<PAGE> 1
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 29, 2000
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
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(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
---------------------------------- -----------------------------------------
<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. [X]
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 22, 2000 was $2,023,184,288.
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 22, 2000
Common Stock, $.33 1/3 42,040,193
<PAGE> 2
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
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 29, 2000, specialty contracting
services related to the telecommunications industry, underground utility
locating, and electrical construction and maintenance contributed approximately
92.2%, 4.8%, and 3.0%, respectively, to the Company's total contract revenues.
Through its 19 wholly-owned subsidiaries, Dycom has established relationships
with many leading local exchange carriers, long distance 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, Qwest
Communications International, Inc., DIRECTV, Inc., Charter Communications, Inc.,
Verizon Communications, and Williams Communications, Inc. During fiscal 2000,
approximately 75% 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
During fiscal 2000, Dycom continued to make acquisitions to supplement the
internal growth of our existing business. The acquisitions made during the
fiscal year ended July 29, 2000 included:
Lamberts' Cable Splicing Company ("LCS"), acquired in August 1999 for
$10.0 million in cash and 73,309 shares of Dycom's common stock for an
aggregate purchase price of $12.4 million before various transaction
costs. Located in Rocky Mount, North Carolina, LCS's primary business
is the construction and maintenance of telecommunications systems under
master service agreements.
C-2 Utility Contractors, Inc. ("C-2"), acquired in January 2000 for
$18.0 million in cash and 247,555 shares of Dycom's common stock for an
aggregate purchase price of $25.2 million before various transaction
costs. Located in Eugene, Oregon, C-2's primary business is the
construction and maintenance of telecommunications systems under master
service agreements.
Niels Fugal Sons Company ("NFS"), acquired in March 2000. Dycom issued
2,726,210 shares of common stock in exchange for all the outstanding
capital stock of NFS. Located in Pleasant Grove, Utah, NFS's primary
business is providing telecommunication construction services
throughout the Western United States.
In connection with each of the acquisitions referred to above, the Company
entered into employment contracts with certain executive officers of each of the
acquired companies varying in length from three to six years. See "Items 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information regarding these acquisitions.
Specialty Contracting Services
Telecommunications Services
Engineering. Dycom provides outside plant engineers and drafters to local
exchange carriers. The Company designs aerial, underground and buried fiber
optic 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
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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. Also, 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
which are damaged or destroyed as a result of weather conditions.
Revenues by Customer
For the fiscal years ended July 29, 2000 and July 31, 1999 and 1998, the
percentages of the Company's total contract revenues earned were derived from
specialty contracting services related to the telecommunications industry,
underground utility locating, and electrical construction and maintenance as set
forth below:
2000 1999 1998
---- ---- ----
Telecommunications 92% 90% 90%
Electrical utilities 3 4 5
Various - Utility line locating 5 6 5
--- --- ---
Total 100% 100% 100%
=== === ===
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Customer Relationships
Dycom's current customers include local exchange carriers such as BellSouth
Telecommunications, Inc., Qwest Communications International, Inc., Sprint
Corporation, SBC Communications, Inc., Alltel Corporation, and Verizon
Communications. Dycom also currently provides telecommunications engineering,
construction and maintenance services to a number of cable television multiple
system operators including Tele-Communications, Inc., Comcast Cable
Communications Inc., Charter Communications, Inc., MediaOne, Inc., Cablevision,
Inc., Mediacom Communications Corporation, Cox Communications, Inc., Adelphia
Communications Corporation, and Time Warner, Inc. Dycom also provides its
services to other telecommunication companies such as Williams Communications,
Inc., Worldcom, Inc., AT&T Corporation, and DIRECTV, Inc. Premise wiring
services have been provided to, among others, Lucent Technologies, Inc., Duke
University, International Business Machines Corporation, and 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 2000, 1999, and 1998 accounting in the aggregate for approximately 50%,
60% and 65%, respectively, of the Company's total revenues. During fiscal 2000,
approximately 16.5% of the Company's total revenues were derived from BellSouth
Telecommunications, Inc., 9.9% from Tele-Communications, Inc., and 9.2% from
Comcast Cable 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's backlog is 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 29, 2000 and July 31, 1999 was $1.156
billion and $1.113 billion, respectively. As of July 29, 2000, the Company
expected to complete approximately 50.1% 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's employees. Many of these contracts are multi-year agreements, and the
Company includes in its backlog the full 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.
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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 arising 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 to $250,000, for general liability to
$250,000, and for workers' compensation, in states where the Company elects to
do so, to $500,000. The Company had aggregate stop loss coverage, for fiscal
year 2000 of $12.0 million adjusted for certain exposures, in addition to
umbrella liability coverage to a policy limit of $100.0 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. 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 29, 2000, the Company employed approximately 7,260 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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With the exception of Communications Construction Group, Inc. ("CCG"), none of
the Company's employees are represented by a labor union. 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 such 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 a portion 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; Greensboro, North Carolina;
Rocky Mount, North Carolina; Lexington, Kentucky; Eugene, Oregon; Gold Hill,
Oregon; Pleasant Grove, Utah; and Daytona Beach, Florida . 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
The federal employment tax returns for one of the Company's subsidiaries are
currently being audited by the Internal Revenue Service ("IRS"). As a result of
the audit, the Company received an examination report from the IRS in October
1999 proposing a $6.1 million tax deficiency. At issue, according to the
examination report, is the taxpayer's payment of certain employee allowances for
the years 1995 through 1997 without reporting such payment as wages on its
employees' W-2 forms. The Company intends to vigorously defend its position in
this matter and believes it has a number of legal defenses available to it,
which could reduce the proposed tax deficiency, although there can be no
assurance in this regard. The Company believes that the ultimate disposition of
this matter will not have a material adverse effect on its consolidated
financial statements.
In the normal course of business, the Company and certain 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.
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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
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 and a
3-for-2 stock split effected in the form of a stock dividend and paid in
February 2000.
Fiscal 2000 Fiscal 1999
----------------------- ---------------------------
High Low High Low
---------- ---------- ----------- -----------
First Quarter $ 31 1/16 $ 20 11/16 $ 15 7/8 $ 11 15/16
Second Quarter 34 5/16 22 11/16 26 1/2 15 9/16
Third Quarter 56 1/4 28 11/16 31 13/16 21
Fourth Quarter 56 13/16 40 1/2 37 5/16 30 1/16
As of September 22, 2000, there were approximately 689 holders of record of the
Company's $.33 1/3 par value common stock. The common stock closed at a high of
$55 1/2 and a low of $42 3/4 during the period July 30, 2000 through
September 22, 2000.
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 August 2, 1999, the Company issued 73,309 shares of the Company's common
stock for the acquisition of LCS. On January 4, 2000, the Company issued 247,555
and 30,081 shares of the Company's common stock for the acquisitions of C-2 and
Artoff Construction Co., Inc. ("ACC"), respectively. On February 1, 2000, the
Company issued 5,431 shares of the Company's common stock for the acquisitions
of KHS. On March 8, 2000, the Company issued 2,726,210 shares of the Company's
common stock for the acquisition of NFS.
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Item 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data of the Company
for the years ended July 29, 2000 and July 31 , 1999, 1998, 1997, 1996. The
Company acquired CCG in July, 1997, Cable Com Inc. ("CCI") and Installation
Technicians, Inc. ("ITI") in April, 1998, and NFS in March, 2000. These
acquisitions were accounted for as pooling of interests and accordingly, the
consolidated financial statements for the periods presented include the accounts
of CCG, CCI, ITI and NFS. The table has been adjusted to reflect the 3-for-2
stock split effected in the form of a stock dividend and paid on January 4, 1999
and the 3-for-2 stock split effected in the form of a stock dividend and paid on
February 16, 2000. This data should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this report.
<TABLE>
<CAPTION>
2000(6) 1999(5) 1998(1) 1997(1) 1996(1)
------- ------- ------- ------- -------
In Thousands, Except Per Share Amounts
<S> <C> <C> <C> <C> <C>
Operating Data:
Total Revenues $806,270 $501,155 $389,475 $332,882 $264,130
Income before income taxes 109,233 66,590 37,525 26,655 16,696
Net income 65,032 40,103 23,930 17,613 11,617
Per Common Share(2):
Basic net income $ 1.56 $ 1.08 $ 0.69 $ 0.57 $ 0.38
Diluted net income $ 1.54 $ 1.06 $ 0.68 $ 0.56 $ 0.37
Pro Forma Earnings(3):
Income before
income taxes $ 37,525 $ 26,655 $ 16,696
Pro forma provision for
income taxes 14,970 10,927 5,806
Pro forma net income 22,555 15,728 10,890
Pro Forma Per
Common Share(2):
Basic pro forma
net income $ 0.65 $ 0.51 $ 0.36
Diluted pro forma
net income $ 0.65 $ 0.50 $ 0.35
Balance Sheet Data (at end of period):
Total assets $514,000 $399,672 $178,580 $124,513 $ 89,548
Long-term obligations(4) $ 21,263 $ 19,291 $ 25,037 $ 24,487 $ 24,427
Stockholders' equity $377,978 $297,442 $104,764 $ 48,034 $ 31,537
Cash dividends per share -- -- -- -- --
</TABLE>
(1) The results of operations for fiscal 1998, 1997 and 1996 include a $0.4
million, $0.3 million and $1.1 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 Locating, Inc., Ervin Cable
Construction, Inc., Apex Digital, Inc., and Triple D Communications,
Inc., from their respective acquisition dates until July 31, 1999.
(6) Amounts include the results and balances of LCS, C-2, ACC, K.H. Smith
Communications, Inc., and Selzee Solutions, Inc. from their respective
acquisition dates until July 29, 2000.
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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,
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.
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 75 master service
agreements, which were obtained by either bid or negotiation. 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 74.7% and 83.9% of total contract
revenues in fiscal 2000 and 1999, respectively, of which contract revenues from
multi-year master service agreements represented 45.8% and 49.7% of total
contract revenues, respectively.
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 is 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,
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.
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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 29, 2000 July 31, 1999 July 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Contract revenues earned 100.0% 100.0% 100.0%
Expenses:
Cost of earned revenue, excluding
depreciation 74.5 72.9 76.7
General and administrative 8.1 9.8 10.1
Depreciation and amortization 3.9 4.3 3.8
----- ----- -----
Total expenses 86.5 87.0 90.6
----- ----- -----
Interest income, net 0.4 0.1 (0.1)
Merger-related expenses (0.3) -- --
Other income, net -- 0.2 0.3
----- ----- -----
Income before income taxes 13.6 13.3 9.6
----- ----- -----
Provision for income taxes 5.5 5.3 3.5
----- ----- -----
Net income 8.1% 8.0% 6.1%
===== ===== =====
Pro forma adjustment to income tax provision 0.3
-----
Pro forma net income 5.8%
=====
</TABLE>
Year Ended July 29, 2000 Compared to Year Ended July 31, 1999
Revenues. Contract revenues increased $305.1 million, or 60.9%, to $806.3
million in fiscal 2000 from $501.2 million in fiscal 1999. Of this increase,
$292.5 million was attributable to specialty contracting services provided to
telecommunications companies, $2.6 million was attributable to construction and
maintenance services provided to electrical utilities and $10.0 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 2000, the Company recognized $743.7 million of contract
revenues from telecommunications services as compared to $451.2 million in
fiscal 1999. 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
$24.3 million from the electric construction and maintenance services group in
fiscal 2000 as compared to $21.7 million in fiscal 1999, an increase of 12.4%.
The Company recognized contract revenues of $38.3 million from underground
utility locating services in fiscal 2000 as compared to $28.3 million in fiscal
1999, an increase of 35.3%. The companies acquired in fiscal 2000 contributed
$29.3 million of the increase in contract revenues.
Contract revenues from multi-year master service agreements and other long-term
agreements represented 74.7% of total contract revenues in fiscal 2000 as
compared to 83.9% in fiscal 1999, of which contract revenues from multi-year
master service agreements represented 45.8% of total contract revenues in fiscal
2000 as compared to 49.7% in fiscal 1999.
Cost of Earned Revenues. Cost of earned revenues increased $235.0 million to
$600.5 million in fiscal 2000 from $365.5 million in fiscal 1999, and increased
as a percentage of contract revenues to 74.5% from 72.9%. Direct labor and
equipment costs declined slightly as a percentage of contract revenues as a
result of improved productivity and the utilization of more modern equipment.
Direct materials increased as a percentage of contract revenues as a result of
increased projects for which the Company supplied materials.
10
<PAGE> 11
General and Administrative Expenses. General and administrative expenses
increased $16.6 million to $65.5 million in fiscal 2000 from $48.9 million in
fiscal 1999, but decreased as a percentage of contract revenues to 8.1% in
fiscal 2000 from 9.8% in fiscal 1999. The increase in general and administrative
expenses was primarily attributable to a $10.1 million increase in
administrative salaries, bonuses, employee benefits and payroll taxes.
Depreciation and Amortization. Depreciation and amortization expense increased
$10.2 million to $31.8 million in fiscal 2000 from $21.6 million in fiscal 1999,
but decreased as a percentage of contract revenues to 3.9% from 4.3%. The $10.2
million increase reflects the depreciation of additional capital expenditures
incurred in the ordinary course of business and amortization of goodwill related
to acquisitions made in 2000 and 1999, respectively.
Merger-Related Expenses. During the year ended July 29, 2000, the Company
incurred merger-related expenses of $2.4 million in connection with the NFS
merger. The expenses consisted primarily of legal, accounting, and other
professional fees related to the transaction.
Interest Income, net. Interest income, net increased $3.1 million to $3.5
million in fiscal 2000 from $0.4 million in fiscal 1999. The increase was due to
increased cash and equivalents and favorable interest rates.
Other Income, net. During the fourth quarter of fiscal 2000, the Company
determined its investment in Witten Technologies, Inc. ("Witten") was impaired.
Therefore, the Company recognized an impairment loss of $1.8 million during the
quarter reducing the carrying value of the Witten investment to $750,000 as
compared to a carrying value of $2.8 million at July 31, 1999.
Income Taxes. The provision for income taxes was $44.2 million in fiscal 2000 as
compared to $26.5 million in fiscal 1999. The Company's effective tax rate was
40.5% in fiscal 2000 as compared to 39.8% in fiscal 1999. 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 During fiscal 2000 the Company incurred $2.4 million
of merger-related expenses for which no tax benefit was recorded.
Net Income. Net income increased to $65.0 million in fiscal 2000 from $40.1
million in fiscal 1999, a 62.2% increase.
Year Ended July 31, 1999 Compared to Year Ended July 31, 1998
Revenues. Contract revenues increased $111.7 million, or 28.7%, to $501.2
million in fiscal 1999 from $389.5 million in fiscal 1998. Of this increase,
$99.8 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 $451.2 million of contract
revenues from telecommunications services as compared to $351.4 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
$21.7 million from the electric construction and maintenance services group in
fiscal 1999 as compared to $20.3 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 $17.8 million in fiscal
1998, an increase of 58.2%. 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 83.9% of total contract revenues in fiscal 1999 as
compared to 88.7% in fiscal 1998, of which contract revenues from multi-year
master service agreements represented 49.7% of total contract revenues in fiscal
1999 as compared to 49.3% in fiscal 1998.
11
<PAGE> 12
Cost of Earned Revenues. Cost of earned revenues increased $66.9 million to
$365.5 million in fiscal 1999 from $298.6 million in fiscal 1998, but decreased
as a percentage of contract revenues to 72.9% from 76.7%. 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 $9.7 million to $48.9 million in fiscal 1999 from $39.2 million in
fiscal 1998, but decreased as a percentage of contract revenues to 9.8% in
fiscal 1999 from 10.1% 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
$6.9 million to $21.6 million in fiscal 1999 from $14.7 million in fiscal 1998,
and increased as a percentage of contract revenues to 4.3% from 3.8%. The $6.9
million increase reflects the depreciation of additional capital expenditures
incurred in the ordinary course of business and amortization of goodwill related
to acquisitions made in 1999.
Income Taxes. The provision for income taxes was $26.5 million in fiscal 1999 as
compared to $13.6 million in fiscal 1998. The Company's effective tax rate was
39.8% 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 $26.5 million in fiscal 1999 as compared to
the pro forma provision for income taxes of $15.0 million in fiscal 1998. The
effective tax rate was 39.8% in fiscal 1999 as compared to the pro forma
effective tax rate of 39.9% in fiscal 1998.
Net Income. Net income increased to $40.1 million in fiscal 1999 from $23.9
million in fiscal 1998, a 67.6% increase. Net income increased to $40.1 million
in fiscal 1999 from pro forma net income of $22.6 million in fiscal 1998, a
77.8% 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 stock, the Company's
capital requirements may increase, although the Company is not currently subject
to any commitments or obligations with respect to any acquisitions. The
Company's sources of cash have historically been from operating activities,
equity offerings, bank borrowings and from proceeds arising from the sale of
idle and surplus equipment and real property.
For fiscal 2000, net cash provided by operating activities was $76.0 million
compared to $38.6 million for fiscal 1999 and $31.1 million for fiscal 1998. The
increase in fiscal 2000 was due primarily to an increase in net income and an
increase in non-cash depreciation and amortization changes.
For fiscal 2000, net cash used in investing activities for capital expenditures
was $40.2 million, compared to $50.9 million in 1999 and $22.5 million in 1998.
For 2000, 1999 and 1998 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 for $3.0
million. Witten is developing, 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. During the fourth quarter
of fiscal 2000, the Company recognized a $1.8 million impairment loss on its
investment in Witten.
12
<PAGE> 13
During fiscal 2000, 1999, and 1998 the Company used $32.7 million, $33.5
million, and $-0-, respectively, and issued 3,082,586, 1,198,635, and 2,700,000
shares of common stock respectively, in connection with acquisitions of other
businesses.
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 of $12.3 million at July
29, 2000, including letters of credit issued to the Company's insurance
administrators as part of its self-insurance program of $12.0 million and
miscellaneous letters of credit of $0.3 million.
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 29, 2000, there was no outstanding balance on this facility resulting in
an available borrowing capacity of $50.0 million.
The outstanding loans under the equipment acquisition and small business
purchase facility bear interest, at the option of the Company, at the bank's
prime interest rate minus 0.75% or LIBOR plus 1.50%. The advances under the
equipment acquisition and small business purchase facility are converted to term
loans with maturities not to exceed 48 months, The outstanding principal on the
equipment term loans is payable in quarterly installments through February 2001.
There were no amounts outstanding on the equipment acquisition and small
business purchase facility at July 29, 2000, resulting in available borrowing
capacity of $71.1 million. The available borrowing capacity on this nonrevolving
facility has been reduced due to prior borrowings which have been repaid in
full.
The outstanding principal under the term loan bears interest at the bank's prime
interest rate minus 0.5% (8.38% at July 29, 2000). Principal and interest is
payable in semiannual installments through April 2002. The amount outstanding on
the term loan was $10.8 million at July 29, 2000.
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 end July
29, 2000. At July 29, 2000, 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.
In April 1999, the Company filed, at its cost, a registration statement for an
offering of 3.75 million shares and 300,000 shares of common stock, to be sold
by the Company and certain selling stockbrokers, respectively. The closing of
the offering, at $32.33 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 $1.60 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 562,500 and 45,000 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 55,554 shares from the Company and
4,443 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 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards for the
accounting and reporting of derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No. 133 by one
year to periods beginning after June 15, 2000. Based on our current analysis,
SFAS No. 133 will not have a material impact on the financial statements of the
Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition" which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101 is applicable beginning with our
fourth quarter fiscal 2001 consolidated financial statements. Based on our
current analysis of SAB No. 101, management does not believe it will have a
material impact on the financial results of the Company.
14
<PAGE> 15
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 29,
2000. 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 29, 2000, 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 Company'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 29, 2000 AND JULY 31, 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $105,701,950 $ 97,995,283
Accounts receivable, net 144,291,699 104,482,445
Costs and estimated earnings in
excess of billings 52,301,022 32,878,667
Deferred tax assets, net 6,039,264 3,336,479
Inventories 14,563,649 10,498,453
Other current assets 1,530,972 1,828,716
------------ ------------
Total current assets 324,428,556 251,020,043
------------ ------------
PROPERTY AND EQUIPMENT, net 101,092,862 83,641,090
------------ ------------
OTHER ASSETS:
Intangible assets, net 85,783,092 59,286,827
Other 2,695,084 5,724,151
------------ ------------
Total other assets 88,478,176 65,010,978
------------ ------------
TOTAL $513,999,594 $399,672,111
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 42,922,557 $ 21,177,427
Notes payable 2,594,413 3,315,760
Billings in excess of costs and
estimated earnings 6,405 437,874
Accrued self-insurance claims 4,232,243 3,728,947
Income taxes payable 5,916,000 5,027,519
Customer advances 11,762,547 24,576,700
Other accrued liabilities 47,324,948 24,674,237
------------ ------------
Total current liabilities 114,759,113 82,938,464
------------ ------------
NOTES PAYABLE 9,106,201 10,200,091
ACCRUED SELF-INSURED CLAIMS 5,554,417 4,823,396
DEFERRED TAX LIABILITIES, net 4,256,781 2,454,498
OTHER LIABILITIES 2,345,525 1,813,184
------------ ------------
Total liabilities 136,022,037 102,229,633
============ ============
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:
150,000,000 shares authorized; 41,900,516 and
41,168,195 issued and outstanding, respectively 13,966,839 13,722,732
Additional paid-in capital 221,593,083 206,313,627
Unrealized gain on marketable securities -- 20,724
Retained earnings 142,417,635 77,385,395
------------ ------------
Total stockholders' equity 377,977,557 297,442,478
------------ ------------
TOTAL $513,999,594 $399,672,111
============ ============
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 17
Dycom Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 29, 2000, JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Contract revenues earned $ 806,269,779 $ 501,155,028 $ 389,475,350
------------- ------------- -------------
EXPENSES:
Cost of earned revenues,
excluding depreciation 600,489,384 365,480,042 298,597,421
General and administrative 65,477,887 48,914,930 39,163,310
Depreciation and amortization 31,759,084 21,605,686 14,694,676
------------- ------------- -------------
Total 697,726,355 436,000,658 352,455,407
------------- ------------- -------------
Interest income, net 3,447,711 387,450 (577,783)
Merger-related expenses (2,364,284) -- --
Other income, net (393,370) 1,048,506 1,082,849
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 109,233,481 66,590,326 37,525,009
------------- ------------- -------------
PROVISION FOR
INCOME TAXES:
Current 45,128,241 25,537,916 14,131,145
Deferred (927,000) 949,270 (535,830)
------------- ------------- -------------
Total 44,201,241 26,487,186 13,595,315
------------- ------------- -------------
NET INCOME $ 65,032,240 $ 40,103,140 $ 23,929,694
============= ============= =============
EARNINGS PER COMMON SHARE:
Basic $ 1.56 $ 1.08 $ 0.69
============= ============= =============
Diluted $ 1.54 $ 1.06 $ 0.68
============= ============= =============
NET INCOME AND EARNINGS
PER COMMON SHARE DATA:
Income before income taxes $ 37,525,009
Pro forma provision for
income taxes 14,969,575
-------------
PRO FORMA NET INCOME $ 22,555,434
=============
PRO FORMA EARNINGS PER
COMMON SHARE:
Basic $ 0.65
=============
Diluted $ 0.65
=============
SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE AND PRO FORMA
EARNINGS PER COMMON SHARE:
Basic 41,580,557 37,246,805 34,484,247
============= ============= =============
Diluted 42,314,746 37,911,247 34,950,160
============= ============= =============
</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 29, 2000, JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Retained Other
paid-in earnings comprehensive
Shares Amount capital (deficit) income
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at July 31, 1997 $ 31,228,934 $ 10,409,645 $ 19,654,521 $ 17,946,563 $ 23,529
Stock options exercised 172,071 57,357 300,080
Stock offering proceeds 4,451,351 1,483,783 35,474,835
Income tax benefit from stock
options exercised 194,483
Pooled companies distributions (4,594,002)
Unrealized loss on
marketable securities (116,212)
Net income 23,929,694
------------- ------------- ------------- ------------- -------------
Balances at July 31, 1998 35,852,356 11,950,785 55,623,919 37,282,255 (92,683)
Stock options exercised 311,853 103,951 1,495,004
Stock offering proceeds 3,805,554 1,268,518 115,177,949
Income tax benefit from stock
options exercised 1,115,554
Stock issued for acquisitions 1,198,635 399,545 32,905,934
Fractional shares retired
in 3-for-2 stock split (203) (67) (4,733)
Unrealized gain on
marketable securities 113,407
Net income 40,103,140
------------- ------------- ------------- ------------- -------------
Balances at July 31, 1999 41,168,195 13,722,732 206,313,627 77,385,395 20,724
Stock options exercised 376,156 125,385 3,710,780
Income tax benefit from stock
options exercised 1,065,402
Stock issued for acquisitions 356,376 118,792 10,512,853
Fractional shares retired
in 3-for-2 stock split (211) (70) (9,579)
Realized gain on
marketable securities (20,724)
Net income 65,032,240
------------- ------------- ------------- ------------- -------------
Balances at July 29, 2000 $ 41,900,516 $ 13,966,839 $ 221,593,083 $ 142,417,635 $ --
============= ============= ============= ============= =============
</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 29, 2000, JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Equivalents
from:
OPERATING ACTIVITIES:
Net income $ 65,032,240 $ 40,103,140 $ 23,929,694
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 31,759,084 21,605,686 14,694,676
Loss on impairment of equity investment 1,750,000 -- --
Gain on disposal of assets (695,530) (506,017) (375,772)
Realized gain on
marketable securities (20,724) -- --
Deferred income taxes (927,000) 949,270 (535,830)
Changes in assets and liabilities:
Accounts receivable, net (33,569,650) (28,041,127) (12,110,626)
Unbilled revenues, net (19,203,586) (15,718,068) (3,451,649)
Other current assets (3,344,795) (8,051,931) (1,291,378)
Other assets 4,393,673 (724,923) (1,668,316)
Accounts payable 20,889,592 6,611,701 (2,946,763)
Customer advances (12,814,153) 15,180,193 9,396,507
Accrued self-insured claims
and other liabilities 20,799,815 4,659,181 3,670,453
Accrued income taxes 1,953,883 2,543,144 1,771,856
------------- ------------- -------------
Net cash inflow from operating activities 76,002,849 38,610,249 31,082,852
------------- ------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (40,198,993) (50,851,187) (22,465,489)
Proceeds from sale of assets 2,077,681 1,521,619 1,997,854
Acquisition expenditures,
net of cash acquired (31,120,691) (31,818,880) --
Equity investment -- (3,000,000) --
------------- ------------- -------------
Net cash outflow from investing activities (69,242,003) (84,148,448) (20,467,635)
------------- ------------- -------------
FINANCING ACTIVITIES:
Borrowings on notes payable -- 30,828,101 18,346,301
Principal payments on notes payable
and bank lines-of-credit (2,890,344) (41,316,033) (32,134,321)
Exercise of stock options 3,836,165 1,598,955 357,437
Proceeds from stock offering -- 116,446,467 36,958,618
Dividends to shareholders of pooled
companies -- -- (4,594,002)
------------- ------------- -------------
Net cash inflow from financing activities 945,821 107,557,490 18,934,033
------------- ------------- -------------
NET CASH INFLOW FROM ALL ACTIVITIES 7,706,667 62,019,291 29,549,250
CASH AND EQUIVALENTS AT
BEGINNING OF YEAR 97,995,283 35,975,992 6,426,742
------------- ------------- -------------
CASH AND EQUIVALENTS AT
END OF YEAR $ 105,701,950 $ 97,995,283 $ 35,975,992
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
Dycom Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JULY 29, 2000, JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW AND NONCASH
INVESTING AND FINANCING
ACTIVITIES:
Cash paid during the period for:
Interest $ 749,803 $ 1,668,572 $ 2,330,948
Income taxes $43,312,760 $23,978,190 $12,553,772
Property and equipment acquired and
financed with:
Capital lease obligations $ -- $ 233,618 $ --
Notes payable $ 1,075,108 $ -- $ --
Income tax benefit from
stock options exercised $ 1,065,402 $ 1,115,554 $ 194,483
During the year ended July 29, 2000, the
Company acquired all of the capital stock of
Lambert's Cable Splicing Company, C-2
Utility Contractors, Inc., Artoff
Construction Co., Inc., and K.H. Smith
Communications, Inc. and the assets of
Selzee Solutions, Inc. at a cost of $43.2
million. In conjunction with these
acquisitions, assets acquired and
liabilities assumed were as follows:
Fair market value of assets acquired,
including goodwill $46,268,142
Consideration paid (including $10.6
million of common stock issued) 43,231,649
-----------
Fair market value of liabilities assumed $ 3,036,493
===========
During the year ended July 31, 1999, the
Company acquired all of the capital stock of
Locating, Inc., Ervin Cable Construction,
Inc., Apex Digital Inc., and Triple D
Communications, Inc. at a cost of $67.4
million. 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 April 6, 1998, CCI and ITI were acquired by the
Company through an exchange of common stock. On March 8, 2000, NFS was 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 CCI, ITI, and NFS for all periods
presented. During fiscal 1999, the Company acquired LOC, ECC, APX, and DDD.
During fiscal 2000, the Company, acquired LCS, C2, ACC, KHS, and SSI. Each of
these transactions was accounted for using the purchase method of accounting.
The Company's results include the results of LOC, ECC, APX, DDD, LCS, C2, ACC,
KHS, and SSI from their respective acquisition dates until July 29, 2000. 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.
Change in Fiscal Year - On September 29, 1999, the Company changed to a fiscal
year with 52 or 53 week periods ending on the last Saturday of July. This Annual
Report presents financial information for the first, second, third, and fourth
quarters of fiscal 2000, beginning August 1, 1999 and ending July 29, 2000. The
unaudited results of operations and cash flows of the Company for the quarter
ended July 29, 2000 contains 91 days compared to 92 days for the unaudited
results of operations and cash flows for the quarter ended July 31, 1999. The
unaudited results of operations and cash flows of the Company for the twelve
months ended July 29, 2000 contained 364 days compared to 365 days for the
twelve months ended July 31, 1999 and 1998.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements.
Estimates are used in the Company's revenue recognition of work-in-process,
allowance for doubtful accounts, self-insured claims liability, 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 the current year presentation.
Revenue - Income on short-term contracts is recognized as the related work is
completed. Work-in-process on unit contracts is based on 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.
21
<PAGE> 22
"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. The carrying amounts
of cash equivalents approximate their fair value.
Inventories - Inventories consist primarily of materials and supplies used to
complete certain of the Company's contracts. The Company values these
inventories using the first-in, first-out method. The Company periodically
reviews the appropriateness of the carrying values 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.
Marketable Securities - As of July 29, 2000, the Company held no investment in
marketable securities. As of July 31, 1999, all of the Company's investment
holdings have been classified in the consolidated balance sheet as other assets.
Unrealized holding gains are included as a separate component of shareholders'
equity. The Company's fair value of the investment holdings at July 31, 1999 was
$148,224.
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 to 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. As of July 29, 2000 and July 31, 1999, net intangible
assets include $85.4 million and $58.9 million of net goodwill, respectively.
Amortization expense was $4,079,145 for the fiscal year ended July 29, 2000,
$1,166,499 for the fiscal year ended July 31, 1999, and $155,088 for the fiscal
year ended July 31, 1998. The intangible assets are net of accumulated
amortization of $6,552,090 and $2,472,945 at July 29, 2000 and July 31, 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 $5,161,379 and $4,860,659 at July 29, 2000 and July 31, 1999,
respectively. The determination of such claims and expenses and the
appropriateness of the related liability is periodically reviewed and updated.
Customer Advances - Under the terms of certain contracts, the Company receives
advances from customers that may be offset against future billings by the
Company. The Company has recorded these advances as liabilities and has not
recognized any revenue for these advances.
22
<PAGE> 23
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 Splits - 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. On
January 20, 2000, 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
February 16, 2000. 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 splits on a retroactive
basis.
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 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. Based on our current analysis, SFAS No. 133 will not have a material
impact on the financial statements of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition" which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101 is applicable beginning with our
fourth quarter fiscal 2001 consolidated financial statements. Based on our
current analysis of SAB No. 101, management does not believe it will have a
material impact on the financial results of the Company.
23
<PAGE> 24
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>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net income available to common stockholders (numerator) $65,032,240 $40,103,140 $23,929,694
=========== =========== ===========
Weighted-average number of common shares (denominator) 41,580,557 37,246,805 34,484,247
=========== =========== ===========
Earnings per common share - basic $ 1.56 $ 1.08 $ 0.69
=========== =========== ===========
Weighted-average number of common shares 41,580,557 37,246,805 34,484,247
Potential common stock arising from stock options 734,189 664,442 465,913
----------- ----------- -----------
Total shares (denominator) 42,314,746 37,911,247 34,950,160
=========== =========== ===========
Earnings per common share - diluted $ 1.54 $ 1.06 $ 0.68
=========== =========== ===========
PRO FORMA EARNINGS PER SHARE DATA:
Pro forma net income available to common stockholders
(numerator) $22,555,434
===========
Pro forma earnings per common share - basic $ 0.65
===========
Pro forma earnings per common share - diluted $ 0.65
===========
</TABLE>
3. ACQUISITIONS
During fiscal 2000, 1999 and 1998 Dycom made the following acquisitions:
In April 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. All periods presented reflect the adoption of such fiscal year
end as of the beginning of the period.
In February 1999, the Company acquired Locating, Inc. ("LOC") for approximately
$10.0 million in cash 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 systems
operators, telephone companies, and electrical and gas utilities.
In March and April 1999, respectively, the Company acquired Ervin Cable
Construction, Inc. ("ECC") for $21.8 million in cash and 387,099 shares of Dycom
common stock for an aggregate purchase price of $32.5 million before various
transaction costs and Apex Digital, Inc. ("APX") for 774,192 shares of Dycom
common stock with an aggregate value of $21.4 million. ECC's primary business is
the engineering, construction, and maintenance of cable television systems.
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.
In August 1999, the Company acquired LCS for $10.0 million in cash and 73,309
shares of Dycom common stock for an aggregate purchase price of $12.4 million
before various transaction costs. Located in Rocky Mount, North Carolina, LCS's
primary business is the construction and maintenance of telecommunications
systems under master service agreements.
In January 2000, the Company acquired C-2 for $18.0 million in cash and 247,555
shares of Dycom common stock for an aggregate purchase price of $25.2 million
before various transaction costs and Artoff Construction Company ("ACC") for
$2.2 million in cash and 30,081 shares of Dycom common stock for an aggregate
purchase price of $3.0 million before various transaction costs. Located in
Eugene, Oregon, C-2's primary business is the construction and maintenance of
telecommunications systems under master service agreements. Located in Gold
Hill, Oregon, ACC's primary business is the construction and maintenance of
telecommunications systems.
24
<PAGE> 25
The Company has recorded the acquisitions of LOC, ECC, APX, LCS, C-2 and ACC
using the purchase method of accounting. All acquired goodwill associated with
these acquisitions is being amortized over a period of 20 years. The operating
results of LOC, ECC, APX, LCS, C-2 and ACC are included in the accompanying
consolidated condensed financial statements from their respective date of
purchase.
The following unaudited pro forma summary presents the consolidated results of
operations of the Company as if all acquisitions had occurred on August 1, 1998:
2000 1999
------------ ------------
Total revenues $830,702,964 $600,005,722
Income before income taxes 112,263,841 77,333,035
Net income 67,042,249 47,383,992
Earnings per share:
Basic $ 1.61 $ 1.22
Diluted $ 1.58 $ 1.20
In March 2000, the Company consummated the acquisition of NFS. The Company
issued 2,726,210 shares of common stock in exchange for all the outstanding
capital stock of NFS. Located in Pleasant Grove, Utah, NFS's primary business is
providing telecommunication construction services throughout the Western United
States.
Dycom has accounted for the acquisition as a pooling of interests and,
accordingly, the Company's historical financial statements include the results
of NFS for all periods presented. The Company incurred $2.4 million of
merger-related expenses in connection with the NFS merger during the three and
nine months ended April 29, 2000, respectively. These expenses consisted
primarily of legal, accounting, and other professional fees related to the
transaction.
Prior to the acquisition, NFS used a fiscal year ending January 31 and as of
March 8, 2000 adopted Dycom's fiscal year. All periods presented reflect the
adoption of such fiscal year end as of the beginning of the period. The combined
and separate results of Dycom, prior to the combination of NFS, for the years
ended July 29, 2000 and July 31, 1999 and 1998, respectively, are as follows:
Dycom NFS Combined
------------ ------------ ------------
Years ended
July 29, 2000
Total revenues $770,855,727 $ 35,414,052 $806,269,779
Net income $ 60,546,669 $ 4,485,571 $ 65,032,240
July 31, 1999
Total revenues $470,136,925 $ 31,018,103 $501,155,028
Net income $ 36,449,975 $ 3,653,165 $ 40,103,140
July 31, 1998
Total revenues $368,713,563 $ 20,761,787 $389,475,350
Net income $ 23,035,620 $ 894,074 $ 23,929,694
In connection with each of the acquisitions referred to above the Company
entered into employment contracts with certain executive officers of each of the
acquired companies varying in length from three to six years.
25
<PAGE> 26
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
Accounts receivable consist of the following:
2000 1999
------------- -------------
<S> <C> <C>
Contract billings $ 134,740,946 $ 102,880,899
Retainage 11,835,425 4,497,307
Other receivables 1,835,560 1,233,519
------------- -------------
Total 148,411,931 108,611,725
Less allowance for doubtful accounts 4,120,232 4,129,280
------------- -------------
Accounts receivable, net $ 144,291,699 $ 104,482,445
============= =============
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended
July 29, July 31,
2000 1999
------------- -------------
<S> <C> <C>
Allowance for doubtful accounts at beginning of year $ 4,129,280 $ 2,210,978
Allowance for doubtful account balances from acquisitions -- 884,862
Additions charged to bad debt expense 668,424 1,584,044
Amounts charged against the allowance, net of recoveries (677,472) (550,604)
------------- -------------
Allowance for doubtful accounts at end of year $ 4,120,232 $ 4,129,280
============= =============
</TABLE>
As of July 29, 2000 and July 31, 1999, the Company expected to collect all of
its retainage balances within twelve months
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>
2000 1999
------------- -------------
<S> <C> <C>
Costs incurred on contracts in progress $ 48,037,774 $ 27,695,302
Estimated earnings thereon 13,855,362 8,259,242
------------- -------------
61,893,136 35,954,544
Less billings to date 9,598,519 3,513,751
------------- -------------
$ 52,294,617 $ 32,440,793
============= =============
Included in the accompanying consolidated balance
sheets under the captions:
Costs and estimated earnings in excess of billings $ 52,301,022 $ 32,878,667
Billings in excess of costs and estimated earnings 6,405 437,874
------------- -------------
$ 52,294,617 $ 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.
26
<PAGE> 27
6. PROPERTY AND EQUIPMENT
The accompanying consolidated balance sheets include the following property and
equipment:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Land $ 3,373,037 $ 3,142,193
Buildings 6,330,683 5,554,542
Leasehold improvements 1,574,013 1,381,888
Vehicles 102,489,730 84,568,675
Equipment and machinery 70,501,903 55,737,019
Furniture and fixtures 10,401,809 8,232,417
------------ ------------
Total 194,671,175 158,616,734
Less accumulated depreciation 93,578,313 74,975,644
------------ ------------
Property and equipment, net $101,092,862 $ 83,641,090
============ ============
</TABLE>
Maintenance and repairs of property and equipment amounted to $12,805,199,
$9,001,392, and $8,150,054 for the fiscal years ended July 29, 2000 and July 31,
1999 and 1998, respectively.
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Accrued payroll and related taxes $ 12,866,102 $ 6,084,913
Accrued employee benefit costs 11,271,668 7,854,018
Accrued construction costs 8,400,267 2,701,620
Other 14,786,911 8,033,686
------------ ------------
Other accrued liabilities $ 47,324,948 $ 24,674,237
============ ============
</TABLE>
8. NOTES PAYABLE
Notes payable are summarized by type of borrowing as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Bank credit agreement:
Term loan $ 10,750,000 $ 11,750,000
Capital lease obligations 458 233,619
Equipment loans 950,156 1,532,232
------------ ------------
Total 11,700,614 13,515,851
Less current portion 2,594,413 3,315,760
------------ ------------
Notes payable--non-current $ 9,106,201 $ 10,200,091
============ ============
</TABLE>
On April 27, 1999, the Company signed an amendment to its bank credit agreement
increasing the total facility to $175.3 million and extending the facility's
maturity to April 2002. The amended bank credit agreement provides for (i) a
$17.5 million standby letter of credit facility, (ii) a $50.0 million revolving
working capital facility, (iii) a $12.8 million five-year term loan; and (iv) a
$95.0 million equipment acquisition and small business purchase facility. The
Company is required to pay an annual non-utilization fee equal to 0.15% of the
unused portion of the revolving working capital and the equipment acquisition
and small business purchase facilities. In addition, the Company pays annual
agent and facility commitment fees of $15,000 and $135,000, respectively.
27
<PAGE> 28
The Company had total outstanding standby letters of credit of $12.3 million at
July 29, 2000, including letters of credit issued to the Company's insurance
administrators as part of its self-insurance program of $12.0 million and
miscellaneous letters of credit of $0.3 million.
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 29, 2000, there was no outstanding balance on this facility, resulting
in an available borrowing capacity of $50.0 million.
The outstanding loans under the equipment acquisition and small business
purchase facility bear interest, at the option of the Company, at the bank's
prime interest rate minus 0.75% or LIBOR plus 1.50%. The advances under the
equipment acquisition and small business purchase facility are converted to
term-loans with maturities not to exceed 48 months. The outstanding principal on
the equipment term-loans is payable in quarterly installments through February
2001. As of July 29, 2000, there was no outstanding balance on this facility
resulting in an available borrowing capacity of $71.1 million. The available
borrowing capacity on this nonrevolving facility has been reduced due to prior
borrowings which have been repaid in full.
The outstanding principal under the term loan bears interest at the bank's prime
interest rate minus 0.50% (8.38% at July 29, 2000). Principal and interest is
payable in semiannual installments through April 2002. The amount outstanding on
the term loan was $10.8 million at July 29, 2000.
The amended bank credit agreement contains restrictions which, among other
things, require maintenance of certain financial ratios and covenants, restricts
encumbrances of assets and creation of indebtedness, and 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 29,
2000. At July 29, 2000, the Company was in compliance with all of the 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.
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 $2,733,226 in 2001,
$2,166,572 in 2002, $2,075,089 in 2003, $4,814,295 in 2004, and $22,996 in 2005.
Interest costs incurred on notes payable, all of which are expensed, for the
years ended July 29, 2000 and July 31, 1999 and 1998 were $1,035,824,
$1,969,634, and $2,284,406 respectively.
The interest rates on notes payable under the bank credit agreement are at
current rates and, therefore, the carrying amount approximates fair value.
28
<PAGE> 29
9. INCOME TAXES
The components of the provision (benefit) for income taxes are:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ 37,956,624 $ 21,371,278 $ 11,388,552
State 7,171,617 4,166,638 2,742,593
------------ ------------ ------------
45,128,241 25,537,916 14,131,145
------------ ------------ ------------
Deferred:
Federal (844,165) 820,037 388,853
State (82,835) 129,233 (449,498)
Valuation allowance -- -- (475,185)
------------ ------------ ------------
(927,000) 949,270 (535,830)
------------ ------------ ------------
Total tax provision $ 44,201,241 $ 26,487,186 $ 13,595,315
============ ============ ============
</TABLE>
The deferred tax provision (benefit) is the change in the deferred tax assets
and liabilities representing the tax consequences of changes in the amount of
temporary differences and changes in tax rates during the year. Prior to the
acquisition by Dycom, CCI and ITI elected under Subchapter S of the Internal
Revenue Code to have the stockholders recognize their proportionate share of
CCI's and ITI's taxable income on their personal income tax returns in lieu of
paying corporate income taxes. At April 6, 1998, the consummation date of the
acquisition, CCI and ITI recorded a deferred tax liability (asset) of $616,358
and ($11,035), respectively, which was included in the third quarter results of
operations. The deferred tax assets and liabilities are comprised of the
following:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Self-insurance and other
non-deductible reserves $ 6,674,563 $ 4,522,568
Allowance for doubtful accounts 1,466,182 1,476,910
Small tools 409,969 424,414
Other 893,517 77,466
------------ ------------
$ 9,444,231 $ 6,501,358
============ ============
Deferred tax liabilities:
Property and equipment $ 6,955,783 $ 4,873,481
Unamortized acquisition costs 244,486 245,486
Amortization of goodwill 461,479 85,522
Other -- 414,888
------------ ------------
$ 7,661,748 $ 5,619,377
============ ============
Net deferred tax assets $ 1,782,483 $ 881,981
============ ============
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the Company's deferred tax assets will not be realized. The valuation
allowance recorded in the financial statements reduces deferred tax assets to an
amount that represents management's best estimate of the amount of deferred tax
assets that more likely than not will be realized. In fiscal 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.
29
<PAGE> 30
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>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Statutory rate applied to
pre-tax income $ 38,157,498 $ 23,246,835 $ 13,119,315
State taxes, net of federal tax benefit 4,611,486 2,795,243 1,829,416
Amortization of intangible assets,
with no tax benefit 368,529 159,031 54,281
Tax effect of non-deductible
items 1,335,259 303,365 389,999
Non-taxable interest income (523,324) (169,823) --
Valuation allowance -- -- (475,185)
Effect of income from S Corporations
(CCI and ITI) -- -- (1,827,023)
Deferred taxes of S Corporations -- -- 605,323
Other items, net 251,793 152,535 (100,811)
------------ ------------ ------------
Total tax provision $ 44,201,241 $ 26,487,186 $ 13,595,315
============ ============ ============
</TABLE>
10. OTHER INCOME, NET
The components of Other income, net are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Gain on sale of fixed assets $ 695,530 $ 506,017 $ 375,772
Miscellaneous income/(expense) (1,088,900) 542,489 707,077
----------- ------------ ------------
Total other income, net $ (393,370) $ 1,048,506 $ 1,082,849
=========== ============ ============
</TABLE>
During the fourth quarter of fiscal 2000, the Company determined its investment
in Witten was impaired. Therefore, the Company recognized an impairment loss of
$1.8 million during the quarter reducing the carrying value of the Witten
investment to $750,000 as compared to a carrying value of $2.8 million at July
31, 1999.
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 $8 subject to
adjustment. The Right is exercisable only when a triggering event occurs. The
triggering events 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.
12. STOCK OFFERING
In April 1999, the Company filed, at its cost, a registration statement for an
offering of 3.75 million shares and 300,000 shares of common stock, to be sold
by the Company and certain selling stockholders, respectively. The
30
<PAGE> 31
closing of the offering, at $32.33 per share, was consummated in 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 $1.60 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 562,500 and 45,000 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
55,554 shares from the Company and 4,443 shares from certain selling
stockholders. The Company received approximately $1.7 million as payment for the
over-allotment.
13. EMPLOYEE BENEFIT PLANS
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 the fiscal year ended July 31, 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, LOC, LCS, C-2, ACC, and NFS which
made discretionary contributions. The Company's contributions, were $1,115,965,
$638,557, and $435,435 in fiscal years 2000, 1999 and 1998, respectively.
14. STOCK OPTION PLANS
The Company has reserved 2,025,000 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 29, 2000 and July 31, 1999 and 1998, options available for grant under
the 1991 Plan were 38,238 shares, 65,937 shares, and 299,673 shares,
respectively.
The Company has reserved 3,316,845 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 the grant and are exercisable over a period of up
to ten years. At July 29, 2000 and July 31, 1999, options available for grant
under the 1998 Plan were 2,937,795 and 2,537,061 shares, respectively.
During fiscal 1999, the Company granted to key employees under the 1991 Plan
options to purchase an aggregate of 317,898 shares of common stock. The options
were granted at $14 1/8, the fair market value on the date of grant. During
fiscal 1999, the Company granted to key employees under the 1998 Plan options to
purchase an aggregate of 379,050 shares of common stock. The options were
granted at a range of exercise prices of $18 to $32, the fair market value on
the date of grant. During fiscal 1999, the Company granted to a non- employee
Director under the Directors Plan options to purchase an aggregate of 36,000
shares of common stock. The options were granted at a range of exercise prices
of $24 7/16 to $28 15/16, the fair market value on the date of grant. The
options under the Directors Plan vest over a three year period.
During fiscal 2000, the Company granted to key employees under the 1991 Plan
options to purchase an aggregate of 45,000 shares of common stock. The options
were granted at $26 1/16, the fair market value on the date of grant. During
fiscal 2000, the Company granted to key employees under the 1998 Plan options to
purchase an aggregate of 515,209 shares of common stock. The options were
granted at a range of exercise prices of $30 7/8 to $49 15/16, the fair market
value on the date of grant.
31
<PAGE> 32
On August 28, 2000, the Company granted key employees under the 1998 Plan an
option to purchase 499,000 shares of common stock. The options were granted at
$45 5/16, the fair market value on the date of grant. 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, 1998 and 1999 and July 29,
2000:
Number of Weighted Average
Shares Exercise Price
-----------------------------------------------
Options outstanding at
July 31, 1997 599,034 $ 4.59
Granted 582,705 $ 9.15
Terminated (18,112) $ 6.35
Exercised (172,071) $ 2.07
-----------------------------------------------
Options outstanding at
July 31, 1998 991,556 $ 6.99
Granted 732,948 $ 21.37
Terminated (84,153) $ 8.84
Exercised (311,853) $ 5.13
-----------------------------------------------
Options outstanding at
July 31, 1999 1,328,498 $ 15.24
Granted 560,209 $ 30.09
Terminated (133,392) $ 23.78
Exercised (376,156) $ 10.21
-----------------------------------------------
Options outstanding at
July 29, 2000 1,379,159 $ 21.82
-----------------------------------------------
Exercisable options at
July 31, 1998 196,181 $ 3.00
July 31, 1999 127,992 $ 5.43
July 29, 2000 94,067 $ 18.99
-----------------------------------------------
The range of exercise prices for options outstanding at July 29, 2000 was $6.00
to $49.94. The range of exercise prices for options is due to changes in the
price of the Company's stock over the period of the grants.
The following summarizes information about options outstanding at July 29, 2000:
Outstanding Options
------------------------------------------------
Weighted Weighted
Average Average
Number of Contractual Exercise
Shares Life Price
------------------------------------------------
Range of exercise prices
$ 6.00 to $21.00 558,688 2.4 $10.80
$21.00 to $35.00 738,471 8.4 $27.28
$35.00 to $49.94 82,000 9.6 $47.62
------------------------------------------------
1,379,159 6.1 $21.82
------------------------------------------------
Exercisable Options
------------------------------------------------
Weighted
Exercisable Average
as of Exercise
July 29,2000 Price
------------------------------------------------
Range of exercise prices
$ 6.00 to $21.00 42,131 $ 8.47
$21.00 to $28.96 51,936 $27.53
------------------------------------------------
94,067 $18.99
------------------------------------------------
32
<PAGE> 33
These options will expire if not exercised at specific dates ranging from August
2001 to April 2009. The prices for the options exercisable at July 29, 2000
ranged from $6.00 to $28.96.
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 2000, 1999 and
1998 have been estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions: expected stock volatility
of 57.62% in 2000, 46.50% in 1999, and 55.36% in 1998; risk-free interest rates
of 6.08% in 2000, 6.05% in 1999, and 5.50% in 1998; expected lives of 6 years
for 2000 and 1999 and 4 years for 1998, 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 2000, 1999, and 1998 was $18.21, $11.41, and
$6.75, per share, respectively.
The pro forma disclosures amortize to expense the estimated compensation costs
for its stock options granted subsequent to July 31, 1997 over the options
vesting period. The Company's fiscal 2000, 1999 and 1998 pro forma net earnings
and earnings per share are reflected below:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net Income:
Pro forma net income reflecting stock
option compensation costs $ 60,673,806 $ 38,282,300 $ 22,752,683
Pro forma earnings per share reflecting
stock option compensation costs:
Basic $ 1.46 $ 1.03 $ 0.66
Diluted $ 1.43 $ 1.01 $ 0.65
Net Income Reflecting Pro Forma Tax
Expense Related to S Corporations:
Pro forma net income reflecting stock
option compensation costs $ 21,378,423
Pro forma earnings per share reflecting
stock option compensation costs:
Basic $ 0.62
Diluted $ 0.61
</TABLE>
15. RELATED PARTY TRANSACTIONS
The Company leases administrative offices from entities related to certain
officers of CCG, CCI, ITI, LOC, LCS, C-2, and NFS. The total expense under these
arrangements for the years ended July 29, 2000 and July 31, 1999 and 1998, was
$1,432,175, $344,778, and $304,010, respectively. The future minimum lease
commitments under these arrangements are $1,368,884 in 2001, $1,326,874 in 2002,
$1,232,952 in 2003, $191,080 in 2004, and $26,400 in 2005 and $88,000
thereafter.
33
<PAGE> 34
16. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company's operating subsidiaries obtain contracts from both public and
private concerns. For the years ended July 29, 2000 and July 31, 1999 and 1998,
approximately 16.5%, 21.5%, and 20.7%, respectively, of the contract revenues
were from BellSouth Telecommunications, Inc. ("BellSouth"); 9.2%, 14.0%, and
22.7%, respectively, of the contract revenues were from Comcast Cable
Communications, Inc. ("Comcast"); and 9.9%, 9.3%, and 1.4%, respectively, of the
contract revenues were from Tele-Communications, Inc. ("TCI").
Financial instruments which subject the Company to concentrations of credit risk
consist principally of trade accounts receivable. BellSouth, Comcast, and TCI
represent a significant portion of the Company's customer base. As of July 29,
2000, the total outstanding trade receivables from BellSouth, Comcast, and TCI
were $11.1 million or 8.1%, $16.2 million or 11.8%, and $14.1 million or 10.3%,
respectively, of the outstanding trade receivables. At July 31, 1999, the total
outstanding trade receivables from BellSouth, Comcast, and TCI were $9.0 million
or 9.2%, $9.3 million or 9.5%, 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 2000, 1999, and 1998, the Company entered into numerous
operating leases for vehicles and equipment. Certain of these leases contain
renewal provisions and generally require the Company to pay insurance,
maintenance, and other operating expenses. Total expense incurred under
operating lease agreements, excluding the transactions with related parties (see
Note 15), for the years ended July 29, 2000 and July 31, 1999 and 1998 was
$12,218,085, $6,903,491, and $6,787,084, respectively. The future minimum
obligations under these leases are $3,991,649 in 2001; $2,119,635 in 2002;
$914,651 in 2003; $298,346 in 2004; $8,210 in 2005.
The federal employment tax returns for one of the Company's subsidiaries are
currently being audited by the Internal Revenue Service ("IRS"). As a result of
the audit, the Company received an examination report from the IRS in October
1999 proposing a $6.1 million tax deficiency. At issue, according to the
examination report, is the taxpayer's payment of certain employee allowances for
the years 1995 through 1997 without reporting such payment as wages on its
employees' W-2 forms. The Company intends to vigorously defend its position in
this matter and believes it has a number of legal defenses available to it,
which could reduce the proposed tax deficiency, although there can be no
assurance in this regard. The Company believes that the ultimate disposition of
this matter will not have a material adverse effect on its consolidated
financial statements.
In the normal course of business, certain subsidiaries of the Company have
pending and unasserted claims. It is the opinion of the Company's management,
based on the information available at this time, that these claims will not have
a material adverse impact on the Company's consolidated financial statements.
In the normal course of business, the Company enters into employment agreements
with certain members of the Company's executive management. It is the opinion of
the Company's management based on the information available at this time, that
these agreements 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, 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
34
<PAGE> 35
electrical utilities. Each of these services is provided by various of the
Company's subsidiaries which provide management with monthly financial
statements. All of the Company's subsidiaries have been aggregated into one
reporting segment due to their similar customer bases, products and production
methods, and distribution methods. The following table presents information
regarding annual contract revenues by type of customer:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Telecommunications $743,619,986 $451,178,153 $351,371,195
Electrical utilities 24,333,182 21,648,758 20,250,898
Various--Utility line locating 38,316,611 28,328,117 17,853,257
------------ ------------ ------------
Total contract revenues $806,269,779 $501,155,028 $389,475,350
============ ============ ============
</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. On January 20, 2000, 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 February 16, 2000. 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 form 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 29, 2000 and July 31, 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 NFS ("Pooled
Company") on March 8, 2000. The acquisition was accounted for a pooling of
interests and accordingly, the unaudited quarterly financial statements for the
periods presented include the accounts of NFS. The quarterly data for NFS after
the consummation date of the merger, is 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.
35
<PAGE> 36
<TABLE>
<CAPTION>
In Whole Dollars, Except Per Share Amounts.
------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1999:
Revenues:
Dycom $108,613,156 $ 96,727,284 $121,401,998 $143,394,487
Pooled Company 7,913,166 6,546,267 7,497,941 9,060,729
------------ ------------ ------------ ------------
$116,526,322 $103,273,551 $128,899,939 $152,455,216
============ ============ ============ ============
Income Before Income Taxes:
Dycom $ 12,611,721 $ 11,164,950 $ 14,198,783 $ 22,636,868
Pooled Company 1,635,805 1,024,701 1,317,266 2,000,232
------------ ------------ ------------ ------------
$ 14,247,526 $ 12,189,651 $ 15,516,049 $ 24,637,100
============ ============ ============ ============
Net Income:
Dycom $ 7,494,143 $ 6,650,150 $ 8,766,460 $ 13,539,222
Pooled Company 1,013,409 634,820 796,092 1,208,844
------------ ------------ ------------ ------------
$ 8,507,552 $ 7,284,970 $ 9,562,552 $ 14,748,066
============ ============ ============ ============
Earnings per Common Share:
Basic $ 0.24 $ 0.20 $ 0.26 $ 0.36
Diluted $ 0.24 $ 0.20 $ 0.26 $ 0.36
2000:
Revenues:
Dycom $160,904,275 $158,381,266 $212,260,383 $239,309,803
Pooled Company 16,582,837 18,831,215 -- --
------------ ------------ ------------ ------------
$177,487,112 $177,212,481 $212,260,383 $239,309,803
============ ============ ============ ============
Income Before Income Taxes:
Dycom $ 20,598,493 $ 19,917,065 $ 25,715,951 $ 35,579,852
Pooled Company 3,450,527 3,971,593 -- --
------------ ------------ ------------ ------------
$ 24,049,020 $ 23,888,658 $ 25,715,951 $ 35,579,852
============ ============ ============ ============
Net Income:
Dycom $ 12,463,231 $ 11,996,560 $ 14,496,453 $ 21,590,425
Pooled Company 2,085,332 2,400,239 -- --
------------ ------------ ------------ ------------
$ 14,548,563 $ 14,396,799 $ 14,496,453 $ 21,590,425
============ ============ ============ ============
Earnings per Common Share:
Basic $ 0.35 $ 0.35 $ 0.35 $ 0.52
Diluted $ 0.35 $ 0.34 $ 0.34 $ 0.51
</TABLE>
As a result of the Company's independent actuary's annual analysis of reported
claims and incurred but not reported losses, the 1999 fourth quarter results of
operations include a pre-tax net reduction of $2.3 million to accrued
self-insurance expense.
36
<PAGE> 37
Independent Auditors' Report
Dycom Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Dycom
Industries, Inc. and subsidiaries (the "Company") as of July 29, 2000 and July
31, 1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended July 29,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Dycom Industries, Inc. and
subsidiaries as of July 29, 2000 and July 31, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
July 29, 2000, in conformity with accounting principles generally accepted in
the United States of America.
/s/ DELOITTE & TOUCHE LLP
-------------------------
DELOITTE & TOUCHE LLP
Certified Public Accountants
West Palm Beach, Florida
August 25, 2000
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. Effective August 28,
2000, Mr. Pledger resigned as the Company's Executive Chairman. Mr. Pledger will
remain as Chairman of the Board of Directors.
<TABLE>
<CAPTION>
Executive Officer
Name Age Office Since
---- --- ------ -----------------
<S> <C> <C> <C>
Thomas R. Pledger 62 Executive Chairman 1/4/84
Steven E. Nielsen 37 President and Chief Executive Officer 2/26/96
Richard L. Dunn 51 Senior Vice President and 1/28/00
Chief Financial Officer
Robert J. Delark 47 Senior Vice President and 1/27/00
Chief Administrative Officer
Randal L. Martin 28 Vice President and Controller 8/23/99
Marc R. Tiller 30 General Counsel and Corporate 11/23/98
Secretary
</TABLE>
There are no family relationships among the Company's executive officers.
Richard L. Dunn is the Company's Senior Vice President and Chief Financial
Officer. Mr. Dunn has been employed by the Company since January 28, 2000. Mr.
Dunn was previously employed by Avborne, Inc., a privately held company in the
commercial aviation maintenance and repair industry, from April 1998 to January
2000 as Vice President, Finance and Chief Financial Officer. Mr. Dunn was
employed by Perry Ellis International from April 1994 to April 1998 as Vice
President, Finance and Chief Financial Officer. Prior to April 1994, Mr. Dunn
was the Treasurer of Tyco International Ltd.
Robert J. Delark is the Company's Senior Vice President and Chief Administrative
Officer. Mr. Delark has been employed by the Company since January 27, 2000. Mr.
Delark was previously employed by Henkels & McCoy, a privately held utility
contractor, from 1982 to 2000 and last served as Chief Financial Officer.
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.
38
<PAGE> 39
Item 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is hereby incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
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 from 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 from 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
(a) The following documents are filed as a part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Consolidated financial statements:
Consolidated balance sheets at July 29, 2000 and July 31, 1999 16
Consolidated statements of operations for the years ended July 29, 2000
and July 31, 1999 and 1998 17
Consolidated statements of stockholders' equity for the years ended July
29, 2000 and July 31, 1999 and 1998 18
Consolidated statements of cash flows for the years ended July 29, 2000
and July 31, 1999 and 1998 19
Notes to consolidated financial statements 21-36
Independent auditor's report 37
</TABLE>
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 41.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed on behalf of the Registrant during the
quarter ended July 29, 2000.
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 6, 2000
------------------------- ----------------
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.
Name Position Date
---- -------- ----
/s/ Richard L. Dunn Senior Vice President October 6, 2000
------------------------- and Chief Financial Officer ---------------
/s/ Randal L. Martin Vice President, Controller, October 6, 2000
------------------------- and Principal Accounting Officer ---------------
/s/ Thomas R. Pledger Chairman of the Board of October 6, 2000
------------------------- Directors ---------------
/s/ Steven E. Nielsen Director October 6, 2000
------------------------- ---------------
/s/ Louis W. Adams, Jr. Director October 6, 2000
------------------------- ---------------
/s/ Thomas G. Baxter Director October 6, 2000
------------------------- ---------------
/s/ Walter L. Revell Director October 6, 2000
------------------------- ---------------
/s/ Joseph M. Schell Director October 6, 2000
------------------------- ---------------
/s/ Ronald P. Younkin Director October 6, 2000
------------------------- ---------------
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).
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 a Option Plan (Exhibit A, Definitive Proxy
Statement filed September 30, 1999, File No. 0001-10613).
10.5 1991 Incentive Stock Option Plan (Exhibit A, Definitive proxy
Statement November 5, 1991, File No. 001-10613).
10.6 Employment Agreement for Robert J. Delark is hereby incorporated by
reference from Form 10-Q filed June 9, 2000.
10.7 Employment Agreement for Richard L. Dunn is hereby incorporated by
reference from Form 10-Q filed June 9, 2000.
10.8* Retirement and Consulting Agreement for Thomas R. Pledger.
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 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).
10.11 Agreement and Plan Merger, dated as of February 14, 2000, among
Niels Fugal Sons Company, Dycom Acquisition Corporation IV, Dycom
Industries, Inc. and Guy L. Fugal and Daniel B. Fugal (Exhibit
2(i), Current Report on Form 8-K filed March 17, 2000, 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.
27* Financial Data Schedules for fiscal years ended July 29, 2000 and
July 31, 1999 and 1998.
* Filed Herewith
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