to deploy large and complex
telecommunications infrastructure quickly and with a high level of quality. Our
ability to serve a wide and diverse geographic area and our demonstrated
expertise in engineering and construction project management give us a distinct
competitive advantage in obtaining customer service contracts. As
telecommunications providers begin to offer new and expanded services on a
global basis, the time to market for these services is a critical factor in
their success. We are able to rapidly mobilize our capital equipment, financial
assets and personnel resources to effectively respond to the increasing scale
and time constraints of customer demands. In addition, we have recently begun to
offer our customers integrated engineering, procurement, construction and
maintenance services on large-scale turnkey projects, which we believe
distinguishes us from many of our competitors. We have offered our
telecommunications engineering, construction and maintenance services solution
on a national basis to local and long distance communications carriers,
competitive access providers, cable television multiple system operators and
electric utilities since 1984.
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<PAGE> 31
BUSINESS STRATEGY
Our objective is to be a leading high quality and cost effective provider
of engineering, construction and maintenance services to the telecommunications
industry. To meet this objective, we have identified the following key business
strategies:
Leverage Expertise and Leadership Position. We believe that in this highly
fragmented industry, our technical expertise and reputation should give us a
competitive advantage in securing new business from our current customers, as
well as from new customers. We believe that our reputation for quality and
reliability, operating efficiency, financial and personnel resources, and
technical expertise (e.g., ability to serve a wide geographic area and ability
to provide customers with a comprehensive solution) provide us with a
competitive advantage in bidding for and winning new contracts. We intend to
pursue the larger, more technically complex telecommunications infrastructure
projects where our technical expertise and reputation should have a greater
impact. In addition, we believe that our ability to provide integrated
engineering, procurement, construction and maintenance services on large-scale
turnkey projects distinguishes us from many of our competitors.
Effectively Utilize Decentralized Management. In order to enhance customer
service, we maintain a focused, decentralized management structure. Our holding
company structure emphasizes the importance of local subsidiary-based management
teams, which are granted significant operating flexibility in running their
business. We believe that this decentralized operating structure enables
management to make decisions and mobilize resources more quickly based on
knowledge of the local markets and the specific needs of their customers. We
complement the decentralized operating structure by sharing operating
information among our subsidiaries.
Reduce Operating Costs and Increase Productivity. We believe that the cost
savings in centralizing administrative tasks, such as insurance, asset
management, and information technology through our holding company structure,
combined with decentralized operating management, enables us to be a more cost-
effective provider of telecommunications engineering, construction and
maintenance services. As a service provider, the productivity of our own work
force and the work of our subcontractors has the single largest impact on our
cost structure. High quality, decentralized management assists us in maintaining
quality performance from our work force, as well as managing our costs. In order
to respond to peak demands for our services and to control labor expenses, we
also redeploy manpower among our subsidiaries.
Refine and Enhance Formal Estimating Process. We utilize proprietary
software to collect, maintain and statistically analyze extensive amounts of
historical cost and pricing information. Our operating subsidiaries collect
detailed cost and pricing information on a state by state, customer by customer
and job by job basis. We use this data and analysis as part of a formal
estimating process when reviewing new business opportunities. We believe that,
as a result of this process, we are able to price jobs more accurately and more
effectively allocate our resources. We will continually seek to enhance the
effectiveness of our proprietary software system by expanding the amount of
information that we gather and improving our analysis of the data.
GROWTH STRATEGY
As a result of the increased demand for telecommunications engineering,
construction and maintenance services, greater emphasis on outsourcing of such
services by telecommunications providers, and the fragmented nature of the
industry, we believe there are significant opportunities to expand our business
internally and through acquisitions.
Internal Growth. We are focused on generating internal growth by: (i)
increasing the volume of services to existing customers; (ii) expanding the
scope of services to existing customers; (iii) broadening our customer base; and
(iv) geographically expanding our service area. We are also seeking to reduce
operating expenses and improve operating margins by centralizing costs such as
insurance administration, asset management and information technology, thereby
eliminating redundancies at the subsidiary level. Additionally, the competitive
pressures of deregulation have prompted several existing customers to
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<PAGE> 32
increase the outsourcing of noncore activities, which can provide opportunities
for enhancing internal growth without necessarily requiring us to achieve market
share gains.
Growth Through Acquisitions. As part of our growth strategy, we intend to
capitalize on the current opportunity to make strategic acquisitions of
engineering, construction and maintenance services companies serving the
telecommunications industry throughout the United States. We continually review
and evaluate potential acquisition candidates and believe that as competition
intensifies, smaller companies will seek to consolidate with companies such as
us. We target acquisitions that provide complementary services in existing
markets that we serve or allow expansion into new geographic areas. For our
acquisition targets, our key criteria are profitability in excess of industry
standards, stable and growing customer base, proven operational and technical
competence, and experienced management that fits within our decentralized
operating structure. Further, we seek the opportunity to realize cost savings by
eliminating redundant costs and achieving economies of scale in certain items
such as insurance, information technologies and administrative functions. We
believe that we can attain significant revenue and earnings growth through
acquisitions; however, there can be no assurance that we will be able to acquire
and integrate such businesses successfully or that such acquisitions will have a
positive effect on our operating results.
We believe that a variety of attractive consolidation opportunities exist
within the currently fragmented telecommunications engineering, construction and
maintenance services industry and, while we are not currently a party to any
agreements, understanding or arrangements regarding any material acquisitions,
we are currently evaluating a number of potential acquisition prospects. We
believe that additional acquisition opportunities may be available to implement
our acquisition strategy upon completion of this offering.
SERVICES
Telecommunications Services
Engineering. We provide outside plant engineers and drafters to local
exchange carriers and competitive access providers. We design aerial, buried and
underground fiber optic and copper cable systems from the telephone central
office to the ultimate consumer's home or business. Engineering services for
local exchange carriers include the design of service area concept boxes,
terminals, buried and aerial drops, transmission and central office equipment
design and the proper administration of feeder and distribution cable pairs. For
competitive access providers, we design building entrance laterals, fiber rings
and conduit systems. We obtain rights of way and permits in support of
engineering activities, and provide construction management and inspection
personnel in conjunction with engineering services or on a stand alone basis.
For cable television multiple system operators, we perform make ready studies,
strand mapping, field walk out, computer-aided radio frequency design and
drafting, and fiber cable routing and design.
Construction and Maintenance. The services we provide include the placing
and splicing of cable, excavation of trenches in which to place the cable,
placement of related structures such as poles, anchors, conduits, manholes,
cabinets and closures, placement of drop lines from the main distribution lines
to the customer's home or business, and maintenance and removal of these
facilities. In addition, we install and maintain transmission and central office
equipment. We have the capacity to directionally bore the placement of cables, a
highly specialized and increasingly necessary method of placing buried cable
networks in congested urban and suburban markets where trenching is highly
impractical. With our acquisition of Apex, we provide installation and
maintenance services of direct broadcast satellite systems.
Premise Wiring. We also provide premise wiring services to a variety of
large corporations and certain governmental agencies. These services, unlike the
engineering, construction and maintenance services provided under various master
service agreements and to cable television multiple system operators, are
limited to the installation, repair and maintenance of telecommunications
infrastructure within improved structures. Projects include the placement and
removal of various types of cable within buildings and individual offices. These
services generally include the development of communication networks within a
company or government agency related primarily to the establishment and
maintenance
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<PAGE> 33
of computer operations, telephone systems, Internet access and communications
monitoring systems established for purposes of monitoring environmental controls
or security procedures.
Underground Utility Locating Services
We are a provider of underground utility locating services, primarily to
telecommunications providers. Under a variety of state laws, excavators are
required to locate underground utilities prior to excavating. Utilities located
include telephone, cable television, power and gas. Recently, excavators
performing telecommunications network upgrades and expansions have generated
significant growth in requests for underground utility locating, and we expect
this trend to continue. We are currently a party to 30 underground utility
locating contracts. We offer these services throughout the United States.
Electrical Construction and Maintenance Services
We perform electrical construction and maintenance services for electric
companies. This construction is performed primarily as a stand alone service,
although at times it is performed in conjunction with services for
telecommunications providers. These services include installing and maintaining
electrical transmission and distribution lines, setting utility poles and
stringing electrical lines, principally above ground. The work performed often
involves high voltage splicing and, on occasion, the installation of underground
high voltage distribution systems. We also provide the repair and replacement of
lines which are damaged or destroyed as a result of weather conditions.
Revenues by Service Group
For the fiscal years ended July 31, 1996, 1997 and 1998 and the six-month
periods ended January 31, 1998 and 1999, the percentages of our total contract
revenues earned were derived from telecommunications services, underground
utility locating services and electrical construction and maintenance services
as set forth below.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED JULY 31, JANUARY 31,
--------------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Telecommunications services....................... 90% 90% 90% 89% 90%
Underground utility locating services............. 6 5 5 5 5
Electrical construction and maintenance
services........................................ 4 5 5 6 5
--- --- --- --- ---
Total................................... 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
CUSTOMER RELATIONSHIPS
Our current customers include local exchange carriers such as BellSouth
Telecommunications, Inc., SBC Communications, Inc., U.S. West Communications,
Inc., Sprint Corporation, Ameritech Corporation, GTE Corporation, The Southern
New England Telephone Company, Citizen Utilities and Cincinnati Bell Telephone.
We also currently provide telecommunications engineering, construction and
maintenance services to a number of cable television multiple system operators
including Comcast Cable Communications Inc., Cablevision, Inc., Falcon Cable
Media, Time Warner, Inc. and MediaOne, Inc. We also provide our services to long
distance carriers such as MCI Telecommunications Corporation and AT&T
Corporation, as well as to competitive access providers such as MFS
Communications Company, Inc. Premise wiring services have been provided to,
among others, Lucent Technologies, Inc., Duke University, International Business
Machines Corporation, and several state governments. The Company also provides
construction and maintenance support to Lee County Electrical Cooperative,
Florida Power and Light Company, and Florida Power Corporation.
While our customer base has broadened in recent years, our customer base
remains highly concentrated, with our top five customers in fiscal years 1996,
1997 and 1998 and the first six months of
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<PAGE> 34
fiscal year 1999 accounting in the aggregate for approximately 68%, 63%, 65% and
62%, respectively, of our contract revenues. During fiscal 1998 and the
six-month period ended January 31, 1999, approximately 22% and 23%,
respectively, of our contract revenues were derived from BellSouth
Telecommunications, Inc., 24% and 21%, respectively, from Comcast Cable
Communications, Inc. and 7% and 5%, respectively, from GTE Corporation. We
believe that a substantial portion of our contract revenues and operating income
will continue to be derived from a concentrated group of customers. The loss of
any of such customers could have a material adverse effect on our business,
financial condition and results of operations.
A significant amount of our business is performed under master service
agreements. These agreements with telecommunications providers are generally
exclusive requirement contracts, with certain exceptions, including the
customer's option to perform the services with its own regularly employed
personnel. The agreements are typically three to five years in duration,
although the terms typically permit the customer to terminate the agreement upon
90 days' prior written notice. Each agreement contemplates hundreds of
individual construction and maintenance projects valued generally at less than
$10,000 each. We bid on other jobs on a nonrecurring basis.
Although historically master service agreements have been awarded through a
competitive bidding process, recent trends have been toward securing or
extending such contracts on negotiated terms. With the rapid expansion of the
telecommunications market and the immediate need for upgrading existing, as well
as constructing new, telecommunications infrastructure, we believe that more
master service agreements will be awarded on the basis of negotiated terms as
opposed to the competitive bidding process.
Our sales and marketing efforts are primarily the responsibility of the
management of our operating subsidiaries.
BACKLOG
We view our backlog to be comprised of the uncompleted portion of services
to be performed under job-specific contracts and the estimated value of future
services that we expect to provide under long-term requirements contracts. Our
backlog at January 31, 1999 was $728.6 million. We expect to complete
approximately 45% of this backlog during the next twelve months. Due to the
nature of our contractual commitments, in many instances our customers are not
committed to specific volumes of services to be purchased under a contract, but
rather we are committed to perform these services if requested by the customer.
However, the customer is obligated to obtain these services from us if they are
not performed by the customer internally. Many of the contracts are multi-year
agreements, and we include in our backlog the full amount of services projected
to be performed over the life of the contract based on our historical
relationships with our customers and experience in procurements of this nature.
Historically, we have not experienced a material variance between the amount of
services we expect to perform under a contract and the amount actually performed
for a specified period. There can be no assurance, however, as to the customer's
requirements during a particular period or that such estimates at any point in
time are accurate.
SAFETY AND RISK MANAGEMENT
We are committed to ensuring that our employees perform their work in the
safest possible manner. We regularly communicate with our employees to promote
safety and to instill safe work habits. Our risk manager, a holding company
employee, reviews all accidents and claims throughout the operating
subsidiaries, examines trends and implements changes in procedures or
communications to address any safety issues.
The primary claims arising in our business are workers' compensation and
other personal injuries, various general liabilities, and vehicle liability
(personal injury and property damage). We are self-insured for automobile
liability up to $250,000, for general liability up to $250,000, and for workers'
compensation, in states where we elect to do so, up to $500,000 per occurrence
and $10.5 million annual aggregate. We have umbrella coverage up to a policy
limit of $51.0 million.
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We carefully monitor claims and participate actively in claims estimates
and adjustments. The estimated costs of self-insured claims, which include
estimates for incurred but not reported claims, are accrued as liabilities on
our balance sheet. Due to changes in our loss experience in recent years,
insurance accruals have varied from year to year and have had an effect on
operating margins. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 1 of the Notes to Consolidated
Financial Statements.
COMPETITION
The telecommunications engineering, construction and maintenance services
industry in which we operate is highly competitive, requiring substantial
resources and skilled and experienced personnel. We compete with other
independent contractors in most of the markets in which we operate, several of
which are large domestic companies that have greater financial, technical and
marketing resources than us. In addition, there are relatively few, if any,
barriers to entry into the markets in which we operate and, as a result, any
organization that has adequate financial resources and access to technical
expertise may become a competitor to us. A significant portion of our revenues
are currently derived from master service agreements and price is often an
important factor in the award of such agreements. Accordingly, we could be
outbid by our competitors in an effort to procure such business. There can be no
assurance that our competitors will not develop the expertise, experience and
resources to provide services that are equal or superior in both price and
quality to our services, or that we will be able to maintain or enhance our
competitive position. We may also face competition from the in-house service
organizations of our existing or prospective customers, including
telecommunications providers, which employ personnel who perform some of the
same types of services as those provided by us. Although a significant portion
of these services is currently outsourced, there can be no assurance that our
existing or prospective customers will continue to outsource telecommunications
engineering, construction and maintenance services in the future.
We believe that the principal competitive factors in the market for
telecommunications engineering, construction and maintenance services include
technical expertise, reputation, price, quality of service, availability of
skilled technical personnel, geographic presence, breadth of service offerings,
adherence to industry standards and financial stability. We believe that we
compete favorably with our competitors on the basis of these competitive
factors.
EMPLOYEES
As of March 31, 1999, we employed 5,205 persons. Our workforce is primarily
non-unionized. We have never experienced a work stoppage or strike. The number
of employees of Dycom and our subsidiaries varies according to the work in
progress. As a matter of course, we maintain a nucleus of technical and
managerial personnel from which we draw to supervise all projects. We add
additional employees as needed to complete specific projects. We believe that
our employee relations are good.
MATERIALS
In many cases, our customers supply most or all of the materials required
for a particular contract and we provide the personnel, tools and equipment to
perform the installation services. However, with respect to certain of our
contracts, we may supply part or all of the materials required. In these
instances, we are not dependent upon any one source for the products which we
customarily utilize to complete the job. We are not presently experiencing, not
do we anticipate experiencing, any difficulties in procuring an adequate supply
of materials.
FACILITIES
We lease our executive offices in Palm Beach Gardens, Florida. Our
subsidiaries operate from owned or leased administrative offices, district field
offices, equipment yards, shop facilities and temporary storage locations. We
own facilities in Phoenix, Arizona; Durham, North Carolina; Pinellas Park,
Florida; Sturgis, Kentucky; and West Palm Beach, Florida. We also lease,
pursuant to long-term noncancellable leases,
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<PAGE> 36
facilities in West Chester, Pennsylvania; Kimberling City, Missouri; Lithonia,
Georgia; Knoxville, Tennessee; Issaquah, Washington; and Greensboro, North
Carolina. We also lease and own other smaller properties as necessary to enable
us to efficiently perform our obligations under master service agreements and
other specific contracts. We believe that our facilities are adequate for our
current operations.
LEGAL PROCEEDINGS
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 us may be offset by
use taxes already paid by our customers. We intend to vigorously contest the
assertion. We are 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 our
consolidated financial statements. See Note 17 of the Notes to Consolidated
Financial Statements.
In the normal course of business, certain of our subsidiaries have other
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 Dycom's consolidated
financial condition or results of operations.
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<PAGE> 37
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the names and ages of each of our directors and
executive officers, as well as the positions and offices held by such persons. A
summary of the background and experience of each of these individuals is set
forth after the table. Each director holds office for a three year term and
until his successor has been elected and qualified. A number of executive
officers have employment agreements, while others serve at the discretion of our
board of directors. There are no family relationships among our directors or
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Thomas R. Pledger.......................... 61 Executive Chairman and Chairman of the
Board of Directors
Steven E. Nielsen.......................... 36 President, Chief Executive Officer and
Director
Louis W. Adams, Jr......................... 60 Director
Thomas G. Baxter........................... 52 Director
Walter L. Revell........................... 64 Director
Joseph M. Schell........................... 53 Director
Ronald P. Younkin.......................... 57 Director
Kenneth G. Geraghty........................ 48 Senior Vice President and Chief
Administrative Officer
Douglas J. Betlach......................... 47 Vice President, Chief Financial Officer and
Treasurer
Marc R. Tiller............................. 29 General Counsel and Corporate Secretary
</TABLE>
Thomas R. Pledger is our Executive Chairman and Chairman of the Board of
Directors. Mr. Pledger has been in the industry since 1960, and in 1968 became
President of Burnup & Sims, Inc., which went public that year and was acquired
by MasTec, Inc. in 1994. Mr. Pledger left Burnup & Sims in 1976. Mr. Pledger's
relationship with us began in 1979 as a consultant. He became a Director in 1981
and President and Chief Executive Officer in 1984. His current employment
contract with us expires March 9, 2004. Under the terms of his employment
contract, Mr. Pledger will become our Chairman Emeritus effective January 13,
2003 for the remainder of the term of the employment contract. He serves on the
board's Executive and Nominating Committees, as well as on the board of
directors for each of our subsidiaries.
Steven E. Nielsen is our President and Chief Executive Officer. His
employment contract expires on March 9, 2004. Mr. Nielsen has held this position
since March 10, 1999 and has been with us since 1993. As a member of our board
of directors since 1996, he serves on the board's Executive and Nominating
Committee, as well as on the board of directors for each of our subsidiaries. He
previously served as President of Ansco & Associates, Inc. and Fiber Cable,
Inc., two of our subsidiaries, and as our Chief Operating Officer. Prior to
joining us, Mr. Nielsen was Division Manager/Regional Manager of Henkels &
McCoy, Inc., a gas, power and telephone utility contractor, from 1991 to 1993,
and was employed in various positions with this company or a predecessor since
1985.
Louis W. Adams, Jr. is a retired attorney and formerly a partner with the
law firm of Adams & Adams. Mr. Adams has been on the board since 1969 and
currently serves on the board's Audit and Compensation Committee. Mr. Adams is
also a member of the board of directors of each of our subsidiaries, other than
CCG, CCI, ITI, Locating, ECC and Apex.
Thomas G. Baxter has been a Director since January 4, 1999. Mr. Baxter has
been an Operating Partner of Evercore Partners, an investment company. Prior to
joining Evercore, Mr. Baxter served as President of Comcast Cable
Communications, Inc. from 1990 to 1998. Mr. Baxter also serves on the board of
directors of Worldgate Communications, which provides television-based Internet
services.
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Walter L. Revell has been a Director since 1993 and currently serves on the
board's Audit and Compensation, and Finance Committees. He has been Chairman and
Chief Executive Officer of H.J. Ross Associates, Inc. since 1991. The firm
provides consulting engineering, architectural and planning services. Mr. Revell
also serves on the board of directors of RISCORP, Inc., an insurance holding
company, The St. Joe Company, a diversified corporation in real estate, forestry
and transportation, and several privately held companies.
Joseph M. Schell has been a Director since April 1, 1999 and currently
serves on the board's Finance Committee. Mr. Schell was formerly a Senior
Managing Director, Director of Investment Banking and a member of the Executive
Committee of and currently serves as a consultant to NationsBanc Montgomery
Securities LLC, an underwriter for this offering. Prior to his fourteen years
with NationsBanc Montgomery Securities LLC, Mr. Schell was with Kidder, Peabody
and Company in New York providing investment banking services to that firm's
utility and energy clients.
Ronald P. Younkin is President of Greenlawn Mobile Home Sales, Inc., which
sells mobile homes and operates mobile home parks. Mr. Younkin has been one of
our Directors since 1975. Mr. Younkin serves on the board's Audit and
Compensation, Executive, and Nominating Committees.
Kenneth G. Geraghty is Senior Vice President and Chief Administrative
Officer. Mr. Geraghty has been with us since March 29, 1999. He was previously
employed by Massachusetts Mutual Life Insurance Company from 1997 through 1999
as the Senior Vice President, Strategic Finance, American Express Company from
1996 through 1997 as the Vice President, Change Management, and from 1994 to
1996 as the Executive Director, Business Planning.
Douglas J. Betlach is Vice President, Chief Financial Officer and
Treasurer. Mr. Betlach has been with us since 1992. He previously served in
various financial capacities at Del Monte Processed Foods, RJR Nabisco, Inc. and
Price Waterhouse & Co.
Marc R. Tiller has been employed by us since 1998. He is our General
Counsel and Corporate Secretary. He attended law school from June 1995 to May
1998 and served as a Claims Representative for Florida Farm Bureau Insurance
Company during the four prior years.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of April 27, 1999, and adjusted at that
date to reflect the sale of the common stock offered hereby, information with
respect to the beneficial ownership of our common stock by, as indicated by the
letter next to each such beneficial owner, (a) each selling stockholder in the
offering, (b) each person known to us to beneficially own more than 5% of the
outstanding shares of our common stock, (c) each of our directors and each of
our executive officers, and (d) all of our executive officers and directors as a
group. Unless otherwise indicated, each such stockholder has sole voting and
investment power with respect to the shares beneficially owned by such
stockholder.
<TABLE>
<CAPTION>
BEFORE STOCK OFFERING(1) AFTER STOCK OFFERING
------------------------- SHARES BEING ---------------------
NAME OF OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------- --------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
VGH Partners LLC(b)..................... 1,575,000 6.8% 1,575,000 6.2%
Vinik Asset Management LLC
260 Franklin Street
Boston, MA 02110
Mary Irene Younkin(a)(2)................ 906,504 3.9% 65,000 841,504 3.3%
Thomas R. Pledger(a),(c)................ 832,540 3.6% 100,000 732,540 2.9%
Ronald P. Younkin(a),(c)(3)............. 221,985 * 33,000 186,985 *
Steven E. Nielsen(c)(4)................. 48,339 * 48,339 *
Kenneth G. Gereghty(c).................. 22,500 * 22,500 *
Douglas J. Betlach(c)................... 16,318 * 16,318 *
Louis W. Adams(c)....................... 15,351 * 15,351 *
Linda C. Younkin(a)(5).................. 221,985 * 2,000 186,985 *
Walter L. Revell(c)..................... 9,000 * 9,000 *
All executive officers and directors as
a group(d)(4)......................... 1,147,042 5.0% 133,000 1,014,042 4.0%
</TABLE>
- ---------------
* Less than 1%.
(1) Class includes outstanding shares and stock options held by officers and
directors exerciseable within 60 days after April 21, 1999.
(2) Includes 99,000 shares owned by Mary Irene Younkin Intervivos Charitable
Remainder Unitrust, as to which Mrs. Younkin disclaims beneficial ownership.
(3) Includes 18,991 shares owned by Mr. Younkin's wife and children as to which
he disclaims any beneficial interest.
(4) Includes shares that may be acquired within 60 days after April 21, 1999
upon exercise of stock options as follows: Mr. Nielsen 19,989 and all
directors and officers as a group 19,989.
(5) Includes 209,985 shares owned by Ms. Younkin's husband and children as to
which she disclaims any beneficial interest.
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<PAGE> 40
DESCRIPTION OF CAPITAL STOCK
We have authorized the issuance of 50,000,000 shares of common stock,
$0.33 1/3 par value per share, and 1,000,000 shares of preferred stock, $1.00
par value per share.
COMMON STOCK
On April 27, 1999, there were 23,046,063 outstanding shares of common stock
held by 640 stockholders of record.
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders. Holders of common stock do not
have cumulative voting rights. Therefore, holders of more than 50% of the shares
of common stock are able to elect all our directors eligible for election in a
given year. The holders of common stock are entitled to dividends and other
distributions out of assets legally available if and when declared by the board
of directors. Upon our liquidation, dissolution or winding up, the holders of
common stock are entitled to share pro rata in the distribution of all of our
assets remaining available for distribution after satisfaction of all
liabilities, including any prior rights of any preferred stock which may be
outstanding. There are no redemption or sinking fund provisions applicable to
the common stock.
The transfer agent and registrar for the common stock is First Union
National Bank of North Carolina, Charlotte, North Carolina.
PREFERRED STOCK
There are no shares of preferred stock outstanding. Series of the preferred
stock may be created and issued from time to time by our board of directors,
with such rights and preferences as they may determine.
ANTI-TAKEOVER PROVISIONS
On June 1, 1992, we approved a shareholder rights plan. All stockholders of
record on June 15, 1992 were issued a right (a "Right") for each outstanding
share of our common stock. Common stock issued after the record date but prior
to the Separation Time (as defined in the shareholder rights plan) will also
receive one Right. Each Right entitles the holder to purchase one-half share of
common stock for an exercise price of $12.00, subject to certain adjustments.
The Right is exercisable only when a triggering event occurs. Among the
triggering events are (1) a person or group's acquisition of 20% or more of our
common stock, (2) the commencement of a tender offer which would result in a
person or group owning 20% or more of our common stock, or (3) the acquisition
of at least 10% of our common stock and such acquisition is determined to have
effects adverse to us. We can redeem the Rights at $0.01 per Right, subject to
certain adjustments, at any time prior to ten days after a triggering event
occurs. The Rights will expire on the earlier of certain events set forth in the
shareholder rights plan and June 1, 2002. While the Rights will not prevent a
takeover of Dycom, they have certain anti-takeover effects by causing
substantial dilution to an acquiring party when a triggering event occurs, to
the extent that the board of directors has not previously redeemed the Rights.
We have agreements with certain of our executive officers which provide for
substantial compensation (in general terms, double the officer's salary and
bonuses paid the previous year), upon a change of control in our company. Thomas
R. Pledger's employment agreement also permits him to terminate his employment
in the event of a change of control. The current total amount of payments under
these agreements upon a change in control would be approximately $4.5 million.
Such payments would be triggered by any person's acquisition of more than fifty
percent of our outstanding securities, the sale or transfer of substantially all
of our assets to someone other than one of our wholly-owned subsidiaries, or a
change of control of the board of directors.
Our articles of incorporation provide that the board of directors is
divided into three classes, as nearly equal in number as possible, with one
class of directors being elected each year for a three-year term. The
37
<PAGE> 41
classification of the board may have the effect of delaying a change in a
majority of the members of our board of directors.
Our articles of incorporation require approval of 80% of the outstanding
shares of our capital stock entitled to vote in elections of directors for any
merger with or into another corporation or any sale or transfer of all or a
substantial part of our assets to, or any sale or transfer to us or any
subsidiary in exchange for our securities or any assets (except assets valued at
less than $1,000,000) of, any other corporation or person, if at the time such
other corporation or person is the beneficial owner, or is affiliated with the
beneficial owner, of more than 20% of the outstanding shares of our capital
stock entitled to vote in elections of directors. This requirement is not
applicable to any such transaction with another corporation which was approved
by our board of directors prior to the time that such other corporation became a
holder of more than 20% of the outstanding shares of our capital stock.
The Florida Business Corporation Act contains provisions eliminating the
voting rights of "control shares," which are defined as shares which give any
person, directly or indirectly, ownership of, or the power to direct the
exercise of voting power with respect to, 20% or more of the outstanding voting
power of an "issuing public corporation." A corporation is an issuing public
corporation if it has at least 100 shareholders, its principal place of
business, principal office or substantial assets are in Florida and either more
than 10% of its shareholders reside in Florida, more than 10% of its shares are
owned by Florida residents or 1,000 shareholders reside in Florida. The voting
rights of control shares are not eliminated if the articles of incorporation or
the bylaws of the corporation prior to the acquisition provide that the statute
does not apply. Voting rights are restored to control shares if, subsequent to
their acquisition, the corporation's shareholders (other than the holder of
control shares, officers of the corporation and employee directors) vote to
restore such voting rights.
The Florida Business Corporation Act also restricts "affiliated
transactions" (mergers, consolidations, transfers of assets and other
transactions) between "interested shareholders" (the beneficial owners of 10% or
more of the corporation's outstanding shares) and the corporation or any
subsidiary. Affiliated transactions must be approved by two-thirds of the voting
shares not beneficially owned by the interested shareholder or by a majority of
the corporation's "disinterested" directors. The statutory restrictions do not
apply if the corporation has had fewer than 300 shareholders of record for three
years, the interested shareholder has owned at least 80% of the outstanding
shares for five years, the interested shareholder owns at least 90% of the
corporation's outstanding voting shares, or certain consideration is paid to all
shareholders.
The provisions of our articles and by-laws, the existence of the
shareholder rights plan and the change of control agreements and the application
of the anti-takeover provisions of the Florida Business Corporation Act could
have the effect of discouraging, delaying or preventing a change of control not
approved by the board of directors which could affect the market price of our
common stock.
INDEMNIFICATION
Our by-laws require us to indemnify each of our directors and officers to
the fullest extent permitted by law and limits the liability of our directors
and stockholders for monetary damages in certain circumstances.
The provisions of the Florida Business Corporation Act that allow such
indemnification do not eliminate the duty of care of a director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. In addition, each director
continues to be subject to liability for (a) criminal violations, unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (b) deriving an improper
personal benefit from a transaction, (c) voting for or assenting to an unlawful
distribution, and (d) willful misconduct or a conscious disregard for our best
interests in a proceeding by or on our behalf or in a proceeding by or on behalf
of a stockholder. The statute does not affect a director's responsibilities
under any other law, such as the federal securities laws or state or federal
environmental laws.
38
<PAGE> 42
DIVIDEND RESTRICTIONS
Our credit agreement currently limits our ability to pay dividends on the
common stock to 50% of net income for the fiscal year. The credit agreement's
restrictions on our debt-to-net worth, quick and current ratios also affect our
ability to pay dividends. The payment of dividends on the common stock is also
subject to the preference that may be applicable to any then outstanding
preferred stock.
39
<PAGE> 43
UNDERWRITING
NationsBanc Montgomery Securities LLC, Morgan Stanley Dean Witter and
Morgan Keegan & Company, Inc. (the "Underwriters"), have severally agreed,
subject to the terms and conditions set forth in an underwriting agreement among
the Underwriters, Dycom and the selling stockholders (the "Underwriting
Agreement"), to purchase from Dycom and the selling stockholders the number of
shares of common stock indicated below opposite their respective names at the
public offering price less the discounts and commissions to underwriters set
forth on the cover page of this prospectus and in the table below. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent, and that the Underwriters are committed
to purchase all of such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ----------
<S> <C>
NationsBanc Montgomery Securities LLC.......................
Morgan Stanley Dean Witter..................................
Morgan Keegan & Company, Inc. ..............................
----------
Total............................................. 2,700,000
==========
</TABLE>
The Underwriters have advised Dycom and the selling stockholders that the
Underwriters propose initially to offer the common stock to the public on the
terms set forth on the cover page of this prospectus. The Underwriters may allow
to selected dealers a concession of not more than $ per share, and
the Underwriters may allow, and such dealers may reallow, a concession of not
more than $ per share to certain other dealers. After the
offering, the offering price and other selling terms may be changed by the
Underwriters. The common stock is offered subject to receipt and acceptance by
the Underwriters, and to certain other conditions, including the right to reject
an order in whole or in part. The Underwriters may offer the shares of common
stock through a selling group.
Dycom and the selling stockholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
prospectus, to purchase up to a maximum of 375,000 and 30,000 additional shares
of common stock, respectively, to cover over-allotments, if any, at the same
price as the initial 2,700,000 shares to be purchased by the Underwriters. To
the extent that the Underwriters exercise this option, each of the Underwriters
will be committed, subject to certain conditions, to purchase such additional
shares in approximately the same proportion as set forth in the table above. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with the offering.
The following table summarizes the compensation to be paid to the
Underwriters by the Company and the selling stockholders.
<TABLE>
<CAPTION>
TOTAL
-------------------------------
PER WITHOUT WITH
SHARE OVER-ALLOTMENT OVER-ALLOTMENT
-------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by the
Company.................................................
Underwriting discounts and commissions paid by the selling
stockholders............................................
</TABLE>
Dycom estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $450,000.
Joseph M. Schell, a director of Dycom, also serves as a consultant to
NationsBanc Montgomery Securities LLC, but not as its representative on the
board of directors. NationsBanc Montgomery Securities LLC does not have the
right to designate or nominate a member of Dycom's board of directors.
The Underwriting Agreement provides that Dycom and the selling stockholders
will indemnify the Underwriters and their controlling persons against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
40
<PAGE> 44
The selling stockholders and the other directors and executive officers of
Dycom have agreed that they will not, without the prior written consent of
NationsBanc Montgomery Securities LLC (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Exchange Act ("Rule 16a-1(h)") or otherwise dispose of any shares of
common stock owned either of record or beneficially by them, or publicly
announce the intention to do any of the foregoing, for a period commencing on
the date of this prospectus and continuing through the close of trading on the
date 90 days after such date. NationsBanc Montgomery Securities LLC, may, in its
sole discretion and at any time without notice, release all or any portion of
the securities, subject to those lock-up agreements. In addition, Dycom has
agreed that for a period of 90 days after the date of this prospectus it will
not, without the prior written consent of NationsBanc Montgomery Securities LLC
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell, pledge, transfer or establish
an open "put equivalent position" within the meaning of Rule 16a-1(h), or
otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares of
common stock, options or warrants to acquire shares of common stock or
securities exchangeable or exercisable for or convertible into shares of common
stock, subject to certain limited exceptions including granting of options and
sales of shares under Dycom's existing option plans.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters to
bid for and purchase the common stock. As an exception to these rules, the
Underwriters are permitted to engage in certain transactions that stabilize the
price of the common stock. The Underwriters have advised Dycom that such
transactions may be effected on the New York Stock Exchange or otherwise. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the common stock. If the Underwriters create a short
position in the common stock in connection with the offering, i.e., if they sell
more shares of common stock than are set forth on the cover page of this
prospectus, the Underwriters may reduce that short position by purchasing common
stock in the open market. The Underwriters may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Underwriters may also impose a penalty bid on certain selling group members.
This means that if the Underwriters purchase shares of common stock in the open
market to reduce the Underwriters' short position or to stabilize the price of
the common stock, they may reclaim the amount of the selling concession from the
selling group members who sold those shares as part of the offering.
In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither Dycom nor any of the Underwriters
makes any representations or predictions as to the direction or magnitude of any
effect that the transactions described above may have on the price of the common
stock. In addition, neither Dycom nor any of the Underwriters makes any
representations that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
CERTAIN LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Akerman, Senterfitt & Eidson, Miami, Florida. Certain legal
matters will be passed upon for us by Shearman & Sterling, New York, New York.
Certain matters in connection with the common stock offered hereby will be
passed upon for the underwriters by Piper & Marbury L.L.P., Baltimore, Maryland.
41
<PAGE> 45
EXPERTS
The financial statements of Dycom and its consolidated subsidiaries, except
for CCG, as of July 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998, included and incorporated by reference in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is included and incorporated by reference herein.
The financial statements of CCG for the years ended May 31, 1997 and 1996
(consolidated with those of Dycom and not presented separately herein) have been
audited by Nowalk & Associates, independent auditors, as stated in their report
included and incorporated by reference herein. Such financial statements of
Dycom and its consolidated subsidiaries are included and incorporated by
reference in reliance upon the respective reports of such firms given upon their
authority as experts in accounting and auditing.
The financial statements of ECC for the year ended December 31, 1998 and of
Apex for the year ended December 31, 1998 and for the 101 day period from
September 22, 1997 (inception) to December 31, 1997 incorporated by reference in
this prospectus have been audited by York, Neel & Co. -- Owensboro, LLP,
independent auditors, as stated in their report, which is incorporated by
reference herein.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission (the "SEC"). You may read and copy any document we file
at:
- the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington,
DC 20549;
- the public reference facilities at the SEC's regional offices located at
Seven World Trade Center, 13th Floor, New York, New York 10048 or 500
West Madison Street, Suite 1400, Chicago, Illinois 60661.
You can also obtain copies of any documents we file from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C., 20549
at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from the SEC's Website at http://www.sec.gov. Reports and other
information concerning us can also be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed with the SEC a Registration Statement on Form S-3 (together
with any amendments or supplements thereto, the "Registration Statement") under
the Securities Act covering the shares of common stock offered hereby. As
permitted by the SEC, this prospectus, which constitutes a part of the
Registration Statement, does not contain all the information included in the
Registration Statement. Such additional information may be obtained from the
locations described above. Statements contained in this prospectus as to the
contents of any document are not necessarily complete. You should refer to the
document for all the details.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
- our Annual Report on Form 10-K for the fiscal year ended July 31, 1998,
42
<PAGE> 46
- our Quarterly Reports on Form 10-Q for the quarters ended October 31,
1998 and January 31, 1999,
- our Proxy Statement dated October 15, 1998, and
- our Current Reports on Form 8-K dated March 18, 1999, April 15, 1999 and
April 29, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning our Corporate Secretary at the following address:
Dycom Industries, Inc.
4440 PGA Boulevard
Suite 500
Palm Beach Gardens, Florida 33410
Attention: Corporate Secretary
(561) 627-7171
All documents subsequently filed by us pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act and prior to the termination of this offering are
incorporated by reference and become a part of this prospectus from the date
such document is filed.
Any statement contained in this prospectus or in a document incorporated by
reference are modified or superseded for purposes of this prospectus to the
extent that a statement contained in any such document modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
43
<PAGE> 47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Reports of Independent Auditors............................. F-2
Consolidated Balance Sheets as of July 31, 1997 and 1998.... F-4
Consolidated Statements of Operations for the years ended
July 31, 1996, 1997, and 1998............................. F-5
Consolidated Statements of Stockholders' Equity for the
years ended July 31, 1996, 1997, and 1998................. F-6
Consolidated Statements of Cash Flows for the years ended
July 31, 1996, 1997, and 1998............................. F-7
Notes to Consolidated Financial Statements.................. F-8
Unaudited Interim Condensed Consolidated Financial
Statements:
Condensed Consolidated Balance Sheets as of July 31, 1998
and January 31, 1999...................................... F-24
Condensed Consolidated Statements of Operations for the
three months ended January 31, 1998 and 1999.............. F-25
Condensed Consolidated Statements of Cash Flows for the six
months ended January 31, 1998 and 1999.................... F-27
Notes to Condensed Consolidated Financial Statements........ F-28
</TABLE>
F-1
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
Dycom Industries, Inc.:
We have audited the consolidated balance sheets of Dycom Industries, Inc.
and subsidiaries (the "Company") as of July 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended July 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits. The consolidated financial statements give retroactive effect to the
merger of Communications Construction Group, Inc., which has been accounted for
as a pooling of interests as described in Note 3 to the consolidated financial
statements. We did not audit the statements of operations, stockholders' equity,
and cash flows of Communications Construction Group, Inc. for the years ended
May 31, 1997 and 1996, which statements reflect total revenues of $67,717,326
and $50,121,009 for the years ended May 31, 1997 and 1996, respectively. Those
financial statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Communications Construction Group, Inc. for such periods, is based solely on
the report of such other auditors. As described in Note 3 to the consolidated
financial statements, subsequent to the issuance of the report of the other
auditors, Communications Construction Group, Inc. changed its fiscal year to
conform to the fiscal year of Dycom Industries, Inc. for the period ended July
31, 1997.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Dycom Industries, Inc. and
subsidiaries as of July 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1998 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
West Palm Beach, Florida
August 31, 1998 (April 23, 1999 as to the effects of the stock split described
in Note 19)
F-2
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Communications Construction Group, Inc.
We have audited the accompanying consolidated balance sheets of
Communications Construction Group, Inc. (the "Company") as of May 31, 1997 and
1996, and the related consolidated statements of operations, cash flows and
changes in stockholders' equity for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above (not presented
separately herein) present fairly, in all material respects, the consolidated
financial position of Communications Construction Group, Inc. as of May 31, 1997
and 1996, and the consolidated results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Nowalk & Associates
Cranbury, New Jersey
July 23, 1997
F-3
<PAGE> 50
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents........................................ $ 5,276,112 $ 35,927,307
Accounts receivable, net.................................... 49,526,678 62,142,808
Costs and estimated earnings in excess of billings.......... 11,398,621 14,382,620
Deferred tax assets, net.................................... 2,168,763 2,726,348
Other current assets........................................ 1,966,538 3,014,199
------------ ------------
Total current assets.............................. 70,336,712 118,193,282
------------ ------------
PROPERTY AND EQUIPMENT, net................................. 36,336,212 42,865,197
------------ ------------
OTHER ASSETS:
Intangible assets, net...................................... 4,684,358 4,529,270
Deferred tax assets......................................... 424,205
Other....................................................... 730,394 730,342
------------ ------------
Total other assets................................ 5,838,957 5,259,612
------------ ------------
TOTAL............................................. $112,511,881 $166,318,091
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 14,724,340 $ 12,182,699
Notes payable............................................... 17,719,780 4,727,782
Billings in excess of costs and estimated earnings.......... 470,940
Accrued self-insurance claims............................... 2,011,622 2,440,303
Income taxes payable........................................ 1,228,648 2,812,144
Other accrued liabilities................................... 13,278,712 14,819,181
------------ ------------
Total current liabilities......................... 49,434,042 36,982,109
NOTES PAYABLE............................................... 13,588,022 13,407,990
ACCRUED SELF-INSURED CLAIMS................................. 6,418,400 7,454,849
OTHER LIABILITIES........................................... 644,625 10,094,195
------------ ------------
Total liabilities................................. 70,085,089 67,939,143
------------ ------------
COMMITMENTS AND CONTINGENCIES, Note 17
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00 per share:
1,000,000 shares authorized; no shares issued and
outstanding
Common stock, par value $.33 1/3 per share:
50,000,000 shares authorized; 19,001,816 and 22,084,097
issued and outstanding, respectively................... 6,333,939 7,361,366
Additional paid-in capital.................................. 23,559,352 60,042,463
Retained earnings........................................... 12,533,501 30,975,119
------------ ------------
Total stockholders' equity........................ 42,426,792 98,378,948
------------ ------------
TOTAL............................................. $112,511,881 $166,318,091
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 51
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Contract revenues earned............................. $245,937,063 $311,238,108 $368,713,563
Other, net........................................... 1,357,932 1,181,332 2,649,229
------------ ------------ ------------
Total...................................... 247,294,995 312,419,440 371,362,792
------------ ------------ ------------
EXPENSES:
Cost of earned revenues excluding depreciation....... 198,437,641 246,025,594 285,038,220
General and administrative........................... 24,368,552 30,808,780 36,746,614
Depreciation and amortization........................ 10,433,989 11,814,577 13,496,694
------------ ------------ ------------
Total...................................... 233,240,182 288,648,951 335,281,528
------------ ------------ ------------
INCOME BEFORE INCOME TAXES........................... 14,054,813 23,770,489 36,081,264
------------ ------------ ------------
PROVISION (BENEFIT) FOR INCOME TAXES:
Current............................................ 5,712,682 8,153,092 13,179,024
Deferred........................................... (1,580,196) (196,241) (133,380)
------------ ------------ ------------
Total...................................... 4,132,486 7,956,851 13,045,644
------------ ------------ ------------
NET INCOME........................................... $ 9,922,327 $ 15,813,638 $ 23,035,620
============ ============ ============
EARNINGS PER COMMON SHARE:
Basic.............................................. $ 0.53 $ 0.84 $ 1.09
============ ============ ============
Diluted............................................ $ 0.52 $ 0.83 $ 1.07
============ ============ ============
PRO FORMA NET INCOME AND EARNINGS
PER COMMON SHARE DATA:
Income before income taxes......................... $ 14,054,813 $ 23,770,489 $ 36,081,264
Pro forma provision for income taxes............... 4,859,762 9,841,081 14,419,904
------------ ------------ ------------
PRO FORMA NET INCOME................................. $ 9,195,051 $ 13,929,408 $ 21,661,360
============ ============ ============
PRO FORMA EARNINGS PER COMMON SHARE:
Basic.............................................. $ 0.49 $ 0.74 $ 1.02
============ ============ ============
Diluted............................................ $ 0.48 $ 0.73 $ 1.01
============ ============ ============
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE
AND PRO FORMA EARNINGS PER COMMON SHARE:
Basic.............................................. 18,624,564 18,863,987 21,172,025
============ ============ ============
Diluted............................................ 18,989,729 19,123,034 21,482,634
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 52
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
----------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT)
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, at July 31, 1995, as restated for
poolings.................................... 18,595,848 $6,198,616 $22,585,632 $(8,913,500)
Stock options exercised....................... 86,253 28,751 170,376
Pooled companies distributions................ (2,207,368)
Net income.................................... 9,922,327
---------- ---------- ----------- -----------
Balances at July 31, 1996..................... 18,682,101 6,227,367 22,756,008 (1,198,541)
Stock options exercised....................... 319,715 106,572 670,775
Income tax benefit from stock options
exercised................................... 132,569
Pooled companies distributions................ (2,523,282)
Adjustment for change in fiscal year of pooled
company (CCG)............................... 441,686
Net income.................................... 15,813,638
---------- ---------- ----------- -----------
Balances at July 31, 1997..................... 19,001,816 6,333,939 23,559,352 12,533,501
Stock options exercised....................... 114,714 38,238 319,199
Stock offering proceeds....................... 2,967,567 989,189 35,969,429
Income tax benefit from stock options
exercised................................... 194,483
Pooled companies distributions................ (4,594,002)
Net income.................................... 23,035,620
---------- ---------- ----------- -----------
Balances at July 31, 1998..................... 22,084,097 $7,361,366 $60,042,463 $30,975,119
========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 53
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS FROM:
OPERATING ACTIVITIES:
Net Income............................................. $ 9,922,327 $15,813,638 $23,035,620
Adjustments to reconcile net cash provided by operating
activities:
Depreciation and amortization................... 10,433,989 11,814,577 13,496,694
(Gain) on disposal of assets.................... (736,131) (601,645) (375,772)
Deferred income taxes........................... (1,580,196) (196,241) (133,380)
Changes in assets and liabilities:
Accounts receivable, net........................ 4,180,056 (18,537,042) (12,616,130)
Unbilled revenues, net.......................... (2,444,425) (2,873,149) (3,454,939)
Other current assets............................ (103,336) (773,980) (1,047,609)
Other assets.................................... (90,524) (135,882)
Accounts payable................................ (2,856,845) 6,080,835 (2,541,641)
Accrued self-insured claims and other
liabilities.................................. 2,713,096 1,632,232 12,455,169
Accrued income taxes............................ 99,067 626,228 1,777,979
------------ ----------- -----------
Net cash inflow from operating activities.............. 19,537,078 12,849,571 30,595,991
------------ ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures.............................. (13,459,174) (16,086,823) (21,492,673)
Proceeds from sale of assets...................... 2,847,275 2,289,348 1,997,854
------------ ----------- -----------
Net cash outflow from investing activities............. (10,611,899) (13,797,475) (19,494,819)
------------ ----------- -----------
FINANCING ACTIVITIES:
Borrowings on notes payable and bank
lines-of-credit................................. 6,371,140 22,976,488 18,346,301
Principal payments on notes payable and bank
lines-of-credit................................. (13,590,079) (17,907,051) (31,518,331)
Exercise of stock options......................... 199,127 777,347 357,437
Pooled companies distributions.................... (2,207,368) (2,523,282) (4,594,002)
Proceeds from stock offering...................... 36,958,618
------------ ----------- -----------
Net cash inflow (outflow) from financing activities.... (9,227,180) 3,323,502 19,550,023
------------ ----------- -----------
Net cash outflow related to change in fiscal year of
pooled company....................................... (159,555)
------------ ----------- -----------
NET CASH INFLOW (OUTFLOW) FROM
ALL ACTIVITIES.................................... (302,001) 2,216,043 30,651,195
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR........................................... 3,362,070 3,060,069 5,276,112
------------ ----------- -----------
CASH AND EQUIVALENTS AT END
OF YEAR........................................... $ 3,060,069 $ 5,276,112 $35,927,307
============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW AND NONCASH INVESTING AND
FINANCING ACTIVITIES:
Cash paid during the period for:
Interest.......................................... $ 2,659,228 $ 2,535,600 $ 2,185,802
Income taxes...................................... $ 5,765,829 $ 8,303,108 $11,480,800
Property and equipment acquired and financed with:
Capital lease obligations............................ $ 135,341 $ 601,024
Income tax benefit from stock options exercised........ $ 132,569 $ 194,483
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 54
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. -- The consolidated financial statements
include Dycom Industries, Inc. ("Dycom" or the "Company") and its subsidiaries,
all of which are wholly owned. On July 29, 1997, Communications Construction
Group, Inc. ("CCG") was acquired by the Company through an exchange of common
stock. On April 6, 1998, Cable Com Inc. ("CCI") and Installation Technicians,
Inc. ("ITI") were acquired by the Company through an exchange of common stock.
These acquisitions were accounted for as poolings of interests. Accordingly, the
Company's consolidated financial statements include the results of CCG, CCI and
ITI for all periods presented. See Note 3.
The Company's operations consist primarily of telecommunications,
underground utility locating and electrical construction and maintenance
services contracting. All material intercompany accounts and transactions have
been eliminated.
Pro Forma Adjustments -- Prior to the acquisition by Dycom, CCI and ITI
elected under Subchapter S of the Internal Revenue Code to have the stockholders
recognize their proportionate share of CCI's and ITI's taxable income on their
personal tax return in lieu of paying corporate income tax. The pro forma net
income and earnings per common share reflected on the Statements of Operations
reflects a provision for current and deferred income taxes for all periods
presented as if the corporations were included in Dycom's federal and state
income tax returns. At April 6, 1998, the consummation date of the merger, CCI
and ITI recorded deferred taxes on the temporary differences between the
financial reporting basis and the tax basis of their assets and liabilities. The
deferred tax (asset) liability recorded by CCI and ITI was $616,358 and
$(11,035), respectively.
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 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. 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" 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 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.
Property and Equipment -- Property and equipment is stated at cost.
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-
F-8
<PAGE> 55
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 $155,088 for each of the fiscal years ended July
31, 1996, 1997, and 1998. The intangible assets are net of accumulated
amortization of $1,151,358 and $1,306,446 at July 31, 1997 and 1998,
respectively.
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 consolidated financial statements as
an accrued liability. The self-insured claims liability includes incurred but
not reported losses of $4,429,000 and $5,120,000 at July 31, 1997 and 1998,
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, except for CCG, CCI and
ITI, file a consolidated federal income tax return. CCG was included in the
Company's consolidated federal income tax return effective July 29, 1997 and CCI
and ITI will be included effective April 6, 1998. 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 Notes 2 and 14.
Stock Option Plans -- In October 1995, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
123 "Accounting for Stock Based Compensation" which was effective for the
Company beginning August 1, 1996. SFAS No. 123 requires expanded disclosures of
stock based compensation arrangements with employees and encourages, but does
not require, compensation cost to be measured based on the fair value of the
equity instrument awarded. Under SFAS No. 123, companies are permitted, however,
to continue to apply Accounting Principle Board ("APB") Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to its
stock based compensation awards to employees and will disclose in the annual
financial statements the required pro forma effect on net income and earnings
per share. See Note 14.
Recently Issued Accounting Pronouncements -- In June 1997, the FASB issued
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.
F-9
<PAGE> 56
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 annual
financial statements and requires those enterprises to report selected
information about operating segments in annual 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.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pension and Other Postretirement Benefits" which revises certain
disclosures about pension and other postretirement benefit plans. This statement
does not change the measurement and recognition methods for pension or
postretirement benefit costs reported in financial statements. This statement is
effective for fiscal years beginning after December 15, 1997.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards for the
accounting and reporting of derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for financial statements for periods beginning after December 15,
1999.
Management is currently evaluating the requirements and related disclosures
of SFAS No. 130, 131, 132, and 133.
2. 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.
F-10
<PAGE> 57
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Net income available to common stockholders
(numerator).................................... $9,922,327 $15,813,638 $23,035,620
========== =========== ===========
Weighted-average number of common shares
(denominator).................................. 18,624,564 18,863,987 21,172,025
========== =========== ===========
Earnings per common share -- basic............... $ 0.53 $ 0.84 $ 1.09
========== =========== ===========
Weighted-average number of common shares......... 18,624,564 18,863,987 21,172,025
Potential common stock arising from stock
options........................................ 365,165 259,047 310,609
---------- ----------- -----------
Total shares (denominator)............. 18,989,729 19,123,034 21,482,634
========== =========== ===========
Earnings per common share -- diluted............. $ 0.52 $ 0.83 $ 1.07
========== =========== ===========
PRO FORMA EARNINGS PER SHARE DATA:
Pro forma net income available to common
stockholders (numerator)....................... $9,195,051 $13,929,408 $21,661,360
========== =========== ===========
Pro forma earnings per common share -- basic..... $ 0.49 $ 0.74 $ 1.02
========== =========== ===========
Pro forma earnings per common share -- diluted... $ 0.48 $ 0.73 $ 1.01
========== =========== ===========
</TABLE>
3. ACQUISITIONS
On July 29, 1997, the Company consummated the CCG acquisition. The Company
issued 3,079,863 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 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 consolidated statements
of operations for fiscal years ended July 31, 1996, and 1997 combines the
statements of operations of CCG for its fiscal years ended May 31, 1996, and
1997, respectively. The total revenue and net income of CCG for the two-month
period ended July 31, 1997 were $13.1 million and $0.4 million, respectively,
with the net income reflected as an adjustment to retained earnings as of July
31, 1997.
On April 6, 1998, the Company acquired CCI and ITI and issued 1.8 million
and 900,000 shares of common stock in exchange for all the outstanding capital
stock of CCI and ITI, respectively. Dycom has accounted for the acquisitions as
poolings of interests and, accordingly, the Company's historical financial
statements include the results of CCI and ITI for all periods presented.
Prior to the acquisitions, CCI and ITI used a fiscal calendar year
consisting of a 52/53 week time period and, as a result of the merger, have
adopted Dycom's fiscal year end of July 31. All periods presented reflect the
adoption of such fiscal year end as of the beginning of the period. The combined
and separate company results of Dycom, CCG, CCI and ITI for the fiscal years
ended July 31, 1996, 1997,
F-11
<PAGE> 58
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 1998 are presented below. The separate company results of CCI and ITI for
the quarter including the consummation date of the mergers and the subsequent
quarter, are included in the Dycom amounts.
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Total revenues:
Dycom...................................... $145,135,380 $176,204,581 $331,881,840
CCG........................................ 50,124,861 67,718,900
CCI........................................ 33,038,911 45,191,801 26,833,806
ITI........................................ 18,995,843 23,304,158 12,647,146
------------ ------------ ------------
Combined..................................... $247,294,995 $312,419,440 $371,362,792
============ ============ ============
Net income:
Dycom...................................... $ 6,390,144 $ 8,268,502 $ 19,194,623
CCG........................................ 1,273,714 2,950,306
CCI........................................ 898,496 2,598,254 2,711,694
ITI........................................ 1,359,973 1,996,576 1,129,303
------------ ------------ ------------
Combined..................................... $ 9,922,327 $ 15,813,638 $ 23,035,620
============ ============ ============
</TABLE>
The acquisition costs for the CCG merger were $0.4 million and $0.6 million
for the CCI and ITI mergers and were charged to the combined operations for the
fiscal year ended July 31, 1997 and July 31, 1998, respectively. These costs
include filing fees with regulatory agencies, legal, accounting and other
professional costs.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Contract billings........................................... $45,589,232 $58,888,421
Retainage................................................... 3,652,358 4,133,590
Other receivables........................................... 1,314,181 1,331,775
----------- -----------
Total............................................. 50,555,771 64,353,786
Less allowance for doubtful accounts........................ 1,029,093 2,210,978
----------- -----------
Accounts receivable, net.................................... $49,526,678 $62,142,808
=========== ===========
</TABLE>
F-12
<PAGE> 59
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS
The accompanying consolidated balance sheets include costs and estimated
earnings on contracts in progress, net of progress billings as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Costs incurred on contracts in progress..................... $17,715,762 $15,056,642
Estimated earnings thereon.................................. 3,319,456 3,387,933
----------- -----------
21,035,218 18,444,575
Less billings to date....................................... 10,107,537 4,061,955
----------- -----------
$10,927,681 $14,382,620
=========== ===========
Included in the accompanying consolidated balance sheets
under the captions:
Costs and estimated earnings in excess of billings..... $11,398,621 $14,382,620
Billings in excess of costs and estimated earnings..... (470,940)
----------- -----------
$10,927,681 $14,382,620
=========== ===========
</TABLE>
6. PROPERTY AND EQUIPMENT
The accompanying consolidated balance sheets include the following property
and equipment:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Land........................................................ $ 1,942,247 $ 1,592,958
Buildings................................................... 2,346,993 2,497,103
Leasehold improvements...................................... 1,463,698 1,459,543
Vehicles.................................................... 41,522,848 52,287,135
Equipment and machinery..................................... 30,721,638 34,319,707
Furniture and fixtures...................................... 5,289,975 5,638,326
----------- -----------
Total............................................. 83,287,399 97,794,772
Less accumulated depreciation............................... 46,951,187 54,929,575
----------- -----------
Property and equipment, net................................. $36,336,212 $42,865,197
=========== ===========
</TABLE>
Certain subsidiaries of the Company have entered into lease arrangements
accounted for as capitalized leases. The carrying value of capital leases at
July 31, 1997 and 1998 was $1,291,733 and $114,985, respectively, net of
accumulated depreciation of $985,636 and $82,813, respectively. Capital leases
are included as a component of vehicles and equipment and machinery.
Maintenance and repairs of property and equipment amounted to $6,825,017,
$6,843,444, and $7,728,971 for the fiscal years ended July 31, 1996, 1997, and
1998, respectively.
F-13
<PAGE> 60
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Accrued payroll and related taxes........................... $ 3,909,405 $ 3,637,611
Accrued employee benefit costs.............................. 3,683,975 4,971,718
Accrued construction costs.................................. 2,033,371 2,728,568
Accrued other liabilities................................... 3,651,961 3,481,284
----------- -----------
Other accrued liabilities................................... $13,278,712 $14,819,181
=========== ===========
</TABLE>
8. NOTES PAYABLE
Notes payable are summarized by type of borrowing as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Bank credit agreements:
Revolving credit facilities............................... $15,053,484
Term loan................................................. 8,550,000 $14,250,000
Equipment term loans...................................... 4,559,937 3,339,218
Capital lease obligations................................... 1,086,967 60,931
Equipment loans............................................. 2,057,414 485,623
----------- -----------
Total............................................. 31,307,802 18,135,772
Less current portion........................................ 17,719,780 4,727,782
----------- -----------
Notes payable -- non-current................................ $13,588,022 $13,407,990
=========== ===========
</TABLE>
On April 29, 1998, the Company signed an amendment to its current bank
credit agreement, increasing the total facility to $85.0 million. The amended
bank credit agreement provides for (i) a $30.0 million revolving working capital
facility; (ii) a $15.0 million standby letter of credit facility; (iii) a $25.0
million revolving equipment acquisition and small business purchase facility;
and (iv) a $15.0 million five-year term loan. The revolving working capital
facility, the standby letter of credit facility and the revolving equipment
facility are available for a two-year period.
The revolving working capital facility bears interest, at the option of the
Company, at the bank's prime interest rate minus 1.00% or LIBOR plus 1.50%. In
October 1997, the Company borrowed $4.9 million under this facility to pay off a
subsidiary's previously existing credit facility. On November 28, 1997, the
Company repaid the outstanding balance of this facility with proceeds from the
public offering of its common stock. As of July 31, 1998, there was no
outstanding balance on this facility, resulting in an available borrowing
capacity of $30.0 million.
The outstanding principal under the term loan bears interest at the bank's
prime interest rate minus 0.50% (8.00% at July 31, 1998). Principal and interest
is payable in quarterly installments through April 2003. The outstanding
principal under the term loan was increased to $15.0 million in accordance with
the terms of the amended bank credit agreement. The amount outstanding on the
term loan was $14.3 million at July 31, 1998.
The outstanding loans under the revolving equipment acquisition and small
business purchase facility bear interest, at the option of the Company, at the
bank's prime interest rate minus 0.75% or LIBOR plus 1.75%. At July 31, 1998,
the interest rates on the outstanding revolving equipment and small business
purchase facility were at the LIBOR option ranging from 7.53% to 7.81%. The
advances under the revolving equipment acquisition and small business purchase
facility are converted to term loans with
F-14
<PAGE> 61
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maturities not to exceed 48 months. The outstanding principal on the equipment
term loans is payable in monthly installments through February 2001. In October
1997, the Company borrowed $1.0 million to buy out existing operating leases and
$1.7 million to refinance equipment under a subsidiary's previously existing
credit facility. During the fiscal year ended July 31, 1998, the Company repaid
$1.3 million under this facility. The amount outstanding on the revolving
equipment acquisition and small business purchase facility was $3.3 million at
July 31, 1998 resulting in an available borrowing capacity of $21.7 million.
The Company had outstanding standby letters of credit issued to the
Company's insurance administrators as part of its self-insurance program of
$11.6 million at July 31, 1998.
The amended bank credit agreement contains restrictions which, among other
things, require 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 fiscal 1998. The
amended credit facility is secured by the Company's assets and guaranteed by
each of its subsidiaries. At July 31, 1998, the Company was in compliance with
all of the financial covenants and conditions.
At July 31, 1997, CCG had a $6.6 million revolving bank credit facility of
which $5.9 million was outstanding. The interest rate on this facility was at
the bank's prime interest rate plus 0.75% and was collateralized by 75% of the
eligible trade accounts receivable, inventory, and certain real property owned
by a partnership, whose general partners are the former shareholders of CCG.
This facility was an existing arrangement made by CCG prior to the acquisition
by Dycom. In October 1997, the Company paid off the outstanding balance of $6.6
million and terminated the facility by borrowing $4.9 million against its
revolving working capital facility and $1.7 million against the revolving
equipment acquisition and small business purchase facility.
The Company's recently acquired subsidiaries, CCI and ITI, had credit
facilities entered into prior to the acquisition by Dycom. CCI had a $5.2
million revolving credit facility for funding working capital and a $2.0 million
term note incurred to purchase equipment. The interest rate on the revolving
credit facility was at the bank's prime interest rate and the interest rate on
the term loan was at 8.75%. ITI had a $2.0 million revolving credit facility for
funding working capital and a $0.5 million multiple advance term facility for
equipment acquisitions. The interest rates on the revolving credit facility and
the multiple advance term facility were at the bank's prime interest rate. The
obligations were secured by substantially all of CCI's and ITI's assets. The
facilities contained restrictions, which among other things, required the
maintenance of certain financial ratios and covenants and restricted the payment
of cash dividends. During the fourth quarter of fiscal 1998, the Company paid
off the outstanding balances of $8.1 million under these facilities with
existing cash balances and subsequently terminated such facilities.
In addition to the borrowings under the amended bank credit agreement,
certain subsidiaries have outstanding obligations under capital leases and other
equipment financing arrangements. During fiscal 1998, the Company repaid $2.6
million of outstanding balances on capital lease obligations and other equipment
term loans with existing cash balances. The remaining obligations are payable in
monthly installments expiring at various dates through September 2000.
The estimated aggregate annual principal repayments for notes payable and
capital lease obligations in the next five years are $4,727,782 in 1999,
$4,662,843 in 2000, $3,495,147 in 2001, $3,000,000 in 2002, and $2,250,000 in
2003.
Interest costs incurred on notes payable, all of which is expensed, for the
years ended July 31, 1996, 1997, and 1998 were $2,515,814, $2,619,191, and
$2,045,571, respectively. Such amounts are included in general and
administrative expenses in the accompanying consolidated statements of
operations.
F-15
<PAGE> 62
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The interest rates on notes payable under the bank credit agreement are at
current rates and, therefore, the carrying amount approximates fair value.
9. INCOME TAXES
The components of the provision (benefit) for income taxes are:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal......................................... $4,265,617 $6,248,234 $10,565,688
State........................................... 1,447,065 1,904,858 2,613,336
---------- ---------- -----------
5,712,682 8,153,092 13,179,024
---------- ---------- -----------
Deferred:
Federal......................................... (522,169) 191,765 737,355
State........................................... (134,700) (395,550)
Valuation allowance............................. (1,058,027) (253,306) (475,185)
---------- ---------- -----------
(1,580,196) (196,241) (133,380)
---------- ---------- -----------
Total tax provision..................... $4,132,486 $7,956,851 $13,045,644
========== ========== ===========
</TABLE>
The deferred tax provision (benefit) is the change in the deferred tax
assets and liabilities representing the tax consequences of changes in the
amount of temporary differences and changes in tax rates during the year. Prior
to the acquisition by Dycom, CCI and ITI elected under Subchapter S of the
Internal Revenue Code to have the stockholders recognize their proportionate
share of CCI's and ITI's taxable income on their personal income tax returns in
lieu of paying corporate income taxes. At April 6, 1998, the consummation date
of the acquisition, CCI and ITI recorded a deferred tax liability (asset) of
$616,358 and $(11,035), respectively, which was included in the third quarter
results of operations. The deferred tax assets and liabilities at July 31 are
comprised of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Self-insurance, warranty, and other non-deductible
reserves............................................... $3,943,356 $5,164,116
Allowance for doubtful accounts........................... 346,993 879,306
Small tools............................................... 348,067 380,153
---------- ----------
4,638,416 6,423,575
Valuation allowance....................................... (475,185)
---------- ----------
$4,163,231 $6,423,575
========== ==========
Deferred tax liabilities:
Property and equipment.................................... $1,357,721 $2,950,402
Unamortized acquisition costs............................. 212,542 248,612
Retainage................................................. 498,213
---------- ----------
$1,570,263 $3,697,227
========== ==========
Net deferred tax assets..................................... $2,592,968 $2,726,348
========== ==========
</TABLE>
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 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. In fiscal 1997, the Company
reduced the valuation allowance by $0.3 million. In fiscal 1998, the Company
reversed the remaining $475,185 balance
F-16
<PAGE> 63
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the valuation allowance. The Company believes that it is more likely than not
that the deferred tax assets will be realized 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.
The difference between the total tax provision and the amount computed by
applying the statutory federal income tax rates to pre-tax income is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Statutory rate applied to pre-tax income.......... $4,919,185 $8,319,671 $12,628,442
State taxes, net of federal tax benefit........... 955,063 1,257,206 1,779,712
Amortization of intangible assets, with no tax
benefit......................................... 52,730 52,730 54,281
Tax effect of non-deductible items................ 139,101 374,564 389,999
Valuation allowance............................... (1,058,027) (253,306) (475,185)
Income from S Corporations (CCI and ITI).......... (907,814) (1,719,027) (1,827,023)
Deferred taxes of pooled companies................ 605,323
Other items, net.................................. 32,248 (74,987) (109,905)
---------- ---------- -----------
Total tax provision..................... $4,132,486 $7,956,851 $13,045,644
========== ========== ===========
</TABLE>
The Internal Revenue Service (the "IRS") has examined and closed the
Company's consolidated federal income tax returns for all years through fiscal
1993. The Company has settled all assessments of additional taxes and believes
that it has made adequate provision for income taxes that may become payable
with respect to open tax years. The IRS has examined and closed the income tax
returns for the years through fiscal 1994 for CCG. The IRS is currently auditing
the 1995 and 1996 tax years of ITI.
10. REVENUES -- OTHER
The components of other revenues are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Interest income.................................... $ 271,398 $ 215,062 $1,597,987
Gain on sale of fixed assets....................... 736,131 601,645 375,772
Miscellaneous income............................... 350,403 364,625 675,470
---------- ---------- ----------
Total other revenues..................... $1,357,932 $1,181,332 $2,649,229
========== ========== ==========
</TABLE>
11. CAPITAL STOCK
On June 1, 1992, the Company approved a Shareholder Rights Plan. All
shareholders of record on June 15, 1992 were issued a Right for each outstanding
share of the Company's common stock. Each Right entitles the holder to purchase
one-half share of common stock for an exercise price of $12 subject to
adjustment. The Right is exercisable only when a triggering event occurs. The
triggering events, among others, are a person or group's (1) acquisition of 20%
or more of Dycom's common stock, (2) commencement of a tender offer which would
result in the person or group owning 20% or more of Dycom's common stock, or (3)
acquisition of at least 10% of Dycom's common stock and such acquisition is
determined to have effects adverse to the Company. The Company can redeem the
Rights at $0.01 per Right at any time prior to ten days after a triggering event
occurs.
Certain executive officers of the Company have change of control agreements
with the Company, which provide substantial compensation upon the change of
control of the Company. The payments pursuant to these agreements would be
triggered by any person's acquisition of more than 50% of the
F-17
<PAGE> 64
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's outstanding securities, the sale or transfer of substantially all of
Dycom's assets to someone other than a wholly-owned subsidiary of the Company,
or a change of control of the Board of Directors.
12. STOCK OFFERING
The Company concluded the public offering of 4,050,000 shares of its common
stock on November 4, 1997. The Company offered 2,360,067 shares and selling
shareholders offered 1,689,933 shares at an offering price of $13.33 per share.
The Company received $29,736,844 on November 10, 1997 which is net of an
underwriting discount of $0.73 per share. Additionally, the underwriters
exercised their option to purchase 607,500 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 on the July 31, 1998 balance
sheet. On November 28, 1997, the Company repaid the outstanding balance of its
revolving working capital 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.
13. EMPLOYEE BENEFIT PLAN
The Company and certain of its subsidiaries sponsor defined contribution
plans that provide retirement benefits to all employees that elect to
participate. Under the plans, participating employees may defer up to 15% of
their base pre-tax compensation. Generally, the Company's contributions to the
plans are discretionary except for CCI which has a 25% company match up to the
first 5% of the employee's contributions. The Company's contributions were
$158,451, $287,179, and $398,529 in fiscal years 1996, 1997 and 1998,
respectively.
14. STOCK OPTION PLANS
The Company has reserved 1,350,000 shares of common stock under its 1991
Incentive Stock Option Plan (the "1991 Plan") which was approved by the
shareholders on November 25, 1991. The 1991 Plan provides for the granting of
options to key employees until it expires in 2001. Options are granted at the
closing price on the date of grant and are exercisable over a period of up to
five years. Since the 1991 Plan's adoption, certain of the options granted have
lapsed as a result of employees terminating their employment with the Company.
At July 31, 1996, 1997, and 1998, options available for grant under the 1991
Plan were 641,030 shares, 576,177 shares, and 199,782 shares, respectively.
In fiscal 1998, the Company granted to key employees under the 1991 Plan,
options to purchase an aggregate 388,470 shares of common stock. The options
were granted at prices ranging from $12 3/16 to $17.75, prices representing the
fair market value on the date of grant.
On August 24, 1998, the Company granted to key employees under the 1991
Plan options to purchase an aggregate of 211,932 shares of common stock. The
options were granted at $21 3/16, the fair market value on the date of grant.
In addition to the stock option plan discussed above, the Company has
agreements outside of the plan with the non-employee members of the Board of
Directors (the "Directors Plan"). On January 10, 1994, the Company granted to
the non-employee Directors, non-qualified options to purchase an aggregate of
90,000 shares of common stock. The options were granted at $2 9/16, the fair
market value on the date of grant, with vesting over a three-year period.
F-18
<PAGE> 65
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the stock option transactions under the 1991
Plan and the Directors Plan for the three years ended July 31, 1996, 1997, and
1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
--------------------------
NUMBER
OF
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options outstanding at July 31, 1995........................ 816,260 $ 2.86
Terminated................................................ (75,789) $ 4.95
Exercised................................................. (86,253) $ 2.31
Options outstanding at July 31, 1996........................ 654,218 $ 3.03
Granted................................................... 150,000 $ 9.00
Terminated................................................ (85,148) $ 3.05
Exercised................................................. (319,714) $ 2.68
Options outstanding at July 31, 1997........................ 399,356 $ 6.88
Granted................................................... 388,470 $13.73
Terminated................................................ (12,075) $ 9.52
Exercised................................................. (114,714) $ 3.11
Options outstanding at July 31, 1998........................ 661,037 $10.49
Exercisable options at
July 31, 1996............................................. 286,226 $ 2.52
July 31, 1997............................................. 104,900 $ 3.47
July 31, 1998............................................. 130,787 $ 4.50
</TABLE>
The range of exercise prices for options outstanding at July 31, 1998 was
$1.83 to $17.75. The range of exercise prices for options is wide due primarily
to the increasing price of the Company's stock over the period of the grants.
The following summarizes information about options outstanding at July 31,
1998:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE
OF CONTRACTUAL EXERCISE
SHARES LIFE PRICE
--------- ----------- --------
<S> <C> <C> <C>
Range of exercise prices
$1.83 to $5.33......................................... 150,219 1.4 $ 3.44
$8.00 to $13.33........................................ 400,268 3.8 $11.16
$13.33 to $17.75....................................... 110,550 4.7 $17.66
------- --- ------
661,037 3.4 $10.49
======= === ======
</TABLE>
<TABLE>
<CAPTION>
EXERCISABLE OPTIONS
----------------------
EXERCISABLE WEIGHTED
AS OF AVERAGE
JULY 31, EXERCISE
1998 PRICE
----------- --------
<S> <C> <C>
Range of exercise prices
$1.83 to $5.33............................................ 105,129 $ 3.41
$8.00 to $17.75........................................... 25,658 $ 9.00
------- ------
130,787 $ 4.50
======= ======
</TABLE>
These options will expire if not exercised at specific dates ranging from
November 1998 to April 2003. The prices for the options exercisable at July 31,
1998 ranged from $1.83 to $9.00.
F-19
<PAGE> 66
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note 1, the Company has adopted the disclosure-only
provisions of SFAS No. 123. The fair value of the options granted in fiscal 1997
and 1998 have been estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions: expected stock volatility
of 58.97% in 1997 and 55.36% in 1998; risk-free interest rates of 6.57% in 1997
and 5.50% in 1998; expected lives of 4 years for 1997 and 1998, and no dividend
yield in both years, due to the Company's recent history of not paying cash
dividends.
The Black-Scholes option valuation model was developed for estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. Because option valuation models require the use of subjective
assumptions and changes in these assumptions can materially impact the fair
value of the options and the Company's options do not have the characteristics
of traded options, the option valuation models do not necessarily provide a
reliable measure of the fair value of its options. The estimated fair value of
stock options granted during fiscal 1997 and 1998 was $4.65 and $6.75 per share,
respectively.
The pro forma disclosures amortize to expense the estimated compensation
costs for its stock options granted subsequent to July 31, 1996 over the options
vesting period. The Company's fiscal 1996, 1997 and 1998 pro forma net earnings
and earnings per share are reflected below:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Net Income:
Pro forma net income reflecting stock option
compensation costs............................. $9,922,327 $15,687,084 $21,858,609
Pro forma earnings per share reflecting stock
option compensation costs:
Basic....................................... $ 0.53 $ 0.83 $ 1.03
Diluted..................................... $ 0.52 $ 0.82 $ 1.02
Net Income:
Reflecting pro forma tax expense related to S
corporations
Pro forma net income reflecting stock option
compensation costs........................ $9,195,051 $13,802,854 $20,484,349
Pro forma earnings per share reflecting
stock option compensation costs:
Basic.................................. $ 0.49 $ 0.73 $ 0.97
Diluted................................ $ 0.48 $ 0.72 $ 0.95
</TABLE>
15. RELATED PARTY TRANSACTIONS
The Company's subsidiary, CCG, leases administrative offices from a
partnership of which certain officers of the subsidiary are the general partners
and the Company's newly acquired subsidiaries, CCI and ITI, lease administrative
offices from a corporation of which certain officers of the subsidiaries are
shareholders. ITI advanced the corporation $268,860 for leasehold improvements
to its administrative office building. The amount advanced was fully reimbursed
by July 31, 1998. The total expense under these arrangements for the years ended
July 31, 1996, 1997, and 1998 was $184,200, $242,310, and $304,010,
respectively. The future minimum lease commitments under these arrangements are
$299,760 in 1999, $299,760 in 2000, $203,760 in 2001 and $80,900 in 2002.
F-20
<PAGE> 67
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The operating subsidiaries obtain contracts from both public and private
concerns. For the years ended July 31, 1996, 1997, and 1998, approximately 36%,
27%, and 22%, respectively, of the contract revenues were from BellSouth
Telecommunications, Inc. ("BellSouth"), 16%, 18%, and 24%, respectively, of the
contract revenues were from Comcast Cable Communications, Inc. ("Comcast"), and
6.4%, 6.3%, and 7.2%, respectively, of the contract revenues were from GTE
Corporation ("GTE").
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
BellSouth, Comcast, and GTE represent a significant portion of the Company's
customer base. As of July 31, 1997, the total outstanding trade receivables from
BellSouth, Comcast, and GTE were $5.7 million or 12%, $11.5 million or 23%, and
$2.2 million or 4%, respectively, of the outstanding trade receivables. At July
31, 1998, the total outstanding trade receivables from BellSouth, Comcast, and
GTE were $7.9 million or 13%, $16.9 million or 27%, and $2.3 million or 4%,
respectively, of the Company's outstanding trade receivables.
17. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have operating leases covering office
facilities, vehicles, and equipment which have noncancelable terms in excess of
one year. During fiscal 1996, 1997, and 1998, the Company entered into numerous
operating leases for vehicles and equipment. Certain of these leases contain
renewal provisions and generally require the Company to pay insurance,
maintenance, and other operating expenses. Total expense incurred under
operating lease agreements, excluding the transactions with related parties (see
Note 15), for the years ended July 31, 1996, 1997, and 1998, was $5,305,237,
$6,732,699, and $6,754,934, respectively. The future minimum obligations under
these leases are $4,599,287 in 1999; $2,046,435 in 2000; $954,796 in 2001;
$526,526 in 2002, $323,338 in 2003 and $56,900 thereafter.
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 the Company may be
offset by use taxes already paid by customers of the Company. 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. It is the opinion of the Company's management,
based on the information available at this time, that these claims will not have
a material adverse impact on the Company's consolidated financial statements.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company has historically experienced variability in revenues, income
before income taxes and net income on a quarterly basis. A significant amount of
this variability is due to the fact that the Company's business is subject to
seasonal fluctuations, with activity in its second and occasionally third fiscal
quarters (the quarters ended January 31 and April 30 in a given fiscal year)
being adversely affected by weather. In addition, budgetary spending patterns of
significant customers, which often run on a calendar year basis, have resulted
in greater volatility of second fiscal quarter results.
F-21
<PAGE> 68
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the opinion of management, the following unaudited quarterly data for
the years ended July 31, 1997 and 1998 reflect all adjustments necessary for the
fair presentation of a statement of operations. All such adjustments are of a
normal recurring nature other than as discussed below. The Company acquired CCI
and ITI ("Pooled Companies") on April 6, 1998. The acquisitions were accounted
for as poolings of interests and accordingly, the unaudited quarterly financial
statements for the periods presented include the accounts of CCI and ITI. The
quarterly data for CCI and ITI for the quarter including the consummation date
of the mergers and the subsequent quarter are included in the Dycom data. The
earnings per common share calculation for each quarter is based on the weighted
average shares of common stock outstanding plus the dilutive effect of stock
options. The sum of the quarters earnings per common share may not necessarily
be equal to the full year earnings per common share amounts.
<TABLE>
<CAPTION>
IN WHOLE DOLLARS, EXCEPT PER SHARE AMOUNTS
------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1997
Revenues:
Dycom.................................... $56,414,412 $57,275,311 $63,181,306 $ 67,052,452
Pooled Companies......................... 15,816,874 14,502,399 17,628,078 20,548,608
----------- ----------- ----------- ------------
$72,231,286 $71,777,710 $80,809,384 $ 87,601,060
=========== =========== =========== ============
Income Before Income Taxes:
Dycom.................................... $ 3,981,240 $ 3,575,407 $ 4,700,378 $ 6,784,493
Pooled Companies......................... 1,141,040 393,687 1,373,172 1,821,072
----------- ----------- ----------- ------------
$ 5,122,280 $ 3,969,094 $ 6,073,550 $ 8,605,565
=========== =========== =========== ============
Net Income:
Dycom.................................... $ 2,236,041 $ 2,314,166 $ 2,818,373 $ 3,850,228
Pooled Companies......................... 1,176,518 245,568 1,373,172 1,799,572
----------- ----------- ----------- ------------
$ 3,412,559 $ 2,559,734 $ 4,191,545 $ 5,649,800
=========== =========== =========== ============
Earnings per Common Share:
Basic.................................... $ 0.18 $ 0.14 $ 0.22 $ 0.30
Diluted.................................. $ 0.18 $ 0.13 $ 0.22 $ 0.29
Pro Forma Net Income:
Dycom.................................... $ 2,236,041 $ 2,314,166 $ 2,818,373 $ 3,850,228
Pooled Companies......................... 647,285 185,447 810,610 1,067,258
----------- ----------- ----------- ------------
$ 2,883,326 $ 2,499,613 $ 3,628,983 $ 4,917,486
=========== =========== =========== ============
Pro Forma Earnings per Common Share:
Basic.................................... $ 0.15 $ 0.13 $ 0.19 $ 0.26
Diluted.................................. $ 0.15 $ 0.13 $ 0.19 $ 0.26
</TABLE>
F-22
<PAGE> 69
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
IN WHOLE DOLLARS, EXCEPT PER SHARE AMOUNTS
------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1998
Revenues:
Dycom.................................... $70,793,691 $62,622,353 $96,872,826 $101,592,970
Pooled Companies......................... 20,638,774 18,842,178 -- --
----------- ----------- ----------- ------------
$91,432,465 $81,464,531 $96,872,826 $101,592,970
=========== =========== =========== ============
Income Before Income Taxes:
Dycom.................................... $ 6,165,432 $ 5,417,012 $ 8,807,157 $ 11,619,113
Pooled Companies......................... 2,222,087 1,850,463 -- --
----------- ----------- ----------- ------------
$ 8,387,519 $ 7,267,475 $ 8,807,157 $ 11,619,113
=========== =========== =========== ============
Net Income:
Dycom.................................... $ 3,515,950 $ 3,246,711 $ 5,343,005 $ 7,088,957
Pooled Companies......................... 2,222,087 1,618,910 -- --
----------- ----------- ----------- ------------
$ 5,738,037 $ 4,865,621 $ 5,343,005 $ 7,088,957
=========== =========== =========== ============
Earnings per Common Share:
Basic.................................... $ 0.30 $ 0.23 $ 0.24 $ 0.32
Diluted.................................. $ 0.30 $ 0.22 $ 0.24 $ 0.32
Pro Forma Net Income:
Dycom.................................... $ 3,515,950 $ 3,246,711 $ 5,432,241 $ 7,088,957
Pooled Companies......................... 1,298,383 1,079,118 -- --
----------- ----------- ----------- ------------
$ 4,814,333 $ 4,325,829 $ 5,432,241 $ 7,088,957
=========== =========== =========== ============
Pro Forma Earnings per Common Share:
Basic.................................... $ 0.25 $ 0.20 $ 0.25 $ 0.32
Diluted.................................. $ 0.25 $ 0.20 $ 0.24 $ 0.32
</TABLE>
The 1997 fourth quarter results of operations include a $0.3 million
reduction in the deferred tax asset valuation allowance. The third and fourth
quarter 1998 results of operations include a reduction in the deferred tax asset
valuation allowance of $0.2 million and $0.2 million, respectively.
19. SUBSEQUENT EVENT
On December 14, 1998, the Board of Directors declared a 3-for-2 split of
the Company's common stock, effected in the form of a stock dividend paid on
January 4, 1999 to stockholders of record on December 23, 1998. All agreements
concerning stock options provide for the issuance of additional shares due to
the declaration of the stock split. An amount equal to the par value of the
common shares issued plus cash paid in lieu of fractional shares was transferred
from capital in excess of par value to the common stock account. All references
to number of shares and to per share information have been adjusted to reflect
the stock split on a retroactive basis.
F-23
<PAGE> 70
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents........................................ $ 35,927,307 $ 33,985,787
Accounts receivable, net.................................... 62,142,808 50,242,669
Costs and estimated earnings in excess of billings.......... 14,382,620 19,377,664
Deferred tax assets, net.................................... 2,726,348 2,668,146
Other current assets........................................ 3,014,199 7,253,689
------------ ------------
Total current assets.............................. 118,193,282 113,527,955
------------ ------------
PROPERTY AND EQUIPMENT, net................................. 42,865,197 58,126,177
------------ ------------
OTHER ASSETS:
Intangible assets, net...................................... 4,529,270 4,507,489
Deferred tax assets......................................... 53,066
Other....................................................... 730,342 4,524,833
------------ ------------
Total other assets................................ 5,259,612 9,085,388
------------ ------------
TOTAL............................................. $166,318,091 $180,739,520
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 12,182,699 $ 13,523,311
Notes payable............................................... 4,727,782 4,743,624
Accrued self-insured claims................................. 2,440,303 2,729,208
Income taxes payable........................................ 2,812,144 618,362
Other accrued liabilities................................... 14,819,181 13,764,652
------------ ------------
Total current liabilities......................... 36,982,109 35,379,157
NOTES PAYABLE............................................... 13,407,990 11,181,614
ACCRUED SELF-INSURED CLAIMS................................. 7,454,849 8,403,196
OTHER LIABILITIES........................................... 10,094,195 11,043,894
------------ ------------
Total liabilities................................. 67,939,143 66,007,861
------------ ------------
COMMITMENTS AND CONTINGENCIES, Note 8
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00 per share:
1,000,000 shares authorized; no shares issued and
outstanding
Common stock, par value $.33 1/3 per share:
50,000,000 shares authorized; 22,084,097 and 22,240,400
shares issued and outstanding, respectively............ 7,361,366 7,413,466
Additional paid-in capital.................................. 60,042,463 62,198,781
Retained earnings........................................... 30,975,119 45,119,412
------------ ------------
Total stockholders' equity........................ 98,378,948 114,731,659
------------ ------------
TOTAL............................................. $166,318,091 $180,739,520
============ ============
</TABLE>
See notes to condensed consolidated financial statements -- unaudited.
F-24
<PAGE> 71
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JANUARY 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
REVENUES:
Contract revenues earned.................................... $80,680,559 $96,727,284
Other, net.................................................. 783,972 727,268
----------- -----------
Total............................................. 81,464,531 97,454,552
----------- -----------
Expenses:
Costs of earned revenues excluding depreciation............. 63,636,371 73,468,675
General and administrative.................................. 7,360,048 8,676,838
Depreciation and amortization............................... 3,200,637 4,144,089
----------- -----------
Total............................................. 74,197,056 86,289,602
----------- -----------
INCOME BEFORE INCOME TAXES.................................. 7,267,475 11,164,950
----------- -----------
PROVISION FOR INCOME TAXES:
Current................................................... 2,041,386 4,201,198
Deferred.................................................. 360,468 313,602
----------- -----------
Total............................................. 2,401,854 4,514,800
----------- -----------
NET INCOME.................................................. $ 4,865,621 $ 6,650,150
=========== ===========
EARNINGS PER COMMON SHARE:
Basic..................................................... $ 0.23 $ 0.30
=========== ===========
Diluted................................................... $ 0.22 $ 0.29
=========== ===========
PRO FORMA NET INCOME AND EARNINGS
PER COMMON SHARE DATA:
Income before income taxes................................ $ 7,267,475
Pro forma provision for income taxes...................... 2,941,646
-----------
PRO FORMA NET INCOME........................................ $ 4,325,829
===========
PRO FORMA EARNINGS PER COMMON SHARE:
Basic..................................................... $ 0.20
===========
Diluted................................................... $ 0.20
===========
</TABLE>
See notes to condensed consolidated financial statements -- unaudited.
F-25
<PAGE> 72
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JANUARY 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
REVENUES:
Contract revenues earned.................................... $171,813,092 $205,340,440
Other, net.................................................. 1,083,904 1,416,362
------------ ------------
Total............................................. 172,896,996 206,756,802
------------ ------------
EXPENSES:
Costs of earned revenues excluding depreciation............. 134,956,874 154,648,923
General and administrative.................................. 15,961,757 20,214,381
Depreciation and amortization............................... 6,323,371 8,116,827
------------ ------------
Total............................................. 157,242,002 182,980,131
------------ ------------
INCOME BEFORE INCOME TAXES.................................. 15,654,994 23,776,671
------------ ------------
PROVISION FOR INCOME TAXES:
Current................................................... 4,877,597 9,627,242
Deferred.................................................. 173,739 5,136
------------ ------------
Total............................................. 5,051,336 9,632,378
------------ ------------
NET INCOME.................................................. $ 10,603,658 $ 14,144,293
============ ============
EARNINGS PER COMMON SHARE:
Basic..................................................... $ 0.52 $ 0.64
============ ============
Diluted................................................... $ 0.51 $ 0.63
============ ============
PRO FORMA NET INCOME AND EARNINGS
PER COMMON SHARE DATA:
Income before income taxes................................ $ 15,654,994
Pro forma provision for income taxes...................... 6,514,832
------------
PRO FORMA NET INCOME........................................ $ 9,140,162
============
PRO FORMA EARNINGS PER COMMON SHARE:
Basic.................................................. $ 0.45
============
Diluted................................................ $ 0.44
============
</TABLE>
See notes to condensed consolidated financial statements -- unaudited.
F-26
<PAGE> 73
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JANUARY 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS FROM:
OPERATING ACTIVITIES:
Net income.................................................. $10,603,658 $14,144,293
Adjustments to reconcile net cash provided by operating
activities:
Depreciation and amortization.......................... 6,323,371 8,116,827
Gain on disposal of assets............................. (177,643) (161,439)
Deferred income taxes.................................. 173,739 5,136
Changes in assets and liabilities:
Accounts receivable, net............................... 3,768,114 11,900,139
Unbilled revenues, net................................. (2,510,658) (4,995,044)
Other current assets................................... (190,480) (4,239,490)
Other assets........................................... 96,963 (794,491)
Accounts payable....................................... (4,705,467) 1,340,612
Accrued self-insured claims and other liabilities...... (2,153,215) 1,132,422
Accrued income taxes................................... (846,507) (2,193,782)
----------- -----------
Net cash inflow from operating activities................... 10,381,875 24,255,183
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures................................... (9,986,657) (22,810,098)
Proceeds from sale of assets........................... 947,830 553,276
Assets of acquired business............................ (750,000)
Investment in unconsolidated affiliate................. (3,000,000)
----------- -----------
Net cash outflow from investing activities.................. (9,038,827) (26,006,822)
----------- -----------
FINANCING ACTIVITIES:
Borrowings on notes payable and bank lines-of-credit... 9,569,762 --
Principal payments on notes payable and bank
lines-of-credit....................................... (21,139,918) (2,398,299)
Exercise of stock options.............................. 173,955 2,208,418
Proceeds from stock offering........................... 36,958,618 --
Distributions to shareholders of pooled companies...... (3,897,000) --
----------- -----------
Net cash inflow (outflow) from financing activities......... 21,665,417 (189,881)
----------- -----------
NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES............... 23,008,465 (1,941,520)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................. 5,276,112 35,927,307
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD....................... $28,284,577 $33,985,787
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest............................................... $ 1,173,609 $ 657,932
Income taxes........................................... $ 5,726,979 $10,765,623
Property and equipment acquired and financed with:
Capital lease obligation.................................. $ 187,765
Income tax benefit from stock options exercised............. $ 194,483 $ 1,115,554
</TABLE>
See notes to condensed consolidated financial statements -- unaudited.
F-27
<PAGE> 74
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 July 31, 1998 and January 31, 1999, and
the related condensed consolidated statements of operations for the three and
six months ended January 31, 1998 and 1999, respectively, and the condensed
consolidated statements of cash flows for the six months ended January 31, 1998
and 1999 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 six months ended January 31, 1999 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 April 6, 1998, the Company
consummated the Cable Com Inc. ("CCI") and Installation Technicians, Inc.
("ITI") acquisitions and issued 1.8 million and 900,000 shares of common stock
in exchange for all the outstanding capital stock of CCI and ITI, respectively.
These acquisitions were accounted for as poolings of interests and accordingly,
the Company's condensed consolidated financial statements include the results of
CCI and ITI for all periods presented. Prior to the acquisitions, CCI and ITI
used a fiscal year consisting of a 52/53 week time period and, as a result of
the merger, have adopted Dycom's fiscal year end of July 31. All periods
presented reflect the adoption of such fiscal year end as of the beginning of
the period.
The Company is a leading provider of engineering, construction and
maintenance services to telecommunications providers and also performs
underground utility locating services and electrical construction and
maintenance contracting services. All material intercompany accounts and
transactions have been eliminated.
Pro Forma Adjustments -- Prior to the acquisition by Dycom, CCI and ITI
elected under Subchapter S of the Internal Revenue Code to have the stockholders
recognize their proportionate share of CCI's and ITI's taxable income on their
personal tax returns in lieu of paying corporate income tax. The pro forma net
income and earnings per common share on the condensed consolidated statements of
operations reflect a provision for current and deferred income taxes for all
periods presented as if the corporations were included in Dycom's federal and
state income tax returns. At April 6, 1998, the consummation date of the
acquisition, CCI and ITI recorded deferred taxes on the temporary differences
between the financial reporting basis and the tax basis of their assets and
liabilities. The deferred tax (asset) liability recorded by CCI and ITI was
$616,358 and $(11,035), respectively.
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 short-term 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. 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.
F-28
<PAGE> 75
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"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 would be 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 condensed consolidated
statements of cash flows, the Company considers these amounts to be cash
equivalents.
Property and Equipment -- Property and equipment is stated at cost.
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 -- 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.
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. 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.
Non-compete agreements obtained through the purchase of business assets are
amortized on a straight-line basis over the term of the agreements.
Amortization expense was $77,545 and $83,741 for the six month periods
ended January 31, 1998 and 1999, respectively. The intangible assets are net of
accumulated amortization of $1,306,446 at July 31, 1998 and $1,390,188 at
January 31, 1999.
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 $5,120,000 and $7,330,000 at July 31, 1998
and January 31, 1999, 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, except for CCI and ITI,
file a consolidated federal income tax return. CCI and ITI were included in the
Company's consolidated federal income tax return effective April 6, 1998.
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 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
F-29
<PAGE> 76
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 annual
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 fiscal years beginning
after December 15, 1997.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pension and Other Postretirement Benefits", which revises certain
disclosures about pension and other postretirement benefit plans. This statement
does not change the measurement and recognition methods for pensions or
postretirement benefit costs reported in financial statements. This statement is
effective for fiscal years beginning after December 15, 1997.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards for the
accounting and reporting of derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999.
Management is currently evaluating the requirements and related disclosures
of SFAS No. 130, 131, 132, and 133.
3. EARNINGS PER SHARE
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.
On December 14, 1998, the Board of Directors declared a three-for-two split
of the Company's common stock, effected in the form of a stock dividend paid on
January 4, 1999 to shareholders of record on December 23, 1998. All agreements
concerning stock options provide for the issuance of additional shares due to
the declaration of the stock split. An amount equal to the par value of the
common shares issued plus cash paid in lieu of fractional shares was transferred
from capital in excess of par value to the common stock account. All references
to number of shares and to per share information have been adjusted to reflect
the stock split on a retroactive basis.
F-30
<PAGE> 77
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the numerators and denominators of the
basic and diluted per share computation as required by SFAS No. 128.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JANUARY 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Net income available to common stockholders (numerator)..... $4,865,621 $6,650,150
========== ==========
Weighted-average number of common shares (denominator)...... 21,619,506 22,199,923
========== ==========
Earnings per common share -- basic.......................... $ 0.23 $ 0.30
========== ==========
Weighed-average number of common shares..................... 21,619,506 22,199,923
Potential common stock arising from stock options........... 286,590 412,169
---------- ----------
Total shares (denominator)........................ 21,906,096 22,612,092
========== ==========
Earnings per common share -- diluted........................ $ 0.22 $ 0.29
========== ==========
PRO FORMA EARNINGS PER SHARE DATA:
Pro forma net income available to common stockholders
(numerator)............................................... $4,325,829
==========
Pro forma earnings per common share -- basic................ $ 0.20
==========
Pro forma earnings per common share -- diluted.............. $ 0.20
==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JANUARY 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net income available to common stockholders (numerator)..... $10,603,658 $14,144,293
=========== ===========
Weighted-average number of common shares (denominator)...... 20,312,127 22,144,794
=========== ===========
Earnings per common share -- basic.......................... $ 0.52 $ 0.64
=========== ===========
Weighed-average number of common shares..................... 20,312,127 22,144,794
Potential common stock arising from stock options........... 280,908 381,024
----------- -----------
Total shares (denominator)........................ 20,593,035 22,525,818
=========== ===========
Earnings per common share -- diluted........................ $ 0.51 $ 0.63
=========== ===========
PRO FORMA EARNINGS PER SHARE DATA:
Pro forma net income available to common stockholders
(numerator)............................................... $ 9,140,162
===========
Pro forma earnings per common share -- basic................ $ 0.45
===========
Pro forma earnings per common share -- diluted.............. $ 0.44
===========
</TABLE>
F-31
<PAGE> 78
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
Contract billings........................................... $58,888,421 $47,295,278
Retainage................................................... 4,133,590 4,839,257
Other receivables........................................... 1,331,775 908,834
----------- -----------
Total............................................. 64,353,786 53,043,369
Less allowance for doubtful accounts........................ 2,210,978 2,800,700
----------- -----------
Accounts receivable, net.................................... $62,142,808 $50,242,669
=========== ===========
</TABLE>
5. 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:
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
Costs incurred on contracts in progress..................... $15,056,642 $19,793,680
Estimated earnings thereon.................................. 3,387,933 4,617,836
----------- -----------
18,444,575 24,411,516
Less billings to date....................................... 4,061,955 5,033,852
----------- -----------
Costs and estimated earnings in excess of billings.......... $14,382,620 $19,377,664
=========== ===========
</TABLE>
6. PROPERTY AND EQUIPMENT
The accompanying condensed consolidated balance sheets include the
following property and equipment:
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1998 1999
----------- ------------
<S> <C> <C>
Land....................................................... $ 1,592,958 $ 2,077,830
Buildings.................................................. 2,497,103 3,559,155
Leasehold improvements..................................... 1,459,543 1,448,840
Vehicles................................................... 52,287,135 66,676,786
Equipment and machinery.................................... 34,319,707 39,568,769
Furniture and fixtures..................................... 5,638,326 6,218,428
----------- ------------
Total............................................ 97,794,772 119,549,808
Less accumulated depreciation and amortization............. 54,929,575 61,423,631
----------- ------------
Property and equipment, net................................ $42,865,197 $ 58,126,177
=========== ============
</TABLE>
F-32
<PAGE> 79
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. NOTES PAYABLE
Notes payable are summarized by type of borrowings as follows:
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
Bank Credit Agreement:
Term loan................................................. $14,250,000 $12,750,000
Equipment term loans...................................... 3,339,218 2,595,486
Capital lease obligations................................... 60,931 202,043
Equipment loans............................................. 485,623 377,709
----------- -----------
Total............................................. 18,135,772 15,925,238
Less current portion........................................ 4,727,782 4,743,624
----------- -----------
Notes payable -- non-current................................ $13,407,990 $11,181,614
=========== ===========
</TABLE>
On April 29, 1998, the Company signed an amendment to its bank credit
agreement increasing the total facility to $85.0 million. The amended bank
credit agreement provides for (i) a $30.0 million revolving working capital
facility; (ii) a $15.0 million standby letter of credit facility; (iii) a $25.0
million revolving equipment acquisition and small business purchase facility;
and (iv) a $15.0 million five-year term loan. The revolving working capital
facility, the standby letter of credit facility and the revolving equipment
facility are available for a two-year period.
The revolving working capital facility bears interest, at the option of the
Company, at the bank's prime interest rate minus 1.00% or LIBOR plus 1.50%. As
of January 31, 1999, there was no outstanding balance on this facility resulting
in an available borrowing capacity of $30.0 million.
The Company had outstanding standby letters of credit issued to the
Company's insurance administrators as part of its self-insurance program of
$11.4 million at January 31, 1999.
The outstanding loans under the revolving equipment acquisition and small
business purchase facility bear 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, 1999,
the interest rate on the outstanding revolving equipment and small business
purchase facility were at the LIBOR option of 7.00%. The advances under the
revolving equipment acquisition and small business purchase 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. The amount outstanding on the revolving equipment acquisition and
small business purchase facility was $2.6 million at January 31, 1999, resulting
in an available borrowing capacity of $22.4 million.
The outstanding principal under the term loan bears interest at the bank's
prime interest rate minus 0.50% (7.25% at January 31, 1999). Principal and
interest is payable in quarterly installments through April 2003. The amount
outstanding on the term loan was $12.8 million at January 31, 1999.
The amended 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 were paid during the three and six
month periods ended January 31, 1999. The amended bank credit facility is
secured by the Company's assets and guaranteed by each of its subsidiaries. At
January 31, 1999, the Company was in compliance with all financial covenants and
conditions.
F-33
<PAGE> 80
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the borrowings under the amended 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 January 2002.
Interest costs incurred on notes payable, all of which were expensed for
the three month period ended January 31, 1998 and 1999 were $461,656 and
$316,530, respectively. Interest costs for the six month period ended January
31, 1998 and 1999 were $1,097,845 and $665,080, respectively. Such amounts are
included in general and administrative expenses in the accompanying condensed
consolidated statements of operations.
8. COMMITMENTS AND CONTINGENCIES
In September 1995, the State of New York commenced a sales and use tax
audit of Communications Construction Group, Inc. ("CCG"), a wholly-owned
subsidiary, 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 the Company may be
offset by use taxes already paid by the customers of the Company. 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. It is the opinion of the Company's management,
based on the information available at this time, that these claims will not have
a material adverse impact on the Company's consolidated financial statements.
9. SUBSEQUENT EVENT
On February 3, 1999, the Company acquired all of the outstanding common
stock of Locating, Inc. for $10.0 million. Located in Issaquah, Washington,
Locating, Inc.'s primary line of business is the locating, marking, and mapping
of underground utility facilities for cable television, multiple system
operators, telephone companies, and electrical and gas utilities. The Company
intends to record this transaction as a purchase.
F-34
<PAGE> 81
INDEX TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Basis of Presentation....................................... P-2
Pro Forma Unaudited Condensed Consolidated Statement of
Operations for the six months ended January 31, 1999...... P-3
Pro Forma Unaudited Condensed Consolidated Statement of
Operations for the fiscal year ended July 31, 1998........ P-4
Pro Forma Unaudited Condensed Consolidated Balance Sheet at
January 31, 1999.......................................... P-5
Notes to Pro Forma Unaudited Condensed Consolidated
Financial Statements...................................... P-6
</TABLE>
P-1
<PAGE> 82
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
BASIS OF PRESENTATION
On March 31, 1999, pursuant to a stock purchase agreement, we purchased all
of the issued and outstanding shares of common stock of Ervin Cable
Construction, Inc. ("ECC") for $21,750,000 in cash and 258,066 shares of our
common stock. On April 1, 1999, pursuant to a merger agreement we issued an
aggregate of 516,128 shares of our common stock to the shareholders of Apex
Digital TV, Inc. ("Apex") in exchange for all the issued and outstanding common
stock of Apex. Prior to the acquisitions, the three stockholders of ECC held 80%
of the outstanding shares of common stock of Apex.
The accompanying pro forma unaudited condensed consolidated financial
statements are based on the historical financial presentation of our
consolidated financial statements, ECC, Apex and Locating, a Washington
corporation we acquired for $10 million in February 1999. The pro forma
unaudited condensed consolidated financial statements and related notes give
effect to these acquisitions under the purchase method of accounting. The
accompanying pro forma unaudited condensed consolidated financial statements
should be read in conjunction with our consolidated financial statements and
notes thereto included in this prospectus and the historical financial
statements of ECC and Apex, which are incorporated in this prospectus by
reference.
The pro forma unaudited condensed consolidated balance sheet presents our
financial position as if the acquisitions had been completed on January 31,
1999. The pro forma unaudited condensed consolidated statement of operations for
the six month period ended January 31, 1999 and for the fiscal year ended July
31, 1998 assume that the acquisitions occurred as of the beginning of the
periods presented. The pro forma unaudited condensed consolidated financial
statements are presented for illustrative purposes only. They do not purport to
be indicative of the financial position or results of operations of Dycom, that
would have actually been presented, or which may be obtained in the future. The
pro forma unaudited condensed consolidated financial statements do not include
any likely cost savings or any synergies that are likely to occur from the
acquisitions and there can be no assurances that any such cost savings or
synergies will occur. The pro forma adjustments are described in the
accompanying notes and are based upon available information and certain
assumptions that we believe are reasonable.
A preliminary allocation of the purchase price has been made to major
categories of assets and liabilities in the accompanying pro forma unaudited
condensed consolidated financial statements based on available information. The
actual allocation of the purchase price and the resulting effect on income from
operations may differ significantly from the pro forma amounts included herein.
These pro forma adjustments represent our determination of purchase accounting
adjustments and are based upon available information and certain assumptions
that we believe to be reasonable. As such, the amounts reflected in the pro
forma unaudited condensed consolidated financial statements are subject to
change, and final amounts may differ significantly.
P-2
<PAGE> 83
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
DYCOM ECC APEX LOCATING ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Contract revenues
earned.................. $205,340,440 $13,215,565 $13,358,208 $6,839,613 $ $238,753,826
Other, net................ 1,416,362 104,126 223,943 71,601 1,816,032
------------ ----------- ----------- ---------- ----------- ------------
Total............ 206,756,802 13,319,691 13,582,151 6,911,214 240,569,858
------------ ----------- ----------- ---------- ----------- ------------
Expenses:
Costs of earned revenue
excluding
depreciation............ 154,648,923 9,881,697 8,687,630 5,912,326 179,130,576
General and
administrative.......... 20,214,381 1,729,394 2,327,713 564,893 1,006,377(9) 25,842,758
Depreciation and
amortization............ 8,116,827 520,207 133,224 142,066 1,170,358(4) 10,082,682
------------ ----------- ----------- ---------- ----------- ------------
Total............ 182,980,131 12,131,298 11,148,567 6,619,285 2,176,735 215,056,016
------------ ----------- ----------- ---------- ----------- ------------
Income before income
taxes................... 23,776,671 1,188,393 2,433,584 291,929 (2,176,735) 25,513,842
Provision for income
taxes................... 9,632,378 1,733,676(3) --
(673,498)(10) 10,692,556
------------ ----------- ----------- ---------- ----------- ------------
Net income.............. $ 14,144,293 $ 1,188,393 $ 2,433,584 $ 291,929 $(3,236,913) $ 14,821,286
============ =========== =========== ========== =========== ============
Earnings per common share:
Basic................... $ 0.64 $ 0.65
============ ============
Diluted................. $ 0.63 $ 0.64
============ ============
Shares used in computing
earnings per common
share:
Basic................... 22,144,794 774,194(8) 22,918,988
============ =========== ============
Diluted................. 22,525,818 774,194(8) 23,300,012
============ =========== ============
</TABLE>
P-3
<PAGE> 84
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JULY 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
DYCOM ECC APEX LOCATING ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Contract revenues earned............. $368,713,563 $31,015,498 $21,347,759 $15,334,387 $ $436,411,207
Other, net........................... 2,649,229 716,519 98,160 65,608 3,529,516
------------ ----------- ----------- ----------- ----------- ------------
Total........................ 371,362,792 31,732,017 21,445,919 15,399,995 439,940,723
------------ ----------- ----------- ----------- ----------- ------------
Expenses:
Costs of earned revenue excluding
depreciation....................... 285,038,220 23,825,295 14,532,370 11,415,364 334,811,249
General and administrative........... 36,746,614 2,956,042 3,072,553 3,217,210 1,880,044(9) 47,872,463
Depreciation and amortization........ 13,496,694 781,985 184,228 267,799 2,688,734(4) 17,419,440
------------ ----------- ----------- ----------- ----------- ------------
Total........................ 335,281,528 27,563,322 17,789,151 14,900,373 4,568,778 400,103,152
------------ ----------- ----------- ----------- ----------- ------------
Income before income taxes........... 36,081,264 4,168,695 3,656,768 499,622 (4,568,778) 39,837,571
Provision for income taxes........... 13,045,644 3,264,499(3) --
(1,431,100)(10) 14,879,043
------------ ----------- ----------- ----------- ----------- ------------
Net income......................... $ 23,035,620 $ 4,168,695 $ 3,656,768 $ 499,622 $(6,402,177) $ 24,958,528
============ =========== =========== =========== =========== ============
Earnings per common share:
Basic.............................. $ 1.09 $ 1.14
============ ============
Diluted............................ $ 1.07 $ 1.12
============ ============
Shares used in computing earnings per
common share:
Basic.............................. 21,172,025 774,194(8) 21,946,219
============ =========== ============
Diluted............................ 21,482,634 774,194(8) 22,256,828
============ =========== ============
</TABLE>
P-4
<PAGE> 85
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
DYCOM ECC APEX LOCATING ADJUSTMENTS PRO FORMA
------------ ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents............. $ 33,985,787 $ 523,178 $ 225,063 $1,075,586 $ $ 35,809,614
Accounts receivable, net......... 50,242,669 5,614,249 3,114,968 1,742,545 (14,377)(5)
326(7) 60,700,380
Cost and estimated earnings in
excess of billings............. 19,377,664 1,428,127 20,805,791
Deferred income taxes, net....... 2,668,146 124,200(4) 2,792,346
Other current assets............. 7,253,689 320,505 253,306 158,836 24,828(5)
(85,985)(7) 7,925,179
------------ ----------- ---------- ---------- ------------ ------------
Total current assets..... 113,527,955 7,886,059 3,593,337 2,976,967 48,992 128,033,310
------------ ----------- ---------- ---------- ------------ ------------
Property and equipment, net...... 58,126,177 4,138,923 1,119,035 484,760 1,239,433(4)
(1,378,999)(6) 63,729,329
Other assets:
Intangible assets, net........... 4,507,489 54,492,776(4)
(51,382)(5) 58,948,883
Deferred tax assets, net......... 53,066 20,553(4) 73,619
Other............................ 4,524,833 143,865 499,413 (24,828)(5) 5,143,283
------------ ----------- ---------- ---------- ------------ ------------
Total other assets....... 9,085,388 143,865 499,413 54,437,119 64,165,785
------------ ----------- ---------- ---------- ------------ ------------
TOTAL.................... $180,739,520 $12,168,847 $4,712,372 $3,961,140 $ 54,346,545 $255,928,424
============ =========== ========== ========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................. $ 13,523,311 $ 1,142,888 $ 420,785 $ 151,852 $ $ 15,238,836
Notes payable.................... 4,743,624 297,800 7,937,500(4) 12,978,924
Billings in excess of costs and
estimated earnings............. 495,105 495,105
Accrued self-insured claims...... 2,729,208 2,729,208
Income taxes payable............. 618,362 618,362
Other accrued liabilities........ 13,764,652 652,819 863,017 1,390,993 681,457(2)
143,928(4)
906,269(5)
127,034(5)
3,702,584(6)
(85,659)(7) 22,147,094
------------ ----------- ---------- ---------- ------------ ------------
Total current
liabilities............ 35,379,157 2,588,612 1,283,802 1,542,845 13,413,113 54,207,529
Notes payable.................... 11,181,614 70,968 431,643 31,750,000(4)
(7,937,500)(4) 35,496,725
Accrued self-insured claims...... 8,403,196 8,403,196
Other liabilities................ 11,043,894 (127,034)(5) 10,916,860
Deferred tax liability, net...... 14,372(4) 14,372
------------ ----------- ---------- ---------- ------------ ------------
Total liabilities........ 66,007,861 2,659,580 1,715,445 1,542,845 37,112,951 109,038,682
------------ ----------- ---------- ---------- ------------ ------------
Stockholders' equity:
Preferred stock..................
Common stock..................... 7,413,466 48,532 375 100 209,058(4) 7,671,531
Additional paid-in capital....... 62,198,781 2,217,000 14,700 3,000 29,665,318(4) 94,098,799
Retained (deficit) earnings...... 45,119,412 7,243,735 2,981,852 2,415,195 (12,640,782)(4) 45,119,412
------------ ----------- ---------- ---------- ------------ ------------
Total stockholders'
equity................. 114,731,659 9,509,267 2,996,927 2,418,295 17,233,594 146,889,742
------------ ----------- ---------- ---------- ------------ ------------
TOTAL.................... $180,739,520 $12,168,847 $4,712,372 $3,961,140 $ 54,346,545 $255,928,424
============ =========== ========== ========== ============ ============
</TABLE>
P-5
<PAGE> 86
NOTES TO PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(1) ACCOUNTING PERIODS
Prior to the acquisitions, ECC and Apex had used a calendar year end and as
a result of the merger have adopted our fiscal year end of July 31. All periods
presented reflect the adoption of such fiscal year end as of the beginning of
the period. Our consolidated balance sheet as of January 31, 1999 has been
combined with ECC's and Apex's balance sheet as of the same date. Our
consolidated statements of operations for the six months ended January 31, 1999
and for the fiscal year ended July 31, 1998 have been combined with ECC's and
Apex's results of operations for the same periods.
(2) MERGER COSTS
Dycom, ECC and Apex estimate they will incur direct transaction costs of
approximately $475,000 associated with the acquisitions, consisting of fees for
filing with regulatory agencies, legal, accounting and other related costs.
These costs, together with approximately $206,000 of estimated transaction costs
related to the acquisition of Locating, have been accrued. These nonrecurring
costs are included in goodwill.
(3) PROVISION FOR INCOME TAXES
Prior to the acquisitions, Locating, ECC and Apex elected under Subchapter
S of the Internal Revenue Code to have the stockholders recognize their
proportionate share of Locating's, ECC's and Apex's taxable income on their
personal income tax returns in lieu of paying corporate income tax. The
unaudited pro forma financial information reflects a provision for current and
deferred income taxes for all periods presented as if the corporations were
included in our federal and state income tax returns. The balance sheet reflects
deferred taxes in accordance with the requirements of Financial Accounting
Standards Board of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."
(4) PURCHASE ACCOUNTING ADJUSTMENTS
The estimated purchase price and preliminary adjustments to the historical
book values of ECC, Apex, and Locating are as follows:
<TABLE>
<S> <C>
ECC
Estimated value of common stock issued...................... $10,719,416
Cash portion of purchase price.............................. 21,750,000
Estimated fair value of net assets acquired................. (5,279,385)
-----------
Purchase price in excess of fair value of net assets
acquired -- goodwill...................................... $27,190,031
===========
Fair value of net assets acquired:
Increase in property, plant, and equipment to estimated
fair market value...................................... $ 218,662
Book value of net assets acquired......................... 5,060,723
-----------
Total............................................. $ 5,279,385
===========
</TABLE>
P-6
<PAGE> 87
NOTES TO PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
APEX
Estimated fair value of common stock issued................. $21,438,667
Estimated fair value of net assets acquired................. (3,021,339)
-----------
Purchase price in excess of fair value of net assets
acquired -- goodwill...................................... $18,417,328
===========
Fair value of net assets acquired:
Increase in property, plant, and equipment to estimated
fair market value...................................... $ 802,773
Increase in deferred tax asset............................ 124,200
Increase in deferred tax liability........................ (14,372)
Book value of net assets acquired......................... 2,108,738
-----------
Total............................................. $ 3,021,339
===========
LOCATING
Cash portion of purchase price.............................. $10,000,000
Estimated fair value of net assets acquired................. (1,114,583)
-----------
Purchase price in excess of fair value of net assets
acquired -- goodwill...................................... $ 8,885,417
===========
Fair value of net assets acquired:
Increase in property, plant, and equipment to estimated
fair market value...................................... $ 217,998
Increase in deferred tax asset............................ 20,553
Increase in accrued taxes................................. (145,236)
Book value of net assets acquired......................... 1,021,268
-----------
Total............................................. $ 1,114,583
===========
</TABLE>
The cash portion of the purchases was funded using borrowings of
$31,750,000 from our credit facility. These borrowings are expected to be repaid
out of the proceeds of this offering and have been reclassified to Current
Liabilities -- Notes Payable.
In accordance with the purchase method of accounting, the purchased equity
balances of the companies acquired have been eliminated.
Depreciation expense computed utilizing the straight line method has been
adjusted as if the acquired property, plant, and equipment were recorded at fair
market value on the first day of the period presented and the following
estimated useful lives were adopted: buildings -- 30 years; leasehold
improvements -- the term of the respective lease or the estimated useful life of
the improvements, whichever is shorter; vehicles -- 2 to 7 years; equipment and
machinery -- 1 to 10 years; and furniture and fixtures -- 1 to 10 years.
Goodwill recognized as a result of the transactions above is being
amortized over a period of twenty years. Pro forma amortization expense was
$1,362,319 and $2,724,639 for the six months ended January 31, 1999 and the year
ended July 31, 1998, respectively.
(5) MODIFIED CASH TO ACCRUAL BASIS
Prior to its acquisition, Locating maintained its financial statements on a
modified cash basis; therefore, the following pro forma adjustments are
necessary:
<TABLE>
<S> <C>
Increase in allowance for doubtful accounts................. $ 14,377
Increase in accumulated amortization........................ 51,382
Increase in accrued liabilities............................. 906,269
</TABLE>
P-7
<PAGE> 88
NOTES TO PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, certain long-term assets and liabilities, expected to be
realized within the next twelve months, have been reclassified as current.
(6) STOCKHOLDER DISTRIBUTIONS
The consolidated balance sheet as of January 31, 1999 reflects a pro forma
adjustment of approximately $5,080,000 for stockholder distributions subsequent
to the balance sheet date. Approximately $3,700,000 of these distributions will
be made in April 1999 for payment of the 1998 tax liability associated with
ECC's and Apex's taxable income recognized on the stockholders' personal income
tax returns for periods prior to the acquisitions. Additionally, personal use
property was distributed to the shareholders of ECC in the amount of $1,378,999
prior to the acquisition of ECC.
(7) ELIMINATION OF INTERCOMPANY BALANCES
Prior to the acquisitions, three stockholders of ECC held 80% of the
outstanding shares of common stock of Apex. All intercompany balances and
transactions between ECC and Apex have been eliminated.
(8) PRO FORMA NET INCOME PER SHARE
The unaudited pro forma and combined net income per common share, basic and
diluted, are based upon the weighted average common shares and dilutive common
stock options outstanding for each period presented, adjusted for the 258,066
and 516,128 shares of Dycom common stock issued to the ECC and Apex
shareholders, respectively.
(9) INTEREST EXPENSE
Interest expense has been recognized as if the borrowings made to finance
the cash portion of the acquisitions of ECC and Locating were incurred on the
first day of the period presented. These borrowings bear interest at rates
ranging from LIBOR + 1.5% to LIBOR + 1.75% (6.50% to 6.81%, as of the dates of
acquisition).
(10) PRO FORMA TAX PROVISION
Reflects income tax effect of the pro-forma adjustments for interest
expense, depreciation expense and goodwill amortization for the six-month period
ended January 31, 1999 and for the fiscal year ended July 31, 1998.
P-8
<PAGE> 89
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,700,000 Shares
(DYCOM LOGO)
------------------------------
Prospectus
, 1999
------------------------------
NationsBanc Montgomery Securities LLC
Morgan Stanley Dean Witter
Morgan Keegan & Company, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Dycom will incur the following expenses in connection with the offerings.
Dycom has agreed to pay certain offering expenses of the selling stockholders in
an aggregate amount not to exceed $5,000.
<TABLE>
<S> <C>
Registration Fees........................................... $ 37,333
Transfer Agent Fees......................................... 2,500
Printing and Engraving Costs................................ 110,000
Legal Fees.................................................. 125,000
Accounting Fees............................................. 60,000
New York Stock Exchange Listing............................. 22,150
NASD Review................................................. 13,930
Blue Sky.................................................... 2,500
Miscellaneous............................................... 76,587
--------
Total............................................. $450,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The By-Laws of Dycom provide that Dycom shall indemnify each director and
officer of Dycom to the fullest extent permitted by law and limits the liability
of directors to Dycom and its stockholders for monetary damages in certain
circumstances. The registrant has insured its directors and officers against
certain civil liabilities in connection with the registration, offering and sale
of the securities.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available under Florida law. In addition, each
director will continue to be subject to liability for (a) violations of the
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful, (b)
deriving an improper personal benefit from a transaction, (c) voting for or
assenting to an unlawful distribution, and (d) willful misconduct or a conscious
disregard for the best interests of the Registrant in a proceeding by or in the
right of the Registrant to procure a judgment in its favor or in a proceeding by
or in the right of a shareholder. The statute does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
4.1 -- Portions of Articles and By-Laws Defining Rights of
Shareholders**
4.2 -- Shareholder Protection Rights Agreement dated as of June 1,
1992 between Dycom Industries, Inc. and First Union National
Bank of North Carolina as Rights Agent***
5.1 -- Opinion of Akerman, Senterfitt & Eidson regarding the Common
Stock registered hereby
23.1 -- Consent of Akerman, Senterfitt & Eidson (included in opinion
delivered under Exhibit No. 5.1)
23.3 -- Consent of Deloitte & Touche LLP
23.4 -- Consent of Nowalk & Associates
23.5 -- Consent of York, Neel & Co. -- Owensboro, LLP
24.1 -- Powers of Attorney*
</TABLE>
- ---------------
* Previously filed.
** Previously filed as an Exhibit to Dycom's Registration Statement on Form S-3
(File No. 333-36883) and incorporated herein by reference.
*** Previously filed as an Exhibit to Dycom's Registration Statement on Form
S-4, filed on June 24, 1992 and incorporated herein by reference.
II-1
<PAGE> 91
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
4. The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to
be presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
5. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-2
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Palm Beach Gardens, State of Florida on the 28th
day of April, 1999.
DYCOM INDUSTRIES, INC.
By: /s/ THOMAS R. PLEDGER
------------------------------------
Thomas R. Pledger
Chairman of the Board of Directors
and Executive Chairman
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ THOMAS R. PLEDGER Chairman of the Board of April 28, 1999
- -------------------------------------------------------- Directors and Executive
Thomas R. Pledger Chairman
/s/ STEVEN E. NIELSEN President, Chief Executive April 28, 1999
- -------------------------------------------------------- Officer and Director
Steven E. Nielsen
/s/ DOUGLAS J. BETLACH Vice President, Treasurer and April 28, 1999
- -------------------------------------------------------- Chief Financial Officer
Douglas J. Betlach
* Director April 28, 1999
- --------------------------------------------------------
Louis W. Adams, Jr.
* Director April 28, 1999
- --------------------------------------------------------
Thomas G. Baxter
* Director April 28, 1999
- --------------------------------------------------------
Walter L. Revell
* Director April 28, 1999
- --------------------------------------------------------
Joseph M. Schell
* Director April 28, 1999
- --------------------------------------------------------
Ronald P. Younkin
*By: /s/ STEVEN E. NIELSEN
----------------------------------------------------
Steven E. Nielsen, as
attorney-in-fact
</TABLE>
II-3
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
4.1 -- Portions of Articles and By-Laws Defining Rights of
Shareholders**
4.2 -- Shareholder Protection Rights Agreement dated as of June 1,
1992 between Dycom Industries, Inc. and First Union National
Bank of North Carolina as Rights Agent***
5.1 -- Opinion of Akerman, Senterfitt & Eidson regarding the Common
Stock registered hereby
23.1 -- Consent of Akerman, Senterfitt & Eidson (included in opinion
delivered under Exhibit No. 5.1)
23.3 -- Consent of Deloitte & Touche LLP
23.4 -- Consent of Nowalk & Associates
23.5 -- Consent of York, Neel & Co. -- Owensboro, LLP
24.1 -- Powers of Attorney*
</TABLE>
- ---------------
* Previously filed.
** Previously filed as an Exhibit to Dycom's Registration Statement on Form S-3
(File No. 333-36883) and incorporated herein by reference.
*** Previously filed as an Exhibit to Dycom's Registration Statement on Form
S-4, filed on June 24, 1992 and incorporated herein by reference.
<PAGE> 1
2,700,000 SHARES
DYCOM INDUSTRIES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED APRIL , 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES ............................................................. 2
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................... 2
Compliance With Registration Requirements........................................................ 2
Offering Materials Furnished To Underwriters..................................................... 3
Distribution Of Offering Materials By The Company................................................ 3
The Underwriting Agreement....................................................................... 3
Authorization Of The Common Shares............................................................... 4
No Applicable Registration Or Other Similar Rights............................................... 4
No Material Adverse Change....................................................................... 4
Independent Accountants.......................................................................... 4
Preparation Of The Financial Statements.......................................................... 5
Incorporation And Good Standing Of The Company And Its Subsidiaries.............................. 5
Capitalization And Other Capital Stock Matters................................................... 6
Stock Exchange Listing........................................................................... 6
Non-Contravention Of Existing Instruments; No Further Authorizations Or
Approvals Required.......................................................................... 6
No Material Actions Or Proceedings............................................................... 7
Intellectual Property Rights..................................................................... 7
All Necessary Permits, Etc....................................................................... 7
Title To Properties.............................................................................. 8
Tax Law Compliance............................................................................... 8
Company Not An Investment Company................................................................ 8
Insurance........................................................................................ 8
No Price Stabilization Or Manipulation........................................................... 9
Compliance With Environmental Laws............................................................... 9
ERISA Compliance................................................................................. 10
Exchange Act Compliance.......................................................................... 10
Acquisition of Locating, Ervin and Apex.......................................................... 10
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS....................................... 11
The Underwriting Agreement....................................................................... 11
The Custody Agreement And Power Of Attorney...................................................... 11
Title To Common Shares To Be Sold; All Authorizations Obtained................................... 11
Delivery Of The Common Shares To Be Sold......................................................... 12
Non-Contravention; No Further Authorizations Or Approvals Required............................... 12
No Registration Or Other Similar Rights.......................................................... 12
No Further Consents, Etc......................................................................... 12
Disclosure Made By Such Selling Stockholder In The Prospectus.................................... 13
No Price Stabilization Or Manipulation........................................................... 13
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES............................................ 13
The Firm Common Shares........................................................................... 13
The First Closing Date........................................................................... 13
The Optional Common Shares; The Second Closing Date.............................................. 14
Public Offering Of The Common Shares............................................................. 15
</TABLE>
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Payment For The Common Shares.................................................................... 15
Delivery Of The Common Shares.................................................................... 15
Delivery Of Prospectus To The Underwriters....................................................... 16
SECTION 3. ADDITIONAL COVENANTS........................................................................ 16
A. COVENANTS OF THE COMPANY......................................................................... 16
Underwriters' Review Of Proposed Amendments And Supplements...................................... 16
Securities Act Compliance........................................................................ 16
Amendments And Supplements To The Prospectus And Other Securities Act
Matters..................................................................................... 17
Copies Of Any Amendments And Supplements To The Prospectus....................................... 17
Blue Sky Compliance.............................................................................. 17
Use Of Proceeds.................................................................................. 18
Transfer Agent................................................................................... 18
Periodic Reporting Obligations................................................................... 18
Agreement Not To Offer Or Sell Additional Securities............................................. 18
Future Reports To The Underwriters............................................................... 18
B. COVENANTS OF THE SELLING STOCKHOLDERS........................................................ 19
Agreement Not To Offer Or Sell Additional Securities............................................. 19
Delivery Of Forms W-8 And W-9.................................................................... 19
SECTION 4. PAYMENT OF EXPENSES......................................................................... 19
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS........................................... 20
Accountants' Comfort Letter...................................................................... 21
Compliance With Registration Requirements; No Stop Order; No Objection From
NASD........................................................................................ 21
No Material Adverse Change Or Ratings Agency Change.............................................. 21
Opinion Of Counsel For The Company............................................................... 22
Opinion Of Counsel For The Underwriters.......................................................... 22
Officers' Certificate............................................................................ 22
Bring-Down Comfort Letter........................................................................ 23
Opinion Of Counsel For The Selling Stockholders.................................................. 23
Selling Stockholders' Certificate................................................................ 23
Selling Stockholders' Documents.................................................................. 23
Lock-Up Agreement From Certain Stockholders Of The Company Other Than
Selling Stockholders........................................................................ 23
Additional Documents............................................................................. 24
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES..................................................... 24
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT............................................................. 24
SECTION 8. INDEMNIFICATION............................................................................. 25
Indemnification Of The Underwriters.............................................................. 25
Indemnification Of The Company, Its Directors And Officers....................................... 26
Notifications And Other Indemnification Procedures............................................... 27
Settlements...................................................................................... 28
SECTION 9. CONTRIBUTION................................................................................ 28
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS........................................... 30
SECTION 11. TERMINATION OF THIS AGREEMENT................................................................ 31
</TABLE>
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SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.......................................... 31
SECTION 13. NOTICES...................................................................................... 31
SECTION 14. SUCCESSORS................................................................................... 33
SECTION 15. PARTIAL UNENFORCEABILITY..................................................................... 33
SECTION 16. GOVERNING LAW PROVISIONS..................................................................... 33
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND
DELIVER COMMON SHARES....................................................................... 33
SECTION 18. GENERAL PROVISIONS........................................................................... 34
</TABLE>
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<PAGE> 5
UNDERWRITING AGREEMENT
, 1999
NATIONSBANC MONTGOMERY SECURITIES LLC
MORGAN STANLEY & CO. INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Dycom Industries, Inc., a Florida corporation
(the "Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 2,500,000 shares of its Common
Stock, par value $.33 1/3 per share (the "Common Stock"); and the stockholders
of the Company named in Schedule B (collectively, the "Selling Stockholders")
severally propose to sell to the Underwriters an aggregate of 200,000 shares of
Common Stock. The 2,500,000 shares of Common Stock to be sold by the Company and
the 200,000 shares of Common Stock to be sold by the Selling Stockholders are
called the "Firm Common Shares". In addition, the Company has granted to the
Underwriters an option to purchase up to an additional 375,000 shares of Common
Stock and the Selling Stockholders have granted to the Underwriters an option to
purchase up to an additional 30,000 shares of Common Stock, as indicated on
Schedule B hereto. The additional 375,000 shares to be sold by the Company and
the additional 30,000 shares to be sold by the Selling Stockholders as indicated
on Schedule B hereto pursuant to such option are collectively called the
"Optional Common Shares". The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares".
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
(File No. 333-76949), which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including all
documents incorporated or deemed to be incorporated by reference therein and any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act or the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder (collectively, the
"Exchange Act"), is called the "Registration Statement". Any registration
statement filed by the Company
<PAGE> 6
pursuant to Rule 462(b) under the Securities Act is called the "Rule 462(b)
Registration Statement", and from and after the date and time of filing of the
Rule 462(b) Registration Statement the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. Such prospectus, in the form
first used by the Underwriters to confirm sales of the Common Shares, is called
the "Prospectus"; provided, however, if the Company has, with the consent of
NationsBanc Montgomery Securities LLC, elected to rely upon Rule 434 under the
Securities Act, the term "Prospectus" shall mean the Company's prospectus
subject to completion (each, a "preliminary prospectus") dated ,
1999 (such preliminary prospectus is called the "Rule 434 preliminary
prospectus"), together with the applicable term sheet (the "Term Sheet")
prepared and filed by the Company with the Commission under Rules 434 and 424(b)
under the Securities Act and all references in this Agreement to the date of the
Prospectus shall mean the date of the Term Sheet. All references in this
Agreement to the Registration Statement, the Rule 462(b) Registration Statement,
a preliminary prospectus, the Prospectus or the Term Sheet, or any amendments or
supplements to any of the foregoing, shall include any copy thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR"). All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" in
the Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be;
and all references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and include the
filing of any document under the Exchange Act which is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus, as
the case may be.
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The
Registration Statement and any Rule 462(b) Registration Statement have been
declared effective by the Commission under the Securities Act. The Company
has complied to the Commission's satisfaction with all requests of the
Commission for additional or supplemental information. To the best
knowledge of the Company, no stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in
effect and no proceedings for such purpose have been instituted or are
pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
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<PAGE> 7
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the applicable requirements of the
Securities Act and, if filed by electronic transmission pursuant to EDGAR
(except as may be permitted by Regulation S-T under the Securities Act),
was identical to the copy thereof delivered to the Underwriters for use in
connection with the offer and sale of the Common Shares. Each of the
Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at
all subsequent times, complied and will comply in all material respects
with the Securities Act and did not and will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading. The Prospectus, as amended or supplemented, as of its date and
at all subsequent times, did not and will not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading. The representations and warranties set
forth in the two immediately preceding sentences do not apply to statements
in or omissions from the Registration Statement, any Rule 462(b)
Registration Statement, or any post-effective amendment thereto, or the
Prospectus, or any amendments or supplements thereto, made in reliance upon
and in conformity with information relating to any Underwriter furnished to
the Company in writing by the Underwriters expressly for use therein. There
are no contracts or other documents required to be described in the
Prospectus or to be filed as exhibits to the Registration Statement which
have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company
has delivered to the Underwriters three complete manually signed copies of
the Registration Statement and of each consent and certificate of experts
filed as a part thereof, and conformed copies of the Registration Statement
(without exhibits) and preliminary prospectuses and the Prospectus, as
amended or supplemented, in such quantities and at such places as the
Underwriters have reasonably requested.
(c) Distribution of Offering Materials By the Company. The
Company has not distributed and will not distribute, prior to the later of
the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material in
connection with the offering and sale of the Common Shares other than a
preliminary prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization,
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<PAGE> 8
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to
be purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly
issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There
are no persons with registration or other similar rights to have any equity
or debt securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement, except for (i)
such rights as have been exercised by the Selling Stockholders in
connection with this offering and whose Common Shares have been included
herein; (ii) those rights that have been duly waived; and (iii) such rights
that have been disclosed in the Prospectus.
(g) No Material Adverse Change. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which
information is given in the Prospectus: (i) there has been no material
adverse change, or any development that would reasonably be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations, whether or not
arising from transactions in the ordinary course of business, of the
Company and its subsidiaries, considered as one entity (any such change is
called a "Material Adverse Change"); (ii) the Company and its subsidiaries,
considered as one entity, have not incurred any material liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or, except
for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by
the Company or any of its subsidiaries of any class of capital stock.
(h) Independent Accountants. Deloitte & Touche LLP, who have
expressed their opinion with respect to the financial statements (which
term as used in this Agreement includes the related notes thereto) of the
Company filed with the Commission as a part of the Registration Statement
and included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act and the Exchange Act. Nowalk
& Associates, who have expressed their opinion with respect to the
financial statements (which term as used in this Agreement includes the
related notes thereto) of Communications Construction Group, Inc. ("CCG")
filed with the Commission, are independent public or certified public
accountants as required by the Securities Act and the Exchange Act. York,
Neel & Co. - Owensboro, LLP, who have expressed their opinion with respect
to the financial
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<PAGE> 9
statements (which term as used in this Agreement includes the related
notes thereto) and supporting schedules of Ervin Cable Construction,
Inc. ("Ervin") and Apex Digital TV, Inc. ("Apex") filed with the
Commission, are independent public or certified public accountants as
required by the Securities Act and the Exchange Act.
(i) Preparation of the Financial Statements. The historical
financial statements filed with the Commission as a part of the
Registration Statement and included in the Prospectus present fairly
the consolidated financial position of the Company and its subsidiaries
as of and at the dates indicated and the results of their operations
and cash flows for the periods specified. The historical financial
statements filed with the Commission and incorporated by reference in
the Prospectus present fairly the consolidated financial position of
CCG, Ervin and Apex and their respective subsidiaries as of and at the
dates indicated and the results of their operations and cash flows for
the periods specified. The supporting schedules, if any, included in
the Registration Statement present fairly the information required to
be stated therein. Such financial statements and supporting schedules,
if any, have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
periods involved, except as may be expressly stated in the related
notes thereto. The historical financial data set forth in the
Prospectus under the captions "Prospectus Summary -- Summary Historical
and Unaudited Pro Forma Financial Data", "Summary Consolidated
Financial Data" and "Capitalization" fairly present the information set
forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement.
The pro forma consolidated financial statements of the Company
and its subsidiaries and the related notes thereto included under the
caption "Prospectus Summary -- Summary Historical and Unaudited Pro
Forma Financial Data", "Summary Consolidated Financial Data",
"Capitalization" and elsewhere in the Prospectus and in the
Registration Statement, or incorporated by reference therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly
presented on the bases described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable
and the adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein.
No other financial statements or supporting schedules are
required to be included in the Registration Statement.
(j) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and, in the
case of the Company, to enter into and perform its obligations under
this Agreement. Each of the Company and each subsidiary is duly
qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in
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<PAGE> 10
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a
Material Adverse Change. All of the issued and outstanding capital
stock of each subsidiary has been duly authorized and validly issued,
is fully paid and nonassessable and is owned by the Company, directly
or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance or claim, except such as may arise
pursuant to credit facilities described in the Prospectus. Except as
otherwise described in the Prospectus, the Company does not own or
control, directly or indirectly, any corporation, association or other
entity other than the subsidiaries listed in Exhibit 21 to the
Company's Annual Report on Form 10-K for the year ended July 31, 1998
which is incorporated by reference in the Registration Statement.
(k) Capitalization and Other Capital Stock Matters. The
authorized, issued and outstanding capital stock of the Company is as
set forth in the Prospectus under the column "Actual" under the caption
"Capitalization" as of the date set forth therein (other than for
subsequent issuances, if any, pursuant to employee benefit plans
described in the Prospectus or upon exercise of outstanding options
described in the Prospectus); and the description of the Common Shares
in the Prospectus constitute a fair summary thereof. All of the issued
and outstanding shares of Common Stock (including the shares of Common
Stock owned by Selling Stockholders) have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued
in compliance with federal and state securities laws. None of the
outstanding shares of Common Stock were issued in violation of any
preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights
of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any
capital stock of the Company or any of its subsidiaries other than
those accurately described in all material respects in the Prospectus.
The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted
thereunder, set forth in the Prospectus accurately and fairly presents
in all material respects the information required to be shown with
respect to such plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common Stock, including the
Common Shares, is registered pursuant to Section 12(b) of the Exchange
Act and is listed on the New York Stock Exchange ("NYSE"), and the
Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the Exchange
Act or delisting the Common Stock from the NYSE, nor has the Company
received any notification that the Commission or the NYSE is
contemplating terminating such registration or listing.
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(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default
(or, with the giving of notice or lapse of time, would be in default)
("Default") under any indenture, mortgage, loan or credit agreement, note,
contract, franchise, lease or other instrument to which the Company or any
of its subsidiaries is a party or by which it or any of them may be bound
(including, without limitation, the Company's Amended and Restated Credit
Facility Agreement, dated as of April 27, 1999, with a group of banks led
by Dresdner Bank Lateinamerika AG), or to which any of the property or
assets of the Company or any of its subsidiaries is subject (each, an
"Existing Instrument"), except for such Defaults as would not, individually
or in the aggregate, result in a Material Adverse Change. The Company's
execution, delivery and performance of this Agreement and consummation of
the transactions contemplated hereby and by the Prospectus (i) have been
duly authorized by all necessary corporate action and will not result in
any violation of the provisions of the charter or by-laws of the Company or
any subsidiary, (ii) will not conflict with or constitute a breach of, or
Default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or require the consent of any other party to, any
Existing Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate,
result in a Material Adverse Change and (iii) will not result in any
violation of any law, administrative regulation or administrative or court
decree applicable to the Company or any subsidiary, except such as would
not, individually or in the aggregate, result in a Material Adverse Change.
No consent, approval, authorization or other order of, or registration or
filing with, any court or other governmental or regulatory authority or
agency, is required for the Company's execution, delivery and performance
of this Agreement and consummation of the transactions contemplated hereby
and by the Prospectus, except such as have been obtained or made by the
Company and are in full force and effect under the Securities Act and such
as may be required under applicable state securities or blue sky laws.
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened against or affecting the Company or any of
its subsidiaries, which if determined adversely to the Company or its
subsidiaries, would reasonably be expected to result in a Material Adverse
Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the best
of the Company's knowledge, is threatened or imminent.
(o) Intellectual Property Rights. The Company and its
subsidiaries own or have adequate rights to use all material trademarks,
trade names, patent rights, copyrights, licenses, approvals, trade secrets
and other similar rights (collectively,
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<PAGE> 12
"Intellectual Property Rights") used in their respective businesses.
Neither the Company nor any of its subsidiaries has received any notice
of infringement or conflict with asserted Intellectual Property Rights
of others, which infringement or conflict, if the subject of an
unfavorable decision, would result in a Material Adverse Change.
(p) All Necessary Permits, etc. The Company and each
subsidiary possess such valid and current certificates, authorizations
or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct their respective
businesses, except such certificates, authorizations and permits the
failure to obtain which will not, individually or in the aggregate,
result in a Material Adverse Change and neither the Company nor any
subsidiary has received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
result in a Material Adverse Change.
(q) Title to Properties. The Company and each of its
subsidiaries has good and marketable title to all the properties and
assets reflected as owned in the financial statements referred to in
Section 1(A)(i) above (or elsewhere in the Prospectus), in each case
free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such
property by the Company or such subsidiary or such as may arise
pursuant to credit facilities described in the Prospectus. The real
property, improvements, equipment and personal property held under
lease by the Company or any subsidiary are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the
Company or such subsidiary.
(r) Tax Law Compliance. Except as disclosed in the Prospectus,
the Company and its subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns and have paid all
taxes required to be paid by any of them and, if due and payable, any
related or similar assessment, fine or penalty levied against any of
them to the extent shown to be due on such tax returns The Company has
made adequate charges, accruals and reserves in the applicable
financial statements referred to in Section 1(A)(i) above in respect of
all federal, state and foreign income and franchise taxes for all
periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined.
(s) Company Not an "Investment Company". The Company is not,
and after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of Investment Company Act of
1940, as amended.
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(t) Insurance. Except as otherwise disclosed in the
Prospectus, each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies
in such amounts and with such deductibles and covering such risks as
the Company deems to be adequate. The Company has no reason to believe
that it or any subsidiary will not be able to (i) renew its existing
insurance coverage as and when such policies expire, (ii) obtain
comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that
would not result in a Material Adverse Change, or (iii) maintain its
large deductible or self-insurance programs substantially as in effect
currently. The accrued liability for unpaid claims and associated
expenses reflected on the Company's balance sheet at January 31, 1999
pursuant to the Company's self-insurance program reflects, to the
Company's knowledge, its best estimate of the full extent of the
Company's losses for outstanding claims not otherwise covered by
insurance, including any unasserted claims which management of the
Company believes are probable of assertion. Neither the Company nor any
subsidiary has been denied any excess loss which it has sought or for
which it has applied.
(u) No Price Stabilization or Manipulation. The Company has
not taken and will not take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(v) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change
(i) to the best of the Company's knowledge neither the Company nor any
of its subsidiaries is in violation of any federal, state, local or
foreign law or regulation relating to pollution or protection of human
health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or
wildlife, including without limitation, laws and regulations relating
to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum and petroleum products (collectively, "Materials
of Environmental Concern"), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company or its
subsidiaries under applicable Environmental Laws, or noncompliance with
the terms and conditions thereof, nor has the Company or any of its
subsidiaries received any written communication, whether from a
governmental authority, citizens group, employee or otherwise, that
alleges that the Company or any of its subsidiaries is in violation of
any Environmental Law; (ii) there is no claim, action or cause of
action filed with a court or governmental authority, no investigation
with respect to which the Company has received written notice, and no
written notice by any person
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or entity alleging potential liability for investigatory costs, cleanup
costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or penalties
arising out of, based on or resulting from the presence, or release
into the environment, of any Material of Environmental Concern at any
location owned, leased or operated by the Company or any of its
subsidiaries, now or in the past (collectively, "Environmental
Claims"), pending or, to the best of the Company's knowledge,
threatened against the Company or any of its subsidiaries or any person
or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed either contractually or
by operation of law; and (iii) to the best of the Company's knowledge,
there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the
release, emission, discharge, presence or disposal of any Material of
Environmental Concern, that reasonably could result in a violation of
any Environmental Law or form the basis of a potential Environmental
Claim against the Company or any of its subsidiaries or against any
person or entity whose liability for any Environmental Claim the
Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law.
(w) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement
Income Security Act of 1974, as amended, and the regulations and
published interpretations thereunder (collectively, "ERISA"))
established or maintained by the Company, its subsidiaries or their
"ERISA Affiliates" (as defined below) are in compliance in all material
respects with ERISA, except where the failure to be in compliance would
not result in a Material Adverse Change. "ERISA Affiliate" means, with
respect to the Company or a subsidiary, any member of any group of
organizations described in Sections 414(b),(c),(m) or (o) of the
Internal Revenue Code of 1986, as amended, and the regulations and
published interpretations thereunder (the "Code") of which the Company
or such subsidiary is a member. No "reportable event" (as defined under
ERISA) has occurred or is reasonably expected to occur with respect to
any "employee benefit plan" established or maintained by the Company,
its subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any
of their ERISA Affiliates, if such "employee benefit plan" were
terminated, would have any "amount of unfunded benefit liabilities" (as
defined under ERISA). Neither the Company, its subsidiaries nor any of
their ERISA Affiliates has incurred or reasonably expects to incur any
liability under (i) Title IV of ERISA with respect to termination of,
or withdrawal from, any "employee benefit plan" or (ii) Sections 412,
4971, 4975 or 4980B of the Code which would result in a Material
Adverse Change. Each "employee benefit plan" established or maintained
by the Company, its subsidiaries or any of their ERISA Affiliates that
is intended to be qualified under Section 401(a) of the Code is so
qualified and nothing has occurred, whether by action or failure to
act, which would result in a Material Adverse Change.
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(x) Exchange Act Compliance. The documents incorporated or
deemed to be incorporated by reference in the Prospectus, at the time they
were or hereafter are filed with the Commission, complied and will comply
in all material respects with the applicable requirements of the Exchange
Act, and, when read together with the other information in the Prospectus,
at the time the Registration Statement and any amendments thereto become
effective and at the First Closing Date and the Second Closing Date, as the
case may be, will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(y) Acquisitions of Locating, Ervin and Apex The agreements
necessary to effect the acquisitions of Locating, Inc. ("Locating"), Ervin
and Apex have been duly authorized, executed and delivered by each of the
parties thereto and constitute the valid, legal and binding agreements of
each such party, and the acquisitions of Locating, Ervin and Apex by the
Company and the related transactions contemplated thereby have been
consummated as described in the Prospectus.
(z) Year 2000. All material disclosure regarding year 2000
compliance that is required to be described under the Securities Act and
the regulations and pronouncements of the Commission has been included in
the Prospectus. The Company does not reasonably expect to incur material
operating expenses or costs to ensure that its information systems will be
year 2000 compliant, other than as disclosed in the Prospectus.
Any certificate signed by an officer of the Company and
delivered to the Underwriters or to counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to each Underwriter as to the
matters set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder represents, warrants and covenants to each Underwriter as
follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the
(i) Custody Agreement signed by such Selling Stockholder and the Company,
as custodian (the "Custodian"), relating to the deposit of the Common
Shares to be sold
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<PAGE> 16
by such Selling Stockholder (the "Custodian Agreement") and (ii) Power
of Attorney appointing certain individuals named therein as such
Selling Stockholder's attorneys-in-fact (each, an "Attorney-in-Fact")
to the extent set forth therein relating to the transactions
contemplated hereby and by the Prospectus (the "Power of Attorney"), of
such Selling Stockholder has been duly authorized, executed and
delivered by such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with
its terms, except as rights to indemnification thereunder may be
limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of
creditors or by general equitable principles.
(c) Title to Common Shares to be Sold; All Authorizations
Obtained. Such Selling Stockholder has, and on the First Closing Date and
the Second Closing Date (as defined below) will have, good and valid title
to all of the Common Shares which may be sold by such Selling Stockholder
pursuant to this Agreement on such date and the legal right and power, and
all authorizations and approvals required by law and under its trust
agreement or other organizational documents, if any, to enter into this
Agreement and its Custodian Agreement and Power of Attorney, to sell,
transfer and deliver all of the Common Shares which may be sold by such
Selling Stockholder pursuant to this Agreement and to comply with its other
obligations hereunder and thereunder.
(d) Delivery of the Common Shares to be Sold. Upon delivery of
the Common Shares which are to be sold by such Selling Stockholder pursuant
to this Agreement and payment of the purchase price therefor as herein
contemplated, assuming each Underwriter has no notice of any adverse claim,
the Underwriters will receive good and valid title to such Common Shares,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance or other claim.
(e) Non-Contravention; No Further Authorizations or Approvals
Required. The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under, this
Agreement, the Custodian Agreement and the Power of Attorney will not
contravene or conflict with, result in a breach of, or constitute a Default
under the trust agreement or other organizational documents, if any, of
such Selling Stockholder or any other material agreement or instrument to
which such Selling Stockholder is a party or by which it is bound or under
which it is entitled to any right or benefit, any provision of applicable
law or any material judgment, order, decree or regulation applicable to
such Selling Stockholder of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over such
Selling Stockholder. No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the execution, delivery and
performance of this Agreement and consummation of the transactions
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<PAGE> 17
contemplated hereby and by the Prospectus by such Selling Stockholder,
except such as have been obtained or made by the Selling Stockholder and
are in full force and effect under the Securities Act and such as may be
required under applicable state securities or blue sky laws.
(f) No Registration or Other Similar Rights. Such Selling
Stockholder does not have any registration or other similar rights to have
any equity or debt securities registered for sale by the Company under the
Registration Statement or included in the offering contemplated by this
Agreement, except for such rights as are described in the Prospectus under
"Risk Factors - Shares Eligible for Future Sale" and except for such rights
as have been exercised by the Selling Stockholders in connection with this
offering and whose Common Shares have been included herein.
(g) No Further Consents, etc. No consent, approval or waiver
is required under any material instrument or agreement to which such
Selling Stockholder is a party or by which it is bound or under which it is
entitled to any right or benefit, in connection with the offering, sale or
purchase by the Underwriters of any of the Common Shares which may be sold
by such Selling Stockholder under this Agreement or the consummation by
such Selling Stockholder of any of the other transactions contemplated
hereby.
(h) Disclosure Made by Such Selling Stockholder in the
Prospectus. All information furnished by or on behalf of such Selling
Stockholder in writing expressly for use in the Registration Statement and
Prospectus is, and on the First Closing Date and the Second Closing Date
will be, true, correct, and complete in all material respects, and does
not, and on the First Closing Date and the Second Closing Date will not,
contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading. Such
Selling Stockholder confirms as accurate the number of shares of Common
Stock set forth opposite such Selling Stockholder's name in the Prospectus
under the caption "Principal and Selling Stockholders" (both prior to and
after giving effect to the sale of the Common Shares).
(i) No Price Stabilization or Manipulation. Such Selling
Stockholder has not taken and will not take, directly or indirectly, any
action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to the Underwriters or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to
each Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
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<PAGE> 18
(a) The Firm Common Shares. Upon the terms herein set forth,
(i) the Company agrees to issue and sell to the several Underwriters an
aggregate of 2,500,000 Firm Common Shares and (ii) the Selling Stockholders
agree to sell to the several Underwriters an aggregate of 200,000 Firm Common
Shares, each Selling Stockholder selling the number of Firm Common Shares set
forth opposite such Selling Stockholder's name on Schedule B. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Stockholders the respective number of Firm Common Shares set forth opposite
their names on Schedule A. The purchase price per Firm Common Share to be paid
by the several Underwriters to the Company and the Selling Stockholders shall be
$ per share.
(b) The First Closing Date. Delivery of certificates for the
Firm Common Shares to be purchased by the Underwriters and payment therefor
shall be made at the offices of NationsBanc Montgomery Securities LLC, 600
Montgomery Street, San Francisco, California 94111 (or such other place as may
be agreed to by the Company and NationsBanc Montgomery Securities LLC, as the
representative on behalf of the Underwriters (the "Representative")) at 6:00
a.m. San Francisco time, on , 1999, or such other time and date not
later than 10:30 a.m. San Francisco time, on , 1999 as the
Representative shall designate by notice to the Company (the time and date of
such closing are called the "First Closing Date"). The Company and the Selling
Stockholders hereby acknowledge that circumstances under which the Underwriters
may provide notice to postpone the First Closing Date as originally scheduled
include, but are in no way limited to, any determination by the Company, the
Selling Stockholders or the Underwriters to recirculate to the public copies of
an amended or supplemented Prospectus or a delay as contemplated by the
provisions of Section 10.
(c) The Optional Common Shares; the Second Closing Date. In
addition, on the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set forth,
the Company and the Selling Stockholders, as indicated on Schedule B hereto,
hereby grant an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 375,000 Optional Common Shares from the
Company and 30,000 Optional Common Shares from such Selling Stockholders at the
purchase price per share to be paid by the Underwriters for the Firm Common
Shares. The option granted hereunder is for use by the Underwriters solely in
covering any over-allotments in connection with the sale and distribution of the
Firm Common Shares. The option granted hereunder may be exercised at any time
(but not more than once) upon notice by the Underwriters to the Company and such
Selling Stockholders, which notice may be given at any time within 30 days from
the date of this Agreement. Such notice shall set forth (i) the aggregate number
of Optional Common Shares as to which the Underwriters are exercising the
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<PAGE> 19
option, (ii) the names and denominations in which the certificates for the
Optional Common Shares are to be registered and (iii) the time, date and place
at which such certificates will be delivered (which time and date may be
simultaneous with, but not earlier than, the First Closing Date; and in such
case the term "First Closing Date" shall refer to the time and date of delivery
of certificates for the Firm Common Shares and the Optional Common Shares). Such
time and date of delivery, if subsequent to the First Closing Date, is called
the "Second Closing Date" and shall be determined by the Underwriters and shall
not be earlier than three nor later than five full business days after delivery
of such notice of exercise. If any Optional Common Shares are to be purchased,
(a) each Underwriter agrees, severally and not jointly, to purchase the number
of Optional Common Shares (subject to such adjustments to eliminate fractional
shares as the Underwriters may determine) that bears the same proportion to the
total number of Optional Common Shares to be purchased as the number of Firm
Common Shares set forth on Schedule A opposite the name of such Underwriter
bears to the total number of Firm Common Shares and (b) the Company and such
Selling Stockholders each agree, severally and not jointly, to sell the number
of Optional Common Shares (subject to such adjustments to eliminate fractional
shares as the Representative may determine) that bears the same proportion to
the total number of Optional Common Shares to be sold as the number of Optional
Common Shares to be sold by the Company as set forth in the paragraph
"Introductory" of this Agreement (and, in the case of such Selling Stockholders,
as the number of Optional Common Shares set forth on Schedule B opposite such
Selling Stockholders' name) bears to the total number of Optional Common Shares.
The Underwriters may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company and such Selling
Stockholders.
(d) Public Offering of the Common Shares. The Underwriters
hereby advise the Company and the Selling Stockholders that the Underwriters
intend to offer for sale to the public, as described in the Prospectus, their
respective portions of the Common Shares as soon after this Agreement has been
executed and the Registration Statement has been declared effective as the
Underwriters, in their sole judgment, have determined is advisable and
practicable.
(e) Payment for the Common Shares. Payment for the Common
Shares to be sold by the Company shall be made at the First Closing Date (and,
if applicable, at the Second Closing Date) by wire transfer of immediately
available funds to the order of the Company. Payment for the Common Shares to be
sold by the Selling Stockholders (and, if applicable, to the Selling Stockholder
indicated on Schedule B hereto, at the Second Closing Date) shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer of immediately available funds to the order of the Custodian.
It is understood that the Underwriters have been authorized,
for their own account and the accounts of the several Underwriters, to accept
delivery of and receipt
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<PAGE> 20
for, and make payment of the purchase price for, the Firm Common Shares and any
Optional Common Shares the Underwriters have agreed to purchase. NationsBanc
Montgomery Securities LLC individually and not as the Representative of the
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by the First Closing Date or the Second Closing Date, as the case may
be, for the account of such Underwriter, but any such payment shall not relieve
such Underwriter from any of its obligations under this Agreement.
Each Selling Stockholder hereby agrees that (i) it will pay
all stock transfer taxes, stamp duties and other similar taxes, if any, payable
upon the sale or delivery of the Common Shares to be sold by such Selling
Stockholder to the several Underwriters, or otherwise in connection with the
performance of such Selling Stockholder's obligations hereunder and (ii) the
Custodian is authorized to deduct for such payment any such amounts from the
proceeds to such Selling Stockholder hereunder and to hold such amounts for the
account of such Selling Stockholder with the Custodian under the Custodian
Agreement.
(f) Delivery of the Common Shares. The Company and the Selling
Stockholders shall deliver, or cause to be delivered, to the Underwriters for
the accounts of the several Underwriters certificates for the Firm Common Shares
to be sold by them at the First Closing Date, against the irrevocable release of
a wire transfer of immediately available funds for the amount of the purchase
price therefor. The Company and the Selling Stockholder indicated on Schedule B
hereto shall also deliver, or cause to be delivered, to the Underwriters for the
accounts of the several Underwriters, certificates for the Optional Common
Shares the Underwriters have agreed to purchase from it at the First Closing
Date or the Second Closing Date, as the case may be, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. The certificates for the Common Shares shall be
registered in such names and denominations as the Underwriters shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Underwriters may designate. Time shall be of the essence, and delivery at the
time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than
12:00 p.m. on the second business day following the date the Common Shares are
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered copies of the Prospectus in such quantities and at such
places as the Underwriters shall reasonably request.
SECTION 3. ADDITIONAL COVENANTS.
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<PAGE> 21
A. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) Underwriters' Review of Proposed Amendments and
Supplements. During such period beginning on the date hereof and ending on
the later of the First Closing Date or such date, as in the opinion of
counsel for the Underwriters, the Prospectus is no longer required by law
to be delivered in connection with sales by an Underwriter or dealer (the
"Prospectus Delivery Period"), prior to amending or supplementing the
Registration Statement (including any registration statement filed under
Rule 462(b) under the Securities Act) or the Prospectus (including any
amendment or supplement through incorporation by reference of any report
filed under the Exchange Act, the Company shall furnish to the Underwriters
for review a copy of each such proposed amendment or supplement, and the
Company shall not file any such proposed amendment or supplement to which
the Underwriters reasonably object.
(b) Securities Act Compliance. After the date of this
Agreement, the Company shall promptly advise the Underwriters in writing
(i) of the receipt of any comments of, or requests for additional or
supplemental information from, the Commission, (ii) of the time and date of
any filing of any post-effective amendment to the Registration Statement or
any amendment or supplement to any preliminary prospectus or the
Prospectus, (iii) of the time and date that any post-effective amendment to
the Registration Statement becomes effective and (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of any
order preventing or suspending the use of any preliminary prospectus or the
Prospectus, or of any proceedings to remove, suspend or terminate from
listing or quotation the Common Stock from any securities exchange upon
which it is listed for trading or included or designated for quotation, or
of the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order
at the earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under such Rule 424(b) were
received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is necessary
to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered
to a purchaser, not misleading, or if in the opinion of counsel for the
Underwriters it is otherwise necessary to amend or
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<PAGE> 22
supplement the Prospectus to comply with law, the Company agrees to
promptly prepare (subject to Section 3(A)(a) hereof), file with the
Commission and furnish at its own expense to the Underwriters and to
dealers, amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the
Prospectus. The Company agrees to furnish the Underwriters, without charge,
during the Prospectus Delivery Period, as many copies of the Prospectus and
any amendments and supplements thereto (including any documents
incorporated or deemed incorporated by reference therein) as the
Underwriters may reasonably request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Underwriters and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the Blue Sky or state securities laws of those jurisdictions designated by
the Underwriters, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as required
for the distribution of the Common Shares. The Company shall not be
required to qualify as a foreign corporation or to take any action that
would subject it to general service of process in any such jurisdiction
where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the Underwriters
promptly of the suspension of the qualification or registration of (or any
such exemption relating to) the Common Shares for offering, sale or trading
in any jurisdiction or any initiation or threat of any proceeding for any
such purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company shall use reasonable
efforts to obtain the withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described under
the caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) Periodic Reporting Obligations. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission and the New York Stock Exchange all reports and documents
required to be filed under the Exchange Act.
(i) Agreement Not To Offer or Sell Additional Securities.
During the period of 90 days following the date of the Prospectus, the
Company will not, without
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<PAGE> 23
the prior written consent of NationsBanc Montgomery Securities LLC
(which consent may be withheld at the sole discretion of NationsBanc
Montgomery Securities LLC), directly or indirectly, sell, offer,
contract or grant any option to sell, pledge, transfer or establish an
open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Exchange Act, or otherwise dispose of or transfer, or
announce the offering of, or file any registration statement under the
Securities Act in respect of, any shares of Common Stock, options or
warrants to acquire shares of the Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common
Stock (other than as contemplated by this Agreement with respect to the
Common Shares); provided, however, that the Company may issue shares of
its Common Stock pursuant to acquisitions of companies in the
telecommunications and utilities engineering, construction and
maintenance services industry and may issue shares of its Common Stock
or options to purchase its Common Stock, or Common Stock upon exercise
of options, pursuant to any stock option, stock bonus or other stock
plan or arrangement described in the Prospectus.
(j) Future Reports to the Underwriters. During the period of
one year hereafter the Company will furnish to NationsBanc Montgomery
Securities LLC and, upon request, to each of the Underwriters at 600
Montgomery Street, San Francisco, CA 94111 Attention: Ansel Hall (i) as
soon as practicable after the end of each fiscal year, copies of the
Annual Report of the Company containing the balance sheet of the
Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public or certified public
accountants; (ii) as soon as practicable after the filing thereof,
copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed
by the Company with the Commission, the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its capital
stock.
B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling
Stockholder further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Stockholder will not, without the prior written consent of NationsBanc
Montgomery Securities LLC (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Exchange Act, or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for or convertible into shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined in
Rule 13d-3 under the Exchange Act) by the undersigned, or publicly announce the
undersigned's intention to do any of the foregoing, for a period commencing on
the date hereof and
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<PAGE> 24
continuing through the close of trading on the date 90 days after the date of
the Prospectus; provided that a Selling Stockholder may give or pledge shares of
Common Stock if the donee or pledgee agrees in writing, prior to the making of
such gift or pledge, to not sell, offer, dispose of or otherwise transfer any
gifted or pledged shares during said 90-day period without the prior written
consent of NationsBanc Montgomery Securities LLC (which consent may be withheld
at the sole discretion of NationsBanc Montgomery Securities LLC).
(b) Delivery of Forms W-8 and W-9. To deliver to the
Underwriters prior to the First Closing Date a properly completed and executed
United States Treasury Department Form W-8 (if the Selling Stockholder is a
non-United States person) or Form W-9 (if the Selling Stockholder is a United
States Person).
NationsBanc Montgomery Securities LLC, on behalf of the
several Underwriters, may, in its sole discretion, waive in writing the
performance by the Company or any Selling Stockholder of any one or more of the
foregoing covenants or extend the time for their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all
costs, fees and expenses incurred in connection with the performance of its
obligations hereunder and in connection with the transactions contemplated
hereby, including without limitation (i) all expenses incident to the issuance
and delivery of the Common Shares (including all printing and engraving costs),
(ii) all fees and expenses of the registrar and transfer agent of the Common
Stock, (iii) all necessary issue, transfer and other stamp taxes in connection
with the issuance and sale of the Common Shares to the Underwriters, (iv) all
fees and expenses of the Company's counsel, independent public or certified
public accountants and other advisors, (v) all costs and expenses incurred in
connection with the printing, filing, shipping and distribution of the
Registration Statement (including financial statements, exhibits, schedules,
consents and certificates of experts), each preliminary prospectus and the
Prospectus, and all amendments and supplements thereto, and this Agreement, (vi)
all filing fees, reasonable attorneys' fees and expenses incurred by the Company
or the Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the Blue Sky laws, and, if requested by
the Underwriters, preparing and printing a "Blue Sky Survey" or memorandum, and
any supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with listing the Common Shares on the New York Stock Exchange, Inc.,
and (ix) all other fees, costs and expenses referred to in Part II of the
Registration Statement. Except as provided in this Section 4, Section 6, Section
8 and Section 9 hereof, the Underwriters shall pay their own expenses, including
the fees and disbursements of their counsel.
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The Selling Stockholders further agree with each Underwriter
to pay (directly or by reimbursement) all fees and expenses incident to the
performance of their obligations under this Agreement which are not otherwise
specifically provided for herein, including but not limited to (i) fees and
expenses of counsel and other advisors for such Selling Stockholders (ii) fees
and expenses of the Custodian and (iii) expenses and taxes incident to the sale
and delivery of the Common Shares to be sold by such Selling Stockholders to the
Underwriters hereunder (which taxes, if any, may be deducted by the Custodian
under the provisions of Section 2 of this Agreement).
This Section 4 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the Company,
on the one hand, and the Selling Stockholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Stockholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Stockholders
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Underwriters shall have received from each of Deloitte & Touche LLP,
independent public or certified public accountants for the Company, and
York, Neel & Co. - Owensboro, LLP, independent public or certified
accountants for Ervin and Apex, a letter dated the date hereof addressed to
the Underwriters, in form and substance satisfactory to the Underwriters,
containing statements and information of the type ordinarily included in
accountant's "comfort letters" to underwriters, delivered according to
Statement of Auditing Standards No. 72 (or any successor bulletin), with
respect to the audited and unaudited financial statements and certain
financial information contained in the Registration Statement and the
Prospectus (and the Underwriters shall have received an additional three
conformed copies of such accountants' letter for each of the several
Underwriters).
(b) Compliance with Registration Requirements; No Stop Order;
No Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
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(i) the Company shall have filed the Prospectus with
the Commission (including the information required by Rule 430A under
the Securities Act) in the manner and within the time period required
by Rule 424(b) under the Securities Act; or the Company shall have
filed a post-effective amendment to the Registration Statement
containing the information required by such Rule 430A, and such
post-effective amendment shall have become effective; or, if the
Company elected to rely upon Rule 434 under the Securities Act and
obtained the Underwriters' consent thereto, the Company shall have
filed a Term Sheet with the Commission in the manner and within the
time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of
the Registration Statement, any Rule 462(b) Registration Statement, or
any post-effective amendment to the Registration Statement, shall be in
effect and no proceedings for such purpose shall have been instituted
or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For
the period from and after the date of this Agreement and prior to the
First Closing Date and, with respect to the Optional Common Shares, the
Second Closing Date:
(i) in the judgment of the Underwriters there shall
not have occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating accorded
any securities of the Company or any of its subsidiaries by any
"nationally recognized statistical rating organization" as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First
Closing Date and the Second Closing Date the Underwriters shall have
received the favorable opinion of Shearman & Sterling, New York
counsel for the Company, and Akerman, Senterfitt & Eidson, Florida
counsel for the Company, dated as of such Closing Date, the form of
which is attached as Exhibit A (and the Underwriters shall have
received an additional three conformed copies of such counsel's legal
opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the
First Closing Date and the Second Closing Date the Underwriters shall
have received the
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favorable opinion of Piper & Marbury L.L.P., counsel for the
Underwriters, dated as of such Closing Date, with respect to certain
matters (and the Underwriters shall have received an additional three
conformed copies of such counsel's legal opinion for each of the
several Underwriters).
(f) Officers' Certificate. On each of the First Closing Date
and the Second Closing Date, the Underwriters shall have received a
written certificate executed by the Chairman of the Board, Chief
Executive Officer or President of the Company and the Chief Financial
Officer or Chief Accounting Officer of the Company, dated as of such
Closing Date, to the effect set forth in subsections (b)(ii) and
(c)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not occurred any
Material Adverse Change;
(ii) the representations and warranties of the
Company set forth in Section 1(A) of this Agreement are true and
correct with the same force and effect as though expressly made on and
as of such Closing Date; and
(iii) the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing
Date and the Second Closing Date the Underwriters shall have received
from each of Deloitte & Touche LLP, independent public or certified
public accountants for the Company, and York, Neel & Co. - Owensboro,
LLP, independent public or certified public accountants for Ervin and
Apex, a letter dated such date, in form and substance satisfactory to
the Underwriters, to the effect that they reaffirm the statements made
in the letter furnished by them pursuant to subsection (a) of this
Section 5, except that the specified date referred to therein for the
carrying out of procedures shall be no more than three business days
prior to the First Closing Date or Second Closing Date, as the case
may be (and the Underwriters shall have received an additional five
conformed copies of such accountants' letter for each of the
several Underwriters).
(h) Opinion of Counsel for the Selling Stockholders. On each
of the First Closing Date and the Second Closing Date the Underwriters
shall have received the favorable opinion of Shearman & Sterling and
Voelker & Voelker, counsel for the Selling Stockholders, as
applicable, dated as of such Closing Date, the form of which is
attached as Exhibit B (and the Underwriters shall have received an
additional three conformed copies of such counsel's legal opinion
for each of the several Underwriters).
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(i) Selling Stockholders' Certificate. On each of the First
Closing Date and the Second Closing Date the Underwriters shall have
received a written certificate executed by each Selling Stockholder, dated
as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of
such Selling Stockholder set forth in Section 1(B) of this Agreement
are true and correct with the same force and effect as though expressly
made by such Selling Stockholder on and as of such Closing Date; and
(ii) such Selling Stockholder has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(j) Selling Stockholders' Documents. On the date hereof, the
Company and the Selling Stockholders shall have furnished for review by the
Underwriters copies of the Powers of Attorney and Custodian Agreements
executed by each of the Selling Stockholders other than those Selling
Stockholders which are irrevocable trusts and such further information,
certificates and documents as the Underwriters may reasonably request.
(k) Lock-Up Agreement from Certain Stockholders of the Company
Other Than Selling Stockholders. On the date hereof, the Company shall have
furnished to the Underwriters an agreement in the form of Exhibit C hereto
from each director and each officer of the Company that is not a Selling
Stockholder, and such agreement shall be in full force and effect on each
of the First Closing Date and the Second Closing Date.
(l) Additional Documents. On or before each of the First
Closing Date and the Second Closing Date, the Underwriters and counsel for
the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them
to pass upon the issuance and sale of the Common Shares as contemplated
herein, or in order to evidence the accuracy of any of the representations
and warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Underwriters by notice to the Company and the Selling Stockholders at any time
on or prior to the First Closing Date and, with respect to the Optional Common
Shares, at any time prior to the Second Closing Date, which termination shall be
without liability on the part of any party to any other party, except that
Section 4, Section 6, Section 8 and Section 9 shall at all times be effective
and shall survive such termination.
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SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this
Agreement is terminated by the Underwriters pursuant to Section 5, by the
Company pursuant to Section 7, or Section 11 or Section 17, or if the sale to
the Underwriters of the Common Shares on the First Closing Date is not
consummated because of any refusal, inability or failure on the part of the
Company or the Selling Stockholders to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Underwriters (or
such Underwriters as have terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Underwriters in connection with the proposed purchase
and the offering and sale of the Common Shares, including but not limited to
fees and disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of
(i) the execution of this Agreement by the parties hereto and (ii) notification
by the Commission to the Company and the Underwriters of the effectiveness of
the Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated
by any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company or the
Selling Stockholders to any Underwriter, except that the Company and the Selling
Stockholders shall be obligated to reimburse the expenses of the Underwriters
pursuant to Sections 4 and 6 hereof, (b) of any Underwriter to the Company or
the Selling Stockholders, or (c) of any party hereto to any other party except
that the provisions of Section 8 and Section 9 shall at all times be effective
and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. Each of the Company and,
subject to the last sentence of this Section 8(a), each Selling
Stockholder, severally and not jointly, agrees to indemnify and hold
harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or expense,
as incurred, to which such Underwriter or such controlling person may
become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of the Company), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based (i) upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be
a part thereof
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pursuant to Rule 430A or Rule 434 under the Securities Act,
or the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or (ii) upon any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, and to reimburse each Underwriter and each such
controlling person for any and all reasonable expenses (including the
reasonable fees and disbursements of counsel chosen by NationsBanc
Montgomery Securities LLC) as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing
indemnity agreement shall not apply to any loss, claim, damage, liability
or expense to the extent, but only to the extent, arising out of or based
upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Underwriters expressly for use
in the Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto); and provided, further, that with
respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or expense purchased Common
Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2
and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense. In addition,
with respect to each Selling Stockholder, this indemnity agreement shall
apply only to any loss, claim, damage, liability or expense to the extent
arising out of any untrue statement or omission or alleged untrue statement
or omission made in reliance upon and in conformity with information
furnished to the Company by such Selling Stockholder expressly for use in
the Registration Statement or any amendment thereto, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto). The
Company acknowledges that the only information provided by each Selling
Stockholder for use in the Registration Statement, any amendment thereto,
any preliminary prospectus or the Prospectus includes the name and address
of such Selling Stockholder and the number of Common Shares owned by such
Selling Stockholder. The indemnity agreement set forth in this Section 8(a)
shall be in addition to any liabilities that the Company and the Selling
Stockholders may otherwise have. Each Selling Stockholder's aggregate
liability under this Section 8 shall be limited to an amount
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equal to the net proceeds received by such Selling Stockholder from the
sale of his or its Common Shares pursuant to this Agreement.
(b) Indemnification of the Company, its Directors and Officers
and Selling Stockholders. Each Underwriter agrees, severally and not
jointly, to indemnify and hold harmless the Company, each of its directors,
each of its officers who signed the Registration Statement, the Selling
Stockholders and each person, if any, who controls the Company or any
Selling Stockholder within the meaning of the Securities Act or the
Exchange Act, against any loss, claim, damage, liability or expense, as
incurred, to which the Company, or any such director, officer, Selling
Stockholder or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based
upon any untrue or alleged untrue statement of a material fact contained in
the Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto), or arises out of or is based upon
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in
reliance upon and in conformity with written information furnished to the
Company and the Selling Stockholders by the Underwriters expressly for use
therein; and to reimburse the Company, or any such director, officer,
Selling Stockholder or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer, Selling
Stockholder or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. Each of the Company and each Selling
Stockholder, hereby acknowledges that the only information that the
Underwriters have furnished to the Company and the Selling Stockholders
expressly for use in the Registration Statement, any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and as the second
and ninth paragraphs under the caption "Underwriting" in the Prospectus;
and the Underwriters confirm that such statements are correct. The
indemnity agreement set forth in this Section 8(b) shall be in addition to
any liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under
this Section 8, notify the indemnifying party in writing of the
commencement thereof, but the omission so to
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notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section
8 or to the extent it is not prejudiced as a proximate result of such
failure. In case any such action is brought against any indemnified
party and such indemnified party seeks or intends to seek indemnity
from an indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with
all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that a conflict may arise between
the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party
of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel
(together with local counsel solely relating to matters of local law),
approved by the indemnifying party (NationsBanc Montgomery Securities
LLC on behalf of the several Underwriters in the case of Section 8(b)
and Section 9), representing the indemnified parties who are parties to
such action) or (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement
of the action, in each of which cases the fees and expenses of counsel
shall be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected
without its prior written consent, but if settled with such consent or
if there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its
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written consent if (i) such settlement is entered into more than 60
days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or
consent to the entry of judgment in any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise
or consent includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any
reason held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders, on the one hand,
and the Underwriters, on the other hand, from the offering of the Common Shares
pursuant to this Agreement or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Stockholders, on the one
hand, and the Underwriters, on the other hand, in connection with the statements
or omissions or inaccuracies in the representations and warranties herein which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Stockholders, on the one hand, and the Underwriters,
on the other hand, in connection with the offering of the Common Shares pursuant
to this Agreement shall be deemed to be in the same respective proportions as
the total net proceeds from the offering of the Common Shares pursuant to this
Agreement (before deducting expenses) received by the Company and the Selling
Stockholders, and the total underwriting discount received by the Underwriters,
in each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company and the Selling
Stockholders, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company or the
Selling Stockholders, on the one hand, or the Underwriters, on the other hand,
and the parties' relative intent,
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knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 9.
Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. Notwithstanding
the provisions of this Section 9, each Selling Stockholder shall not be required
to contribute any amount in excess of the net proceeds received by such Selling
Stockholder from the sale of the Common Shares by such Selling Stockholder
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 9 are several,
and not joint, in proportion to their respective underwriting commitments as set
forth opposite their names in Schedule A. For purposes of this Section 9, each
officer and employee of an Underwriter and each person, if any, who controls an
Underwriter within the meaning of the Securities Act and the Exchange Act shall
have the same rights to contribution as such Underwriter, and each director of
the Company, each officer of the Company who signed the Registration Statement,
and each person, if any, who controls the Company or any Selling Stockholder
with the meaning of the Securities Act and the Exchange Act shall have the same
rights to contribution as the Company or such Selling Stockholder, as the case
may be.
The provisions of this Section 9 shall not affect any agreement between
the Company and the Selling Stockholders with respect to contribution.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL
UNDERWRITERS. If, on the First Closing Date or the Second Closing Date, as the
case may be, any one or more of the several Underwriters shall fail or refuse to
purchase Common Shares that it or they
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have agreed to purchase hereunder on such date, and the aggregate number of
Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Common Shares to be purchased on such date, the other Underwriters shall be
obligated, severally, in the proportions that the number of Firm Common Shares
set forth opposite their respective names on Schedule A bears to the aggregate
number of Firm Common Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as may be specified by
the Underwriters with the consent of the non-defaulting Underwriters, to
purchase the Common Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase on such date. If, on the First Closing
Date or the Second Closing Date, as the case may be, any one or more of the
Underwriters shall fail or refuse to purchase Common Shares and the aggregate
number of Common Shares with respect to which such default occurs exceeds 10% of
the aggregate number of Common Shares to be purchased on such date, and
arrangements satisfactory to the Underwriters and the Company for the purchase
of such Common Shares are not made within 48 hours after such default, this
Agreement shall terminate without liability of any party to any other party
except that the provisions of Section 4, Section 8 and Section 9 shall at all
times be effective and shall survive such termination. In any such case either
the Underwriters or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, but in no event for
longer than seven days in order that the required changes, if any, to the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First
Closing Date this Agreement may be terminated by the Underwriters by notice
given to the Company and the Selling Stockholders if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the New York Stock Exchange, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, Florida, New York or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective substantial change in United States' or
international political, financial or economic conditions, as in the judgment of
the Underwriters is material and adverse and makes it impracticable to market
the Common Shares in the manner and on the terms described in the Prospectus or
to enforce contracts for the sale of securities; (iv) in the judgment of the
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Underwriters there shall have occurred any Material Adverse Change; or (v) the
Company shall have sustained a loss by strike, fire, flood, earthquake, accident
or other calamity of such character as in the judgment of the Underwriters may
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured. Any
termination pursuant to this Section 11 shall be without liability on the part
of (a) the Company or the Selling Stockholders to any Underwriter, except that
the Company and the Selling Stockholders shall be obligated to reimburse the
expenses of the Underwriters pursuant to Sections 4 and 6 hereof, (b) any
Underwriter to the Company or the Selling Stockholders, or (c) of any party
hereto to any other party except that the provisions of Section 8 and Section 9
shall at all times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Underwriters:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: Jeff Lapic, Esq.
If to the Company:
Dycom Industries, Inc.
-32-
<PAGE> 37
4440 PGA Boulevard, Suite 600
Palm Beach Gardens, Florida 33410
Facsimile: (561) 627-7709
Attention: Thomas R. Pledger,
Executive Chairman and Chairman of the Board
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Facsimile: (212) 848-7179
Attention: Richard B. Vilsoet, Esquire
If to the Selling Stockholders:
To such Selling Stockholder at the address specified on Schedule B
hereof.
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Facsimile: (212) 848-7179
Attention: Richard B. Vilsoet, Esquire
Any party hereto may change the address for receipt of communications
by giving written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 10 hereof, and to the benefit of the employees,
officers and directors and controlling persons referred to in Section 8 and
Section 9, and in each case their respective successors, and personal
representatives, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the Common
Shares as such from any of the Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
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<PAGE> 38
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS
TO SELL AND DELIVER COMMON SHARES. If one or more of the Selling Stockholders
shall fail to sell and deliver to the Underwriters the Common Shares to be sold
and delivered by such Selling Stockholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Underwriters to the Company and the Selling Stockholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Stockholders, or (ii) purchase the shares which the Company and other
Selling Stockholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Stockholders pursuant to this Agreement at the First Closing Date, then
the Underwriters shall have the right, by written notice from the Underwriters
to the Company and the Selling Stockholders, to postpone the First Closing Date
or the Second Closing Date, as the case may be, but in no event for longer than
seven days in order that the required changes, if any, to the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions.
-34-
<PAGE> 39
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
DYCOM INDUSTRIES, INC.
By:__________________________
Thomas R. Pledger
Executive Chairman and
Chairman of the Board
SELLING STOCKHOLDERS
By:__________________________
Name:
Title:
By:__________________________
Name:
Title:
By:__________________________
Name:
Title:
By:__________________________
Name:
Title:
-35-
<PAGE> 40
By:__________________________
Name:
Title:
By:__________________________
Name:
Title:
The Other Selling Stockholders
named in Schedule B
By:__________________________
Thomas R. Pledger
(Attorney-in-fact)
-36-
<PAGE> 41
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.
NATIONSBANC MONTGOMERY SECURITIES LLC
MORGAN STANLEY & CO. INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
Acting as Representatives of the several Underwriters named in the attached
Schedule A.
By: NATIONSBANC MONTGOMERY SECURITIES LLC
By:___________________________
Richard A. Smith
Authorized Signatory
-37-
<PAGE> 42
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
FIRM COMMON SHARES TO
UNDERWRITERS BE PURCHASED
------------ ------------
<S> <C>
NationsBanc Montgomery Securities LLC ....................
Morgan Stanley & Co. Incorporated.........................
Morgan Keegan & Company, Inc. ............................
Total.............................................
</TABLE>
<PAGE> 43
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF MAXIMUM NUMBER OF
SELLING STOCKHOLDER (ADDRESS*) FIRM COMMON SHARES OPTIONAL COMMON SHARES
- ----------------------------- TO BE SOLD TO BE SOLD
---------- ----------
<S> <C> <C>
---------- -----------
Total:............................................
</TABLE>
* UNLESS OTHERWISE INDICATED, EACH SUCH STOCKHOLDER HAS THE SAME ADDRESS AS THE
COMPANY.
<PAGE> 44
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to
Section 5(d) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Florida.
(ii) The Company has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing
would not, individually or in the aggregate, result in a Material Adverse
Change.
(iv) Each significant subsidiary (as defined in Rule 405 under
the Securities Act) is a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and, to the best knowledge of such counsel, is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except for such jurisdictions where the failure to so qualify or
to be in good standing would not, individually or in the aggregate, result
in a Material Adverse Change.
(v) The authorized, issued and outstanding capital stock of
the Company (including the Common Stock) conform to the descriptions
thereof set forth in the Prospectus. All of the outstanding shares of
Common Stock (including the shares of Common Stock owned by Selling
Stockholders) have been duly authorized and validly issued, are fully paid
and nonassessable and, to the best of such counsel's knowledge, have been
issued in compliance with the registration and qualification requirements
of federal and state securities laws. The form of certificate used to
evidence the Common Stock is in due and proper form and complies with all
applicable requirements of the charter and by-laws of the Company and the
Florida General Corporation Act.
<PAGE> 45
(vi) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the Florida General
Corporation Act or (ii) to the best knowledge of such counsel, otherwise.
(vii) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company.
(viii) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale pursuant
to the Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the consideration
set forth therein, will be validly issued, fully paid and nonassessable.
(ix) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such counsel,
no stop order suspending the effectiveness of either of the Registration
Statement or the Rule 462(b) Registration Statement, if any, has been
issued under the Securities Act and no proceedings for such purpose have
been instituted or are pending or are contemplated or threatened by the
Commission. Any required filing of the Prospectus and any supplement
thereto pursuant to Rule 424(b) under the Securities Act has been made in
the manner and within the time period required by such Rule 424(b).
(x) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or supplement to
the Registration Statement and the Prospectus, as of their respective
effective or issue dates (other than the financial statements and
supporting schedules and financial and statistical data included therein or
in exhibits to or excluded from the Registration Statement, as to which no
opinion need be rendered) comply as to form in all material respects with
the applicable requirements of the Securities Act.
(xi) The Common Shares have been approved for listing on the
New York Stock Exchange.
(xii) The statements in the Prospectus under the caption
"Description of Capital Stock", insofar as such statements constitute
summaries of the Company's charter or by-law provisions and the Company's
Shareholders Rights Plan described therein, have been reviewed by such
counsel and fairly present and summarize, in all material respects, the
matters referred to therein.
(xiii) To the best knowledge of such counsel, there are no
legal or governmental actions, suits or proceedings, pending or threatened
which are required to be disclosed in the Registration Statement, other
than those legal or governmental
-2-
<PAGE> 46
actions, suits or proceedings which are described in the Registration
Statement as arising in the ordinary course of business or those
otherwise disclosed in the Registration Statement.
(xiv) No consent, approval, authorization or other order of,
or registration or filing with, any Florida State, New York State or U.S.
Federal governmental authority or agency, is required for the Company's
execution, delivery and performance of the Underwriting Agreement and
consummation of the transactions contemplated thereby and by the
Prospectus, except as required under the Securities Act, applicable state
securities or blue sky laws and from the NASD.
(xv) The execution and delivery of the Underwriting Agreement
by the Company and the performance by the Company of its obligations
thereunder (other than performance by the Company of its obligations under
the indemnification section of the Underwriting Agreement, as to which no
opinion need be rendered), assuming due authorization, execution and
delivery by each other party thereto, (i) will not result in any violation
of the provisions of the charter or by-laws of the Company; and (ii) will
not constitute a breach of, or Default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company pursuant to the Amended and Restated Credit Facility
Agreement with a group of banks led by Dresdner Bank Lateinamerika AG.
(xvi) The Company is not, and after receipt of payment for the
Common Shares will not be, an "investment company" within the meaning of
the Investment Company Act.
(xvii) To the best knowledge of such counsel, neither the
Company nor any subsidiary is in violation of its charter or by-laws or any
Florida law applicable to the Company.
(xviii) Each document filed pursuant to the Exchange Act
(other than the financial statements and supporting schedules included
therein, as to which no opinion need be rendered) and incorporated or
deemed to be incorporated by reference in the Prospectus complied when so
filed as to form in all material respects with the Exchange Act.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of the
Company, representatives of the independent public or certified public
accountants for the Company and with representatives of the Underwriters
during which the contents of the Registration Statement and the Prospectus,
and any supplements or amendments thereto, and related matters were
discussed and, although such counsel has not undertaken to investigate or
verify independently and is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (other than as
indicated above),
-3-
<PAGE> 47
including all documents incorporated or deemed to be incorporated by
reference therein, and any supplements or amendments thereto, on the
basis of the foregoing, no facts have come to their attention which
would lead them to believe that either the Registration Statement or
any amendments thereto, at the time the Registration Statement or such
amendments became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or at the First Closing Date or the
Second Closing Date, as the case may be, contained an untrue statement
of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that
such counsel need express no belief or opinion as to the financial
statements and related notes, the financial statement schedules or
other financial or statistical data included in the Registration
Statement or the Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may (A) assume, as to
matters involving the application of laws of any jurisdiction other than the
General Corporation Law of the State of Delaware, the New York Business
Corporation Law or the federal law of the United States, the correctness of the
matters stated in the opinion (which shall be dated the First Closing Date or
the Second Closing Date, as the case may be, shall be satisfactory in form and
substance to the Underwriters, shall expressly state that the Underwriters may
rely on such opinion as if it were addressed to them and shall be furnished to
the Underwriters) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters, and (B) rely
as to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company and public officials.
-4-
<PAGE> 48
EXHIBIT B
The opinion of such counsel pursuant to Section 5(h) shall be
rendered to the Underwriters at the request of the Company and shall so state
therein. References to the Prospectus in this Exhibit B include any supplements
thereto at the Closing Date.
(i) The Underwriting Agreement has been duly authorized,
executed and delivered by or on behalf of, such Selling Stockholder.
(ii) The execution and delivery by such Selling Stockholder
of, and the performance by such Selling Stockholder of its obligations
under, the Underwriting Agreement and its Power of Attorney and Custody
Agreement will not contravene or conflict with, result in a breach of, or
constitute a default under, the charter or by-laws, partnership agreement,
trust agreement or other organizational documents, as the case may be, of
such Selling Stockholder, or, to the best of such counsel's knowledge,
violate or contravene any provision of New York or Federal law or
regulation, or, to the best of our knowledge, violate, result in a breach
of or constitute a default under the terms of any other agreement or
instrument to which such Selling Stockholder is a party or by which it is
bound, or any judgment, order or decree applicable to such Selling
Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder.
(iii) To the best of such counsel's knowledge, such Selling
Stockholder is the record owner of all of the Common Shares which may be
sold by such Selling Stockholder under the Underwriting Agreement and has
the legal right and power, and all authorizations and approvals required by
the trust agreement or other organizational documents, as the case may be,
to enter into the Underwriting Agreement and its Power of Attorney and
Custody Agreement, to sell, transfer and deliver all of the Common Shares
which may sold by such Selling Stockholder under the Underwriting Agreement
and to comply with its other obligations under the Underwriting Agreement,
its Power of Attorney and Custody Agreement.
(iv) Each Power of Attorney and Custody Agreement of such
Selling Stockholder has been duly authorized, executed and delivered by
such Selling Stockholder and is a valid and binding agreement of such
Selling Stockholder, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(v) Assuming that (1) Cede & Co. is not a securities
intermediary; (2) the Underwriters are Depository Trust Company ("DTC")
participants; as such, each Underwriter maintains a customer account with
DTC in the name of such Underwriter and this customer account is the
subject of an agreement between DTC and such Underwriter which provides,
among other things, that: (a) financial assets (Section 8-
<PAGE> 49
102(a)(9) UCC) (including any financial assets consisting of, or of
security entitlements (Section 8-102(a)(17) UCC) in, the shares of
Common Stock of the Selling Stockholders) may be credited to this
customer account; (b) DTC undertakes to treat the Underwriter as
entitled to exercise the rights that comprise the financial assets so
directed from time to time to the customer account; (c) the agreement
between DTC and each Underwriter is governed by New York law (such that
DTC's "securities intermediary's jurisdiction" (Section 8-110(e) UCC)
is New York); (3) upon Cede & Co.'s or __________'s as custodian for
DTC acquiring possession of the security certificates evidencing the
shares of Common Stock of the Selling Stockholders, DTC actually
indicated by book entry that financial assets comprised of such shares
of Common Stock have been credited to the Underwriter's customer
account; and (4) neither DTC nor any of the Underwriters have notice
of any adverse claim (Section 8-105, Section 8-102(a)(1) UCC) to the
shares of Common Stock of the Selling Stockholders or any security
entitlement therein, then
(a) DTC has acquired the Common Stock of the Selling
Stockholders free of any adverse claim.
(b) Upon credit by DTC to the customers' account of the
financial assets comprised of the Common Stock of the Selling
Stockholders, each Underwriter will acquire a security entitlement from
DTC with respect to the Common Stock of the Selling Stockholders and an
action (however framed) based on an adverse claim to such financial
assets may not be asserted against such Underwriter.
(vi) To the best of such counsel's knowledge, no consent,
approval, authorization or other order of, or registration or filing with,
any governmental authority or agency, is required for the consummation by
such Selling Stockholder of the transactions contemplated in the
Underwriting Agreement, except as required under the Securities Act,
applicable state securities or blue sky laws.
In rendering such opinion, such counsel may (A) assume as to
matters involving the application of laws of any jurisdiction other than the
General Corporation Law of the State of Delaware, the New York Business
Corporation Law or the federal law of the United States, the correctness of the
matters stated in the opinion (which shall be dated the First Closing Date or
the Second Closing Date, as the case may be, shall be satisfactory in form and
substance to the Underwriters, shall expressly state that the Underwriters may
rely on such opinion as if it were addressed to them and shall be furnished to
the Underwriters) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters, and (B) rely
as to matters of fact, to the extent they deem proper, on certificates of the
Selling Stockholders and public officials.
- 2 -
<PAGE> 50
EXHIBIT C
[Date]
NationsBanc Montgomery Securities LLC
Morgan Stanley & Co. Incorporated
Morgan Keegan & Company, Inc.
c/o NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
RE: Dycom Industries, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of
certain shares of Common Stock of the Company ("Common Stock") or securities
convertible into or exchangeable or exercisable for Common Stock. The Company
proposes to carry out a public offering of Common Stock (the "Offering") for
which you will act as the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you are relying on the representations and
agreements of the undersigned contained in this letter in carrying out the
Offering and in entering into underwriting arrangements with the Company with
respect to the Offering.
In consideration of the foregoing, the undersigned hereby
agrees that the undersigned will not, without the prior written consent of
NationsBanc Montgomery Securities LLC (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934, or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of Common
Stock currently or hereafter owned either of record or beneficially (as defined
in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date 90 days after the date of the Prospectus; provided
that the undersigned may give or pledge shares of Common Stock if the donee or
pledgee agrees in writing, prior to the making of such gift or pledge, not to
sell, offer, dispose of or otherwise transfer any gifted or pledged shares
during said 90-day period without the prior written consent of
<PAGE> 51
NationsBanc Montgomery Securities (which consent may be withheld at the sole
discretion of NationsBanc Montgomery Securities). The undersigned also agrees
and consents to the entry of stop transfer instructions with the Company's
transfer agent and registrar against the transfer of shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock held
by the undersigned except in compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any
registration rights relating to registration under the Securities Act of any
Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
This agreement is irrevocable and will be binding on the
undersigned and the respective successors, heirs, personal representatives, and
assigns of the undersigned.
__________________________________
Printed Name of Holder
By:_______________________________
Signature
__________________________________
Printed Name of Person Signing (and indicate capacity of person signing if
signing as custodian, trustee, or on behalf of an entity)
-2-
<PAGE> 1
EXHIBIT 5.1
[AKERMAN, SENTERFITT & EIDSON, P.A. LETTERHEAD]
April 28, 1999
Dycom Industries, Inc.
First Union Center
4440 PGA Boulevard, Suite 500
Palm Beach Gardens, FL 33410
Re: Registration Statement on Form S-3
(Registration No. 333-76949
Ladies and Gentlemen:
We have acted as special Florida counsel to Dycom Industries, Inc., a
Florida corporation (the "Company"), with respect to the referenced registration
statement on Form S-3 (the "Registration Statement"), which has been filed with
the Securities and Exchange Commission for the purpose of registering 3,105,000
shares (the "Shares") of the common stock of the Company, $.33 1/3 par value
(the "Common Stock"), 2,500,000 of which will be offered by the Company and
200,000 of which will be offered by certain selling shareholders and 375,000 and
30,000, respectively, of which may be purchased from the Company and the selling
shareholders pursuant to the underwriters' over allotment option.
Based on our review of the Articles of Incorporation of the Company, the
Bylaws of the Company, the minutes of the meetings of the Board of Directors of
the Company and such other documents and records as we have deemed necessary and
appropriate, we are of the opinion that the Shares will, when sold, be validly
issued, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Certain Legal Matters"
in the prospectus which forms a part of the Registration Statement.
Very truly yours,
AKERMAN, SENTERFITT & EIDSON, P.A.
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-76949 of Dycom Industries, Inc. on Form S-3 of our report dated August 31,
1998, included in the Annual Report on Form 10K of Dycom Industries, Inc. for
the year ended July 31, 1998, and to the use of our report dated August 31, 1998
(April 23, 1999 as to the effects of the stock split described in Note 19)
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the headings "Summary Consolidated
Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
West Palm Beach, Florida
April 28, 1999
<PAGE> 1
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in (and incorporation by reference in) this Amendment No.
1 to Registration Statement No. 333-76949 of Dycom Industries, Inc. on Form S-3
of our report dated July 23, 1997 (relating to the financial statements of
Communications Construction Group, Inc. not presented separately herein)
appearing in the Prospectus (and incorporated by reference from the Annual
Report on Form 10-K), which is part of this Amendment No. 1 to Registration
Statement No. 333-76949.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Nowalk & Associates
Nowalk & Associates
Cranbury, New Jersey
April 28, 1999
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-76949 of Dycom Industries, Inc. on Form S-3 of
our reports dated March 8, 1999 and March 10, 1999 of Ervin Cable Construction,
Inc. and Apex Digital TV, Inc., respectively, for the year ended December 31,
1998 appearing in the Form 8-K of Dycom Industries, Inc. dated April 15, 1999.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ York, Neel & Co.-Owensboro, LLP
York, Neel & Co.-Owensboro, LLP
Owensboro, Kentucky
April 28, 1999
