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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended July 31, 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.
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(Exact name of registrant as specified in its charter)
Florida 59-1277135
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(State of incorporation) (I.R.S. Employer
Identification No.)
4440 PGA Boulevard, Suite 500, Palm Beach Gardens, Florida 33410
- ----------------------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 627-7171
-------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
Common Stock, par value $.33 1/3 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
----------------
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock, par value $.33 1/3 per share,
held by non-affiliates of the registrant, computed by reference to the closing
price of such stock on September 28, 1999 was $1,014,674,210.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of September 28, 1999
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Common Stock, $.33 1/3 25,688,461
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PART I
ITEM 1. BUSINESS
OVERVIEW
Dycom is a leading provider of specialty contracting services, including
engineering, construction and maintenance services, to telecommunications
providers throughout the United States. The Company's comprehensive range of
telecommunications infrastructure 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 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. The Company also provides
underground locating services to various utilities and provides construction and
maintenance services to electrical utilities. For the fiscal year ended July 31,
1999, specialty contracting services related to the telecommunications industry,
underground utility locating, and electrical construction and maintenance
contributed approximately 89.4%, 6.0%, and 4.6%, respectively, to the Company's
total contract revenues.
Through its 15 wholly-owned subsidiaries, Dycom has established 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., Tele-Communications, Inc., MediaOne, Inc.,
Sprint Corporation, U.S. West Communications, Inc., GTE Corporation, Florida
Power & Light Company, SBC Communications, Inc., and Time Warner, Inc. During
fiscal 1999, approximately 84% of the Company's total contract 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, Dycom acquired Communications Construction Group, Inc. ("CCG"), a
Pennsylvania-based provider of specialty contracting services to cable
television multiple system operators. In April 1998, the Company acquired Cable
Com Inc. ("CCI"), a Georgia-based firm that provides construction services to
cable television multiple system operators, and Installation Technicians, Inc.
("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. See Note 3 of the
Notes to the Consolidated Financial Statements. These transactions have
diversified Dycom's telecommunications 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 Dycom in the Mid-Atlantic, Midwest and
Northeast regions of the United States, while the acquisitions of CCI and ITI
have further expanded the Company's operations in the Midwest, Upper Midwest,
Rockie Mountain, and West Coast regions of the United States.
In February 1999, Dycom acquired Locating, Inc. ("LOC"), a Washington
State-based company which provides underground utility locating services used to
map and mark utilities for cable television, multiple system operators,
telephone companies, and electrical and gas utilities. In March 1999, Dycom
acquired Ervin Cable Construction, Inc. ("ECC"), a Kentucky-based company which
builds and installs new cable television systems and provides repair and
expansion services to cable television systems in several states. In March 1999,
Dycom also acquired Apex Digital TV, Inc. ("APX"), a Kentucky-based company
which installs direct broadcast satellite systems and provides cable sales and
repair services in several Midwestern states. In June 1999, Dycom acquired
Triple D Communications, Inc. ("DDD"), a Kentucky-based company which constructs
and maintains telecommunications systems under master service agreements. Each
of these acquisitions was accounted for under the purchase method of accounting.
The acquisition of LOC expanded the Company's underground utility locating
service operations in the West Coast region of the United States, while the
acquisitions of ECC, APX, and DDD expanded the Company's operations in the
Midwest and Southeast region of the United States. Additionally, the acquisition
of APX provided an extension into a related new business line.
In connection with the acquisitions of CCG, CCI, ITI, LOC, ECC, APX, and DDD,
the Company entered into five year employment contracts with certain executive
officers of each of the acquired companies.
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SPECIALTY CONTRACTING SERVICES
TELECOMMUNICATIONS SERVICES
ENGINEERING. Dycom provides outside plant engineers and drafters to local
exchange carriers and competitive access providers. The Company designs aerial,
underground and buried fiber optic, coaxial and copper cable systems from the
telephone central office to the 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, Dycom designs building entrance
laterals, fiber rings and conduit systems. The Company obtains rights-of-way and
permits in support of engineering activities, and provides construction
management and inspection personnel in conjunction with engineering services or
on a stand alone basis. For cable television multiple system operators, Dycom
performs 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 provided by the Company 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, the Company installs and maintains
transmission and central office equipment. The Company has the capability 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 impractical.
PREMISE WIRING. The Company provides premise wiring services to a variety of
large corporations and certain governmental agencies. These services, unlike the
engineering, construction and maintenance services provided to
telecommunications companies, are predominantly 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 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
The Company is 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 the Company
expects this trend to continue. These services are offered throughout the United
States.
ELECTRICAL CONSTRUCTION AND MAINTENANCE SERVICES
The Company performs 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 may
involve high voltage splicing and, on occasion, the installation of underground
high voltage distribution systems. The Company also repairs and replaces lines
that are damaged or destroyed as a result of weather conditions.
REVENUES BY CUSTOMER
For the fiscal years ended July 31, 1997, 1998 and 1999, the percentages of the
Company's total contract revenues earned were derived from specialty contracting
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services related to the telecommunications industry, underground utility
locating, and electrical construction and maintenance as set forth below.
Year Ended July 31,
----------------------
1997 1998 1999
---- ---- ----
Telecommunications 90% 90% 89%
Electrical utilities 5 5 5
Various - Utility line locating 5 5 6
--- --- ---
Total 100% 100% 100%
=== === ===
CUSTOMER RELATIONSHIPS
Dycom's current customers include local exchange carriers such as BellSouth
Telecommunications, Inc., SBC Communications, Inc., U.S. West Communications,
Inc., GTE Corporation, The Southern New England Telephone Company, and Sprint
Corporation. Dycom also currently provides telecommunications engineering,
construction and maintenance services to a number of cable television multiple
system operators including Comcast Cable Communications Inc., Cablevision, Inc.,
Tele-Communications, Inc., Falcon Cable Media, Time Warner, Inc. and MediaOne,
Inc. Dycom also provides its services to long distance carriers such as MCI
Worldcom, Sprint Corporation and AT&T Corporation, as well as to competitive
access providers. Premise wiring services have been provided to, among others,
Lucent Technologies, Inc., Duke University, International Business Machines
Corporation, and several state and local governments. The Company also provides
construction and maintenance support to Lee County Electrical Cooperative,
Florida Power & Light Company, and Florida Power Corporation.
While the Company's customer base has broadened in recent years, the Company's
customer base remains highly concentrated, with its top five customers in fiscal
years 1997, 1998 and 1999 accounting in the aggregate for approximately 63%, 65%
and 60%, respectively, of the Company's total revenues. During fiscal 1999,
approximately 23% of the Company's total revenues were derived from BellSouth
Telecommunications, Inc., 15% from Comcast Cable Communications, Inc. and 10%
from Tele-Communications, Inc. The Company believes that a substantial portion
of its total 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 the Company's business, financial condition and
results of operations.
A significant amount of the Company's 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. Other jobs are bid by the Company 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. The rapid expansion of the
telecommunications market and the immediate needs for upgrading existing, as
well as constructing new, telecommunications infrastructure, indicate that this
trend may continue.
Sales and marketing efforts of the Company are the responsibility of the
management of Dycom and its operating subsidiaries.
BACKLOG
The Company views its 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 the Company expects to provide under long-term requirements
contracts. The Company's backlog at July 31, 1999 and 1998 was $1.078 billion
and $467.7 million, respectively. As of July 31, 1999, the Company expected to
complete approximately 44.3% of this backlog within the next fiscal year. Due to
the nature of its contractual commitments, in many instances the Company's
customers are not committed to the specific volumes of services to be purchased
under a contract, but rather the Company is committed to perform these services
if requested by the customer. However, the customer is obligated to obtain these
services from the Company if they are not performed by the customer internally.
Many of the contracts are multi-year agreements, and the Company includes in its
backlog the full
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amount of services projected to be performed over the term of the contract based
on its historical relationships with its customers and experience in procurement
of this nature. Historically, the Company has not experienced a material
variance between the amount of services it expects 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
The Company is committed to ensuring that its employees perform their work in
the safest possible manner. The Company regularly communicates with its
employees to promote safety and to instill safe work habits. Dycom's safety
director, 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 rising in the Company's business are workers' compensation
and other personal injuries, various general liabilities, and vehicle liability
(personal injury and property damage). The Company retains the risk, on a per
occurrence basis for automobile liability up to $250,000, for general liability
up to $250,000, and for workers' compensation, in states where the Company
elects to do so, up to $500,000. The Company has an aggregate stop loss coverage
for all claims arising in a given year of $12.0 million adjusted for certain
exposures in addition to umbrella liability coverage up to a policy limit of
$50.0 million.
The Company carefully monitors claims and participates 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 the Company's balance sheet. Due to fluctuations in the Company's
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 Operation" and Note 1 of
Notes to Consolidated Financial Statements.
COMPETITION
The telecommunications engineering, construction and maintenance services
industry, electrical contracting industry, and utility locating industry; in
which the Company operates are highly competitive, requiring substantial
resources and skilled and experienced personnel. The Company competes with other
independent contractors in most of the markets in which it operates, several of
which are large domestic companies, some of which may have greater financial,
technical, and marketing resources than the Company. In addition, there are
relatively few, if any, barriers to entry into the markets in which the Company
operates and, as a result, any organization that has adequate financial
resources and access to technical expertise may become a competitor to the
Company. A significant portion of the Company's revenues are currently derived
from master service agreements and price is often an important factor in the
award of such agreements. Accordingly, the Company could be outbid by its
competitors in an effort to procure such business. There can be no assurance
that the Company's competitors will not develop the expertise, experience and
resources to provide services that are equal or superior in both price and
quality to the Company's services, or that the Company will be able to maintain
or enhance its competitive position. The Company may also face competition from
the in-house service organizations of its existing or prospective customers,
including telecommunications providers, which employ personnel who perform some
of the same types of services as those provided by the Company. Although a
significant portion of these services is currently outsourced, there can be no
assurance that existing or prospective customers of the Company will continue to
outsource telecommunications engineering, construction and maintenance services
in the future.
The Company believes that the principal competitive factors in the market for
telecommunications engineering, construction and maintenance services,
electrical contracting services, and utility locating 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. The Company believes
that it competes favorably with its competitors on the basis of these factors.
EMPLOYEES
As of July 31, 1999, the Company employed approximately 5,750 persons. The
number of employees of the Company and its subsidiaries varies according to the
work in progress. As a matter of course, the Company maintains a nucleus of
technical and managerial personnel from which it draws to supervise all
projects. Additional employees are added as needed to complete specific
projects.
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None of the Company's employees are represented by a labor union, except that
CCG is currently a party to a collective bargaining agreement with a local
bargaining unit in Philadelphia, Pennsylvania. Approximately twenty of its
current employees are subject to the agreement. The Company has never
experienced a work stoppage or strike. The Company believes that its employee
relations are good.
MATERIALS
In many cases, the Company's customers supply most or all of the materials
required for a particular contract; and the Company provides the personnel,
tools, and equipment to perform the installation services. However, with respect
to an increasing proportion of its contracts, the Company may supply part or all
of the materials required. In these instances, the Company is not dependent upon
any one source for the products which it customarily utilizes to complete the
job. The Company is not presently experiencing, nor does it anticipate
experiencing, any difficulties in procuring an adequate supply of materials.
ITEM 2. PROPERTIES
The Company leases its executive offices located in Palm Beach Gardens, Florida.
The Company's subsidiaries operate from owned or leased administrative offices,
district field offices, equipment yards, shop facilities, and temporary storage
locations. The Company owns facilities in Phoenix, Arizona; Durham, North
Carolina; Knoxville, Tennessee; Sturgis, Kentucky; Pinellas Park, Florida; and
West Palm Beach, Florida. The Company also leases, subject to long-term
noncancelable leases, facilities in West Chester, Pennsylvania; Kimberling City,
Missouri; Lithonia, Georgia; Issaquah, Washington; and Greensboro, North
Carolina. The Company also leases and owns other smaller properties as necessary
to enable it to effectively perform its obligations under master service
agreements and other specific contracts. The Company believes that its
facilities are adequate for its current operations.
ITEM 3. 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. The State of New York claimed
additional amounts due from CCG for the periods through August 31, 1995. In July
1999, CCG settled the tax liabilities mentioned above for $25,000.
In the normal course of business, the Company and certain of its subsidiaries
have pending and unasserted claims. It is the opinion of the Company's
management, based on information available at this time, that these claims will
not have a material adverse impact on the Company's consolidated financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year covered by this report, no matters were
submitted to a vote of the Company's security holders whether through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "DY." The following table sets forth the range of the high and
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low closing sales prices for each quarter within the last two fiscal years as
reported on the NYSE. 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.
Fiscal 1998 Fiscal 1999
---------------------- -----------------------
High Low High Low
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First Quarter $ 18 5/16 $ 11 $ 23 13/16 $ 17 7/8
Second Quarter 17 5/8 12 13/16 39 3/4 23 5/16
Third Quarter 19 5/16 15 5/16 47 11/16 31 1/2
Fourth Quarter 24 3/4 16 13/16 56 45 1/16
As of September 28, 1999, there were approximately 650 holders of record of the
Company's $.33 1/3 par value common stock. The common stock closed at a high of
$46 5/8 and a low of $30 7/8 during the period August 1, 1999 through
September 28, 1999.
The Company currently intends to retain future earnings, and since 1982, no cash
dividends have been paid by the Company. The 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. The Company's credit agreement expressly
limits the payment of cash dividends to fifty percent (50%) of each fiscal
year's after-tax profits. The credit agreement's covenants regarding the
Company's debt-to-net worth, quick and current ratios also restrict the
Company's ability to pay dividends.
On June 30, 1999 and August 2, 1999, the Company issued 24,896 and 48,873 shares
of the Company's common stock for the acquisitions of DDD and Lamberts' Cable
Splicing Company, respectively.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data of the Company
for the years ended July 31, 1995, 1996, 1997, 1998, and 1999. The Company
acquired CCG in July, 1997 and acquired CCI and ITI in April, 1998. These
acquisitions have been accounted for as pooling of interests and accordingly,
the consolidated financial statements for the periods presented include the
accounts of CCG, CCI, and ITI. 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. This data should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this report.
<TABLE>
<CAPTION>
1995 1996(1) 1997(1) 1998(1) 1999(5)
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In Thousands, Except Per Share Amounts
<S> <C> <C> <C> <C> <C>
Operating Data:
Total Revenues $255,045 $247,295 $312,419 $371,363 $473,453
Income before income taxes 15,153 14,055 23,770 36,081 60,612
Net income 11,352 9,922 15,814 23,036 36,450
Per Common Share (2):
Basic net income $ 0.61 $ 0.53 $ 0.84 $ 1.09 $ 1.58
Diluted net income $ 0.61 $ 0.52 $ 0.83 $ 1.07 $ 1.55
Pro Forma Earnings (3):
Income before
income taxes $ 15,153 $ 14,055 $ 23,770 $ 36,081
Pro forma provision for
income taxes 6,343 4,860 9,841 14,420
Pro forma net income 8,810 9,195 13,929 21,661
Pro Forma Per
Common Share (2):
Basic pro forma
net income $ 0.47 $ 0.49 $ 0.74 $ 1.02
Diluted pro forma
net income $ 0.47 $ 0.48 $ 0.73 $ 1.01
Balance Sheet Data (at end of period):
Total assets $ 81,759 $ 82,483 $112,512 $166,318 $384,550
Long-term obligations (4) $ 29,002 $ 23,778 $ 20,651 $ 21,561 $ 18,653
Stockholders' equity $ 19,871 $ 27,785 $ 42,427 $ 98,379 $287,291
Cash dividends per share -- -- -- -- --
</TABLE>
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(1) The results of operations for fiscal 1996, 1997, 1998 include a $1.1
million, $0.3 million and $0.4 million reduction in the deferred tax
valuation allowance, respectively.
(2) Basic and diluted earnings per common share have replaced primary and
fully diluted earnings per common share, respectively, in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share."
See Note 2 of the Notes to the Consolidated Financial Statements.
(3) The provision for income taxes has been adjusted to reflect a pro forma
tax provision for pooled companies which were previously "S Corporations."
See Note 1 of the Notes to the Consolidated Financial Statements.
(4) For fiscal 1998, certain customer advances have been reclassified as
current liabilities in order to present comparable periods.
(5) Amounts include the results and balances of LOC, ECC, APX, and DDD from
their respective acquisition dates until July 31, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Dycom derives most of its contract revenues earned from specialty contracting
services, including engineering, construction and maintenance services, to the
telecommunications industry. 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. In addition,
contract revenues earned are derived from underground utility locating services
and from maintenance and construction services provided to the electric utility
industry. The Company currently performs 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. The Company expects 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 its
customer base; and (iv) geographically expanding its service area. Growth is
expected to result from internal sources as well as through acquisitions. Other
revenues include interest income and gain on sale of surplus equipment.
In July 1997, Dycom completed the acquisition of CCG and in April 1998, Dycom
completed the acquisitions of CCI and ITI. See Note 3 of the Notes to the
Consolidated Financial Statements. Each of these transactions was accounted for
as a pooling of interests. Dycom's 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. During fiscal 1999, the Company acquired LOC, ECC, APX, and DDD. Each
of these transactions was accounted for using the purchase method of accounting.
The Company's results include the results of LOC, ECC, APX, and DDD from their
respective acquisition dates until July 31, 1999.
Dycom provides services to its customers pursuant to multi-year master service
agreements and long- and short-term contracts for particular projects. Under
master service agreements, Dycom agrees to provide, for a period of several
years, all specified service requirements to its 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 services from Dycom.
Materials to be used in these jobs are generally provided by the customer.
Master service agreements generally provide that Dycom 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). The Company
recognizes revenue under master service agreements as the related work is
performed. Dycom is currently party to approximately 50 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
Dycom's 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 84% and 90% of total contract revenues in
fiscal 1999 and 1998, respectively, of which contract revenues from multi-year
master service agreements represented 48% and 49% of total contract revenues,
respectively.
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Cost of earned revenues includes all direct costs of providing services under
the Company's contracts, other than depreciation on fixed assets owned by the
Company or utilized by the Company 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 the Company retains the risk for automobile and
general liability, workers' compensation, and employee group health claims;
subject to certain limits; a change in experience or actuarial assumptions that
did not affect the rate of claims payments could nonetheless materially 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. The Company's management personnel, including subsidiary management,
undertake all sales and marketing functions as part of their management
responsibilities and, accordingly, the Company does not incur material selling
expenses.
Dycom, founded in 1969, 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, Dycom acquired nine operating subsidiaries. As
long distance carriers completed most of their long haul lines in the late
1980's, the Company shifted its focus to the local exchange carrier market.
During the early 1990's, Dycom's results of operations were materially adversely
affected by a number of internal developments, including (i) adjustments taken
to insurance reserves in 1991, (ii) write-offs of intangible assets, including
goodwill, of $24.3 million and $1.4 million in 1993 and 1994, respectively,
incurred in connection with four acquisitions, which contributed to 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 the 1995 fiscal year. Management of the Company does not
believe that any of the events or circumstances it faced in the early 1990's are
indicative of the manner in which the Company currently operates or the
Company's future prospects.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of contract revenues earned,
certain items in the Company's statement of operations for the periods
indicated:
<TABLE>
<CAPTION>
Year Ended July 31,
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1997 1998 1999
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<S> <C> <C> <C>
Revenues:
Contract revenues earned 100.0% 100.0% 100.0%
Other, net 0.4 0.7 0.7
----- ----- -----
Total revenues 100.4 100.7 100.7
----- ----- -----
Expenses:
Cost of earned revenue, excluding depreciation 79.0 77.3 74.0
General and administrative 9.9 10.0 9.5
Depreciation and amortization 3.8 3.6 4.3
----- ----- -----
Total expenses 92.7 90.9 87.8
----- ----- -----
Income before income taxes 7.7 9.8 12.9
Provision for income taxes 2.6 3.6 5.1
----- ----- -----
Net income 5.1 6.2 7.8%
=====
Pro forma adjustment to income tax provision 0.6 0.3
----- -----
Pro forma net income 4.5% 5.9%
===== =====
</TABLE>
9
<PAGE> 10
YEAR ENDED JULY 31, 1999 COMPARED TO YEAR ENDED JULY 31, 1998
REVENUES. Contract revenues increased $101.4 million, or 27.5%, to $470.1
million in fiscal 1999 from $368.7 million in fiscal 1998. Of this increase,
$89.5 million was attributable to specialty contracting services provided to
telecommunications companies, $1.4 million was attributable to construction and
maintenance services provided to electrical utilities and $10.5 million was
attributable to underground utility locating services provided to various
utilities, reflecting an increased overall market demand for the Company's
services. During fiscal 1999, the Company recognized $420.1 million of contract
revenues from telecommunications services as compared to $330.6 million in
fiscal 1998. The increase in the Company's telecommunications service revenues
reflects an increased volume of projects and activity 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
$21.6 million from electric construction and maintenance services in fiscal 1999
as compared to $20.2 million in fiscal 1998, an increase of 6.9%. The Company
recognized contract revenues of $28.3 million from underground utility locating
services in fiscal 1999 as compared to $17.9 million in fiscal 1998, an increase
of 58.7%. The companies acquired in fiscal 1999 contributed $30.5 million of the
increase in contract revenues.
Contract revenues from multi-year master service agreements and other long-term
agreements represented 84% of total contract revenues in fiscal 1999 as compared
to 90% in fiscal 1998, of which contract revenues from multi-year master service
agreements represented 48% of total contract revenues in fiscal 1999 as compared
to 49% in fiscal 1998.
COST OF EARNED REVENUES. Cost of earned revenues increased $62.7 million to
$347.7 million in fiscal 1999 from $285.0 million in fiscal 1998, but decreased
as a percentage of contract revenues to 74.0% from 77.3%. Direct labor,
subcontractor costs, equipment costs, and insurance costs declined slightly as a
percentage of contract revenues as a result of improved productivity, improved
safety, and the utilization of more modern equipment.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $8.3 million to $45.0 million in fiscal 1999 from $36.7 million in
fiscal 1998, but decreased as a percentage of contract revenues to 9.5% in
fiscal 1999 from 10.0% in fiscal 1998. The increase in general and
administrative expenses was primarily attributable to a $5.9 million increase in
administrative salaries, bonuses, employee benefits and payroll taxes.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$6.6 million to $20.1 million in fiscal 1999 from $13.5 million in fiscal 1998,
and increased as a percentage of contract revenues to 4.3% from 3.6%. The
increase in amount 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.
INCOME TAXES. The provision for income taxes was $24.2 million in fiscal 1999 as
compared to $13.0 million in fiscal 1998. The Company's effective tax rate was
39.9% in fiscal 1999 as compared to 36.2% in fiscal 1998. The effective tax rate
differs from the statutory tax 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. 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. As of the date of
acquisition, APX recognized a deferred tax liability of $0.1 million.
The provision for income taxes was $24.2 million in fiscal 1999 as compared to
the pro forma provision for income taxes of $14.4 million in fiscal 1998. The
effective tax rate was 39.9% in fiscal 1999 as compared to the pro forma
effective tax rate of 40.0% in fiscal 1998.
NET INCOME. Net income increased to $36.4 million in fiscal 1999 from $23.0
million in fiscal 1998, a 58.2% increase. Net income increased to $36.4 million
in fiscal 1999 from proforma net income of $21.7 million in fiscal 1998, a 68.3%
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 specialty contracting services provided to
telecommunications companies, $2.8 million was attributable to construction and
maintenance services provided
10
<PAGE> 11
to electrical utilities and $2.9 million was attributable to underground utility
locating services provided to various utilities, reflecting an increased overall
market demand for the Company's services. During fiscal 1998, the Company
recognized $330.6 million of contract revenues from telecommunications services
as compared to $278.8 million in fiscal 1997. The increase in the Company's
telecommunications service revenues reflects an increased volume of projects and
activity 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 $20.2 million from electric construction and
maintenance services in fiscal 1998 as compared to $17.4 million in fiscal 1997,
an increase of 16.1%. The Company 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 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 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.
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% of contract revenues. 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. The Company's 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 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.
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, by bank borrowings, and
internal cash flows. To the extent that the Company seeks to grow by
acquisitions that involve consideration other than Company
11
<PAGE> 12
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 historically have been from
operating activities, equity offerings, bank borrowings and from proceeds
arising from the sale of idle and surplus equipment and real property.
For fiscal 1999, net cash provided by operating activities was $37.3 million
compared to $30.6 million for fiscal 1998 and $12.8 million for fiscal 1997. The
increase in fiscal 1999 was due primarily to an increase in net income. The
increase was also attributable to funds advanced by a customer for materials and
start-up expenses related to a long-term construction contract. The total
amounts advanced at July 31, 1999 were $24.6 million, of which $15.2 million was
advanced during fiscal 1999.
For fiscal 1999, net cash used in investing activities for capital expenditures
was $49.5 million, compared to $21.5 million in 1998 and $16.1 million in 1997.
For 1999, 1998 and 1997, these capital expenditures were for the normal
replacement of equipment and the buyout of certain operating leases on terms
favorable to the Company.
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 February 3, 1999, the Company acquired all of the outstanding common stock of
Locating for $10.0 million and various transaction costs. On March 31, 1999, the
Company purchased all of the outstanding shares of common stock of Ervin 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. On
April 1, 1999, the Company issued 516,128 of Dycom's common stock with a total
value of $21.4 million to the shareholders of Apex in exchange for all of the
outstanding common stock of Apex. On June 30, 1999, the Company purchased all of
the outstanding shares of common stock of Triple D Communications, Inc. for $1.7
million in cash and 24,896 shares of Dycom's common stock for an aggregate
purchase price of $2.9 million. As part of these transactions, the Company
acquired cash balances of $2.9 million.
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 July 31, 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 July 31, 1999, there was no outstanding balance on this facility resulting in
an available borrowing capacity of $50.0 million.
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 1.50%. 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 quarterly installments
through February 2001. There were no amounts outstanding on the revolving
equipment acquisition and small business purchase facility at July 31, 1999,
resulting in an available borrowing capacity of $95.0 million.
12
<PAGE> 13
The outstanding principal under the term loan bears interest at the bank's prime
interest rate minus 0.50% (7.25% at July 31, 1999). Principal and interest is
payable in semiannual installments through April 2003. The amount outstanding on
the term loan was $11.8 million at July 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 year ended
July 31, 1999. At July 31, 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 interests in
certain property and assets of the Company and its subsidiaries.
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 rate 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.
The Company's recently acquired subsidiaries, ECC and APX, had credit facilities
entered into prior to the acquisition by Dycom. ECC's revolving credit facility
had an $8.0 million line for funding working capital. The interest rate on the
revolving credit facility was at the bank's prime interest rate plus 1.0
percent. APX's revolving credit facility had a $3.5 million line for funding
working capital. The interest rate on the revolving credit facility was at the
bank's prime interest rate plus 1.5 percent. The obligations were secured by
substantially all of ECC's and APX'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 1999, the Company paid off the outstanding
balances of $1.9 million under these facilities with existing cash balances and
subsequently terminated such facilities.
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 was 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 credit facility and will use the balance of the proceeds to fund the
Company's growth strategy, including acquisitions, working capital and capital
expenditures and for other general corporate purposes.
In April 1999, the Company filed, at its cost, a registration statement for an
offering of 2.5 million shares and 200,000 shares of common stock, to be sold by
the Company and certain selling stockholders, respectively. The closing of the
offering, at $48.50 per share, was consummated on May 19, 1999. On that date,
the Company received $115.3 million in proceeds from the offering which was net
of an underwriting discount of $2.40 per share. The Company incurred legal fees
and other expenses for this transaction of approximately $510,000. In addition
to the shares sold above, the Company and the selling stockholders granted the
underwriters an option to purchase within 30 days after the offering an
additional 375,000 and 30,000 shares, respectively, to cover over-allotments.
13
<PAGE> 14
On June 4, 1999, the Company repaid the outstanding balance of its revolving
credit facility of $33.7 million with proceeds of the May 1999 common stock
offering. The remaining proceeds will be used to fund the Company's growth
strategy, including acquisitions, working capital and capital expenditures, and
for other general corporate purposes. On June 11, 1999, the underwriters
exercised a portion of their option to purchase additional shares to cover
over-allotments. The underwriters purchased 37,036 shares from the Company and
2,962 shares from certain selling stockholders. The Company received
approximately $1.7 million as payment for the over-allotment.
The Company foresees its capital resources together with existing cash balances
to be sufficient to meet its financial obligations, including the scheduled debt
payments under the amended 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 Annual Report on Form 10-K, including the Notes to the Consolidated
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 financial statements for
periods beginning after December 15, 1997. The Company adopted SFAS No. 131 in
fiscal 1999. See Note 18 of the Notes to the Consolidated Financial Statements.
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. 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.
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 95% of its mission critical applications and 95% 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 $1.5 million through July 31, 1999 and
14
<PAGE> 15
approximately $0.4 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' payments be delayed by Year 2000 problems.
ITEM 7A. 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 July 31,
1998. 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
July 31, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's consolidated financial statements and related notes and
independent auditors' report follow on subsequent pages of this report.
15
<PAGE> 16
Dycom Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
JULY 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 35,927,307 $ 97,955,007
Accounts receivable, net 62,142,808 95,284,031
Costs and estimated earnings in excess of billings 14,382,620 32,878,667
Deferred tax assets, net 2,726,348 3,503,379
Inventories 2,066,797 10,222,964
Other current assets 947,402 1,285,297
------------ ------------
Total current assets 118,193,282 241,129,345
------------ ------------
PROPERTY AND EQUIPMENT, net 42,865,197 79,410,882
------------ ------------
OTHER ASSETS:
Intangible assets, net 4,529,270 59,286,827
Other 730,342 4,722,672
------------ ------------
Total other assets 5,259,612 64,009,499
------------ ------------
TOTAL $166,318,091 $384,549,726
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,182,699 $ 19,886,314
Notes payable 4,727,782 2,438,860
Billings in excess of costs and estimated earnings 437,874
Accrued self-insurance claims 2,440,303 3,728,947
Income taxes payable 2,812,144 4,375,635
Customer advances 9,396,507 24,576,700
Other accrued liabilities 14,819,181 23,161,468
------------ ------------
Total current liabilities 46,378,616 78,605,798
NOTES PAYABLE 13,407,990 9,982,121
ACCRUED SELF-INSURED CLAIMS 7,454,849 4,823,396
OTHER LIABILITIES 697,688 3,847,832
------------ ------------
Total liabilities 67,939,143 97,259,147
------------ ------------
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; 22,084,097 and
25,627,990 issued and outstanding, respectively 7,361,366 8,542,663
Additional paid-in capital 60,042,463 211,322,822
Retained earnings 30,975,119 67,425,094
------------ ------------
Total stockholders' equity 98,378,948 287,290,579
------------ ------------
TOTAL $166,318,091 $384,549,726
============ ============
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 17
Dycom Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1997, 1998, AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- ------------
<S> <C> <C> <C>
REVENUES:
Contract revenues earned $ 311,238,108 $ 368,713,563 $470,136,925
Other, net 1,181,332 2,649,229 3,315,608
------------- ------------- ------------
Total 312,419,440 371,362,792 473,452,533
------------- ------------- ------------
EXPENSES:
Cost of earned revenues
excluding depreciation 246,025,594 285,038,220 347,719,784
General and administrative 30,808,780 36,746,614 44,977,236
Depreciation and amortization 11,814,577 13,496,694 20,143,191
------------- ------------- ------------
Total 288,648,951 335,281,528 412,840,211
------------- ------------- ------------
INCOME BEFORE INCOME TAXES 23,770,489 36,081,264 60,612,322
------------- ------------- ------------
PROVISION (BENEFIT) FOR
INCOME TAXES:
Current 8,153,092 13,179,024 23,033,077
Deferred (196,241) (133,380) 1,129,270
------------- ------------- ------------
Total 7,956,851 13,045,644 24,162,347
------------- ------------- ------------
NET INCOME $ 15,813,638 $ 23,035,620 $ 36,449,975
============= ============= ============
EARNINGS PER COMMON SHARE:
Basic $ 0.84 $ 1.09 $ 1.58
============= ============= ============
Diluted $ 0.83 $ 1.07 $ 1.55
============= ============= ============
PRO FORMA NET INCOME AND EARNINGS
PER COMMON SHARE DATA:
Income before income taxes $ 23,770,489 $ 36,081,264
Pro forma provision for income taxes 9,841,081 14,419,904
------------- -------------
PRO FORMA NET INCOME $ 13,929,408 $ 21,661,360
============= =============
PRO FORMA EARNINGS PER
COMMON SHARE:
Basic $ 0.74 $ 1.02
============= =============
Diluted $ 0.73 $ 1.01
============= =============
SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE AND PRO FORMA
EARNINGS PER COMMON SHARE:
Basic 18,863,987 21,172,025 23,013,730
============= ============= ============
Diluted 19,123,034 21,482,634 23,456,691
============= ============= ============
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 18
Dycom Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1997, 1998, AND 1999
<TABLE>
<CAPTION>
Common Stock Additional Retained
---------------------------- paid-in earnings
Shares Amount capital (deficit)
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
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
Stock options exercised 207,902 69,301 1,529,654
Stock offering proceeds 2,537,036 845,678 115,600,789
Income tax benefit from stock
options exercised 1,115,554
Stock issued for acquisitions 799,090 266,363 33,039,116
Fractional shares retired
in 3-for-2 stock split (135) (45) (4,754)
Net income 36,449,975
----------- ----------- ------------- ------------
Balances at July 31, 1999 25,627,990 $ 8,542,663 $ 211,322,822 $ 67,425,094
=========== =========== ============= ============
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
Dycom Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1997, 1998, AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------- -------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Equivalents
from:
OPERATING ACTIVITIES:
Net income $ 15,813,638 $ 23,035,620 $ 36,449,975
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 11,814,577 13,496,694 20,143,191
Gain on disposal of assets (601,645) (375,772) (506,017)
Deferred income taxes (196,241) (133,380) 1,129,270
Changes in assets and liabilities:
Accounts receivable, net (18,537,042) (12,616,130) (23,228,030)
Unbilled revenues, net (2,873,149) (3,454,939) (15,714,778)
Other current assets (773,980) (1,047,609) (7,755,075)
Other assets (135,882) (870,532)
Accounts payable 6,080,835 (2,541,641) 6,038,748
Customer advances 9,396,507 15,180,193
Accrued self-insured claims
and other liabilities 1,632,232 3,058,662 3,865,722
Accrued income taxes 626,228 1,777,979 2,533,809
------------ ------------- -------------
Net cash inflow from operating activities 12,849,571 30,595,991 37,266,476
------------ ------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (16,086,823) (21,492,673) (49,488,784)
Proceeds from sale of assets 2,289,348 1,997,854 1,521,619
Acquisition expenditures, net of cash acquired (31,818,880)
Equity investment (3,000,000)
------------ ------------- -------------
Net cash outflow from investing activities (13,797,475) (19,494,819) (82,786,045)
------------ ------------- -------------
FINANCING ACTIVITIES:
Borrowings on notes payable and
bank lines-of-credit 22,976,488 18,346,301 30,828,101
Principal payments on notes payable
and bank lines-of-credit (17,907,051) (31,518,331) (41,326,254)
Exercise of stock options 777,347 357,437 1,598,955
Pooled companies distributions (2,523,282) (4,594,002)
Proceeds from stock offering 36,958,618 116,446,467
------------ ------------- -------------
Net cash inflow from financing activities 3,323,502 19,550,023 107,547,269
------------ ------------- -------------
Net cash outflow related to change in
fiscal year of pooled company (159,555)
------------ ------------- -------------
NET CASH INFLOW FROM ALL ACTIVITIES 2,216,043 30,651,195 62,027,700
CASH AND EQUIVALENTS AT
BEGINNING OF YEAR 3,060,069 5,276,112 35,927,307
------------ ------------- -------------
CASH AND EQUIVALENTS AT
END OF YEAR $ 5,276,112 $ 35,927,307 $ 97,955,007
============ ============= =============
</TABLE>
19
<PAGE> 20
Dycom Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1997, 1998, AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW AND NONCASH
INVESTING AND FINANCING
ACTIVITIES:
Cash paid during the period for:
Interest $ 2,535,600 $ 2,185,802 $ 1,685,994
Income taxes $ 8,303,108 $11,480,800 $21,469,586
Property and equipment acquired and financed with:
Capital lease obligations $ 601,024 $ $ 233,618
Income tax benefit from
stock options exercised $ 132,569 $ 194,483 $ 1,115,554
During the year ended July 31, 1999, the Company acquired all of the capital
stock of Locating, Inc., Ervin Cable Construction, Inc., Apex Digital TV Inc.,
and Triple D Communications, Inc. at a cost of $10,345,449, $32,706,655,
$21,446,169, and $2,864,061, respectively. In conjunction with these
acquisitions, assets acquired and liabilities assumed were as follows:
Fair market value of assets acquired, including goodwill $78,310,347
Consideration paid (including $33.3 million of common stock issued) 67,362,334
-----------
Fair market value of liabilities assumed $10,948,013
===========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 21
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. During fiscal 1999, the Company acquired LOC,
ECC, APX, and DDD. Each of these transactions was accounted for using the
purchase method of accounting. The Company's results include the results of LOC,
ECC, APX, and DDD from their respective acquisition dates until July 31, 1999.
See Note 3.
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.
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.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified in order
to conform to current year presentation.
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.
21
<PAGE> 22
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 are computed over the estimated useful life of the assets
utilizing the straight-line method. The estimated useful service lives of the
assets are: buildings - 20-31 years; leasehold improvements - the term of the
respective lease or the estimated useful life of the improvements, whichever is
shorter; vehicles - 3-7 years; equipment and machinery - 2-10 years; and
furniture and fixtures - 3-10 years. Maintenance and repairs are expensed as
incurred; expenditures that enhance the value of the property or extend its
useful life are capitalized. When assets are sold or retired, the cost and
related accumulated depreciation are removed from the accounts and the resulting
gain or loss is included in income.
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 $155,088 for each of the fiscal years ended July 31,
1997 and 1998, and $1,166,499 for the fiscal year ended July 31, 1999. The
intangible assets are net of accumulated amortization of $1,306,446 and
$2,472,945 at July 31, 1998 and 1999, respectively.
SELF-INSURED CLAIMS LIABILITY - The Company retains the risk, up to certain
limits, for automobile and general liability, workers' compensation, and
employee group health claims. A liability for unpaid claims and the associated
claim expenses, including incurred but not reported losses, is actuarially
determined and reflected in the consolidated financial statements as an accrued
liability. The self-insured claims liability includes incurred but not reported
losses of $5,120,000 and $4,860,000 at July 31, 1998 and 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 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 continues to apply APB Opinion No. 25 to its
stock based compensation awards to employees and discloses 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. 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
22
<PAGE> 23
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes the standards for related
disclosures about products and services, geographic areas, and major customers.
This statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. The financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement is effective for financial statements for
periods beginning after December 15, 1997. The Company adopted SFAS No. 131 in
fiscal 1999. See Note 18 of the Notes to the Consolidated Financial Statements.
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. 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.
2. COMPUTATION OF PER SHARE EARNINGS
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computation as required by SFAS No. 128.
<TABLE>
<CAPTION>
1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
Net income available to common stockholders (numerator) $ 15,813,638 $23,035,620 $36,449,975
============ =========== ===========
Weighted-average number of common shares (denominator) 18,863,987 21,172,025 23,013,730
============ =========== ===========
Earnings per common share - basic $ 0.84 $ 1.09 $ 1.58
============ =========== ===========
Weighted-average number of common shares 18,863,987 21,172,025 23,013,730
Potential common stock arising from stock options 259,047 310,609 442,961
------------ ----------- -----------
Total shares (denominator) 19,123,034 21,482,634 23,456,691
------------ ----------- -----------
Earnings per common share - diluted $ 0.83 $ 1.07 $ 1.55
============ =========== ===========
PRO FORMA EARNINGS PER SHARE DATA:
Pro forma net income available to common stockholders
(numerator) $13,929,408 $21,661,360
=========== ===========
Pro forma earnings per common share - basic $ 0.74 $ 1.02
=========== ===========
Pro forma earnings per common share - diluted $ 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 years ending July 31, 1996, and 1997 combines the statements
of operations of CCG for its fiscal years ending 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.
23
<PAGE> 24
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 separate company results
of CCG, CCI and ITI after the consummation date of the mergers, are included in
the Dycom amounts.
The combined and separate company results of Dycom, prior to the combinations
for CCG, CCI and ITI, for the fiscal years ended July 31, 1997 and 1998 are as
follows:
1997 1998
------------ ------------
Total revenues:
Dycom $176,204,581 $331,881,840
CCG 67,718,900
CCI 45,191,801 26,833,806
ITI 23,304,158 12,647,146
------------ ------------
Combined $312,419,440 $371,362,792
============ ============
Net income:
Dycom $ 8,268,502 $ 19,194,623
CCG 2,950,306
CCI 2,598,254 2,711,694
ITI 1,996,576 1,129,303
------------ ------------
Combined $ 15,813,638 $ 23,035,620
============ ============
On February 3, 1999, the Company acquired all of the outstanding common stock of
Locating, Inc. ("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 Ervin Cable Construction, Inc. ("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 with an aggregate value of
$21.4 million of Dycom's common stock to the shareholders of Apex Digital TV,
Inc. ("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 Triple D Communications, Inc. ("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. Located in Lexington, Kentucky, DDD'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, and DDD
using the purchase method of accounting. The operating results of LOC, ECC, APX,
and DDD 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, and DDD had
occurred on August 1, 1997:
1998 1999
------------ ------------
Total revenues $443,401,460 $513,452,840
Income before income taxes 40,167,996 63,847,573
Net income 25,156,783 38,025,816
Earnings per share:
Basic $ 1.19 $ 1.65
Diluted 1.17 1.62
24
<PAGE> 25
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
1998 1999
----------- -----------
Contract billings $58,888,421 $93,682,485
Retainage 4,133,590 4,497,307
Other receivables 1,331,775 1,233,519
----------- -----------
Total 64,353,786 99,413,311
Less allowance for doubtful accounts 2,210,978 4,129,280
----------- -----------
Accounts receivable, net $62,142,808 $95,284,031
=========== ===========
For the years ended July 31, 1997, 1998, and 1999, the Company incurred bad debt
expense related to uncollectible accounts receivable of $365,949, $1,526,385,
and $1,532,784, respectively.
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>
1998 1999
----------- -----------
<S> <C> <C>
Costs incurred on contracts in progress $15,056,642 $27,695,302
Estimated earnings thereon 3,387,933 8,259,242
----------- -----------
18,444,575 35,954,544
Less billings to date 4,061,955 3,513,751
----------- -----------
$14,382,620 $32,440,793
=========== ===========
Included in the accompanying consolidated
balance sheets under the captions:
Costs and estimated earnings in excess of billings $14,382,620 $32,878,667
Billings in excess of costs and estimated earnings 437,874
----------- -----------
$14,382,620 $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.
6. PROPERTY AND EQUIPMENT
The accompanying consolidated balance sheets include the following property and
equipment:
<TABLE>
<CAPTION>
1998 1999
------------ -----------
<S> <C> <C>
Land $ 1,592,958 $ 3,122,155
Buildings 2,497,103 5,554,542
Leasehold improvements 1,459,543 1,304,470
Vehicles 52,287,135 80,923,822
Equipment and machinery 34,319,707 49,613,877
Furniture and fixtures 5,638,326 7,641,972
------------ -----------
Total 97,794,772 148,160,838
Less accumulated depreciation 54,929,575 68,749,956
------------ -----------
Property and equipment, net $ 42,865,197 $79,410,882
============ ===========
</TABLE>
Maintenance and repairs of property and equipment amounted to $6,843,444,
$7,728,971, and $8,880,559 for the fiscal years ended July 31, 1997, 1998, and
1999, respectively.
25
<PAGE> 26
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
1998 1999
----------- -----------
Accrued payroll and related taxes $ 3,637,611 $ 7,348,449
Accrued employee benefit costs 4,971,718 5,514,209
Accrued construction costs 2,728,568 2,701,620
Deferred tax liabilities, net 2,034,648
Accrued other liabilities 3,481,284 5,562,542
----------- -----------
Other accrued liabilities $14,819,181 $23,161,468
=========== ===========
8. NOTES PAYABLE
Notes payable are summarized by type of borrowing as follows:
1998 1999
----------- -----------
Bank credit agreements:
Term loan $14,250,000 $11,750,000
Equipment term loans 3,339,218
Capital lease obligations 60,931 233,618
Equipment loans 485,623 437,362
----------- -----------
Total 18,135,772 12,420,980
Less current portion 4,727,782 2,438,860
----------- -----------
Notes payable-non-current $13,407,990 $ 9,982,120
=========== ===========
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 July 31, 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 July 31, 1999, there was no outstanding balance on this facility resulting in
an available borrowing capacity of $50.0 million.
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 1.50%. 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 quarterly installments
through February 2001. The were no amounts outstanding on the revolving
equipment acquisition and small business purchase facility at July 31, 1999,
resulting in an available borrowing capacity of $95.0 million.
The outstanding principal under the term loan bears interest at the bank's prime
interest rate minus 0.50% (7.25% at July 31, 1999). Principal and interest is
payable in semiannual installments through April 2003. The amount outstanding on
the term loan was $11.8 million at July 31, 1999.
26
<PAGE> 27
The amended bank credit agreement contains restrictions which, among other
things, require maintenance of certain financial ratios and covenants, restrict
encumbrances of assets and creation of indebtedness, and limit 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 year ended July 31,
1999. At July 31, 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 interests in
certain property and assets of the Company and its subsidiaries.
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 rate 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.
The Company's recently acquired subsidiaries, ECC and APX, had credit facilities
entered into prior to the acquisition by Dycom. ECC's revolving credit facility
had an $8.0 million line for funding working capital. The interest rate on the
revolving credit facility was at the bank's prime interest rate plus 1.0
percent. APX's revolving credit facility had a $3.5 million line for funding
working capital. The interest rate on the revolving credit facility was at the
bank's prime interest rate plus 1.5 percent. The obligations were secured by
substantially all of ECC's and APX'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 1999, the Company paid off the outstanding
balances of $1.9 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 $2,438,860 in 2000,
$2,232,120 in 2001, $2,000,000 in 2002, $2,000,000 in 2003, and $3,750,000 in
2004.
Interest costs incurred on notes payable, all of which is expensed, for the
years ended July 31, 1997, 1998, and 1999 were $2,619,191, $2,045,571, and
$1,695,920, respectively. Such amounts are included in general and
administrative expenses in the accompanying consolidated statements of
operations.
The interest rates on notes payable under the bank credit agreement are at
current rates and, therefore, the carrying amount approximates fair value.
27
<PAGE> 28
9. INCOME TAXES
The components of the provision (benefit) for income taxes are:
1997 1998 1999
------------ ------------ -----------
Current:
Federal $ 6,248,234 $ 10,565,688 $19,181,889
State 1,904,858 2,613,336 3,851,188
------------ ------------ -----------
8,153,092 13,179,024 23,033,077
------------ ------------ -----------
Deferred:
Federal 191,765 737,355 977,368
State (134,700) (395,550) 151,902
Valuation allowance (253,306) (475,185)
------------ ------------ -----------
(196,241) (133,380) 1,129,270
------------ ------------ -----------
Total tax provision $ 7,956,851 $ 13,045,644 $24,162,347
============ ============ ===========
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:
1998 1999
---------- ----------
Deferred tax assets:
Self-insurance, warranty, and
other non-deductible reserves $5,164,116 $4,522,568
Allowance for doubtful accounts 879,306 1,476,910
Small tools 380,153 424,414
Other 77,466
---------- ----------
$6,423,575 $6,501,358
========== ==========
Deferred tax liabilities:
Property and equipment $2,950,402 $4,620,531
Unamortized acquisition costs 248,612 245,486
Retainage 498,213
Amortization of goodwill 85,522
Other 81,088
---------- ----------
$3,697,227 $5,032,627
========== ==========
Net deferred tax assets $2,726,348 $1,468,731
========== ==========
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 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.
28
<PAGE> 29
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>
1997 1998 1999
----------- ------------ -----------
<S> <C> <C> <C>
Statutory rate applied to
pre-tax income $ 8,319,671 $ 12,628,442 $21,214,313
State taxes, net of federal tax benefit 1,257,206 1,779,712 2,602,008
Amortization of intangible assets,
with no tax benefit 52,730 54,281 159,031
Tax effect of non-deductible
items 374,564 389,999 303,365
Non-taxable interest income (169,823)
Valuation allowance (253,306) (475,185)
Effect of income from S Corporations
(CCI and ITI) (1,719,027) (1,827,023)
Deferred taxes of pooled companies 605,323
Other items, net (74,987) (109,905) 53,453
----------- ------------ -----------
Total tax provision $ 7,956,851 $ 13,045,644 $24,162,347
=========== ============ ===========
</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 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>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Interest income $ 215,062 $1,597,987 $2,261,082
Gain on sale of fixed assets 601,645 375,772 506,017
Miscellaneous income 364,625 675,470 548,509
---------- ---------- ----------
Total other revenues $1,181,332 $2,649,229 $3,315,608
========== ========== ==========
</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 officers of the Company have change of control agreements with the
Company, which provide extraordinary 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 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.
29
<PAGE> 30
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.
In April 1999, the Company filed, at its cost, a registration statement for an
offering of 2.5 million shares and 200,000 shares of common stock, to be sold by
the Company and certain selling stockholders, respectively. The closing of the
offering, at $48.50 per share, was consummated on May 19, 1999. On that date,
the Company received $115.3 million in proceeds from the offering which was net
of an underwriting discount of $2.40 per share. The Company incurred legal fees
and other expenses for this transaction of approximately $510,000.
In addition to the shares sold above, the Company and the selling stockholders
granted the underwriters an option to purchase within 30 days after the offering
an additional 375,000 and 30,000 shares, respectively, to cover over-allotments.
On June 4, 1999, the Company repaid the outstanding balance of its revolving
credit facility of $33.7 million with proceeds of the common stock offering. The
remaining proceeds will be used to fund the Company's growth strategy, including
acquisitions, working capital and capital expenditures, and for other general
corporate purposes.
On June 11, 1999, the underwriters exercised a portion of their option to
purchase additional shares to cover over-allotments. The underwriters purchased
37,036 shares from the Company and 2,962 shares from certain selling
stockholders. The Company received approximately $1.7 million as payment for the
over-allotment.
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. For fiscal years ended July 31, 1997 and 1998 and for
fiscal year 1999 until October 31, 1998, the Company's contributions to the
plans were discretionary except for CCI which has a 25% company match up to the
first 5% of the employee's contributions. Beginning on November 1, 1999, the
Company's contribution to the plan was a 25% company match up to the first 5% of
the employee's contributions, except for ECC, APX, and LOC which made
discretionary contributions. The Company's contributions, were $287,179,
$398,529, and $609,093 in fiscal years 1997, 1998 and 1999, 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, 1997, 1998, and 1999, options available for grant under the 1991
Plan were 576,177 shares, 199,782 shares, and 43,958 shares, respectively.
In fiscal 1998, the Company granted to key employees under the 1991 Plan,
options to purchase an aggregate of 388,470 shares of common stock. The options
were granted at prices ranging from $12 3/16 to $17 3/4, 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.
30
<PAGE> 31
The Company has reserved 2,211,230 shares of common stock under its 1998
Incentive Stock Option Plan (the "1998 Plan") which was approved by the
shareholders on November 23, 1998. The 1998 Plan provides for the granting of
options to key employees until it expires in 2008. Options are granted at the
closing price on the date of grant and are exercisable over a period of up to
ten years. At July 31, 1999, options available for grant under the 1998 Plan
were 1,958,530 shares.
On November 23, 1998, the Company granted a key employee under the 1998 Plan an
option to purchase 37,500 shares of common stock. The option was granted at $27
1/16, the fair market value on the date of grant. On March 10, 1999, the Company
granted a key employee under the 1998 Plan an option to purchase 150,000 shares
of common stock. The option was granted at $41 5/16, the fair market value on
the date of grant. On April 8, 1999, the Company granted key employees under the
1998 Plan options to purchase 26,500 shares of common stock. The options were
granted at $42 3/4, the fair market value on the date of grant. On April 19,
1999, the Company granted a key employee under the 1998 Plan an option to
purchase 1,200 shares of common stock. The option was granted at $44 1/8, the
fair market value on the date of grant. On May 24, 1999, the Company granted a
key employee under the 1998 Plan an option to purchase 37,500 shares of common
stock. The option was granted at $48.00, the fair market value on the date of
grant. On August 23, 1999, the Company granted to key employees under the 1998
Plan options to purchase an aggregate of 250,000 shares of common stock. The
options were granted at $39 1/8, the fair market value on the date of grant.
In addition to the stock option plans 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. On
January 4, 1999, the Company granted to a non-employee Director, non-qualified
options to purchase 12,000 shares of common stock. The options were granted at
$36 11/16, the fair market value on the date of grant, with vesting over a
three-year period. On April 1, 1999, the Company granted to a non-employee
Director, non-qualified options to purchase 12,000 shares of common stock. The
options were granted at $43 7/16, the fair market value on the date of grant,
with vesting over a three-year period.
The following table summarizes the stock option transactions under the 1991
Plan, 1998 Plan, and the Directors Plan for the three years ended July 31, 1997,
1998, and 1999:
Number of Weighted Average
Shares Exercise Price
----------------------------------
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
Granted 487,750 $32.05
Terminated (55,220) $13.26
Exercised (207,902) $ 7.69
----------------------------------
Options outstanding at
July 31, 1999 885,665 $22.86
----------------------------------
Exercisable options at
July 31, 1997 104,900 $ 3.47
July 31, 1998 130,787 $ 4.50
July 31, 1999 85,328 $ 8.14
----------------------------------
The range of exercise prices for options outstanding at July 31, 1999 was $1.83
to $48.00. 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.
31
<PAGE> 32
The following summarizes information about options outstanding at July 31, 1999:
Outstanding Options
------------------------------------------------
Weighted Weighted
Average Average
Number of Contractual Exercise
Shares Life Price
------------------------------------------------
Range of exercise prices
$ 1.83 to $ 13.00 324,807 2.5 $10.35
$13.00 to $ 25.00 284,158 3.9 $20.15
$25.00 to $ 48.00 276,700 4.6 $40.33
------------------------------------------------
885,665 3.6 $22.86
------------------------------------------------
Exercisable Options
------------------------------------------------
Weighted
Exercisable Average
as of Exercise
July 31, 1999 Price
------------------------------------------------
Range of exercise prices
$ 1.83 to $13.00 74,045 $ 6.69
$13.00 to $17.75 11,283 $17.65
------------------------------------------------
85,328 $ 8.14
------------------------------------------------
These options will expire if not exercised at specific dates ranging from
November 1999 to November 2009. The prices for the options exercisable at
July 31, 1999 ranged from $1.83 to $17.75.
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, 1998, and
1999 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, 55.36% in 1998, 46.50% in 1999; risk-free interest rates of
6.57% in 1997, 5.50% in 1998, and 6.05% in 1999; expected lives of 4 years for
1997 and 1998, and 6 years for 1999; and no dividend yield in all 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, 1998, and 1999 was $6.98, $10.13, and
$17.11 per share, respectively.
32
<PAGE> 33
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 1997, 1998 and 1999 pro forma net earnings
and earnings per share are reflected below:
<TABLE>
<CAPTION>
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
NET INCOME:
Pro forma net income reflecting stock
option compensation costs $ 15,687,084 $ 21,858,609 $ 34,629,135
Pro forma earnings per share reflecting
stock option compensation costs:
Basic $ 0.83 $ 1.03 $ 1.50
Diluted $ 0.82 $ 1.02 $ 1.48
NET INCOME REFLECTING PRO FORMA TAX
EXPENSE RELATED TO S CORPORATIONS:
Pro forma net income reflecting stock
option compensation costs $ 13,802,854 $ 20,484,349
Pro forma earnings per share reflecting
stock option compensation costs:
Basic $ 0.73 $ 0.97
Diluted $ 0.72 $ 0.95
</TABLE>
15. RELATED PARTY TRANSACTIONS
The Company's subsidiary, CCG, leases administrative offices from a partnership
in which certain officers of the subsidiary are the general partners and the
Company's subsidiaries, CCI and ITI, lease administrative offices from a
corporation of which certain officers 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
Company's newly acquired subsidiary, LOC, leases administrative offices from a
limited liability company of which a certain officer is a member. The total
expense under these arrangements for the years ended July 31, 1997, 1998, and
1999 was $242,310, $304,010, and $344,778, respectively. The future minimum
lease commitments under these arrangements are $387,368 in 2000, $375,368 in
2001, $315,388 in 2002, $218,908 in 2003, and $109,283 thereafter.
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, 1997, 1998, and 1999, approximately 27%,
22%, and 23%, respectively, of the contract revenues were from BellSouth
Telecommunications, Inc. ("BellSouth"); 18%, 24%, and 15%, respectively, of the
contract revenues were from Comcast Cable Communications, Inc. ("Comcast");
6.3%, 7.2%, and 4.1%, respectively, of the contract revenues were from GTE
Corporation ("GTE"); and 0.0%, 1.4%, and 9.9%, respectively, of the contract
revenues were from Tele-Communications, Inc. ("TCI").
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. BellSouth,
Comcast, GTE, and TCI represent a significant portion of the Company's customer
base. As of July 31, 1998, the total outstanding trade receivables from
BellSouth, Comcast, GTE, and TCI were $7.9 million or 13%, $16.9 million or 27%,
and $2.3 million or 4.0%, and $1.5 million or 2.3%, respectively, of the
outstanding trade receivables. At July 31, 1999, the total outstanding trade
receivables from BellSouth, Comcast, GTE, and TCI were $9.0 million or 9.2%,
$9.3 million or 9.5%, $2.3 million or 2.4%, and $18.8 million or 19.2%,
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 1997, 1998, and 1999, 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, 1997, 1998, and 1999, was $6,732,699,
$6,754,934, and $6,901,799, respectively. The future minimum obligations under
these leases are $3,895,684 in 2000; $2,219,055 in 2001; $1,186,002 in 2002;
$663,458 in 2003; $411,670 in 2004; and $554,449 thereafter.
33
<PAGE> 34
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. In July 1999, CCG settled the tax liabilities
mentioned above for $25,000.
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. 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 such services is not provided to
management. The following table presents information regarding annual revenues
by type of customer.
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Telecommunications $278,657,584 $330,609,408 $420,160,050
Electrical utilities 16,798,251 20,250,898 21,648,758
Various-Utility line locating 15,782,273 17,853,257 28,328,117
------------ ------------ ------------
Total contract revenues $311,238,108 $368,713,563 $470,136,925
============ ============ ============
</TABLE>
19. 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.
20. QUARTERLY FINANCIAL DATA (Unaudited)
In the opinion of management, the following unaudited quarterly data for the
years ended July 31, 1998 and 1999 reflect all adjustments necessary for 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 after the consummation date of the mergers, 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.
34
<PAGE> 35
<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
1999:
Revenues: $109,302,250 $97,454,552 $122,364,864 $144,330,867
============ =========== ============ ============
Income Before Income Taxes: $ 12,611,721 $11,164,950 $ 14,198,783 $ 22,636,868
============ =========== ============ ============
Net Income: $ 7,494,143 $ 6,650,150 $ 8,766,460 $ 13,539,222
============ =========== ============ ============
Earnings per Common Share:
Basic $ 0.34 $ 0.30 $ 0.39 $ 0.54
Diluted $ 0.33 $ 0.29 $ 0.38 $ 0.53
</TABLE>
As a result of the Company's independent actuary's annual analysis of reported
claims and incurred but not reported losses, the fourth quarter results of
operations include a pre-tax net reduction of $2.3 million to accrued
self-insurance expense.
21. SUBSEQUENT EVENT
On August 2, 1999, the Company acquired all of the outstanding common stock of
Lamberts' Cable Splicing Company for $10.0 million and 48,873 shares of Dycom's
common stock for an aggregate purchase price of $12.4 million. Located in Rocky
Mount, North Carolina, Lamberts' Cable Splicing Company's primary line of
business is the 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. The Company intends to record this
transaction using the purchase method of accounting.
The pro forma effect on consolidated results of operations, from the acquisition
of Lamberts' Cable Splicing Company, is immaterial.
35
<PAGE> 36
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, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended July 31, 1999. 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 year ended
May 31, 1997, which statements reflect total revenues of $67,717,326 for the
year ended May 31, 1997. 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 period, 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
West Palm Beach, Florida
August 30, 1999
36
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Communications Construction Group, Inc.
We have audited the accompanying consolidated balance sheet of Communications
Construction Group, Inc. (the "Company") as of May 31, 1997, and the related
consolidated statements of operations, cash flows and changes in stockholders'
equity for the year 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 audit.
We conducted our audit 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 consolidated results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
NOWALK & ASSOCIATES
Cranbury, New Jersey
July 23, 1997
37
<PAGE> 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
There have been no changes in or disagreements with accountants on accounting
and financial disclosures within the meaning of Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and nominees of the Registrant is hereby
incorporated by reference from the company's definitive proxy statement to be
filed with the commission pursuant to Regulation 14A.
The following table sets forth certain information concerning the executive
officers of the Company, all of whom serve at the pleasure of the Board of
Directors. Information concerning Thomas R. Pledger and Steven E. Nielsen is
included in the Company's definitive proxy statement that has been incorporated
by reference.
<TABLE>
<CAPTION>
Executive Officer
Name Age Office Since
- ---- --- ------ -----------------
<S> <C> <C>
Thomas R. Pledger 61 Executive Chairman 1/4/84
Steven E. Nielsen 36 President and Chief Executive Officer 2/26/96
Kenneth G. Geraghty 48 Executive Vice President, 3/29/99
Finance and Administration
Randal L. Martin 27 Vice President and Controller 8/23/99
Marc R. Tiller 29 General Counsel and Corporate 11/23/98
Secretary
</TABLE>
There are no family relationships among the Company's executive officers.
Kenneth G. Geraghty is the Company's Executive Vice President, Finance and
Administration. Mr. Geraghty has been employed by the Company since March 29,
1999. Mr. Geraghty 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.
Randal L. Martin is the Company's Vice President and Controller. Mr. Martin has
been employed by the Company since November 23, 1998. Mr. Martin was previously
employed by Ernst & Young LLP from 1994 to 1998 as a Senior Auditor. Mr. Martin
is licensed in Florida as a certified public accountant.
Marc R. Tiller is the Company's General Counsel and Corporate Secretary. Mr.
Tiller has been employed by the Company since August 10, 1998. Mr. Tiller
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.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is hereby incorporated by
reference for the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
38
<PAGE> 39
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information concerning the ownership of certain of the Registrant's beneficial
owners and management is hereby incorporated by reference for the Company's
definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning relationships and related transactions is hereby
incorporated by reference for the Company's definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 10-K
<TABLE>
<CAPTION>
Page
<S> <C>
(a) The following documents are filed as a part of this report:
1. Consolidated financial statements:
Consolidated balance sheets at July 31, 1998 and 1999 16
Consolidated statements of operations for the years ended July 31, 1997, 1998, and 1999 17
Consolidated statements of stockholders' equity for the
years ended July 31, 1997, 1998, and 1999 18
Consolidated statements of cash flows for the years ended July 31, 1997, 1998, and 1999 19-20
Notes to consolidated financial statements 21-35
Independent auditors' reports 36-37
2. Financial statement schedules:
All schedules have been omitted because they are inapplicable, not
required, or the information is included in the above referenced
consolidated financial statements or the notes thereto.
3. Exhibits furnished pursuant to the requirements of Form 10-K:
See Exhibit Index on page 39.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed on behalf of the Registrant during the
quarter ended July 31, 1999.
</TABLE>
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ Steven E. Nielsen October 5, 1999
- ------------------------- ----------------
By: Steven E. Nielsen Date
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Position Date
---- -------- ----
<S> <C> <C>
/s/ Kenneth G. Geraghty Executive Vice President, October 5, 1999
- ------------------------- Finance and Administration,
and Acting Principal
Accounting Officer
/s/ Thomas R. Pledger Executive Chairman October 5, 1999
- ------------------------- and Director
/s/ Steven E. Nielsen Director October 5, 1999
- -------------------------
/s/ Louis W. Adams, Jr. Director October 5, 1999
- -------------------------
/s/ Thomas G. Baxter Director October 5, 1999
- -------------------------
/s/ Walter L. Revell Director October 5, 1999
- -------------------------
/s/ Joseph M. Schell Director October 5, 1999
- -------------------------
/s/ Ronald P. Younkin Director October 5, 1999
- -------------------------
</TABLE>
40
<PAGE> 41
EXHIBIT INDEX
Exhibit Number Title
3(i)(1) Articles of Incorporation of the Company are hereby incorporated
by reference from the Company's Form S-1 Registration Statement
filed with the Commission on October 29, 1986 (Exhibit 3.01).
3(i)(2) Articles of Amendment to Articles of Incorporation of the Company
are hereby incorporated by reference from the Company's Form S-1
Registration Statement filed with the Commission on October 29,
1986 (Exhibit 3.01).
3(ii) Amended By-laws of the Company (Exhibit 3(ii), Current Report on
Form 8-K filed April 29, 1999, File No. 001-10613).
4.1 Description of Capital Stock contained in Exhibits 3(i) and 3(ii)
above.
4.2 Shareholder Protection Rights Agreement, dated as of June 1, 1992,
among Dycom Industries, Inc. and First Union National Bank of
North Carolina as Rights Agent (Exhibit to Form S-4 filed on
June 24, 1992).
4.3 Registration Rights Agreement, dated as of March 31, 1999, among
Dycom Industries, Inc., Gary E. Ervin, Timothy W. Ervin, Robert W.
Ervin, Keith E. Walker, Robert J. Chastain, Charles T. McElroy and
Penny J. Ward (Exhibit 4(i), Current Report on Form 8-K filed
April 15, 1999, File No. 001-10613).
10.1 Second Amended and Restated Credit Facility Agreement, dated as of
April 27, 1999 (Exhibit 10(i), Current Report on Form 8-K filed
April 29, 1999, File No. 001-10613).
10.2 Second Amended and Restated Security Agreement, dated as of
April 27, 1999 (Exhibit 10(ii), Current Report on Form 8-K filed
April 29, 1999, File No. 001-10613).
10.3 Second Amended and Restated Guarantee Agreement, dated as of
April 27, 1999 (Exhibit 10(iii), Current Report on Form 8-K filed
April 29, 1999, File No. 001-10613).
10.4 1998 Incentive Stock Option Plan (Exhibit A, Definitive Proxy
Statement filed September 30, 1998, File No. 001-10613).
10.5 1991 Incentive Stock Option Plan (Exhibit A, Definitive Proxy
Statement filed November 5, 1991, File No. 001-10613).
10.6* Employment Agreement for Thomas R. Pledger
10.7* Employment Agreement for Steven E. Nielsen
10.8* Employment Letter for Robert J. Gluck
10.9 Stock Purchase Agreement, dated as of March 12, 1999, between
Dycom Industries, Inc. and Gary E. Ervin, Timothy W. Ervin and
Robert W. Ervin (Exhibit 2(i), Current Report on Form 8-K filed
April 15, 1999, File No. 001-10613).
10.10 Agreement and Plan of Merger, dated as of March 12, 1999, among
Apex Digital TV, Inc., Dycom Acquisition Corporation III, Dycom
Industries, Inc. and Gary E. Ervin, Timothy W. Ervin, Robert W.
Ervin, Keith E. Walker, Robert J. Chastain, Charles T. McElroy and
Penny J. Ward (Exhibit 2 (ii), Current Report on Form 8-K filed
April 15, 1999, File No. 001-10613).
11 Statement re computation of per share earnings
All information required by Exhibit 11 is presented in Note 2 of
the Company's Consolidated Financial Statements in accordance with
the provision of SFAS No. 128.
21* Subsidiaries of the Company
23.1* Consent of Deloitte & Touche LLP
23.2* Consent of Nowalk & Associates
27* Financial Data Schedules for fiscal years ended July 31, 1997,
1998, and 1999
* (documents filed herewith)
<PAGE> 1
Exhibit 10.6
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement is made this
14th day of December, 1998, between Thomas R. Pledger ("Employee") and Dycom
Industries, Inc. ("Employer").
1. Employment.
(a) Subject to the terms and conditions hereof, Employer
hereby agrees to employ Employee as executive Chairman of the Board of
Directors of the Employer (the "Board") to perform such specific duties and
have such responsibilities as the Board may from time to time establish;
provided, however, that such duties shall be consistent with the status, duties
and responsibilities typically accorded to an executive Chairman. Employee
hereby accepts employment by Employer as executive Chairman, subject to the
terms and conditions hereof, and agrees to continue to devote his full business
time and attention to his duties hereunder, to the best of his abilities.
(b) Effective as of January 13, 2003, the Employer hereby
agrees to employ Employee as Chairman Emeritus; provided, however, that prior
to January 13, 2003, the Board may, by a majority vote, elect to change the
status of the Employee under this Employment Agreement to that of Chairman
Emeritus, effective 30 days after written notice is provided to Employee. Upon
becoming Chairman Emeritus, Employee's responsibilities under this Employment
Agreement shall be to render such managerial, supervisory or advisory services
during the period (the "Emeritus Period") beginning on the effective date of
the change in status and ending on the termination of this Employment Agreement
as shall be reasonably requested by Employer and shall be in lieu of the
<PAGE> 2
responsibilities and limitations described in Section 1(a); provided, however,
that such services shall not be required for more than 10 working days in any
month reasonably scheduled in advance unless Employee determines in his
discretion to make a greater amount of his time available to provide such
services. Employee shall not be required to perform such services in the
offices of the Employer. The change in Employee's employment status to Chairman
Emeritus shall not be treated as a breach of this Employment Agreement for
purposes of paragraphs 5(c) and (d) hereof. Except as expressly provided
herein, the remaining terms and conditions of this Employment Agreement shall
continue to remain in full force and effect during the Emeritus Period.
2. Term of Employment. Employee's employment pursuant to this
Employment Agreement shall commence on March 10, 1999 (or such earlier date as
may be determined by the Board) and shall terminate upon the earlier of (a)
termination pursuant to paragraph 5 hereof or (b) March 9, 2004, unless
extended by the parties hereto. Prior to the commencement of the term of
employment hereunder, Employee's employment shall continue to be governed by
his Employment Agreement with Employer dated August 1, 1989, as amended on
October 31, 1994 and as further amended on June 12, 1996 and the Change of
Control Agreement dated March 11, 1997 (the "Prior Agreements").
3. Compensation, Benefits and Expenses.
(a) At the commencement of Employee's term of employment
pursuant to this Employment Agreement, Employee shall be paid a base salary at
an annual rate of $468,000. Payment will be made on the regularly scheduled pay
dates of Employer, subject to all appropriate withholdings or other deductions
required by law or by Employer's established policies applicable to all
employees of Employer. Employer may increase Employee's salary at Employer's
sole
2
<PAGE> 3
discretion, but shall not reduce such salary below the rate established by this
Employment Agreement (as it may be increased from time to time hereunder)
without Employee's written consent.
(b) During the term of employment, Employer shall provide
Employee with an automobile substantially equivalent in value to the automobile
provided by Employer prior to the date hereof or pay Employee an allowance in
the amount of $600 per month, plus the costs incurred by Employee for all fuel,
oil and lubrication related to the business use of Employee's automobile,
including travel from Employee's home to place of employment.
(c) In addition to any other compensation payable to Employee
pursuant to this Employment Agreement, during the term of this Employment
Agreement, Employee may be paid an annual bonus as determined by and within the
sole discretion of the Board. In the event Employee's salary reaches $500,000
per annum, or Employee otherwise reasonably determines that any portion of his
compensation from Employer could become non-deductible by reason of the
application of Section 162(m) of the Internal Revenue Code, Employer promptly
shall establish an annual cash bonus plan satisfying the qualified
performance-based compensation exception to Section 162(m).
(d) Except as otherwise provided herein, Employee's services
under this Employment Agreement shall be performed at the principal offices of
Employer in Palm Beach Gardens, Florida, subject to such reasonable travel as
the performance of Employee's duties and the business of the Employer may
require.
(e) In addition to compensation payable to Employee as
described above, Employee shall be entitled to participate in all employee
benefit plans or programs of Employer as are available to management employees
of Employer generally and such other benefit plans or programs as may be
specified by the Board, including any stock options that may be granted by the
3
<PAGE> 4
Board. Employer also shall reimburse Employee for an annual physical
examination by a physician of Employee's choice.
(f) Employer shall provide Employee with a retirement benefit
equal to One Hundred Thirty Three Thousand Dollars ($133,000) for each year of
employment Employee completes under this Employment Agreement, including any
renewal periods. The retirement benefit shall be funded with whole life
insurance contracts purchased by the Employer and owned by the Employee.
(g) On a timely basis, Employer shall reimburse Employee for
such reasonable out-of-pocket expenses as Employee may incur for and on behalf
of the furtherance of Employer's business provided that Employee submits to
Employer satisfactory documentation or other support for such expenses in
accordance with Employer's expense reimbursement policy.
4. Covenants of Employee.
(a) During the term of this Employment Agreement or during
the term of his service with Employer, Employee shall not directly or
indirectly engage in any business, whether as a proprietor, partner, joint
venturer, employer, agent, employee, consultant, officer or beneficial or
record owner of more than one percent of the stock of any corporation or
association of any nature which is competitive with the business conducted by
Employer, except that nothing herein shall prevent the Employee from owning any
part of or participating in the operation of Pledger, Inc.
(b) During the term of this Employment Agreement and ending
on the fifth anniversary following the termination of Employee's employment
with Employer, Employee shall not divulge or appropriate to Employee's own use
or to the use of others any trade secrets or confidential information or
confidential knowledge pertaining in any respect to the business of Employer
(collectively, the "Proprietary Information"). The restrictions contained
herein shall not
4
<PAGE> 5
apply to, and Proprietary Information shall not include, any information which
(a) was already available to the public at the time of disclosure, or
subsequently became available to the public, otherwise than by breach of this
Employment Agreement, or (b) is or becomes available to Employee after the
termination of the Employee's employment with Employer on a non- confidential
basis from a third-party source; provided that such third-party source is not
bound by a confidentiality agreement or any other obligation of confidentiality
to Employer.
(c) In the event Employee breaches this Employment Agreement
or if Employee's employment is terminated by Employer pursuant to paragraph
5(a) of this Employment Agreement, Employee separately agrees, being fully
aware that the performance of this Employment Agreement is important to
preserve the present value of the property and business of Employer, that for
twelve (12) calendar months following the date of such termination, Employee
shall not directly or indirectly engage in any business, whether as proprietor,
partner, joint venturer, employer, agent, employee, consultant, officer or
beneficial or record owner of more than one percent of the stock of any
corporation or association of any nature which is competitive with the business
conducted by Employer in the current geographical service area of Employer or
in any other geographical service area of Employer during the term of
Employee's employment, except that nothing herein shall prevent the Employee
from owning any part of or participating in the operation of Pledger, Inc.
Within such geographical service areas and during such 12-month period,
Employee shall not solicit or do business competitive with the business
conducted by Employer, with any customers, partners or associates of Employer.
Notwithstanding the foregoing, in the event of a Change of Control (as defined
in paragraph 5 (f) below), the Employee's obligations under this paragraph 4(c)
shall terminate as of the date that a Change of Control has occurred.
5
<PAGE> 6
(d) Employee agrees that the breach by Employee of any of the
foregoing covenants is likely to result in irreparable harm, directly or
indirectly, to Employer. Employee, therefore, consents and agrees that if
Employee violates any of such covenants, Employer shall be entitled, among and
in addition to any other rights or remedies available under this Employment
Agreement or at law or in equity, to temporary and permanent injunctive relief
to prevent Employee from committing or continuing a breach of such covenants.
(e) It is the desire, intent and agreement of Employee and
Employer that the restrictions placed on Employee by this paragraph 4 be
enforced to the fullest extent permissible under the law and public policy
applied by any jurisdiction in which enforcement is sought. Accordingly, if and
to the extent that any portion of this paragraph 4 shall be adjudicated to be
unenforceable, such portion shall be deemed amended to delete therefrom or to
reform the portion thus adjudicated to be invalid or unenforceable, such
deletion or reformation to apply only with respect to the operation of such
portion in the particular jurisdiction in which such adjudication is made.
(f) Any controversy or claim arising out of or relating to
this Employment Agreement shall be settled by arbitration in Palm Beach County,
Florida, in accordance with the rules then in effect of the American
Arbitration Association, and judgment upon the award rendered may be entered in
any court having jurisdiction thereon. The arbitrator(s) shall have the right
and ability to award attorneys' fees to the prevailing party in any such
arbitration proceeding.
5. Termination.
(a) Employer shall have the right to terminate Employee's
employment at any time for Cause for any of the following reasons:
6
<PAGE> 7
(i) Employee is convicted by a court of competent and final
jurisdiction of any crime, whether or not involving Employer, that
constitutes a felony in the jurisdiction involved;
(ii) (A) Employee commits any material and willful act of
fraud, misappropriation, embezzlement, unethical business conduct or
other act of dishonesty against Employer, or (B) Employee shall
materially breach a duty of loyalty owed to the Employer or, as a
result of his gross negligence, breaches a duty of care owed to the
Employer; and/or
(iii) Employee materially breaches this Employment Agreement
or fails or refuses to perform any of his material duties as required
by this Employment Agreement in any material respect, after Employee
being given written notice of such breach, failure or refusal, and
Employee's failure to cure the same within 30 days of receipt of such
notice.
(b) Unless otherwise terminated earlier pursuant to the terms
of this Employment Agreement, Employee's employment under this Employment
Agreement will terminate upon Employee's death and may be terminated by
Employer or Employee upon giving not less than thirty (30) days written notice
to the other party in the event that Employee, because of physical or mental
disability or incapacity, is unable to perform Employee's duties hereunder for
an aggregate of 180 working days during any 12-month period. All questions
arising under this Employment Agreement as regards Employee's disability or
incapacity shall be determined by a reputable physician mutually selected by
Employer and Employee at the time such question arises. If Employer and
Employee cannot agree upon the selection of a physician within a period of
seven days after such question arises, then the chief of staff of Good
Samaritan Hospital, West Palm Beach, Florida shall be asked to select a
physician to make such determination. The determination of the physician
selected
7
<PAGE> 8
pursuant to the above provisions of this paragraph 5(b) as to such matters
shall be conclusively binding upon the parties hereto.
(c) Employee may terminate this Employment Agreement if
Employer materially breaches this Employment Agreement. For purposes of this
paragraph 5, Employer shall be deemed to have materially breached this
Employment Agreement if (i) Employer fails to pay any portion of the
compensation or provide Employee any employee benefit due Employee hereunder,
(ii) Employer discharges Employee without Cause, (iii) Employer materially
changes the duties and responsibilities performed by Employee, (iv) Employer
relocates Employee's principal place of business by more than 25 miles without
Employee's consent, or (v) Employer fails to cause a successor to assume this
Employment Agreement in accordance with paragraph 8(b) hereof. If Employee
shall terminate this Employment Agreement as provided in this paragraph 5(c)
then, provided Employer does not also have grounds to terminate this Employment
Agreement for Cause as defined in paragraph 5(a) hereof, Employee shall not be
liable to Employer for any damages as a result thereof, shall not be bound by
the provisions of paragraph 4(c) hereof and shall receive severance in
accordance with paragraph 5(d) hereof as if Employee's employment was
terminated without Cause. Notwithstanding the foregoing, if Employee terminates
this Employment Agreement as provided in this paragraph 5(c) within six months
after the date of a Change of Control, then Employee shall not be liable to
Employer for any damages as a result thereof, shall not be bound by the
provisions of paragraph 4(c) hereof and shall receive severance in accordance
with paragraph 5(d) hereof as if Employee's employment was terminated without
Cause; provided, however, that Employer does not have grounds to terminate
Employee's employment for Cause as defined in paragraphs 5(a)(i) and
5(a)(ii)(A) hereof.
8
<PAGE> 9
(d) In the event Employer terminates Employee's employment
other than by reason of Cause as defined in paragraph 5(a) hereof or Employee
resigns as a consequence of a material breach of this Employment Agreement as
described in paragraph 5(c) hereof, Employee shall receive as damages for
breach of this Employment Agreement a cash amount equal to three times the sum
of (i) Employee's base salary then in effect, plus (ii) the highest bonus paid
to the Employee during the three fiscal years immediately preceding his
termination or resignation of employment (the "Severance Payment"). If such
termination or resignation occurs prior to a Change of Control, the Severance
Payment shall be paid to the Employee as soon as administratively practical in
substantially equal payments over the 12-month period immediately following the
Employee's termination or resignation of employment (the "Severance Period") in
accordance with the Employer's payroll practices; provided, however, that after
a Change of Control, the remainder of the Severance Payment, if any, shall be
paid to the Employee in a lump sum within five days. If a termination or
resignation occurs after a Change of Control, the Severance Payment shall be
paid to the Employee in a lump sum within five days. In addition, during the
Severance Period, the Employee and his dependents shall be entitled to continue
to participate in all employee benefit plans (other than equity-based plans,
bonus plans or disability plans) that Employer provides (and continues to
provide) generally to its employees, provided that the Employee is entitled to
continue to participate in such plans under the terms thereof.
(e) In the event Employee's employment is terminated by
Employer for Cause, or if Employee quits or otherwise resigns for any reason
other than as a result of Employer's material breach of this Employment
Agreement as defined in paragraph 5(c) of this Employment Agreement, Employee
shall receive no severance pay.
9
<PAGE> 10
(f) For purposes of this Employment Agreement, a "Change of
Control" shall be deemed to have occurred with respect to the Employer if any
one or more of the following events occur:
(i) A tender offer is made and consummated for the
ownership of fifty percent (50%) or more of the outstanding
voting securities of the Employer;
(ii) A "person", within the meaning of Section 3(a)9
or Section 13(d) (as in effect on the date hereof) of the
Securities Exchange Act of 1934 shall acquire fifty percent
(50%) or more of the outstanding voting securities of the
Employer;
(iii) Substantially all of the assets of the
Employer are sold or transferred to another person,
corporation or entity that is not a wholly-owned subsidiary
of the Employer; or
(iv) A change in the Board such that a majority of
the seats on the Board are occupied by individuals who were
neither nominated by a majority of the directors of the
Employer as of the close of business on November 25, 1996 nor
appointed by directors so nominated.
6. Right to Resign Following a Change of Control
Notwithstanding any provision in this Employment Agreement to
the contrary, in the event of a Change of Control during the Employee's
employment as executive Chairman, the Executive shall have the right to resign
for any reason or for no reason during the 60 day period following the date on
which the Board certifies that a Change of Control has occurred. For purposes of
paragraphs 5(c) and (d) hereof, such resignation shall be deemed to be a
termination without Cause. The provisions of this paragraph 6 shall not apply
if, at the time of resignation, Employer
10
<PAGE> 11
is entitled to terminate the Employee's employment for Cause pursuant to
paragraphs 5(a)(i) and 5(a)(ii)(A) hereof.
7. Gross Up Payments and Benefits After Change of Control
(a) Anything in this Employment Agreement to the contrary or
any termination of this Employment Agreement notwithstanding, in the event that
it shall be determined that Employee becomes entitled to any payments or
distribution or benefits under this Employment Agreement or any benefit plan or
program of the Employer which would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties are incurred by Employee with respect to such excise
tax (such excise tax, together with any such interest or penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Employer
shall pay Employee an additional amount or amounts (each, a "Gross Up Payment")
such that the net amount or amounts retained by Employee, after deduction of
any Excise Tax on any of the above described payments or benefits and any
Federal, state and local income tax and Excise Tax upon payment provided for by
this paragraph 7, shall be equal to the amount of such payments or benefits
prior to the imposition of such Excise Tax.
(b) For purposes of determining the amount of a Gross Up
Payment, Employee shall be deemed to pay Federal income taxes at the highest
marginal rate of Federal income taxation in the calendar year in which the
Gross Up Payment is payable and state and local income taxes at the highest
marginal rate of taxation in the state and locality of Employee's residence on
the date the Gross Up Payment is payable, net of the maximum reduction in
Federal income taxes which could be obtained from any available deduction of
such state and local taxes.
(c) In the event that the amount of the Excise Tax is
subsequently determined to be less than the amount taken into account in
calculating a Gross Up Payment hereunder, Employee
11
<PAGE> 12
shall repay to the Employer (to the extend actually paid to Employee) at the
time that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross Up Payment attributable to such reduction (plus the
portion of the Gross Up Payment attributable to the Excise Tax and Federal and
state and local income tax imposed on the Gross Up Payment being repaid by
Employee if such repayment results in a reduction in, or a refund of, Excise
Tax and/or Federal and state and local income tax) plus interest on the amount
of such payment at the rate provided in Section 1274(b)(2) (B) of the Code.
(d) In the event that the amount of the Excise Tax is
determined to exceed the amount taken into account in calculating a Gross Up
Payment hereunder (including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross Up Payment), Employer
shall pay an additional Gross Up Payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that the amount of
such excess is finally determined.
(e) Each Gross Up Payment shall be paid by Employer on the
date on which Employee becomes entitled to the payment or benefits giving rise
to such Gross Up Payment.
8. Assignment and Succession.
(a) The services to be rendered and obligations to be
performed by Employee under this Employment Agreement are special and unique,
and all such services and obligations and all of Employee's rights under this
Employment Agreement are personal to the Employee and shall not be assignable
or transferrable. In the event of Employee's death, however, Employee's
personal representative shall be entitled to receive any and all payments then
due under this Employment Agreement.
12
<PAGE> 13
(b) This Employment Agreement shall inure to the benefit of
and be binding upon and enforceable by Employer and the Employee and their
respective successors, permitted assigns, heirs, legal representatives,
executors, and administrators. If Employer shall be merged into or consolidated
with another entity, the provisions of the Employment Agreement shall be
binding upon and inure to the benefit of the entity surviving such merger or
resulting from such consolidation. Employer will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Employer, by agreement in
form and substance satisfactory to the Employee, to expressly assume and agree
to perform this Employment Agreement in the same manner that Employer would be
required to perform it if no such succession had taken place. The provisions of
this paragraph 8(b) shall continue to apply to each subsequent employer of the
Employee hereunder in the event of any subsequent merger, consolidation,
transfer of assets of such subsequent employer or otherwise.
9. Notices.
Any notice, request or other communication to be given by any
party to this Employment Agreement shall be in writing and be sent by certified
mail, postage prepaid, addressed to the parties as follows:
If to Employer:
The Board of Directors
Dycom Industries, Inc.
First Union Center
4440 PGA Boulevard, Suite 600
Palm Beach Gardens, Florida 33410
If to Employee:
Mr. Thomas Pledger
Dycom Industries, Inc.
First Union Center
4440 PGA Boulevard, Suite 600
Palm Beach Gardens, Florida 33410
or to such other address as the parties respectively may designate by notice
given in like manner, and any such notice, request or other communication shall
be deemed to have given when mailed as described above.
13
<PAGE> 14
10. Waiver of Breach.
The waiver by Employer or Employee of a breach of any
provision of this Employment Agreement by either party shall not operate or be
construed as a waiver by the other party of any subsequent breach.
11. Amendment.
This Employment Agreement may be amended only by written
instrument signed by all parties hereto.
12. Partial Invalidity.
The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
13. Full Settlement.
The Employer's obligation to pay Employee the amounts
required by this Employment Agreement shall be absolute and unconditional and
shall not be affected by any circumstances, including, without limitation, any
set off, counterclaim, recoupment, defense or other right which the Employer
may have against Employee or anyone else. All payments and benefits to which
Employee is entitled under this Employment Agreement shall be made and provided
without offset, deduction, or mitigation on account of income that Employee may
receive from employment from the Employer or otherwise, except as provided in
paragraphs 6(c) and 6(d) hereof,
14
<PAGE> 15
or on account of any inability of the Employer to take a tax deduction with
respect to any such payments or benefits.
14. Litigation.
If litigation shall be brought to challenge, enforce or
interpret any provision contained in this Agreement, the Employer agrees to
indemnify the Employee for his reasonable attorneys' fees and expenses incurred
in such litigation; provided, however, that any litigation brought by the
Employee is brought in good faith.
15. Voluntary Limitation.
Employee may elect to limit amounts payable under this
Employment Agreement by notifying Employer, prior to Employee's receipt of such
amounts, that Employee elects to receive either none or some portion of such
amounts.
16. Governing Law.
This Employment Agreement shall be governed by the laws of
the State of Florida without giving effect to choice of law principles.
17. Entire Agreement.
All prior negotiations and agreements between the parties
hereto with respect to the matters contained herein are superseded by this
Employment Agreement, including without limitation the Prior Agreements, and
there are no representations, warranties, understandings or agreements with
respect to the subject matter hereof other than those expressly set forth
herein.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties have entered into this
Employment Agreement as of the date set forth above.
DYCOM INDUSTRIES, INC.
By:
--------------------------------
Louis W. Adams, Jr.
By:
--------------------------------
Walter L. Revell
By:
--------------------------------
Ronald P. Younkin
--------------------------------
Thomas R. Pledger, individually
16
<PAGE> 1
EXHIBIT 10.7
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
This Amended and Restated Employment Agreement is made this
14th day of December, 1998, between Steven E. Nielsen ("EMPLOYEE") and Dycom
Industries, Inc. ("EMPLOYER").
1. EMPLOYMENT. Subject to the terms and conditions hereof,
Employer hereby agrees to employ Employee as President and Chief Executive
Officer to perform such specific duties and have such responsibilities as
Employer's Board of Directors (the "BOARD") may from time to time establish;
PROVIDED, HOWEVER, that such duties shall be consistent with the status, duties
and responsibilities typically accorded to a President and Chief Executive
Officer. Employee hereby accepts employment by Employer as President and Chief
Executive Officer of Employer, subject to the terms and conditions hereof, and
agrees to continue to devote his full business time and attention to his duties
hereunder, to the best of his abilities.
2. TERM OF EMPLOYMENT. Employee's employment pursuant to this
Employment Agreement shall commence on March 10, 1999 (or such earlier date as
may be determined by the Board) and shall terminate upon the earlier of (a)
termination pursuant to paragraph 5 hereof or (b) March 9, 2004, unless extended
by the parties hereto. Prior to the commencement of the term of employment
hereunder, Employee's employment shall continue to be governed by his Employment
Agreement with Employer dated March 11, 1997 and the Change of Control Agreement
dated March 11, 1997 (the "PRIOR AGREEMENTS").
<PAGE> 2
3. COMPENSATION, BENEFITS AND EXPENSES.
(a) At the commencement of Employee's term of employment
pursuant to this Employment Agreement, Employee shall be paid a base salary at
an annual rate of $364,000. Payment will be made on the regularly scheduled pay
dates of Employer, subject to all appropriate withholdings or other deductions
required by law or by Employer's established policies applicable to all
employees of Employer. Employer may increase Employee's salary at Employer's
sole discretion, but shall not reduce such salary below the rate established by
this Employment Agreement (as it may be increased from time to time hereunder)
without Employee's written consent.
(b) During the term of employment, Employer shall provide
Employee with an automobile substantially equivalent in value to the automobile
provided by Employer prior to the date hereof or pay Employee an allowance in
the amount of $600 per month, plus the costs incurred by Employee for all fuel,
oil and lubrication related to the business use of Employee's automobile,
including travel from Employee's home to place of employment.
(c) In addition to any other compensation payable to Employee
pursuant to this Employment Agreement, Employee during the term of this
Employment Agreement may be paid an annual bonus as determined by and within the
sole discretion of the Board. In the event Employee's salary reaches $500,000
per annum, or Employee otherwise reasonably determines that any portion of his
compensation from Employer could become non-deductible by reason of the
application of Section 162(m) of the Internal Revenue Code, Employer promptly
shall establish an annual cash bonus plan satisfying the qualified
performance-based compensation exception to Section 162(m).
<PAGE> 3
(d) Employee's services hereunder shall be performed at the
principal offices of the Employer in Palm Beach Gardens, Florida, subject to
such reasonable travel as the performance of Employee's duties and the business
of Employer may require.
(e) In addition to compensation payable to Employee as
described above, Employee shall be entitled to participate in all employee
benefit plans or programs of Employer as are available to management employees
of Employer generally and such other benefit plans or programs as may be
specified by the Board, including any stock options that may be granted by the
Board. Employer hereby waives Employee's waiting period for eligibility under
its medical benefits plan. Employer also shall reimburse Employee for an annual
physical examination by a physician of Employee's choice.
(f) Effective as of March 10, 1999, Employer shall grant
Employee options to acquire 100,000 shares of common stock of Employer (the "NEW
OPTIONS") pursuant to Employer's 1998 Incentive Stock Option Plan (the "OPTION
PLAN"). The New Options shall (i) vest in equal 25 percent installments on each
of the first four anniversaries of the date of grant, (ii) have a ten year term,
(iii) have an exercise price per share equal to the closing price of a share of
Employer's common stock as of March 10, 1999, (iv) be intended to qualify, to
the greatest extent possible, as incentive stock options within the meaning of
Section 422 of the Internal Revenue Code, and (v) shall otherwise be subject to
the same terms and conditions as the options previously granted by Employer to
Employee pursuant to the Option Plan. Notwithstanding the foregoing, all options
granted by Employer to Employee pursuant to the Option Plan or any other option
plan of Employer (including, but not limited to, the New Options) shall vest in
full to the extent not already vested upon the occurrence of a Change of Control
(as defined in paragraph 5(f) below).
(g) On a timely basis, Employer shall reimburse Employee for
such reasonable out-of-pocket expenses as Employee may incur for and on behalf
of the furtherance of Employer's business provided that Employee submits to
Employer satisfactory documentation or other support for such expenses in
accordance with Employer's expense reimbursement policy.
<PAGE> 4
4. COVENANTS OF EMPLOYEE.
(a) During the term of this Employment Agreement or during the
term of his service with Employer, Employee shall not directly or indirectly
engage in any business, whether as a proprietor, partner, joint venturer,
employer, agent, employee, consultant, officer or beneficial or record owner of
more than one percent of the stock of any corporation or association of any
nature which is competitive with the business conducted by Employer.
(b) During the term of this Employment Agreement and ending on
the fifth anniversary following the termination of Employee's employment with
Employer, Employee shall not divulge or appropriate to Employee's own use or to
the use of others any trade secrets or confidential information or confidential
knowledge pertaining in any respect to the business of Employer (collectively,
the "PROPRIETARY INFORMATION"). The restrictions contained herein shall not
apply to, and Proprietary Information shall not include, any information which
(a) was already available to the public at the time of disclosure, or
subsequently became available to the public, otherwise than by breach of this
Employment Agreement, or (b) is or becomes available to Employee after the
termination of the Employee's employment with Employer on a non-confidential
basis from a third-party source; PROVIDED that such third-party source is not
bound by a confidentiality agreement or any other obligation of confidentiality
to Employer.
(c) In the event Employee breaches this Employment Agreement
or if Employee's employment is terminated by Employer pursuant to paragraph 5(a)
of this Employment Agreement, Employee separately agrees, being fully aware that
the performance of this Employment Agreement is important to preserve the
present value of the property and business of Employer, that for twelve (12)
calendar months following the date of such termination, Employee shall not
directly or indirectly engage in any business, whether as proprietor, partner,
joint venturer, employer, agent, employee, consultant, officer or beneficial or
record owner of more than one percent of the stock of any corporation or
association of any nature which is competitive with the business conducted by
Employer in the current geographical service area of Employer or in any other
geographical service area of Employer during the term of Employee's employment.
Within such geographical service areas and during
<PAGE> 5
such 12-month period, Employee shall not solicit or do business competitive with
the business conducted by Employer, with any customers, partners or associates
of Employer. Notwithstanding the foregoing, in the event of a Change of Control,
the Employee's obligations under this paragraph 4(c) shall terminate as of the
date a Change of Control has occurred.
(d) Employee agrees that the breach by Employee of any of the
foregoing covenants is likely to result in irreparable harm, directly or
indirectly, to Employer. Employee, therefore, consents and agrees that if
Employee violates any of such covenants, Employer shall be entitled, among and
in addition to any other rights or remedies available under this Employment
Agreement or at law or in equity, to temporary and permanent injunctive relief
to prevent Employee from committing or continuing a breach of such covenants.
(e) It is the desire, intent and agreement of Employee and
Employer that the restrictions placed on Employee by this paragraph 4 be
enforced to the fullest extent permissible under the law and public policy
applied by any jurisdiction in which enforcement is sought. Accordingly, if and
to the extent that any portion of this paragraph 4 shall be adjudicated to be
unenforceable, such portion shall be deemed amended to delete therefrom or to
reform the portion thus adjudicated to be invalid or unenforceable, such
deletion or reformation to apply only with respect to the operation of such
portion in the particular jurisdiction in which such adjudication is made.
(f) Any controversy or claim arising out of or relating to
this Employment Agreement shall be settled by arbitration in Palm Beach County,
Florida, in accordance with the rules then in effect of the American Arbitration
Association, and judgment upon the award rendered may be entered in any court
having jurisdiction thereon. The arbitrator(s) shall have the right and ability
to award attorneys' fees to the prevailing party in any such arbitration
proceeding.
5. TERMINATION.
(a) Employer shall have the right to terminate Employee's
employment at any time for Cause for any of the following reasons:
<PAGE> 6
(i) Employee is convicted by a court of competent and final
jurisdiction of any crime, whether or not involving Employer, that
constitutes a felony in the jurisdiction involved;
(ii) (A) Employee commits any material and willful act of
fraud, misappropriation, embezzlement, unethical business conduct or
other act of dishonesty against Employer, or (B) Employee shall
materially breach a duty of loyalty owed to the Employer or ,as a
result of his gross negligence, breaches a duty of care owed to the
Employer; and/or
(iii) Employee materially breaches this Employment Agreement
or fails or refuses to perform any of his material duties as required
by this Employment Agreement in any material respect, after Employee
being given written notice of such breach, failure or refusal, and
Employee's failure to cure the same within 30 days of receipt of such
notice.
(b) Unless otherwise terminated earlier pursuant to the terms
of this Employment Agreement, Employee's employment under this Employment
Agreement will terminate upon Employee's death and may be terminated by Employer
or Employee upon giving not less than thirty (30) days written notice to the
other party in the event that Employee, because of physical or mental disability
or incapacity, is unable to perform Employee's duties hereunder for an aggregate
of 180 working days during any 12-month period. All questions arising under this
Employment Agreement as regards Employee's disability or incapacity shall be
determined by a reputable physician mutually selected by Employer and Employee
at the time such question arises. If Employer and Employee cannot agree upon the
selection of a physician within a period of seven days after such question
arises, then the chief of staff of Good Samaritan Hospital, West Palm Beach,
Florida shall be asked to select a physician to make such determination. The
determination of the physician selected pursuant to the above provisions of this
paragraph 5(b) as to such matters shall be conclusively binding upon the parties
hereto.
<PAGE> 7
(c) Employee may terminate this Employment Agreement if
Employer materially breaches this Employment Agreement. For purposes of this
paragraph 5, Employer shall be deemed to have materially breached this
Employment Agreement if (i) Employer fails to pay any portion of the
compensation or provide Employee any employee benefit due Employee hereunder,
(ii) Employer discharges Employee without Cause, (iii) Employer materially
changes the duties and responsibilities performed by Employee as Chief Executive
Officer, (iv) any successor to Employer fails to appoint the Employee as
President and Chief Executive Officer of a company listed on a North American
stock exchange, (v) Employer relocates Employee's principal place of business by
more than 25 miles without Employee's consent, or (vi) Employer fails to cause a
successor to assume this Employment Agreement in accordance with paragraph 7(b)
hereof. If Employee shall terminate this Employment Agreement as provided in
this paragraph 5(c) then, provided Employer does not also have grounds to
terminate this Employment Agreement for Cause as defined in paragraph 5(a)
hereof, Employee shall not be liable to Employer for any damages as a result
thereof, shall not be bound by the provisions of paragraph 4(c) hereof and shall
receive severance in accordance with paragraph 5(d) hereof as if Employee's
employment was terminated without Cause. Notwithstanding the foregoing, if
Employee terminates this Employment Agreement as provided in this paragraph 5(c)
within six months after the date of a Change of Control, then Employee shall not
be liable to Employer for any damages as a result thereof, shall not be bound by
the provisions of paragraph 4(c) hereof and shall receive severance in
accordance with paragraph 5(d) hereof as if Employee's employment was terminated
without Cause; PROVIDED, HOWEVER, that Employer does not have grounds to
terminate Employee's employment for Cause as defined in paragraphs 5(a)(i) and
5(a)(ii)(A) hereof.
(d) In the event Employer terminates Employee's employment
other than by reason of Cause as defined in paragraph 5(a) hereof or Employee
resigns as a consequence of a material breach of this Employment Agreement as
described in paragraph 5(c) hereof, Employee shall receive as damages for breach
of this Employment Agreement a cash amount equal to three
<PAGE> 8
times the sum of (i) Employee's base salary then in effect, plus (ii) the
highest bonus paid to the Employee during the three fiscal years immediately
preceding his termination or resignation of employment (the "SEVERANCE
PAYMENT"). If such termination or resignation occurs prior to a Change of
Control, the Severance Payment shall be paid to the Employee as soon as
administratively practical in substantially equal payments over the 12-month
period immediately following the Employee's termination or resignation of
employment (the "SEVERANCE PERIOD") in accordance with the Employer's payroll
practices; PROVIDED, HOWEVER, that after a Change of Control, the remainder of
the Severance Payment, if any, shall be paid to the Employee in a lump sum
within five days. If a termination or resignation occurs after a Change of
Control, the Severance Payment shall be paid to the Employee in a lump sum
within five days. In addition, during the Severance Period, the Employee and his
dependents shall be entitled to continue to participate in all employee benefit
plans (other than equity-based plans, bonus plans or disability plans) that
Employer provides (and continues to provide) generally to its employees,
PROVIDED that the Employee is entitled to continue to participate in such plans
under the terms thereof.
(e) In the event Employee's employment is terminated by
Employer for Cause, or if Employee quits or otherwise resigns for any reason
other than as a result of Employer's material breach of this Employment
Agreement as defined in paragraph 5(c) of this Employment Agreement, Employee
shall receive no severance pay.
(f) For purposes of this Employment Agreement, a "CHANGE OF
CONTROL" shall be deemed to have occurred with respect to the Employer if any
one or more of the following events occur:
(i) A tender offer is made and consummated for the
ownership of fifty percent (50%) or more of the outstanding
voting securities of the Employer;
(ii) A "person", within the meaning of Section 3(a)9
or Section 13(d) (as in effect on the date hereof) of the
Securities Exchange Act of 1934 shall acquire fifty percent
(50%) or more of the outstanding voting securities of the
Employer;
<PAGE> 9
(iii) Substantially all of the assets of the Employer
are sold or transferred to another person, corporation or
entity that is not a wholly-owned subsidiary of the Employer;
or
(iv) A change in the Board such that a majority of
the seats on the Board are occupied by individuals who were
neither nominated by a majority of the directors of the
Employer as of the close of business on November 25, 1996 nor
appointed by directors so nominated.
6. GROSS UP PAYMENTS AND BENEFITS AFTER CHANGE OF CONTROL
(a) Anything in this Employment Agreement to the contrary or
any termination of this Employment Agreement notwithstanding, in the event that
it shall be determined that Employee becomes entitled to any payments or
distribution or benefits under this Employment Agreement or any benefit plan or
program of the Employer which would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "CODE") or
any interest or penalties are incurred by Employee with respect to such excise
tax (such excise tax, together with any such interest or penalties, are
hereinafter collectively referred to as the "EXCISE TAX"), then the Employer
shall pay Employee an additional amount or amounts (each, a "GROSS UP PAYMENT")
such that the net amount or amounts retained by Employee, after deduction of any
Excise Tax on any of the above described payments or benefits and any Federal,
state and local income tax and Excise Tax upon payment provided for by this
paragraph 6, shall be equal to the amount of such payments or benefits prior to
the imposition of such Excise Tax.
(b) For purposes of determining the amount of a Gross Up
Payment, Employee shall be deemed to pay Federal income taxes at the highest
marginal rate of Federal income taxation in the calendar year in which the Gross
Up Payment is payable and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Employee's residence on the date
the Gross Up Payment is payable, net of the maximum reduction in Federal income
taxes which could be obtained from any available deduction of such state and
local taxes.
<PAGE> 10
(c) In the event that the amount of the Excise Tax is
subsequently determined to be less than the amount taken into account in
calculating a Gross Up Payment hereunder, Employee shall repay to the Employer
(to the extend actually paid to Employee) at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross Up
Payment attributable to such reduction (plus the portion of the Gross Up Payment
attributable to the Excise Tax and Federal and state and local income tax
imposed on the Gross Up Payment being repaid by Employee if such repayment
results in a reduction in, or a refund of, Excise Tax and/or Federal and state
and local income tax) plus interest on the amount of such payment at the rate
provided in Section 1274(b)(2)(B) of the Code.
(d) In the event that the amount of the Excise Tax is
determined to exceed the amount taken into account in calculating a Gross Up
Payment hereunder (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross Up Payment), Employer shall
pay an additional Gross Up Payment in respect of such excess (plus any interest
payable with respect to such excess) at the time that the amount of such excess
is finally determined.
(e) Each Gross Up Payment shall be paid by Employer on the
date on which Employee becomes entitled to the payment or benefits giving rise
to such Gross Up Payment.
7. ASSIGNMENT AND SUCCESSION.
(a) The services to be rendered and obligations to be
performed by Employee under this Employment Agreement are special and unique,
and all such services and obligations and all of Employee's rights under this
Employment Agreement are personal to the Employee and shall not be assignable or
transferrable. In the event of Employee's death, however, Employee's personal
representative shall be entitled to receive any and all payments then due under
this Employment Agreement.
(b) This Employment Agreement shall inure to the benefit of
and be binding upon and enforceable by Employer and the Employee and their
respective successors, permitted assigns, heirs, legal representatives,
executors, and administrators. If Employer shall be merged
<PAGE> 11
into or consolidated with another entity, the provisions of the Employment
Agreement shall be binding upon and inure to the benefit of the entity surviving
such merger or resulting from such consolidation. Employer will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of
Employer, by agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Employment Agreement in the same
manner that Employer would be required to perform it if no such succession had
taken place. The provisions of this paragraph 7(b) shall continue to apply to
each subsequent employer of the Employee hereunder in the event of any
subsequent merger, consolidation, transfer of assets of such subsequent employer
or otherwise.
8. NOTICES.
Any notice, request or other communication to be given by any
party to this Employment Agreement shall be in writing and be sent by certified
mail, postage prepaid, addressed to the parties as follows:
If to Employer:
Mr. Thomas R. Pledger
Chairman of the Board
Dycom Industries, Inc.
First Union Center
4440 PGA Boulevard, Suite 600
Palm Beach Gardens, Florida 33410
If to Employee:
Mr. Steven E. Nielsen
Dycom Industries, Inc.
First Union Center
4440 PGA Boulevard, Suite 600
Palm Beach Gardens, Florida 33410
<PAGE> 12
or to such other address as the parties respectively may designate by notice
given in like manner, and any such notice, request or other communication shall
be deemed to have given when mailed as described above.
9. WAIVER OF BREACH.
The waiver by Employer or Employee of a breach of any
provision of this Employment Agreement by either party shall not operate or be
construed as a waiver by the other party of any subsequent breach.
10. AMENDMENT.
This Employment Agreement may be amended only by written
instrument signed by all parties hereto.
11. FULL SETTLEMENT.
The Employer's obligation to pay Employee the amounts required
by this Employment Agreement shall be absolute and unconditional and shall not
be affected by any circumstances, including, without limitation, any set off,
counterclaim, recoupment, defense or other right which the Employer may have
against Employee or anyone else. All payments and benefits to which Employee is
entitled under this Employment Agreement shall be made and provided without
offset, deduction, or mitigation on account of income that Employee may receive
from employment from the Employer or otherwise, except as provided in paragraphs
6(c) and 6(d) hereof, or on account of any inability of the Employer to take a
tax deduction with respect to any such payments or benefits.
12. VOLUNTARY LIMITATION.
Employee may elect to limit amounts payable under this
Employment Agreement by notifying Employer, prior to Employee's receipt of such
amounts, that Employee elects to receive either none or some portion of such
amounts.
13. PARTIAL INVALIDITY.
The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
<PAGE> 13
14. LITIGATION.
If litigation shall be brought to challenge, enforce or
interpret any provision contained in this Agreement, the Employer agrees to
indemnify the Employee for his reasonable attorneys' fees and expenses incurred
in such litigation; PROVIDED, HOWEVER, that any litigation brought by the
Employee is brought in good faith.
15. GOVERNING LAW.
This Employment Agreement shall be governed by the laws of the
State of Florida without giving effect to choice of law principles.
16. ENTIRE AGREEMENT.
All prior negotiations and agreements between the parties
hereto with respect to the matters contained herein are superseded by this
Employment Agreement, including without limitation the Prior Agreements, and
there are no representations, warranties, understandings or agreements with
respect to the subject matter hereof other than those expressly set forth
herein.
IN WITNESS WHEREOF, the parties have entered into this
Employment Agreement as of the date set forth above.
DYCOM INDUSTRIES, INC.
By:
---------------------------------
Thomas R. Pledger
Chairman of the Board
---------------------------------
Steven E. Nielsen, individually
<PAGE> 1
Exhibit 10.8
DYCOM INDUSTRIES, INC.
4440 PGA Boulevard / Palm Beach Gardens, Florida 33410-6542
First Union Center / Suite 600 / Telephone (561) 627-7171
Steven E. Nielsen
President and COO
November 3, 1998
VIA FEDEX (OVERNIGHT PRIORITY)
Mr. Robert J. Gluck
3150 Equestrian Drive
Boca Raton, Florida 33434
Dear Bob:
On behalf of Dycom Industries, Inc., I am pleased to extend you an offer to
join our company as Executive Vice President of Finance and Administration. In
this role, you will report directly to me and will serve as Dycom's Chief
Administrative Officer. I will ask you to assume control of our headquarters
staff functions and all the personnel assigned thereto. This includes, but is
not necessarily limited to, finance, information systems, legal, audit, and
human resources. Further, I will ask you to work closely with Mr. Pledger and
me on all our business strategy and planning issues.
Compensation for this position will be as follows:
BASE SALARY: $200,000 per year
PERFORMANCE BONUS: Year-end bonuses are based on both company
and individual performance. Presently, the
performance bonuses for the individuals
assigned to corporate headquarters are
discretionary and determined by Mr. Pledger
and me with the advice and counsel of the
appropriate subordinate managers. We arrive
at the bonus numbers after the close of
each fiscal year, which occurs on July
31st. Checks are normally distributed prior
to October 15. In future years, you will be
an integral part of this process.
<PAGE> 2
Your own bonus for the twelve months ending
October 31, 1999 will be no less than
$60,000.00, irrespective of aggregate or
individual performance issues. Of that
total, $45,000.00 will be paid as part of
the normal fiscal year 1999 bonus cycle,
with the remaining $15,000.00 paid no later
than November 15, 1999. In all future
years, of course, your bonus, as both Mr.
Pledger's and mine are, will be tied to
multiple measures of performance.
EQUITY: Options to purchase shares of Dycom
Industries stock are usually awarded on a
yearly basis to select executives,
managers, and other contributors to the
company's performance. These awards are
based on both company and individual
performance. Presently, these awards are
discretionary and determined by Mr. Pledger
and me with the advice and counsel of the
appropriate subordinate managers. We arrive
at these equity awards after the close of
each fiscal year, and the options are
usually distributed in the fall. In future
years, again, you will be an integral part
of this process.
Your own equity opportunity, however, will
begin when you officially join our company
and will entail a grant of options to
purchase 25,000 shares of Dycom Industries
stock. For legal and regulatory reasons,
the actual grant to options to you will be
made at the Board of Directors' meeting in
November 1998 and will be based on the then
current market price of the stock. You will
be eligible for an additional grant of
options to purchase Dycom Industries stock
at the conclusion of fiscal year 1999 (i.e.
the fall of 1999) and at the conclusion of
every year thereafter as long as you are an
employee of Dycom Industries.
Options to purchase Dycom Industries stock
vest over the course of four (4) years at
the rate of 25% of the awarded options per
year. In other words, 25% of your initial
award will vest at the end of year one, 25%
at the end of year two, 25% at the end of
year three, and the final 25% at the end of
year four. All vested options are
exercisable for a term of ten (10) years
from the date of grant.
2
<PAGE> 3
Finally, should your employment with Dycom Industries, Inc. be terminated for
any reason other than cause during your first full year with the company, you
will receive either the guaranteed cash balance remaining on this contract
(i.e., the remainder of your salary for the first year plus the guaranteed
portion of your bonus, both defined above) or six months worth of base salary
plus the guaranteed portion of your bonus, whichever is greater.
You will be eligible for all corporate benefits in accordance with standard
corporate policy.
Tom Pledger and I are truly excited about the prospect of having you on our
team, and I look forward to your starting in the near future. In this regard,
I'm thinking that a start date of no later than November 23, 1998 is
appropriate.
I look forward to hearing from you.
Best regards,
DYCOM INDUSTRIES, INC.
Steven Nielsen, President
SEN/je
3
<PAGE> 1
EXHIBIT (21)
The following table sets forth the Registrant's subsidiaries and the
jurisdiction of incorporation of each. Each subsidiary is 100% owned by the
Registrant.
ANSCO & ASSOCIATES, INC.
A Florida corporation
APEX DIGITAL, INC. f/k/a APEX DIGITAL TV, INC.
A Kentucky corporation
CABLE COM INC.
A Delaware corporation
COMMUNICATIONS CONSTRUCTION GROUP, INC.
A Pennsylvania corporation
ERVIN CABLE CONSTRUCTION, INC.
A Kentucky corporation
FIBER CABLE, INC.
A Delaware corporation
GLOBE COMMUNICATIONS, INC.
A North Carolina corporation
INSTALLATION TECHNICIANS, INC.
A Missouri corporation
IVY H. SMITH COMPANY
A Florida corporation
KOHLER CONSTRUCTION COMPANY, INC.
A Florida corporation
LAMBERTS' CABLE SPLICING COMPANY
A North Carolina corporation
LOCATING INC.
A Washington corporation
STAR CONSTRUCTION, INC.
A Tennessee corporation
S.T.S., INC.
A Florida corporation
TESINC, INC.
An Arizona corporation
<PAGE> 1
Exhibit 23.1
Deloitte &
Touche -----------------------------------------------------------------
Certified Public Accountants Deloitte & Touch LLP
Suite 900
1645 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401-2221
Telephone: (561) 687-4000
Facsimile: (561) 687-4061
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-46506 of Dycom Industries, Inc. on Form S-8 and Registration No. 333-72931
of Dycom Industries, Inc. on Form S-8 of our report dated August 30, 1999
appearing in this Annual Report on Form 10-K of Dycom Industries, Inc. for the
year ended July 31, 1999.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Certified Public Accountants
West Palm Beach, Florida
October 4, 1999
<PAGE> 1
Exhibit 23.2
NOWALK & ASSOCIATES
A Certified Public Accounting Firm, P.C.
Richard G. Nowalk, CPA Constitution Center
Dean P. Koehler, CPA 2650 Route 130 North
- ----------------------------- Cranbury, New Jersey 08512
Michael G. Quinn, CPA (609) 655-4100 * (732) 246-7781
Homer T. Smith, CPA Fax (609) 655-5273
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in these Registration Statements
No. 33-46506 and No. 333-72931 on Form S-8 of our report dated July 23, 1997,
appearing in this Annual Report on Form 10-K of Dycom Industries, Inc. for the
year ended July 31, 1998.
/s/ Nowalk & Associates
Nowalk & Associates
Cranbury, New Jersey
October 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DYCOM
INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOR
ALL PERIODS PRESENTED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> JUL-31-1997 JUL-31-1998 JUL-31-1999
<PERIOD-START> JUL-31-1996 JUL-31-1997 JUL-31-1998
<PERIOD-END> JUL-31-1997 JUL-31-1998 JUL-31-1999
<CASH> 5,276,112 35,927,307 97,955,007
<SECURITIES> 0 0 0
<RECEIVABLES> 49,241,590 63,022,011 98,179,792
<ALLOWANCES> 1,029,093 2,210,978 4,129,280
<INVENTORY> 12,277,114 16,449,417 43,101,631
<CURRENT-ASSETS> 70,336,712 118,193,282 241,129,345
<PP&E> 83,287,399 97,794,772 148,160,838
<DEPRECIATION> 46,951,187 54,929,575 68,749,956
<TOTAL-ASSETS> 112,511,881 166,318,091 384,549,726
<CURRENT-LIABILITIES> 49,434,042 46,378,616 78,605,798
<BONDS> 31,307,802 18,135,772 12,420,981
0 0 0
0 0 0
<COMMON> 6,333,938 7,361,366 8,542,663
<OTHER-SE> 36,092,854 91,017,582 278,747,916
<TOTAL-LIABILITY-AND-EQUITY> 112,511,881 166,318,091 384,549,726
<SALES> 0 0 0
<TOTAL-REVENUES> 311,238,108 368,713,563 470,136,925
<CGS> 0 0 0
<TOTAL-COSTS> 246,025,594 285,038,220 347,719,784
<OTHER-EXPENSES> 11,814,577 13,496,694 20,143,191
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 2,619,191 2,045,571 1,695,920
<INCOME-PRETAX> 23,770,489 36,081,264 60,612,322
<INCOME-TAX> 7,956,851 13,045,644 24,162,347
<INCOME-CONTINUING> 15,813,638 23,035,620 36,449,975
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 15,813,638 23,035,620 36,449,975
<EPS-BASIC> 0.84 1.09 1.58
<EPS-DILUTED> 0.83 1.07 1.55
</TABLE>
