<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to________
Commission file number 0-5423
DYCOM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Florida 59-1277135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4440 PGA Boulevard, Suite 500
Palm Beach Gardens, Florida 33410
(Address of principal executive office) (Zip Code)
(561) 627-7171
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of December 3, 1999
----- ----------------------------------
Common Stock, par value $0.33 1/3 25,760,908
<PAGE> 2
DYCOM INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
October 30, 1999 and July 31, 1999 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
October 30, 1999 and October 31, 1998 4
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
October 30, 1999 and October 31, 1998 5-6
Notes to Condensed Consolidated
Financial Statements 7-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13-15
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 16
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
<PAGE> 3
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
October 30, July 31,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $78,400,189 $97,955,007
Accounts receivable, net 101,211,634 95,284,031
Costs and estimated earnings in excess of billings 37,712,942 32,878,667
Deferred tax assets 4,513,848 3,503,379
Inventories 14,160,711 10,222,964
Other current assets 2,668,641 1,285,297
------------ ------------
Total current assets 238,667,965 241,129,345
------------ ------------
PROPERTY AND EQUIPMENT, net 86,824,258 79,410,882
------------ ------------
OTHER ASSETS:
Intangible assets, net 66,992,941 59,286,827
Other 5,041,025 4,722,672
------------ ------------
Total other assets 72,033,966 64,009,499
------------ ------------
TOTAL $397,526,189 $384,549,726
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $25,268,531 $19,886,314
Notes payable 2,507,106 2,438,860
Billings in excess of costs and estimated earnings 35,628 437,874
Accrued self-insured claims 4,236,983 3,728,947
Income taxes payable 7,519,139 4,375,635
Customer advances 15,137,347 24,576,700
Other accrued liabilities 20,062,045 23,161,468
------------ ------------
Total current liabilities 74,766,779 78,605,798
NOTES PAYABLE 9,897,549 9,982,121
ACCRUED SELF-INSURED CLAIMS 4,966,728 4,823,396
OTHER LIABILITIES 5,245,480 3,847,832
------------ ------------
Total liabilities 94,876,536 97,259,147
------------ ------------
COMMITMENTS AND CONTINGENCIES, Note 9
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; 25,721,723 and 25,627,990
shares issued and outstanding, respectively 8,573,907 8,542,663
Additional paid-in capital 214,187,421 211,322,822
Retained earnings 79,888,325 67,425,094
------------ ------------
Total stockholders' equity 302,649,653 287,290,579
------------ ------------
TOTAL $397,526,189 $384,549,726
============ ============
</TABLE>
See notes to condensed consolidated financial statements--unaudited
3
<PAGE> 4
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------------
October 30, October 31,
1999 1998
------------- -------------
<S> <C> <C>
Contract revenues earned $160,904,275 $108,613,156
------------- -------------
Expenses:
Costs of earned revenues,
excluding depreciation 120,951,955 81,180,248
General and administrative 13,195,308 11,188,993
Depreciation and amortization 7,111,965 3,972,738
------------- -------------
Total 141,259,228 96,341,979
------------- -------------
Interest, net 731,867 179,574
Other income, net 221,579 160,970
------------- -------------
INCOME BEFORE INCOME TAXES 20,598,493 12,611,721
------------- -------------
PROVISION (BENEFIT) FOR INCOME TAXES:
Current 8,275,463 5,426,044
Deferred (140,201) (308,466)
------------- -------------
Total 8,135,262 5,117,578
------------- -------------
NET INCOME $12,463,231 $7,494,143
============= =============
EARNINGS PER COMMON SHARE:
Basic $0.49 $0.34
============= =============
Diluted $0.48 $0.33
============= =============
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
4
<PAGE> 5
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------
October 30, October 31,
1999 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Cash and Equivalents from:
OPERATING ACTIVITIES:
Net income $12,463,231 $7,494,143
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 7,111,965 3,972,738
Gain on disposal of assets (150,767) (55,208)
Deferred income taxes (140,201) (308,466)
Changes in assets and liabilities:
Accounts receivable, net (4,048,270) (853,025)
Unbilled revenues, net (5,236,521) (517,788)
Other current assets (5,305,997) (1,808,090)
Other assets (1,188,621) 206,165
Accounts payable 5,162,353 2,308,418
Customer advances (9,439,353) 948,243
Accrued self-insured claims and
other liabilities (1,226,122) (1,325,587)
Accrued income taxes 3,143,504 2,845,637
------------ ------------
Net cash inflow from operating activities 1,145,201 12,907,180
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures (12,360,761) (12,017,054)
Proceeds from sale of assets 640,322 107,738
Acquisition expenditures (9,379,839) (750,000)
Equity investment (3,000,000)
------------ ------------
Net cash outflow from investing activities (21,100,278) (15,659,316)
------------ ------------
FINANCING ACTIVITIES:
Principal payments on notes payable
and bank lines-of-credit (102,836) (1,204,129)
Exercise of stock options 503,095 106,433
------------ ------------
Net cash inflow (outflow) from financing activities 400,259 (1,097,696)
------------ ------------
NET CASH OUTFLOW FROM ALL ACTIVITIES (19,554,818) (3,849,832)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 97,955,007 35,927,307
------------ ------------
CASH AND EQUIVALENTS AT END OF PERIOD $78,400,189 $32,077,475
============ ============
</TABLE>
See notes to condensed consolidated financial statements--unaudited
5
<PAGE> 6
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------
October 30, October 31,
1999 1998
----------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest $ 242,843 $ 349,937
Income taxes $ 5,131,959 $2,580,407
Property and equipment acquired and financed with:
Capital lease obligation $ 58,962
During the quarter ended October 30, 1999, the
Company acquired all of the capital stock
of Lamberts' Cable Splicing Company at a cost of
$12,441,884 million. In conjunction with this
acquisition, assets acquired and liabilities
assumed were as follows:
Fair market value of assets acquired, including goodwill $12,911,340
Consideration paid (including $2.4 million of common stock issued) 12,441,884
-----------
Fair market value of liabilities assumed $ 469,456
===========
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
6
<PAGE> 7
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 October 30, 1999 and July 31, 1999, and
the related condensed consolidated statements of operations for the three months
ended October 30, 1999 and October 31, 1998 and the condensed consolidated
statements of cash flows for the three months ended October 30, 1999 and October
31, 1998 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 months ended October 30, 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. During fiscal 1999, the Company
acquired Locating, Inc. ("LOC"), Ervin Cable Construction, Inc. ("ECC"), Apex
Digital TV, Inc. ("APX"), and Triple D Communications, Inc. ("DDD"). During
fiscal 2000, the Company acquired Lamberts' Cable Splicing Company ("LCS"). Each
of these transactions was accounted for using the purchase method of accounting.
The Company's results include the results of LOC, ECC, APX, DDD, and LCS from
their respective acquisition dates until October 30, 1999. See Note 4.
The Company's operations consist primarily of providing specialty contracting
services to the telecommunications and electrical utility industries. All
material intercompany accounts and transactions have been eliminated.
CHANGE IN FISCAL YEAR -- On September 29, 1999, the Company changed to a fiscal
year with 52 or 53 week periods ending on the Saturday nearest July 31. This
Quarterly Report presents financial information for the first quarter of fiscal
2000, beginning August 1, 1999 and ending October 30, 1999. The unaudited
results of operations and cash flows of the Company for the quarter ended
October 30, 1999 contain 91 days compared to 92 days for the unaudited results
of operations and cash flows for the quarter ended October 31, 1998.
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, depreciation and
amortization, and in the estimated lives of assets, including intangibles.
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified in order
to conform to current year presentation.
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.
"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 condensed consolidated statements of
cash flows, the Company considers these amounts to be cash equivalents.
INVENTORIES -- Inventories consist primarily of materials and supplies used to
complete certain of the Company's long-term contracts. The Company values these
inventories using the first-in, first-out method. The Company periodically
reviews the appropriateness of the carrying value of its inventories. The
Company records a reserve for obsolescence if inventories are not expected to be
used in the Company's normal course of business. No reserve has been recorded in
the periods presented.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost. Depreciation
and amortization 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.
7
<PAGE> 8
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 20-40 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 $1,043,536 and $41,871 for the three months ended
October 30, 1999 and October 31, 1998, respectively. The intangible assets are
net of accumulated amortization of $3,516,481 at October 30, 1999 and $2,472,945
at July 31, 1999.
SELF-INSURED CLAIMS LIABILITY -- The Company retains the risk, up to certain
limits, for automobile and general liability, worker's compensation, and
employee group health claims. A liability for unpaid claims and the associated
claim expenses, including incurred but not reported losses, is actuarially
determined and reflected in the condensed consolidated financial statements as
an accrued liability. The self-insured claims liability includes incurred but
not reported losses of $4,110,000 and $4,860,000 at October 30, 1999 and July
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 file a consolidated federal
income tax return. Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
PER SHARE DATA -- Earnings per common share-basic is computed using the
weighted-average common shares outstanding during the period. Earnings per
common share-diluted is computed using the weighted-average common shares
outstanding during the period and the dilutive effect of common stock options,
using the treasury stock method. See Note 3.
STOCK SPLIT -- 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("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. In June 1999, the FASB issued SFAS No. 137 which
deferred the effective date of SFAS No. 133 by one year to periods beginning
after June 15, 2000. Management is currently evaluating the requirements and
related disclosures of SFAS No. 133.
8
<PAGE> 9
3. COMPUTATION OF PER SHARE EARNINGS
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
----------------------------
October 30, October 31,
1999 1998
----------- -----------
<S> <C> <C>
Net income available to common stockholders (numerator) $12,463,231 $ 7,494,143
=========== ===========
Weighted-average number of common shares (denominator) 25,690,684 22,089,669
=========== ===========
Earnings per common share - basic $ 0.49 $ 0.34
=========== ===========
Weighed-average number of common shares 25,690,684 22,089,669
Potential common stock arising from stock options 379,597 330,198
----------- -----------
Total shares (denominator) 26,070,281 22,419,867
=========== ===========
Earnings per common share - diluted $ 0.48 $ 0.33
=========== ===========
</TABLE>
4. ACQUISITIONS
On February 3, 1999, the Company acquired all of the outstanding common stock of
LOC for $10.0 million and various transaction costs. Located in Issaquah,
Washington, LOC'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. On March 31,
1999, the Company purchased all of the outstanding shares of common stock of ECC
for $21.8 million in cash and 258,066 shares of Dycom's common stock for an
aggregate purchase price of $32.5 million before various transaction costs.
ECC's primary service is the engineering, construction, and maintenance of cable
television systems. On April 1, 1999, the Company issued 516,128 shares with an
aggregate value of 21.4 million of Dycom's common stock to the shareholders of
APX in exchange for all of the outstanding common stock of APX. APX's primary
line of business is providing installation and maintenance services to direct
broadcast satellite providers. Both ECC and APX are located in Sturgis,
Kentucky. On June 30, 1999, the Company purchased all of the outstanding shares
of common stock of DDD for $1.7 million in cash and 24,896 shares of Dycom's
common stock for an aggregate purchase price of $2.9 million before various
transaction costs. Located in Lexington, Kentucky, DDD's primary business is the
construction and maintenance of telecommunications systems under master service
agreements. On August 2, 1999, the Company acquired all of the outstanding
common stock of LCS for $10.0 million in cash and 48,873 shares of Dycom's
common stock for an aggregate purchase price of $12.4 million before various
transaction costs. Located in Rocky Mount, North Carolina, LCS's primary
business is the construction and maintenance of telecommunications systems under
master service agreements. The Company has recorded the acquisitions of LOC,
ECC, APX, DDD, and LCS using the purchase method of accounting. The operating
results of LOC, ECC, APX, DDD, and LCS are included in the accompanying
consolidated condensed financial statements from the date of purchase.
The following unaudited pro forma summary presents the consolidated results of
operations of the Company as if the acquisitions of LOC, ECC, APX, DDD, and LCS
had occurred on August 1, 1998:
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------
October 30, October 31,
1999 1998
------------ ------------
<S> <C> <C>
Total revenues $160,904,275 $132,410,080
Income before income taxes 20,598,493 16,031,485
Net income 12,463,231 9,467,008
Earnings per share:
Basic $ 0.49 $ 0.41
Diluted $ 0.48 $ 0.41
</TABLE>
9
<PAGE> 10
5. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
October 30, July 31,
1999 1999
------------ ------------
<S> <C> <C>
Contract billings $ 98,573,293 $ 93,682,485
Retainage 4,957,600 4,497,307
Other receivables 1,202,643 1,233,519
------------ ------------
Total 104,733,536 99,413,311
Less allowance for doubtful accounts 3,521,902 4,129,280
------------ ------------
Accounts receivable, net $101,211,634 $ 95,284,031
============ ============
</TABLE>
For the quarters ended October 30, 1999 and October 31, 1998, the Company
reduced its allowance and incurred bad debt expense related to uncollectible
accounts receivable of ($311,208) and $1,305,137, respectively.
6. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS
The accompanying condensed consolidated balance sheets include costs and
estimated earnings on contracts in progress, net of progress billings as
follows:
<TABLE>
<CAPTION>
October 30, July 31,
1999 1999
----------- -----------
<S> <C> <C>
Costs incurred on contracts in progress $34,251,722 $27,695,302
Estimated earnings thereon 10,699,130 8,259,242
----------- -----------
44,950,852 35,954,544
Less billings to date 7,273,538 3,513,751
----------- -----------
Costs and estimated earnings in excess of billings $37,677,314 $32,440,793
=========== ===========
Included in the accompanying consolidated
balance sheets under the captions:
Costs and estimated earnings in excess of billings $37,712,942 $32,878,667
Billings in excess of costs and estimated earnings 35,628 437,874
----------- -----------
$37,677,314 $32,440,793
=========== ===========
</TABLE>
As stated in Note 1, the Company performs services under short-term, unit based
and long-term, percentage of completion contracts. The amounts presented above
aggregate the effects of these two types of contracts.
10
<PAGE> 11
7. PROPERTY AND EQUIPMENT
The accompanying condensed consolidated balance sheets include the following
property and equipment:
<TABLE>
<CAPTION>
October 30, July 31,
1999 1999
------------ ------------
<S> <C> <C>
Land $ 3,253,690 $ 3,122,155
Buildings 5,837,659 5,554,542
Leasehold improvements 1,232,514 1,304,470
Vehicles 84,371,703 80,923,822
Equipment and machinery 57,447,562 49,613,877
Furniture and fixtures 8,316,152 7,641,972
------------ ------------
Total 160,459,280 148,160,838
Less accumulated depreciation and amortization 73,635,022 68,749,956
------------ ------------
Property and equipment, net $ 86,824,258 $ 79,410,882
============ ============
</TABLE>
8. NOTES PAYABLE
Notes payable are summarized by type of borrowings as follows:
<TABLE>
<CAPTION>
October 30, July 31,
1999 1999
----------- -----------
<S> <C> <C>
Bank Credit Agreement:
Term loan $11,750,000 $11,750,000
Capital lease obligations 4,473 233,619
Equipment loans 650,182 437,362
----------- -----------
Total 12,404,655 12,420,981
Less current portion 2,507,106 2,438,860
----------- -----------
Notes payable--non-current $ 9,897,549 $ 9,982,121
=========== ===========
</TABLE>
On April 27, 1999, the Company signed an amendment to its bank credit agreement
increasing the total facility to $175.3 million and extending the facility's
maturity to April 2002. The amended bank credit agreement provides for (i) a
$17.5 million standby letter of credit facility, (ii) a $50.0 million revolving
working capital facility; (iii) a $12.8 million five-year term loan, and (iv) a
$95.0 million equipment acquisition and small business purchase facility. The
Company is required to pay an annual non-utilization fee equal to 0.15% of the
unused portion of the revolving working capital and the equipment acquisition
and small business purchase facilities. In addition, the Company pays annual
agent and facility commitment fees of $15,000 and $135,000, respectively.
The Company had outstanding standby letters of credit issued to the Company's
insurance administrators as part of its self-insurance program of $13.4 million
at October 30, 1999.
The revolving working capital facility bears interest, at the option of the
Company, at the bank's prime interest rate minus 1.125% or LIBOR plus 1.25%. As
of October 30, 1999, there was no outstanding balance on this facility resulting
in an available borrowing capacity of $50 million.
The outstanding loans under the 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 1.5%. The advances under the
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.
As of October 30, 1999 there was no outstanding balance on this facility
resulting in an available borrowing capacity of $71.1 million.
11
<PAGE> 12
The outstanding principal under the term loan bears interest at the bank's prime
interest rate minus 0.50% (7.75% at October 30, 1999). Principal and interest is
payable in semiannual installments through April 2003. The amount outstanding on
the term loan was $11.8 million at October 30, 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 periods
presented. At October 30, 1999, the Company was in compliance with all financial
covenants and conditions.
All obligations under the amended credit agreement are unconditionally
guaranteed by the Company's subsidiaries and secured by security interest in
certain property and assets of the Company and its subsidiaries.
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 September 2000.
Interest costs incurred on notes payable, all of which were expensed during the
three months ended October 30, 1999 and October 31, 1998 were $208,767 and
$348,550, respectively.
9. COMMITMENTS AND CONTINGENCIES
The federal employment tax returns for one of the Company's subsidiaries are
currently being audited by the Internal Revenue Service ("IRS"). As a result of
the audit, the Company received an examination report from the IRS in October
1999 proposing a $6.1 million tax deficiency. At issue, according to the
examination report, is the taxpayer's payment of certain employee allowances for
the years 1995 through 1997 without reporting such payment as wages on the
employees' W-2 Forms. The Company intends to vigorously defend its position in
this matter and believes it has a number of legal defenses available to it which
would significantly reduce or possibly eliminate the proposed tax deficiency,
although there can be no assurance in this regard. Additionally, the Company
believes that the ultimate disposition of this matter will not have a material
adverse effect on its 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.
10. SEGMENT INFORMATION
The Company operates in one reportable segment as a specialty contractor. The
Company provides engineering, placement and maintenance of aerial, underground,
and buried fiber-optic, coaxial and copper cable systems owned by local and long
distance communications carriers, competitive local exchange carriers, and cable
television multiple system operators. Additionally, the Company provides 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
provides underground locating services to various utilities and provides
construction and maintenance services to electrical utilities. Each of these
services is provided by various of the Company's subsidiaries and discrete
financial information in connection with each of such services is not provided
to management. The following table presents information regarding annual
revenues by type of customer:
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------
October 30, October 31,
1999 1998
------------ ------------
<S> <C> <C>
Telecommunications $142,735,989 $ 98,371,700
Electrical utilities 7,411,419 4,974,429
Various customers -- Utility line locating 10,756,867 5,267,027
------------ ------------
Total contract revenues $160,904,275 $108,613,156
============ ============
</TABLE>
11. SUBSEQUENT EVENT
On November 22, 1999, the Company's shareholders approved an increase in the
number of authorized shares of the Company's common stock from 50,000,000 shares
to 150,000,000 shares.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated financial condition and results of operations. The discussion
should be read in conjunction with the condensed consolidated financial
statements and notes thereto.
Results of Operations
The following table sets forth, as a percentage of contract revenues earned,
certain items in the Company's Condensed Consolidated Statements of Operations
for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------
October 30, October 31,
1999 1998
----------- -----------
<S> <C> <C>
Contract revenues earned 100.0% 100.0%
----- -----
Expenses:
Cost of earned revenues, excluding depreciation 75.2 74.7
General and administrative 8.2 10.3
Depreciation and amortization 4.4 3.7
----- -----
Total 87.8 88.7
----- -----
Interest, net 0.5 0.2
Other income, net 0.1 0.1
----- -----
Income before income taxes 12.8 11.6
----- -----
Provision for income taxes 5.1 4.7
----- -----
Net Income 7.7 6.9
===== =====
</TABLE>
REVENUES. Contract revenues increased $52.3 million, or 48.2%, to $160.9
million in the quarter ending October 30, 1999 from $108.6 million in the
quarter ended October 31, 1998. Of this increase, $44.4 million was attributable
to specialty contracting services provided to telecommunications companies, $2.4
million was attributable to construction and maintenance services provided to
electrical utilities and $5.5 million was attributable to underground utility
locating services provided to various utilities, reflecting an increase in
overall market demand for the Company's services.
During the quarter ended October 30, 1999, the Company recognized $142.8 million
of contract revenues from telecommunications services as compared to $98.4
million for the quarter ended October 31, 1998. The increase in the Company's
telecommunications service revenues reflects an increased volume of projects and
activities associated with cable television services, and an increase in
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.
The Company recognized contract revenues of $7.4 million from electric
construction and maintenance services in the quarter ended October 30, 1999 as
compared to $5.0 million in the quarter ended October 31, 1998. The Company
recognized contract revenues of $10.7 million from underground utility locating
services in the quarter ended October 30, 1999 as compared to $5.2 million in
the quarter ended October 31, 1998, an increase of 106%. Acquisitions subsequent
to October 31, 1998 contributed $27.9 million of contract revenues during the
quarter ended October 30, 1999.
Contract revenues from multi-year master service agreements and other long-term
agreements represented 85.5% of total contract revenues in the quarter ended
October 30, 1999 as compared to 88.2% in the quarter ended October 31, 1998, of
which contract revenues from multi-year master service agreements represented
45.8% of total contract revenues in the quarter ended October 30, 1999 as
compared to 48.4% in the quarter ended October 31, 1998.
13
<PAGE> 14
COSTS OF EARNED REVENUES. Costs of earned revenues increased $39.7 million to
$120.9 million in the quarter ended October 30, 1999 from $81.2 million in the
quarter ended October 31, 1998, and increased as a percentage of contract
revenues to 75.2% from 74.7%. The increase was primarily due to an increase in
direct materials as a result of the increase number of "turn key" contracts
which require the Company to supply materials.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $2.0 million to $13.2 million in the quarter ended October 30, 1999
from $11.2 million in the quarter ended October 31, 1998. The increase in
general and administrative expenses for the quarter ended October 30, 1999, as
compared to the quarter ended October 31, 1998, was primarily attributable to
increases in salaries, employee benefits, and payroll taxes of $2.1 million,
legal and professional fees of $0.5 million, and other general and
administrative expenses of $1.0 million offset by a reduction in the provision
for doubtful accounts of $1.6 million. The change in the provision for doubtful
accounts includes a reduction in the Company's provision of $0.3 million during
the quarter ended October 30, 1999. General and administrative expenses
decreased as a percentage of contract revenues to 8.2% from 10.6% in the quarter
ended October 30, 1999 as compared to the quarter ended October 31, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $3.1
million to $7.1 million in the quarter ending October 30, 1999 as compared to
$4.0 million in the quarter ended October 31, 1998, and increased as a
percentage of contract revenues to 4.4% from 3.7%. The increase in amounts
reflects the depreciation of additional capital expenditures incurred in the
ordinary course of business and the amortization of goodwill related to
acquisitions made in fiscal 1999 and 2000.
INCOME TAXES. The provision for income taxes was $8.1 million in the three
months ended October 30, 1999 as compared to $5.1 million in the quarter ended
October 31, 1998. The Company's effective tax rate was 39.5% in the three months
ended October 30, 1999 as compared to 40.6% in the quarter ended October 31,
1998. The effective tax rate differs from the statutory rate due to state income
taxes, the amortization of intangible assets that do not provide a tax benefit,
and other non-deductible expenses for tax purposes.
Liquidity and Capital Resources
The Company's needs for capital are attributable primarily to its needs for
equipment to support its contractual commitments to customers and its needs for
working capital sufficient for general corporate purposes. Capital expenditures
have been financed by operating and capital leases, bank borrowings and internal
cash flow. To the extent that the Company seeks to grow by acquisitions that
involve consideration other than Company stock, the Company's capital
requirements may increase, although the Company is not currently subject to any
commitments or obligations with respect to any acquisitions. The Company's
sources of cash have historically been from operating activities, equity
offerings, bank borrowings, and from proceeds arising from the sale of idle and
surplus equipment and real property.
For the three months ended October 30, 1999, net cash provided by operating
activities was $1.2 million compared to $12.9 million for the quarter ended
October 31, 1998. A decrease in customer advances and the payment of accrued
bonuses contributed to the decrease in cash flow for the three months ended
October 30, 1999.
In the three months ended October 30, 1999, net cash used in investing
activities was $21.1 million as compared to $15.7 million for the quarter ended
October 31, 1998. For the three months ended October 30, 1999, capital
expenditures of $12.3 million were for the normal replacement of equipment and
purchases for the start up of certain long-term contracts.
In August 1998, the Company 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, the Company has acquired an exclusive license
to market certain technologies within the United States and Canada. The
Company's investment in Witten is being accounted for using the equity method of
accounting.
On August 2, 1999, the Company acquired all of the outstanding common stock of
LCS for $10.0 million in cash and 48,873 shares of Dycom's common stock for an
aggregate purchase price of $12.4 million before various transaction costs.
Located in Rocky Mount, North Carolina, LCS's primary business is the
construction and maintenance of telecommunications systems under master service
agreements.
In the three months ended October 30, 1999, net cash provided from financing
activities was $0.4 million which was primarily attributable to the proceeds
from the exercise of stock options.
On April 27, 1999, the Company signed an amendment to its bank credit agreement
increasing the total facility to $175.3 million and extending the facility's
maturity to April 2002. The amended bank credit agreement provides for (i) a
$17.5 million standby letter of credit facility, (ii) a $50.0 million revolving
working capital facility, (iii) a $12.8 million five-year term loan, and (iv) a
$95.0 million equipment acquisition and small business purchase facility. The
Company is required to pay an annual non-utilization fee equal to 0.15% of the
unused portion of the revolving working capital and the equipment acquisition
and small business purchase facilities. In addition, the Company pays annual
agent and
14
<PAGE> 15
facility commitment fees of $15,000 and $135,000, respectively.
The Company had outstanding standby letters of credit issued to the Company's
insurance administrators as part of its self-insurance program of $13.4 million
at October 30, 1999.
The revolving working capital facility bears interest, at the option of the
company, at the bank's prime interest rate minus 1.125% or LIBOR plus 1.25%. As
of October 30, 1999, there was no outstanding balance on this facility resulting
in an available borrowing capacity of $50.0 million.
The outstanding loans under the 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 1.50%. The advances under the
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 quarterly installments though February 2001.
There were no amounts outstanding on the equipment acquisition and small
business purchase facility at October 30, 1999, resulting in an available
borrowing capacity of $71.1 million.
The outstanding principal under the term loan bears interest at the bank's prime
interest rate minus 0.50% (7.75% at October 30, 1999). Principal and interest is
payable in semiannual installments through April 2003. The amount outstanding on
the term loan was $11.8 million at October 30, 1999.
The amended bank credit agreement requires the Company to maintain certain
financial covenants and conditions, as well as restricting the encumbrances of
assets and the creation of additional indebtedness and limits the payment of
cash dividends. No cash dividends were paid during the periods presented. At
October 30, 1999, the Company was in compliance with all covenants and
conditions under the credit agreement.
The Company believes its capital resources, together with existing cash
balances, to be sufficient to meet its financial obligations, including the
scheduled debt payments under the amended bank credit agreement and operating
lease commitments, and to support the Company's normal replacement of equipment
at its current level of business for at least the next twelve months. The
Company's future operating results and cash flows may be affected by a number of
factors including the Company's success in bidding on future contracts and the
Company's continued ability to effectively manage controllable costs.
Special Note Concerning Forward Looking Statements
This Quarterly Report on Form 10-Q, including the Notes to Condensed Financial
Statements and this Management's Discussion and Analysis of Financial Condition
and Results of Operations, contains forward looking statements. The words
"believe", "expect", "anticipate", "intends", "forecast", " project", and
similar expressions identify forward looking statements. Such statements may
include, but may not be limited to, the anticipated outcome of contingent
events, including litigation, projections of revenues, income or loss, capital
expenditures, plans for future operations, growth and acquisitions, financial
needs or plans and the availability of financing, and plans relating to services
of the Company, as well as assumptions relating to the foregoing. Such forward
looking statements are within the meaning of that term in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended.
Year 2000 Compliance
The Company has reviewed its computer systems to identify those areas that could
be adversely affected by Year 2000 software failures. The Company has verified
or converted approximately 98% of its mission critical applications and 97% of
support hardware and software to be Year 2000 compliant. The Company expects to
complete the verification and conversion of its mission critical applications
and support hardware and software by December 1999. The company has incurred
approximately $1.8 million to date through October 30, 1999 and approximately
$0.1 million will be incurred in the remainder of calendar year 1999 to complete
the information system conversions, including the implementation and conversion
cost of our recently acquired subsidiaries. Although the Company expects that
any additional expenditures that may be required in connection with the Year
2000 conversions will not be material, there can be no assurance in this regard.
The Company believes that certain of its customers, particularly local exchange
and long distance carriers and cable multiple system operators, may be impacted
by the Year 2000 problem, which could in turn affect the Company. The Company
also believes that certain of its suppliers may be impacted by the Year 2000
problem. Currently, the Company cannot predict the effect of the Year 2000
problem on these customers and suppliers and there can be no assurance it will
not have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows. However, the Company believes
that its capital resources together with existing cash balances are sufficient
to meet its financial obligations and to support the Company's normal
replacement of equipment at its current level of business should customers'
payment be delayed by Year 2000 problems.
15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments". The Company
had no holdings of derivative financial or commodity instruments at October 30,
1999. A review of the Company's other financial instruments and risk exposures
at that date revealed that the Company had exposure to interest rate risk. At
October 30, 1999, the Company performed sensitivity analyses to assess the
potential effect of this risk and concluded that near-term changes in interest
rates should not materially affect the Company's financial position, results of
operations, or cash flows.
16
<PAGE> 17
PART II. OTHER INFORMATION
- --------------------------
Item 2. Changes in Securities and Use of Proceeds
On August 2, 1999, the Company issued 48,873 shares of the Company's common
stock for the acquisition of Lamberts' Cable Splicing Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits furnished pursuant to the requirements of Form 10-Q:
Number Description
------ -----------
(11) Statement re computation of per share earnings
All information required by Exhibit 11 is presented within
Note 3 of the Company's condensed consolidated financial
statements in accordance with the provisions of SFAS No.
128.
(27) Financial Data Schedule
(b) Reports On Form 8-K
The following reports on Form 8-K were filed on behalf of the Registrant during
the quarter ended October 30, 1999:
(i) The announcement of a change in the fiscal year of the Company to a 52/53
week fiscal year.
Item Reported: 8
Date Filed: October 7, 1999
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYCOM INDUSTRIES, INC.
Registrant
Date: December 13, 1999 /s/ Kenneth G. Geraghty
----------------- ----------------------------
Kenneth G. Geraghty
Executive Vice President,
Finance and Administration,
and Acting Principal
Accounting Officer
Date: December 13, 1999 /s/ Steven E. Nielsen
----------------- ----------------------------
Steven E. Nielsen
President and Chief Executive
Officer
Date: December 13, 1999 /s/ Thomas R. Pledger
----------------- ----------------------------
Thomas R. Pledger
Executive Chairman
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-30-1999
<CASH> 78,400,189
<SECURITIES> 0
<RECEIVABLES> 103,530,893
<ALLOWANCES> 3,521,902
<INVENTORY> 51,873,653
<CURRENT-ASSETS> 238,667,965
<PP&E> 160,459,280
<DEPRECIATION> 73,635,022
<TOTAL-ASSETS> 397,526,189
<CURRENT-LIABILITIES> 74,766,779
<BONDS> 12,404,655
0
0
<COMMON> 8,573,907
<OTHER-SE> 294,075,746
<TOTAL-LIABILITY-AND-EQUITY> 397,526,189
<SALES> 0
<TOTAL-REVENUES> 160,904,275
<CGS> 0
<TOTAL-COSTS> 120,951,955
<OTHER-EXPENSES> 7,111,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 208,767
<INCOME-PRETAX> 20,598,493
<INCOME-TAX> 8,135,262
<INCOME-CONTINUING> 12,463,231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,463,231
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.48
</TABLE>
