<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 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.
(Exact name of registrant as specified in its charter)
Florida 59-1277135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4440 PGA Boulevard, Suite 600
Palm Beach Gardens, Florida 33410
(Address of principal executive office) (Zip Code)
(561) 627-7171
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding as of March 5, 1999
----- -------------------------------
<S> <C>
Common Stock, par value $0.33 1/3 22,251,582
</TABLE>
<PAGE> 2
DYCOM INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
July 31, 1998 and January 31, 1999 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
January 31, 1998 and 1999 4
Condensed Consolidated Statements of
Operations for the Six Months Ended
January 31, 1998 and 1999 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
January 31, 1998 and 1999 6-7
Notes to Condensed Consolidated
Financial Statements 8-13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14-18
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
<PAGE> 3
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 31, January 31,
ASSETS 1998 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 35,927,307 $ 33,985,787
Accounts receivable, net 62,142,808 50,242,669
Costs and estimated earnings in
excess of billings 14,382,620 19,377,664
Deferred tax assets, net 2,726,348 2,668,146
Other current assets 3,014,199 7,253,689
------------ ------------
Total current assets 118,193,282 113,527,955
------------ ------------
PROPERTY AND EQUIPMENT, net 42,865,197 58,126,177
OTHER ASSETS:
Intangible assets, net 4,529,270 4,507,489
Deferred tax assets 53,066
Other 730,342 4,524,833
------------ ------------
Total other assets 5,259,612 9,085,388
------------ ------------
TOTAL $166,318,091 $180,739,520
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,182,699 $ 13,523,311
Notes payable 4,727,782 4,743,624
Accrued self-insured claims 2,440,303 2,729,208
Income taxes payable 2,812,144 618,362
Other accrued liabilities 14,819,181 13,764,652
------------ ------------
Total current liabilities 36,982,109 35,379,157
NOTES PAYABLE 13,407,990 11,181,614
ACCRUED SELF-INSURED CLAIMS 7,454,849 8,403,196
OTHER LIABILITIES 10,094,195 11,043,894
------------ ------------
Total liabilities 67,939,143 66,007,861
------------ ------------
COMMITMENTS AND CONTINGENCIES, Note 8
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00 per share:
1,000,000 shares authorized; no shares
issued and outstanding
Common stock, par value $.33 1/3 per share:
50,000,000 shares authorized; 14,722,731 and 22,240,400
shares issued and outstanding, respectively 4,907,577 7,413,466
Additional paid-in capital 62,496,252 62,198,781
Retained earnings 30,975,119 45,119,412
------------ ------------
Total stockholders' equity 98,378,948 114,731,659
------------ ------------
TOTAL $166,318,091 $180,739,520
============ ============
</TABLE>
See notes to condensed consolidated financial statements--unaudited
<PAGE> 4
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended January 31,
--------------------------------------
1998 1999
----------- -----------
<S> <C> <C>
REVENUES:
Contract revenues earned $80,680,559 $96,727,284
Other, net 783,972 727,268
----------- -----------
Total 81,464,531 97,454,552
----------- -----------
Expenses:
Costs of earned revenues
excluding depreciation 63,636,371 73,468,675
General and administrative 7,360,048 8,676,838
Depreciation and amortization 3,200,637 4,144,089
----------- -----------
Total 74,197,056 86,289,602
----------- -----------
INCOME BEFORE INCOME TAXES 7,267,475 11,164,950
----------- -----------
PROVISION FOR INCOME TAXES:
Current 2,041,386 4,201,198
Deferred 360,468 313,602
----------- -----------
Total 2,401,854 4,514,800
----------- -----------
NET INCOME $ 4,865,621 $ 6,650,150
=========== ===========
EARNINGS PER COMMON SHARE:
Basic $ 0.23 $ 0.30
=========== ===========
Diluted $ 0.22 $ 0.29
=========== ===========
PRO FORMA NET INCOME AND EARNINGS
PER COMMON SHARE DATA:
Income before income taxes $ 7,267,475
Pro forma provision for
income taxes 2,941,646
-----------
PRO FORMA NET INCOME $ 4,325,829
===========
PRO FORMA EARNINGS PER COMMON SHARE:
Basic $ 0.20
===========
Diluted $ 0.20
===========
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
<PAGE> 5
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended January 31,
------------------------------------
1998 1999
------------ ------------
<S> <C> <C>
REVENUES:
Contract revenues earned $171,813,092 $205,340,440
Other, net 1,083,904 1,416,362
------------ ------------
Total 172,896,996 206,756,802
------------ ------------
Expenses:
Costs of earned revenues
excluding depreciation 134,956,874 154,648,923
General and administrative 15,961,757 20,214,381
Depreciation and amortization 6,323,371 8,116,827
------------ ------------
Total 157,242,002 182,980,131
------------ ------------
INCOME BEFORE INCOME TAXES 15,654,994 23,776,671
------------ ------------
PROVISION FOR INCOME TAXES:
Current 4,877,597 9,627,242
Deferred 173,739 5,136
------------ ------------
Total 5,051,336 9,632,378
------------ ------------
NET INCOME $ 10,603,658 $ 14,144,293
============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.52 $ 0.64
============ ============
Diluted $ 0.51 $ 0.63
============ ============
PRO FORMA NET INCOME AND EARNINGS
PER COMMON SHARE DATA:
Income before income taxes $ 15,654,994
Pro forma provision for
income taxes 6,514,832
------------
PRO FORMA NET INCOME $ 9,140,162
============
PRO FORMA EARNINGS PER COMMON SHARE:
Basic $ 0.45
============
Diluted $ 0.44
============
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
<PAGE> 6
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended January 31,
------------------------------------
1998 1999
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS FROM:
OPERATING ACTIVITIES:
Net income $ 10,603,658 $ 14,144,293
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 6,323,371 8,116,827
Gain on disposal of assets (177,643) (161,439)
Deferred income taxes 173,739 5,136
Changes in assets and liabilities:
Accounts receivable, net 3,768,114 11,900,139
Unbilled revenues, net (2,510,658) (4,995,044)
Other current assets (190,480) (4,239,490)
Other assets 96,963 (794,491)
Accounts payable (4,705,467) 1,340,612
Accrued self-insured claims and
other liabilities (2,153,215) 1,132,422
Accrued income taxes (846,507) (2,193,782)
------------ ------------
Net cash inflow from operating activities 10,381,875 24,255,183
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures (9,986,657) (22,810,098)
Proceeds from sale of assets 947,830 553,276
Assets of acquired business (750,000)
Investment in unconsolidated affiliate (3,000,000)
------------ ------------
Net cash outflow from investing activities (9,038,827) (26,006,822)
------------ ------------
FINANCING ACTIVITIES:
Borrowings on notes payable
and bank lines-of-credit 9,569,762 -
Principal payments on notes payable
and bank lines-of-credit (21,139,918) (2,398,299)
Exercise of stock options 173,955 2,208,418
Proceeds from stock offering 36,958,618 -
Distributions to shareholders of pooled
companies (3,897,000) -
------------ ------------
Net cash inflow (outflow) from financing activities 21,665,417 (189,881)
------------ ------------
NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES 23,008,465 (1,941,520)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 5,276,112 35,927,307
------------ ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 28,284,577 $ 33,985,787
============ ============
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
<PAGE> 7
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended January 31,
------------------------------------
1998 1999
---------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest $1,173,609 $ 657,932
Income taxes $5,726,979 $10,765,623
Property and equipment acquired and financed with:
Capital lease obligation $ 187,765
Income tax benefit from stock options exercised $ 194,483 $ 1,115,554
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
<PAGE> 8
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--Unaudited
1. The accompanying condensed consolidated balance sheets of Dycom Industries,
Inc. ("Dycom" or the "Company") as of July 31, 1998 and January 31, 1999, and
the related condensed consolidated statements of operations for the three and
six months ended January 31, 1998 and 1999, respectively, and the condensed
consolidated statements of cash flows for the six months ended January 31, 1998
and 1999 reflect all normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of such statements. The results of
operations for the three and six months ended January 31, 1999 are not
necessarily indicative of the results which may be expected for the entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The condensed consolidated financial statements
are unaudited. These statements include Dycom Industries, Inc. and its
subsidiaries, all of which are wholly owned. On April 6, 1998, the Company
consummated the Cable Com Inc. ("CCI") and Installation Technicians, Inc.
("ITI") acquisitions and issued 1.2 million and 600,000 shares of common stock
in exchange for all the outstanding capital stock of CCI and ITI, respectively.
These acquisitions were accounted for as poolings of interests and accordingly,
the Company's condensed consolidated financial statements include the results of
CCI and ITI for all periods presented. Prior to the acquisitions, CCI and ITI
used a fiscal year consisting of a 52/53 week time period and, as a result of
the merger, have adopted Dycom's fiscal year end of July 31. All periods
presented reflect the adoption of such fiscal year end as of the beginning of
the period.
The Company is a leading provider of engineering, construction and maintenance
services to telecommunications providers and also performs underground utility
locating services and electrical construction and maintenance contracting
services. All material intercompany accounts and transactions have been
eliminated.
PRO FORMA ADJUSTMENTS -- Prior to the acquisition by Dycom, CCI and ITI elected
under Subchapter S of the Internal Revenue Code to have the stockholders
recognize their proportionate share of CCI's and ITI's taxable income on their
personal tax returns in lieu of paying corporate income tax. The pro forma net
income and earnings per common share on the condensed consolidated statements of
operations reflect a provision for current and deferred income taxes for all
periods presented as if the corporations were included in Dycom's federal and
state income tax returns. At April 6, 1998, the consummation date of the
acquisition, CCI and ITI recorded deferred taxes on the temporary differences
between the financial reporting basis and the tax basis of their assets and
liabilities. The deferred tax (asset) liability recorded by CCI and ITI was
$616,358 and $(11,035), respectively.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements.
Estimates are used in the Company's revenue recognition of work-in-process,
allowance for doubtful accounts, self-insured claims liability, deferred tax
asset valuation allowance, depreciation and amortization, and in the estimated
lives of assets, including intangibles.
REVENUE -- Income on short-term contracts is recognized as the related work is
completed. Work-in-process on unit contracts is based on management's estimate
of work performed but not billed. Income on long-term contracts is recognized on
the percentage-of-completion method based primarily on the ratio of contract
costs incurred to date to total estimated contract costs. At the time a loss on
a contract becomes known, the entire amount of the estimated ultimate loss is
accrued.
"Costs and estimated earnings in excess of billings" represents the excess of
contract revenues recognized under the percentage-of-completion method of
accounting for long-term contracts and work-in-process on unit contracts over
billings to date. For those contracts in which billings exceed contract revenues
recognized to date, such excesses would be included in the caption "billings in
excess of costs and estimated earnings".
CASH AND EQUIVALENTS -- Cash and equivalents include cash balances on deposit in
banks, overnight repurchase agreements, certificates of deposit, commercial
paper, and various other financial instruments having an original maturity of
three months or less. For purposes of the condensed consolidated statements of
cash flows, the Company considers these amounts to be cash equivalents.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost. Depreciation
and amortization is computed over the estimated useful life of the assets
utilizing the straight-line method. The estimated useful service lives of the
assets are: buildings--20-31 years; leasehold improvements--the term of the
respective lease or the estimated useful life of the improvements, whichever is
shorter; vehicles--3-7 years; equipment and machinery--2-10 years; and furniture
and fixtures--3-10 years. Maintenance and repairs are expensed as incurred;
expenditures that enhance the value of the property or extend its useful life
are capitalized. When assets are sold or retired, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain or
loss is included in income.
<PAGE> 9
INTANGIBLE ASSETS -- The excess of the purchase price over the fair market value
of the tangible net assets of acquired businesses (goodwill) is amortized on a
straight-line basis over 40 years. The appropriateness of the carrying value of
goodwill is reviewed periodically by the Company. An impairment loss is
recognized when the projected future cash flows is less than the carrying value
of goodwill. No impairment loss has been recognized in the periods presented.
Non-compete agreements obtained through the purchase of business assets are
amortized on a straight-line basis over the term of the agreements.
Amortization expense was $77,545 and $83,741 for the six month periods ended
January 31, 1998 and 1999, respectively. The intangible assets are net of
accumulated amortization of $1,306,446 at July 31, 1998 and $1,390,188 at
January 31, 1999.
SELF-INSURED CLAIMS LIABILITY -- The Company is primarily self-insured, up to
certain limits, for automobile and general liability, workers' compensation, and
employee group health claims. A liability for unpaid claims and the associated
claim expenses, including incurred but not reported losses, is actuarially
determined and reflected in the condensed consolidated financial statements as
an accrued liability. The self-insured claims liability includes incurred but
not reported losses of $5,120,000 and $7,330,000 at July 31, 1998 and January
31, 1999, respectively. The determination of such claims and expenses and the
appropriateness of the related liability is continually reviewed and updated.
INCOME TAXES -- The Company and its subsidiaries, except for CCI and ITI, file a
consolidated federal income tax return. CCI and ITI were included in the
Company's consolidated federal income tax return effective April 6, 1998.
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities.
PER SHARE DATA -- Earnings per common share-basic is computed using the
weighted-average common shares outstanding during the period. Earnings per
common share-diluted is computed using the weighted-average common shares
outstanding during the period and the dilutive effect of common stock options,
using the treasury stock method. See Note 3.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- In June 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income" which establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general purpose
financial statements. This statement requires that an enterprise classify items
of other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. This statement is effective for fiscal years
beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information" which establishes standards for public
business enterprises to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes the standards for related disclosures about
products and services, geographic areas, and major customers. This statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. The financial information
is required to be reported on the basis that it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement is effective for fiscal years beginning
after December 15, 1997.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pension and Other Postretirement Benefits", which revises certain disclosures
about pension and other postretirement benefit plans. This statement does not
change the measurement and recognition methods for pensions or postretirement
benefit costs reported in financial statements. This statement is effective for
fiscal years beginning after December 15, 1997.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards for the
accounting and reporting of derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999.
Management is currently evaluating the requirements and related disclosures of
SFAS No. 130, 131, 132, and 133.
<PAGE> 10
3. EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128 "Earnings per Share" which
changes the method of calculating earnings per share and was effective for the
Company in the quarter ended January 31, 1998. All periods presented have been
restated in accordance with the provisions of SFAS No. 128.
On December 14, 1998, the Board of Directors declared a three-for-two split of
the Company's common stock, effected in the form of a stock dividend paid on
January 4, 1999 to shareholders of record on December 23, 1998. All agreements
concerning stock options provide for the issuance of additional shares due to
the declaration of the stock split. An amount equal to the par value of the
common shares issued plus cash paid in lieu of fractional shares was transferred
from capital in excess of par value to the common stock account. All references
to number of shares and to per share information, except number of shares issued
and outstanding as of July 31, 1998, have been adjusted to reflect the stock
split on a retroactive basis.
The following is a reconciliation of the numerators and denominators of the
basic and diluted per share computation as required by SFAS No. 128.
<TABLE>
<CAPTION>
For the Three Months Ended January 31,
--------------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net income available to common stockholders (numerator) $ 4,865,621 $ 6,650,150
=========== ===========
Weighted-average number of common shares (denominator) 21,619,506 22,199,923
=========== ===========
Earnings per common share - basic $ 0.23 $ 0.30
=========== ===========
Weighed-average number of common shares 21,619,506 22,199,923
Potential common stock arising from stock options 286,590 412,169
----------- -----------
Total shares (denominator) 21,906,096 22,612,092
=========== ===========
Earnings per common share - diluted $ 0.22 $ 0.29
=========== ===========
PRO FORMA EARNINGS PER SHARE DATA:
Pro forma net income available to common stockholders (numerator) $ 4,325,829
===========
Pro forma earnings per common share - basic $ 0.20
===========
Pro forma earnings per common share - diluted $ 0.20
===========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended January 31,
------------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net income available to common stockholders (numerator) $10,603,658 $14,144,293
=========== ===========
Weighted-average number of common shares (denominator) 20,312,127 22,144,794
=========== ===========
Earnings per common share - basic $ 0.52 $ 0.64
=========== ===========
Weighed-average number of common shares 20,312,127 22,144,794
Potential common stock arising from stock options 280,908 381,024
----------- -----------
Total shares (denominator) 20,593,035 22,525,818
=========== ===========
Earnings per common share - diluted $ 0.51 $ 0.63
=========== ===========
PRO FORMA EARNINGS PER SHARE DATA:
Pro forma net income available to common stockholders (numerator) $ 9,140,162
===========
Pro forma earnings per common share - basic $ 0.45
===========
Pro forma earnings per common share - diluted $ 0.44
===========
</TABLE>
<PAGE> 11
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
July 31, January 31,
1998 1999
----------- ------------
<S> <C> <C>
Contract billings $58,888,421 $47,295,278
Retainage 4,133,590 4,839,257
Other receivables 1,331,775 908,834
----------- -----------
Total 64,353,786 53,043,369
Less allowance for doubtful accounts 2,210,978 2,800,700
----------- -----------
Accounts receivable, net $62,142,808 $50,242,669
=========== ===========
</TABLE>
5. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS
The accompanying condensed consolidated balance sheets include costs and
estimated earnings on contracts in progress, net of progress billings as
follows:
<TABLE>
<CAPTION>
July 31, January 31,
1998 1999
----------- -----------
<S> <C> <C>
Costs incurred on contracts in progress $15,056,642 $19,793,680
Estimated earnings thereon 3,387,933 4,617,836
----------- ------------
18,444,575 24,411,516
Less billings to date 4,061,955 5,033,852
----------- ------------
Costs and estimated earnings in excess of billings $14,382,620 $19,377,664
=========== ===========
</TABLE>
6. PROPERTY AND EQUIPMENT
The accompanying condensed consolidated balance sheets include the following
property and equipment:
<TABLE>
<CAPTION>
July 31, January 31,
1998 1999
----------- ------------
<S> <C> <C>
Land $ 1,592,958 $ 2,077,830
Buildings 2,497,103 3,559,155
Leasehold improvements 1,459,543 1,448,840
Vehicles 52,287,135 66,676,786
Equipment and machinery 34,319,707 39,568,769
Furniture and fixtures 5,638,326 6,218,428
----------- -----------
Total 97,794,772 119,549,808
Less accumulated depreciation and amortization 54,929,575 61,423,631
----------- -----------
Property and equipment, net $42,865,197 $ 58,126,177
=========== ============
</TABLE>
<PAGE> 12
7. NOTES PAYABLE
Notes payable are summarized by type of borrowings as follows:
<TABLE>
<CAPTION>
July 31, January 31,
1998 1999
----------- -----------
<S> <C> <C>
Bank Credit Agreement:
Term loan $14,250,000 $12,750,000
Equipment term loans 3,339,218 2,595,486
Capital lease obligations 60,931 202,043
Equipment loans 485,623 377,709
----------- -----------
Total 18,135,772 15,925,238
Less current portion 4,727,782 4,743,624
----------- -----------
Notes payable--non-current $13,407,990 $11,181,614
=========== ===========
</TABLE>
On April 29, 1998, the Company signed an amendment to its bank credit agreement
increasing the total facility to $85.0 million. The amended bank credit
agreement provides for (i) a $30.0 million revolving working capital facility;
(ii) a $15.0 million standby letter of credit facility; (iii) a $25.0 million
revolving equipment acquisition and small business purchase facility; and (iv) a
$15.0 million five-year term loan. The revolving working capital facility, the
standby letter of credit facility and the revolving equipment facility are
available for a two-year period.
The revolving working capital facility bears interest, at the option of the
Company, at the bank's prime interest rate minus 1.00% or LIBOR plus 1.50%. As
of January 31, 1999, there was no outstanding balance on this facility resulting
in an available borrowing capacity of $30.0 million.
The Company had outstanding standby letters of credit issued to the Company's
insurance administrators as part of its self-insurance program of $11.4 million
at January 31, 1999.
The outstanding loans under the revolving equipment acquisition and small
business purchase facility bear interest, at the option of the Company, at the
bank's prime interest rate minus 0.75% or LIBOR plus 1.75%. At January 31, 1999,
the interest rate on the outstanding revolving equipment and small business
purchase facility were at the LIBOR option of 7.00%. The advances under the
revolving equipment acquisition and small business purchase facility are
converted to term loans with maturities not to exceed 48 months. The outstanding
principal on the equipment term loans is payable in monthly installments through
February 2001. The amount outstanding on the revolving equipment acquisition and
small business purchase facility was $2.6 million at January 31, 1999, resulting
in an available borrowing capacity of $22.4 million.
The outstanding principal under the term loan bears interest at the bank's prime
interest rate minus 0.50% (7.25% at January 31, 1999). Principal and interest is
payable in quarterly installments through April 2003. The amount outstanding on
the term loan was $12.8 million at January 31, 1999.
The amended bank credit agreement contains restrictions which, among other
things, requires maintenance of certain financial ratios and covenants,
restricts encumbrances of assets and creation of indebtedness, and limits the
payment of cash dividends. Cash dividends are limited to 50% of each fiscal
year's after-tax profits. No cash dividends were paid during the three and six
month periods ended January 31, 1999. The amended bank credit facility is
secured by the Company's assets and guaranteed by each of its subsidiaries. At
January 31, 1999, the Company was in compliance with all financial covenants and
conditions.
In addition to the borrowings under the amended bank credit agreement, certain
subsidiaries have outstanding obligations under capital leases and other
equipment financing arrangements. The obligations are payable in monthly
installments expiring at various dates through January 2002.
Interest costs incurred on notes payable, all of which were expensed for the
three month period ended January 31, 1998 and 1999 were $461,656 and $316,530,
respectively. Interest costs for the six month period ended January 31, 1998 and
1999 were $1,097,845 and $665,080, respectively. Such amounts are included in
general and administrative expenses in the accompanying condensed consolidated
statements of operations.
<PAGE> 13
8. COMMITMENTS AND CONTINGENCIES
In September 1995, the State of New York commenced a sales and use tax audit of
Communications Construction Group, Inc. ("CCG"), a wholly-owned subsidiary, for
the years 1989 through 1995. As a result of the audit, certain additional taxes
were paid by CCG in fiscal 1996. In addition, the State of New York concluded
that cable television service providers are subject to New York State sales
taxes for the construction of cable television distribution systems, and by a
Notice dated January 1997, asserted amounts due from CCG for sales taxes and
interest for the periods through August 31, 1995, aggregating approximately $1.3
million. Any sales taxes asserted against the Company may be offset by use taxes
already paid by the customers of the Company. The Company intends to vigorously
contest the assertion. The Company is unable to assess the likelihood of any
particular outcome at this time or to quantify the effect a resolution of this
matter may have on the Company's consolidated financial statements.
In the normal course of business, certain subsidiaries of the Company have
pending and unasserted claims. It is the opinion of the Company's management,
based on the information available at this time, that these claims will not have
a material adverse impact on the Company's consolidated financial statements.
9. SUBSEQUENT EVENT
On February 3, 1999, the Company acquired all of the outstanding common stock of
Locating, Inc. for $10.0 million. Located in Issaquah, Washington, Locating,
Inc.'s primary line of business is the locating, marking, and mapping of
underground utility facilities for cable television, multiple system operators,
telephone companies, and electrical and gas utilities. The Company intends to
record this transaction as a purchase.
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated financial condition and results of operations. The discussion
should be read in conjunction with the condensed consolidated financial
statements and notes thereto.
Results of Operations
In April 1998, Dycom completed the acquisition of CCI and ITI in transactions
accounted for as poolings of interests. See Note 2 of the Notes to the Condensed
Consolidated Financial Statements--(Unaudited). CCI provides construction
services to cable television multiple system operators and ITI provides
construction and engineering services to local and long-distance telephone
companies. 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 CCI and ITI.
The following table sets forth, as a percentage of contract revenues earned,
certain items in the Company's Condensed Consolidated Statements of Operations
for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months Ended January 31,
--------------------------------------
1998 1999
------- ------
<S> <C> <C>
Revenues:
Contract revenues earned 100.0% 100.0%
Other, net 1.0 0.8
------- ------
Total revenues 101.0 100.8
Expenses:
Cost of earned revenues, excluding depreciation 78.9 76.0
General and administrative 9.1 9.0
Depreciation and amortization 4.0 4.3
------- ------
Total expenses 92.0 89.3
------- ------
Income before income taxes 9.0 11.5
Provision for income taxes 3.0 4.6
------- ------
Historical Net Income 6.0 6.9%
======
Pro forma adjustments to income tax provision 0.6
-------
Pro Forma Net Income 5.4%
=======
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
For the Six Months Ended January 31,
-------------------------------------
1998 1999
------- ------
<S> <C> <C>
Revenues:
Contract revenues earned 100.0% 100.0%
Other, net 0.6 0.7
------- ------
Total revenues 100.6 100.7
Expenses:
Cost of earned revenues, excluding depreciation 78.5 75.3
General and administrative 9.3 9.8
Depreciation and amortization 3.7 4.0
------- ------
Total expenses 91.5 89.1
------- ------
Income before income taxes 9.1 11.6
Provision for income taxes 2.9 4.7
------- ------
Historical Net Income 6.2 6.9%
======
Pro forma adjustments to income tax provision 0.9
-------
Pro Forma Net Income 5.3%
=======
</TABLE>
REVENUES. Contract revenues increased $16.0 million, or 19.9%, to $96.7 million
in the quarter ending January 31, 1999 from $80.7 million in the quarter ended
January 31, 1998. Of this increase, $15.3 million was attributable to the
telecommunications services group, $0.4 million was attributable to the
underground utility locating services group, and $0.3 million was attributable
to the electrical services group, reflecting an increased market demand for the
Company's services.
During the quarter ended January 31, 1999, the Company recognized $87.3 million
of contract revenues from the telecommunications services group as compared to
$72.0 million for the same period last year. The increase in the Company's
telecommunications services group contract revenues reflects increased volume of
projects and activities associated with cable television construction services
which increased by $4.7 million to $40.5 million in the quarter ended January
31, 1999. Of the remaining $10.6 million increase in telecommunications contract
revenues, $5.2 million related to geographic expansion and an increased volume
of services to existing customers under the terms of several new master
contracts. Contract revenues recognized from the electrical construction and
maintenance services group was $5.2 million and $4.9 million, respectively, for
the quarters ended January 31, 1999 and 1998. The Company recognized contract
revenues of $4.2 million from the underground utility locating services group in
the quarter ended January 31, 1999 as compared to $3.8 million in the same
period last year, an increase of 10.7%.
Contract revenues from multi-year master service agreements and other long-term
agreements represented 88% and 90% of total contract revenues in the quarter
ended January 31, 1999 and 1998, respectively. Contract revenues from multi-year
master service agreements represented 46% and 47% of total contract revenues in
the quarters ended January 31, 1999 and 1998, respectively.
Contract revenues increased $33.5 million, or 19.5%, to $205.3 million in the
six months ending January 31, 1999 from $171.8 million in the six months ended
January 31, 1998. Of this increase, $32.3 million was attributable to the
telecommunications services group, $1.0 million was attributable to the
underground utility locating services group, and $0.2 million was attributable
to the electrical services group, reflecting an increased market demand for the
Company's services.
During the six months ended January 31, 1999, the Company recognized $185.7
million of contract revenues from the telecommunications services group as
compared to $153.4 million for the same period last year. The increase in the
Company's telecommunications services group contract revenues reflects increased
volume of projects and activities associated with cable television construction
services which increased by $10.8 million to $84.0 million in the six months
ended January 31, 1999. Of the remaining $21.5 million increase in
telecommunications contract revenues, $16.1 million related to geographic
expansion and an increased volume of services to existing customers under the
terms of several new master contracts. Contract revenues recognized from the
electrical construction and maintenance services group was $10.1 million and
$9.9 million, respectively, for the six months ended January 31, 1999 and 1998.
The Company recognized contract revenues of $9.5 million from the underground
utility locating services group in the six months ended January 31, 1999 as
compared to $8.5 million in the same period last year, an increase of 11.2%.
Contract revenues from multi-year master service agreements and other long-term
agreements represented 88% and 89% of total contract revenues in the six months
ended January 31, 1999 and 1998, respectively. Contract revenues from multi-year
master service agreements represented 47% of total contract revenues in each of
the six months ended January 31, 1999 and 1998.
<PAGE> 16
COSTS OF EARNED REVENUES. Costs of earned revenues increased $9.9 million to
$73.5 million in the quarter ended January 31, 1999 from $63.6 million in the
quarter ended January 31, 1998, but decreased as a percentage of contract
revenues to 76.0% from 78.9%. Costs of earned revenues increased $19.6 million
to $154.6 million in the six months ended January 31, 1999 from $135.0 million
in the six months ended January 31, 1998, but decreased as a percentage of
contract revenues to 75.3% from 78.5%. For the three and six months,
respectively, insurance and equipment costs declined as a percentage of contract
revenues as a result of effective management of insurance claims, positive
results of the corporate safety program, and the buy-out of certain operating
leases. Other factors affecting the improved operating margin include increased
productivity of the Company's labor force combined with the effective
utilization of subcontractors to meet labor demands.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $1.3 million to $8.7 million in the quarter ended January 31, 1999
from $7.4 million in the quarter ended January 31, 1998. The increase in general
and administrative expenses for the quarter ended January 31, 1999, as compared
to the same period last year, was primarily attributable to increases in
administrative salaries, employee benefits and payroll taxes of $1.8 million and
other general and administrative expenses of $0.4 million offset by a reduction
in the provision for doubtful accounts of $0.9 million.
General and administrative expenses increased $4.2 million to $20.2 million in
the six months ended January 31, 1999 from $16.0 million in the six months ended
January 31, 1998. The increase in general and administrative expenses for the
quarter ended January 31, 1999, as compared to the same period last year, was
primarily attributable to increases in administrative salaries, employee
benefits and payroll taxes of $3.0 million, registration costs of $0.4 million,
and other general and administrative expenses of $1.2 million offset by a
reduction in interest costs of $0.4 million associated with the declining
balance of notes payable.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $0.9
million to $4.1 million in the quarter ending January 31, 1999 as compared to
$3.2 million in the same period last year. The increase in depreciation and
amortization was due to capital expenditures of $10.8 million in the three-month
period ended January 31, 1999 as compared to $3.9 million in the three-month
period ended January 31, 1998, an increase of $6.9 million. The increased
purchases represent capital expenditures in the ordinary course of business and
equipment purchased for the start-up of certain long-term contracts.
Depreciation and amortization increased $1.8 million to $8.1 million in the six
months ending January 31, 1999 as compared to $6.3 million in the same period
last year. The increase in depreciation and amortization was due to capital
expenditures of $22.8 million in the six month period ended January 31, 1999 as
compared to $10.0 million in the six month period ended January 31, 1998, an
increase of $12.8 million. The increased purchases represent capital
expenditures in the ordinary course of business, equipment purchased for the
start-up of certain long-term contracts, and the buy-out of operating leases on
terms favorable to the Company.
INCOME TAXES. The provision for income taxes was $4.5 million in the three-month
period ended January 31, 1999 as compared to $2.4 million in the same period
last year. The Company's effective tax rate was 40.4% in the three-month period
ended January 31, 1999 as compared to 33.0% in the same period last year. The
effective tax rate differs from the statutory rate due to state income taxes,
income of Subchapter S Corporations (CCI and ITI) being taxed to their
shareholders, the amortization of intangible assets that do not provide a tax
benefit, and other non-deductible expenses for tax purposes.
The provision for income taxes was $9.6 million in the six month period ended
January 31, 1999 as compared to $5.1 million in the same period last year. The
Company's effective tax rate was 40.5% in the six month period ended January 31,
1999 as compared to 32.3% in the same period last year. The effective tax rate
differs from the statutory rate due to state income taxes, income of Subchapter
S Corporations (CCI and ITI) being taxed to their shareholders, the amortization
of intangible assets that do not provide a tax benefit, and other non-deductible
expenses for tax purposes.
For the three and six month periods ended January 31, 1998, the provision for
income taxes has been adjusted to reflect a pro forma tax provision for pooled
companies which were previous Subchapter S Corporations. The pro forma provision
for income taxes was $2.9 million and 6.5 million and the pro forma effective
tax rate was 40.5% and 41.6% for the three and six month periods ended January
31, 1998, respectively.
<PAGE> 17
Liquidity and Capital Resources
The Company's needs for capital are attributable primarily to its needs for
equipment to support its contractual commitments to customers and its needs for
working capital sufficient for general corporate purposes. Capital expenditures
have been financed by operating and capital leases, bank borrowings and internal
cash flow. The Company regularly reviews various strategic acquisition
opportunities and periodically engages in discussions regarding possible
acquisitions. The Company may require additional debt or equity financing for
future acquisitions which may not be available on terms favorable to the
Company, if at all. The Company's sources of cash have historically been from
operating activities, bank borrowings, proceeds arising from the sale of idle
and surplus equipment and real property, and the public offering of its common
stock.
For the six-month period ended January 31, 1999, net cash provided by operating
activities was $24.3 million compared to $10.4 million for the six-month period
ended January 31, 1998. Net income and non-cash charges are the primary sources
of operating cash flow. Working capital items contributed $2.2 million to
operating cash flow for the six-month period ended January 31, 1999 principally
through a decrease in accounts receivable and an increase in accounts payable
offset by an increase in other current assets and unbilled revenues and a
decrease in income taxes payable.
In the six-month period ended January 31, 1999, net cash used in investing
activities was $26.0 million as compared to $9.0 million for the same period
last year. For the six-month period ended January 31, 1999, capital expenditures
of $22.8 million were for the normal replacement of equipment in the ordinary
course of business, equipment purchased for the start up of certain long-term
contracts, and the buy-out of operating leases on terms favorable to 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. Witten is
being accounted for as an unconsolidated affiliate. Additionally, the Company
purchased the assets of a business which included a non-compete agreement for
$750,000 for use in the telecommunications services group.
In the six-month period ended January 31, 1999, net cash used in financing
activities was $0.2 million which was primarily attributable to normal debt
payments, under the terms of the amended bank credit agreement, of $2.4 million
offset by stock options exercised of $2.2 million during the period.
The Company's amended bank credit agreement provides for a total facility of up
to $85.0 million. The amended credit facility provides for (i) a $30.0 million
revolving working capital facility; (ii) a $15.0 million standby letter of
credit facility; (iii) a $25.0 million revolving equipment acquisition and small
business purchase facility; and (iv) a $15.0 million five-year term loan.
The five-year term loan facility is payable in quarterly installments through
April 2003. During the six months ended January 31, 1999, the Company repaid
$1.5 million on this facility. The revolving equipment acquisition and small
business purchase facility, the revolving working capital facility and the
standby letter of credit facility are available for a two-year period. At
January 31, 1999, the Company had available borrowing capacity of $22.4 million
under the revolving equipment acquisition and small business purchase facility,
$30.0 million under the revolving working capital facility and $3.6 million
under the standby letter of credit facility.
The amended bank credit agreement requires the Company to maintain certain
financial covenants and conditions, as well as restricting the encumbrances of
assets and the creation of additional indebtedness and limits the payment of
cash dividends. At January 31, 1999, the Company was in compliance with all
covenants and conditions under the credit agreement.
The Company foresees its capital resources together with existing cash balances
to be sufficient to meet its financial obligations, including the scheduled debt
payments under the amended bank credit agreement and operating lease
commitments, and to support the Company's normal replacement of equipment at its
current level of business for at least the next twelve months. The Company's
future operating results and cash flows may be affected by a number of factors
including the Company's success in bidding on future contracts and the Company's
continued ability to effectively manage controllable costs.
Special Note Concerning Forward Looking Statements
This Quarterly Report on Form 10-Q, including the Notes to Condensed
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
<PAGE> 18
expenditures, plans for future operations, growth and aquisitions, financial
needs or plans and the availability of financing, and plans relating to services
of the Company, as well as assumptions relating to the foregoing. Such forward
looking statements are within the meaning of that term in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended.
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 converted
approximately 85% of its information systems to be Year 2000 compliant. The
Company has incurred approximately $1.4 million through January 31, 1999 and
approximately $0.2 million will be incurred in the remainder of fiscal 1999 to
complete the information system conversions. 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. Currently, the
Company cannot predict the effect of the Year 2000 problem on entities with
which it transacts business 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. The Company will be formulating a contingency plan
prior to the end of the current fiscal year to address the possible effects, if
any, of its customers experiencing Year 2000 problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." The Company
has no holdings of derivative financial or commodity instruments at January 31,
1999 although it does have exposure to interest rate risk. At January 31, 1999,
the Company performed sensitivity analysis to assess the potential effect of
interest rate risk and concluded that near-term changes in interest rates should
not materially adversely affect the Company's financial position, results of
operations or cash flows.
<PAGE> 19
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
An annual meeting of shareholders of the Company was held on November 23, 1998
to consider and take action on the election of one director to the Company's
Board of Directors and the approval of the 1998 Incentive Stock Option Plan.
The Company's nominee, Mr. Walter L. Revell, was elected. Mr. Revell received
12,026,201 votes for and 67,551 against. The directors whose terms continue
after the annual meeting are Messrs. Adams, Nielsen, Pledger, and Younkin.
The Company's 1998 Incentive Stock Option Plan was approved. The Plan received
10,373,905 votes for and 270,904 against with 35,843 votes abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits furnished pursuant to the requirements of Form 10-Q:
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
(11) Statement re computation of per share earnings
All information required by Exhibit 11 is presented
within Note 3 of the Company's condensed
consolidated financial statements in accordance
with the provisions of SFAS No. 128.
(27) Financial Data Schedule
</TABLE>
(b) Reports On Form 8-K
No reports on Form 8-K were filed on behalf of the Registrant during the quarter
ended January 31, 1999.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYCOM INDUSTRIES, INC.
Registrant
Date: March 11, 1999 /s/ Thomas R. Pledger
----------------- ----------------------------
Thomas R. Pledger
Executive Chairman
Date: March 11, 1999 /s/ Steven Nielsen
----------------- ----------------------------
Steven Nielsen
President and Chief Executive Officer
Date: March 11, 1999 /s/ Douglas J. Betlach
----------------- ----------------------------
Douglas J. Betlach
Vice President, Treasurer, and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 33,985,787
<SECURITIES> 0
<RECEIVABLES> 52,134,535
<ALLOWANCES> 2,800,700
<INVENTORY> 19,377,664
<CURRENT-ASSETS> 113,527,955
<PP&E> 119,549,808
<DEPRECIATION> 61,423,631
<TOTAL-ASSETS> 180,739,520
<CURRENT-LIABILITIES> 35,379,157
<BONDS> 15,925,238
0
0
<COMMON> 7,413,466
<OTHER-SE> 107,318,193
<TOTAL-LIABILITY-AND-EQUITY> 180,739,520
<SALES> 0
<TOTAL-REVENUES> 205,340,440
<CGS> 0
<TOTAL-COSTS> 154,648,923
<OTHER-EXPENSES> 8,116,827
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 665,080
<INCOME-PRETAX> 23,776,671
<INCOME-TAX> 9,632,378
<INCOME-CONTINUING> 14,144,293
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,144,293
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.63
</TABLE>
