<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 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.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1277135
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4440 PGA Boulevard, Suite 500
Palm Beach Gardens, Florida 33410
--------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(561) 627-7171
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of June 2, 2000
----- ------------------------------
Common Stock, par value $0.33 1/3 41,884,113
<PAGE> 2
DYCOM INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
April 29, 2000 and July 31, 1999 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
April 29, 2000 and April 30, 1999 4
Condensed Consolidated Statements of
Operations for the Nine Months Ended
April 29, 2000 and April 30, 1999 5
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
April 29, 2000 and April 30, 1999 6-7
Notes to Condensed Consolidated
Financial Statements 8-15
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 16-20
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 20
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
<PAGE> 3
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
April 29, July 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 74,039,635 $ 97,995,283
Accounts receivable, net 131,308,771 104,482,445
Costs and estimated earnings in excess of billings 53,631,500 32,878,667
Deferred tax assets, net 5,109,601 3,336,479
Inventories 13,018,319 10,498,453
Other current assets 2,696,629 1,828,716
------------ ------------
Total current assets 279,804,455 251,020,043
------------ ------------
PROPERTY AND EQUIPMENT, net 99,926,628 83,641,090
------------ ------------
OTHER ASSETS:
Intangible assets, net 86,789,543 59,286,827
Other 4,602,409 5,724,151
------------ ------------
Total other assets 91,391,952 65,010,978
------------ ------------
TOTAL $471,123,035 $399,672,111
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 33,700,151 $ 21,177,427
Notes payable 2,712,877 3,315,760
Billings in excess of costs and estimated earnings 161,582 437,874
Accrued self-insured claims 4,573,960 3,728,947
Income taxes payable 2,840,701 5,027,519
Customer advances 15,137,347 24,576,700
Other accrued liabilities 35,208,772 24,674,237
------------ ------------
Total current liabilities 94,335,390 82,938,464
------------ ------------
NOTES PAYABLE 9,303,120 10,200,091
ACCRUED SELF-INSURED CLAIMS 5,615,887 4,823,396
DEFERRED TAX LIABILITIES, net 4,385,462 2,454,498
OTHER LIABILITIES 2,372,643 1,813,184
------------ ------------
Total liabilities 116,012,502 102,229,633
------------ ------------
COMMITMENTS AND CONTINGENCIES, Note 9
STOCKHOLDERS' EQUITY:
Preferred stock, par value 1.00 per share:
1,000,000 shares authorized: no shares issued and outstanding -- --
Common stock, par value $.33 1/3 per share:
150,000,000 shares authorized: 41,799,829 and 41,168,195
shares issued and outstanding, respectively 13,933,276 13,722,732
Additional paid-in capital 220,350,048 206,313,627
Unrealized gain on marketable securities -- 20,724
Retained earnings 120,827,209 77,385,395
------------ ------------
Total stockholders' equity 355,110,533 297,442,478
------------ ------------
TOTAL $471,123,035 $399,672,111
============ ============
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
3
<PAGE> 4
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------------
April 29, April 30,
2000 1999
------------- -------------
<S> <C> <C>
Contract revenues earned $ 212,260,383 $ 128,899,939
------------- -------------
Expenses:
Costs of earned revenues, excluding depreciation 159,601,096 96,007,783
General and administrative 18,071,442 12,493,807
Depreciation and amortization 7,846,956 5,285,021
------------- -------------
Total 185,519,494 113,786,611
------------- -------------
Interest income, net 907,557 (133,584)
Merger-related expenses (2,364,284) --
Other income, net 431,789 536,305
------------- -------------
INCOME BEFORE INCOME TAXES 25,715,951 15,516,049
------------- -------------
PROVISION FOR INCOME TAXES:
Current 11,456,615 5,576,723
Deferred (237,117) 376,774
------------- -------------
Total 11,219,498 5,953,497
------------- -------------
NET INCOME $ 14,496,453 $ 9,562,552
============= =============
EARNINGS PER COMMON SHARE:
Basic $ 0.35 $ 0.26
============= =============
Diluted $ 0.34 $ 0.26
============= =============
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic 41,738,741 36,504,793
============= =============
Diluted 42,579,451 37,165,574
============= =============
</TABLE>
See notes to condensed consolidated financial statements--unaudited
4
<PAGE> 5
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
---------------------------------
April 29, April 30,
2000 1999
------------- -------------
<S> <C> <C>
Contract revenues earned $ 566,959,976 $ 348,699,812
------------- -------------
Expenses:
Costs of earned revenues, excluding depreciation 423,407,440 258,777,049
General and administrative 48,230,166 34,829,080
Depreciation and amortization 22,755,372 14,080,228
------------- -------------
Total 494,392,978 307,686,357
------------- -------------
Interest income, net 2,479,753 (10,579)
Merger-related expenses (2,364,284) --
Other income, net 971,162 950,350
------------- -------------
INCOME BEFORE INCOME TAXES 73,653,629 41,953,226
------------- -------------
PROVISION FOR INCOME TAXES:
Current 30,080,470 16,326,792
Deferred 131,344 271,360
------------- -------------
Total 30,211,814 16,598,152
------------- -------------
NET INCOME $ 43,441,815 $ 25,355,074
============= =============
EARNINGS PER COMMON SHARE:
Basic $ 1.05 $ 0.70
============= =============
Diluted $ 1.03 $ 0.69
============= =============
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic 41,483,255 36,126,479
============= =============
Diluted 42,175,372 36,740,632
============= =============
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
5
<PAGE> 6
DYCOM INDUSTRIES, INC.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------------
April 29, April 30,
2000 1999
------------ ------------
<S> <C> <C>
Increase (Decrease) in Cash and Equivalents from
OPERATING ACTIVITIES:
Net Income $ 43,441,815 $ 25,355,074
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization 22,755,372 14,080,228
Gain on disposal of assets (625,860) (494,284)
Unrealized (gain) loss on marketable securities (20,724) 42,903
Deferred income taxes 131,344 271,360
Change in assets and liabilities:
Accounts receivable, net (20,586,722) (393,431)
Unbilled revenues, net (20,378,887) (17,061,209)
Other current assets (2,965,122) (464,276)
Other assets 4,236,342 (6,261,225)
Accounts payable 11,725,569 4,600,000
Customer advances (9,439,353) 5,848,243
Accrued self-insured claims and other liabilities 8,883,957 2,080,447
Accrued income taxes (1,121,416) 161,781
------------ ------------
Net cash inflow from operating activities 36,036,315 27,765,611
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures (32,796,303) (37,850,570)
Proceeds from sale of assets 2,198,638 1,302,738
Acquisition expenditures, net of cash acquired (29,619,779) (30,102,213)
Equity investment (3,000,000)
------------ ------------
Net cash outflow from investing activities (60,217,444) (69,650,045)
------------ ------------
FINANCING ACTIVITIES:
Borrowings on notes payable 31,750,000
Principal payments on notes payable and bank lines-of-credit (2,266,617) (3,042,046)
Exercise of stock options 2,492,098 1,384,329
------------ ------------
Net cash inflow from financing activities 225,481 30,092,283
------------ ------------
NET CASH OUTFLOW FROM ALL ACTIVITIES (23,955,648) (11,792,151)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 97,995,283 35,975,992
------------ ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 74,039,635 $ 24,183,841
============ ============
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
6
<PAGE> 7
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
----------------------------
April 29, April 30,
2000 1999
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest $ 705,587 $ 1,470,844
Income taxes 32,398,632 16,202,590
Property and equipment acquired and financed with:
Capital lease obligation $ -- $ 233,618
Notes payable -- 690,315
Income tax benefit from stock options exercised $ 1,065,402 $ 1,115,554
During the nine months ended April 29, 2000, the company acquired all of the
capital stock of Lamberts' Cable Splicing Company, C-2 Utility Contractors, Inc.
Artoff Construction Company, Inc., and K.H. Smith Communications, Inc.
at a cost of $41.9 million. In conjunction with these acquisitions, assets
acquired and liabilities assumed were as follows:
Fair market value of assets acquired, including goodwill $44,660,499
Consideration paid (including $10.7 million of common stock issued) 41,948,181
-----------
Fair market value of liabilities assumed $ 2,712,318
===========
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
7
<PAGE> 8
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--Unaudited
1. The accompanying condensed consolidated balance sheets of Dycom Industries,
Inc. ("Dycom" or the "Company") as of April 29, 2000 and July 31, 1999, and the
related condensed consolidated statements of operations for the three and nine
months ended April 29, 2000 and April 30, 1999 and the condensed consolidated
statements of cash flows for the nine months ended April 29, 2000 and April 30,
1999 reflect all normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of such statements. The results of
operations for the three and nine months ended April 29, 2000 are not
necessarily indicative of the results which may be expected for the entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The condensed consolidated financial statements
are unaudited. These statements include Dycom Industries, Inc. and its
subsidiaries, all of which are wholly owned. During fiscal 1999, the Company
acquired Locating, Inc. ("LOC"), Ervin Cable Construction, Inc. ("ECC"), Apex
Digital TV, Inc. ("APX"), and Triple D Communications, Inc. ("DDD"). During
fiscal 2000, the Company acquired Lamberts' Cable Splicing Company ("LCS"), C-2
Utility Contractors, Inc. ("C-2"), Artoff Construction Company, Inc. ("ACC"),
and K.H. Smith Communications, Inc. ("KHS"). 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, C-2, ACC, and KHS from their
respective acquisition dates until April 29, 2000. See Note 4.
On March 8, 2000, Niels Fugal Sons Company ("NFS") merged with the Company in an
exchange of common stock. This transaction was accounted for as a pooling of
interests. Accordingly, the Company's condensed consolidated financial
statements include the results of NFS for all periods presented. See Note 4.
The Company's operations consist primarily of providing specialty contracting
services to the telecommunications and electrical utility industries. All
material intercompany accounts and transactions have been eliminated.
CHANGE IN FISCAL YEAR -- On September 29, 1999, the Company changed to a fiscal
year with 52 or 53 week periods ending on the Saturday nearest July 31. This
Quarterly Report presents financial information for the first, second and third
quarters of fiscal 2000, beginning August 1, 1999 and ending April 29, 2000. The
unaudited results of operations and cash flows of the Company for the quarter
ended April 29, 2000 contains 91 days compared to 89 days for the unaudited
results of operations and cash flows for the quarter ended April 30, 1999. The
unaudited results of operations and cash flows of the Company for the nine
months ended April 29, 2000 and April 30, 1999 contain 273 days each.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements.
Estimates are used in the Company's revenue recognition of work-in-process,
allowance for doubtful accounts, self-insured claims liability, depreciation and
amortization, and in the estimated lives of assets, including intangibles.
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified in order
to conform to current year presentation.
REVENUE -- Income on short-term contracts is recognized as the related work is
completed. Work-in-process on unit contracts is based on work performed but not
billed. Income on long-term contracts is recognized on the
percentage-of-completion method based primarily on the ratio of contract costs
incurred to date to total estimated contract costs. At the time a loss on a
contract becomes known, the entire amount of the estimated ultimate loss is
accrued.
"Costs and estimated earnings in excess of billings" represents the excess of
contract revenues recognized under the percentage-of-completion method of
accounting for long-term contracts and work-in-process on unit contracts over
billings to date. For those contracts in which billings exceed contract revenues
recognized to date, such excesses are included in the caption "billings in
excess of costs and estimated earnings."
CASH AND EQUIVALENTS -- Cash and equivalents include cash balances on deposit in
banks, overnight repurchase agreements, certificates of deposit, commercial
paper, and various other financial instruments having an original maturity of
three months or less. For purposes of the condensed consolidated statements of
cash flows, the Company considers these amounts to be cash equivalents.
INVENTORIES - Inventories consist primarily of materials and supplies used to
complete certain of the Company's long-term contracts. The Company values these
inventories using the first-in, first-out method. The Company periodically
reviews the appropriateness of the carrying value of its inventories. The
Company records a reserve for obsolescence if inventories are not expected to be
used in the Company's normal course of business. No reserve has been recorded in
the periods presented.
8
<PAGE> 9
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost. Depreciation
and amortization is computed over the estimated useful life of the assets
utilizing the straight-line method. The estimated useful service lives of the
assets are: buildings--20-31 years; leasehold improvements--the term of the
respective lease or the estimated useful life of the improvements, whichever is
shorter; vehicles--3-7 years; equipment and machinery--2-10 years; and furniture
and fixtures--3-10 years. Maintenance and repairs are expensed as incurred;
expenditures that enhance the value of the property or extend its useful life
are capitalized. When assets are sold or retired, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain or
loss is included in income.
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 fair value of the Company's investment holdings at July 31, 1999
was $148,224 and no such investments were held as of April 29, 2000.
INTANGIBLE ASSETS -- The excess of the purchase price over the fair market value
of the tangible net assets of acquired businesses (goodwill) is amortized on a
straight-line basis over 20-40 years. The appropriateness of the carrying value
of goodwill is reviewed periodically by the Company at the subsidiary level. An
impairment loss is recognized when the projected future cash flows are less than
the carrying value of goodwill. No impairment loss has been recognized in the
periods presented. As of April 29, 2000 and July 31, 1999, net intangible assets
include $86.5 million and $58.9 million of net goodwill, respectively.
Amortization expense was $1,144,107 and $350,725 for the three months ended
April 29, 2000 and April 30, 1999, respectively, and was $2,943,382 and $434,466
for the nine months ended April 29, 2000 and April 30, 1999, respectively. The
intangible assets are net of accumulated amortization of $5,416,327 at April 29,
2000 and $2,472,945 at July 31, 1999.
SELF-INSURED CLAIMS LIABILITY -- The Company retains the risk, up to certain
limits, for automobile and general liability, workers compensation, and employee
group health claims. A liability for unpaid claims and the associated claim
expenses, including incurred but not reported losses, is actuarially determined
and reflected in the condensed consolidated financial statements as an accrued
liability. The self-insured claims liability includes incurred but not reported
losses of $5,130,565 and $4,860,659 at April 29, 2000 and July 31, 1999,
respectively. The determination of such claims and expenses and the
appropriateness of the related liability is continually 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.
INCOME TAXES -- The Company and its subsidiaries file a consolidated federal
income tax return. Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
PER SHARE DATA -- Earnings per common share-basic is computed using the
weighted-average common shares outstanding during the period. Earnings per
common share-diluted is computed using the weighted-average common shares
outstanding during the period and the dilutive effect of common stock options,
using the treasury stock method. See Note 3.
STOCK SPLITS -- 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 to stockholders of record on February 2, 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 split on a retroactive basis.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities" which establishes standards for the accounting and reporting of
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued SFAS No. 137 which
deferred the effective date of SFAS No. 133 by one year to periods beginning
after June 15, 2000. Management is currently evaluating the requirements and
related disclosures of SFAS No. 133.
9
<PAGE> 10
3. COMPUTATION OF PER SHARE EARNINGS
The following is a reconciliation of the numerators and denominators of the
basic and diluted per share computation as required by SFAS No. 128.
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------
April 29, April 30,
2000 1999
----------- -----------
<S> <C> <C>
Net income available to common stockholders (numerator) $14,496,453 $ 9,562,552
=========== ===========
Weighted-average number of common shares (denominator) 41,738,741 36,504,793
=========== ===========
$ 0.35 $ 0.26
=========== ===========
Weighted-average number of common shares 41,738,741 36,504,793
Potential common stock arising from stock options 840,710 660,781
----------- -----------
Total shares (denominator) 42,579,451 37,165,574
=========== ===========
Earnings per common share-diluted $ 0.34 $ 0.26
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
----------------------------
April 29, April 30,
2000 1999
----------- -----------
<S> <C> <C>
Net income available to common stockholders (numerator) $43,441,815 $25,355,074
=========== ===========
Weighted-average number of common shares (denominator) 41,483,255 36,126,479
=========== ===========
$ 1.05 $ 0.70
=========== ===========
Weighted-average number of common shares 41,483,255 36,126,479
Potential common stock arising from stock options 692,117 614,153
----------- -----------
Total shares (denominator) 42,175,372 36,740,632
=========== ===========
Earnings per common share-diluted $ 1.03 $ 0.69
=========== ===========
</TABLE>
4. ACQUISITIONS
On February 3, 1999, the Company acquired all of the outstanding common stock of
LOC for $10.0 million and various transaction costs. Located in Issaquah,
Washington, LOC's primary line of business is the locating, marking, and mapping
of underground utility facilities for cable television multiple system
operators, telephone companies, and electrical and gas utilities. On March 31,
1999, the Company purchased all of the outstanding shares of common stock of ECC
for $21.8 million in cash and 387,099 shares of Dycom's common stock for an
aggregate purchase price of $32.5 million before various transaction costs.
ECC's primary service is the engineering, construction, and maintenance of cable
television systems. On April 1, 1999, the Company issued 774,192 shares with an
aggregate value of $21.4 million of Dycom's common stock to the shareholders of
APX in exchange for all of the outstanding common stock of APX. APX's primary
line of business is providing installation and maintenance services to direct
broadcast satellite providers. Both ECC and APX are located in Sturgis,
Kentucky. On June 30, 1999, the Company purchased all of the outstanding shares
of common stock of DDD for $1.7 million in cash and 37,344 shares of Dycom's
common stock for an aggregate purchase price of $2.9 million before various
transaction costs. Located in Lexington, Kentucky, DDD's primary business is the
construction and maintenance of telecommunications systems under master service
agreements. On August 2, 1999, the Company acquired all of the outstanding
common stock of LCS for $10.0 million in cash and 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. On January 4, 2000, the Company acquired all of the
outstanding common stock of C-2 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. On January 4, 2000, the Company acquired all of the
outstanding common stock of ACC for $2.2 million in cash and 30,081 shares of
Dycom's common stock for
10
<PAGE> 11
an aggregate purchase price of $3.0 million before various transaction costs.
Located in Gold Hill, Oregon, ACC's primary business is the construction and
maintenance of telecommunications systems. On February 1, 2000, the Company
acquired all of the outstanding common stock of K.H. Smith Communications, Inc.
for $1.0 million in cash and 5,431 shares of Dycom's common stock for an
aggregate purchase price of $1.2 million before various transaction costs.
Located in Rocky Mount, North Carolina, KHS primary business is the construction
and maintenance of telecommunications systems. The Company has recorded the
acquisitions of LOC, ECC, APX, DDD, LCS, C-2, ACC, and KHS 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, DDD, LCS, C-2, ACC, and KHS are included in the accompanying consolidated
condensed financial statements from the date of purchase.
The following unaudited pro forma summary presents the consolidated results of
operations of the Company as if the acquisitions of LOC, ECC, APX, DDD, LCS,
C-2, ACC, and KHS had occurred on August 1, 1998:
For the Nine Months Ended
------------------------------
April 29, April 30,
2000 1999
------------ ------------
Total revenues $578,054,337 $422,462,887
Income before income taxes 75,883,431 50,102,863
Net income 45,671,617 30,726,836
Earnings per share:
Basic $ 1.09 $ 0.82
Diluted $ 1.08 $ 0.80
On March 8, 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. Dycom has accounted for the acquisition as a pooling of
interests and, accordingly, the Company's historical condensed 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 and NFS for the three and nine month periods
ending April 29, 2000 and April 30, 1999, respectively, are as follows:
<TABLE>
<CAPTION>
Dycom NFS Combined
------------ ------------ ------------
<S> <C> <C> <C>
Three month period ended
April 29, 2000
Total revenues $193,564,041 $ 18,696,342 $212,260,383
Net income $ 12,434,970 $ 2,061,483 $ 14,496,453
April 30, 1999
Total revenues $121,401,998 $ 7,497,941 $128,899,939
Net income $ 8,766,460 $ 796,092 $ 9,562,552
Nine month period ended
April 29, 2000
Total revenues $512,849,582 $ 54,110,394 $566,959,976
Net income $ 36,894,761 $ 6,547,054 $ 43,441,815
April 30, 1999
Total revenues $326,742,438 $ 21,957,374 $348,699,812
Net income $ 22,910,753 $ 2,444,321 $ 25,355,074
</TABLE>
11
<PAGE> 12
5. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
April 29, July 31,
2000 1999
------------ ------------
<S> <C> <C>
Contract billings $124,080,912 $102,880,899
Retainage 9,392,875 4,497,307
Other receivables 2,540,900 1,233,519
------------ ------------
Total 136,014,687 108,611,725
Less allowance for doubtful accounts 4,705,916 4,129,280
------------ ------------
Accounts receivable, net $131,308,771 $104,482,445
============ ============
</TABLE>
For the periods indicated, the allowance for doubtful accounts changed as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------
April 29, April 30,
2000 1999
----------- -----------
<S> <C> <C>
Allowance for doubtful accounts at 1/29/2000 and
1/31/1999, respectively $ 3,423,619 $ 2,800,700
Allowance for doubtful account balances from acquisitions -- 884,862
Additions charged to bad debt expense 1,296,208 111,218
Amounts charged against the allowance, net of recoveries (13,911) (46,975)
----------- -----------
Allowance for doubtful accounts $ 4,705,916 $ 3,749,805
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
-----------------------------
April 29, April 30,
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 957,062 777,502
Amounts charged against the allowance, net of recoveries (380,426) (123,537)
----------- -----------
Allowance for doubtful accounts $ 4,705,916 $ 3,749,805
=========== ===========
</TABLE>
12
<PAGE> 13
6. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS
The accompanying condensed consolidated balance sheets include costs and
estimated earnings on contracts in progress, net of progress billings as
follows:
<TABLE>
<CAPTION>
April 29, July 31,
2000 1999
----------- -----------
<S> <C> <C>
Costs incurred on contracts in progress $49,505,308 $27,695,302
Estimated earnings thereon 13,691,395 8,259,242
----------- -----------
63,196,703 35,954,544
Less billings to date 9,726,785 3,513,751
----------- -----------
Costs and estimated earnings in excess of billings $53,469,918 $32,440,793
=========== ===========
Included in the accompanying consolidated
balance sheets under the captions:
Costs and estimated earnings in excess of billings $53,631,500 $32,878,667
Billings in excess of costs and estimated earnings 161,582 437,874
----------- -----------
$53,469,918 $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.
7. PROPERTY AND EQUIPMENT
The accompanying condensed consolidated balance sheets include the following
property and equipment:
April 29, July 31,
2000 1999
------------ ------------
Land $ 3,283,523 $ 3,142,193
Buildings 6,026,476 5,554,542
Leasehold improvements 1,512,798 1,381,888
Vehicles 101,331,669 84,568,675
Equipment and machinery 65,669,312 55,737,019
Furniture and fixtures 9,647,741 8,232,417
------------ ------------
Total 187,471,519 158,616,734
Less accumulated depreciation 87,544,891 74,975,644
------------ ------------
Property and equipment, net $ 99,926,628 $ 83,641,090
============ ============
13
<PAGE> 14
8. NOTES PAYABLE
Notes payable are summarized by type of borrowings as follows:
April 29, July 31,
2000 1999
----------- -----------
Bank Credit Agreement:
Term Loan $10,750,000 $11,750,000
Capital lease obligations 1,822 233,619
Equipment loans 1,264,175 1,532,232
----------- -----------
Total 12,015,997 13,515,851
Less current portion 2,712,877 3,315,760
----------- -----------
Notes payable - non-current $ 9,303,120 $10,200,091
=========== ===========
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 total outstanding standby letters of credit of $13.7 million at
April 29, 2000, including letters of credit issued to the Company's insurance
administrators as part of its self-insurance program of $13.4 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 April 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 1.5%. The advances under the
equipment acquisition and small business purchase facility are converted to term
loans with maturities not to exceed 48 months. The outstanding principal on the
equipment term loans is payable in monthly installments through February 2001.
As of April 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% (7.94% at April 29, 2000). Principal and interest is
payable in semiannual installments through April 2003. The amount outstanding on
the term loan was $10.8 million at April 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 periods
presented. At April 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 interest in
certain property and assets of the Company and its subsidiaries.
In addition to the borrowings under the amended bank credit agreement, certain
subsidiaries have outstanding obligations under capital leases and other
equipment financing arrangements. The obligations are payable in monthly
installments expiring at various dates through September 2000.
Interest costs incurred on notes payable, all of which were expensed during the
three months ended April 29, 2000 and April 30, 1999 were $309,868 and $607,270,
respectively. Interest costs for the nine months ended April 29, 2000 and April
30, 1999 were $775,596 and $1,484,543, respectively.
14
<PAGE> 15
9. COMMITMENTS AND CONTINGENCIES
The federal employment tax returns for one of the Company's subsidiaries are
currently being audited by the Internal Revenue Service ("IRS"). As a result of
the audit, the Company received an examination report from the IRS in October
1999 proposing a $6.1 million tax deficiency. At issue, according to the
examination report, is the taxpayer's payment of certain employee allowances for
the years 1995 through 1997 without reporting such payment as wages on the
employees' W-2 Forms. The Company intends to vigorously defend its position in
this matter and believes it has a number of legal defenses available to it,
which would significantly reduce or possibly eliminate the proposed tax
deficiency, although there can be no assurance in this regard. 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.
10. SEGMENT INFORMATION
The Company operates in one reportable segment as a specialty contractor. The
Company provides engineering, placement and maintenance of aerial, underground,
and buried fiber-optic, coaxial and copper cable systems owned by local and long
distance communications carriers, competitive local exchange carriers, and cable
television multiple system operators. Additionally, the Company provides similar
services related to the installation of integrated voice, data, and video local
and wide area networks within office buildings and similar structures and also
provides underground locating services to various utilities and provides
construction and maintenance services to electrical utilities. Each of these
services is provided by various of the Company's subsidiaries 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>
For the Three Months Ended
------------------------------
April 29, April 30,
2000 1999
------------ ------------
<S> <C> <C>
Telecommunications $197,399,270 $114,912,935
Electrical utilities 5,261,919 5,352,253
Various customers - Utility line locating 9,599,194 8,634,751
------------ ------------
Total contract revenues $212,260,383 $128,899,939
============ ============
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
------------------------------
April 29, April 30,
2000 1999
------------ ------------
<S> <C> <C>
Telecommunications $519,295,187 $315,084,174
Electrical utilities 19,110,394 15,478,910
Various customers - Utility line locating 28,554,395 18,136,728
------------ ------------
Total contract revenues $566,959,976 $348,699,812
============ ============
</TABLE>
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated financial condition and results of operations. The discussion
should be read in conjunction with the condensed consolidated financial
statements and notes thereto.
In March 2000, the Company acquired Niels Fugal Sons Company ("NFS") in a
transaction accounted for as a pooling-of-interest. Due to the
pooling-of-interest, the condensed consolidated financial statements and related
notes, included elsewhere in this Form 10-Q, have been restated to include the
operations of NFS for all periods presented.
Results of Operations
The following table sets forth, as a percentage of contract revenues earned,
certain items in the Company's Condensed Consolidated Statements of Operations
for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------
April 29, April 30,
2000 1999
-------- --------
<S> <C> <C>
Contract revenues earned 100.0% 100.0%
Expenses:
Cost of earned revenues, excluding depreciation 75.2 74.5
General and administrative 8.5 9.7
Depreciation and amortization 3.7 4.1
----- -----
Total 87.4 88.3
Interest income, net 0.4 (0.1)
Merger-related expenses (1.1) 0.0
Other income, net 0.2 0.4
----- -----
Income before income taxes 12.1 12.0
----- -----
Provision for income taxes 5.3 4.6
----- -----
Net Income 6.8% 7.4%
===== =====
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
April 29, April 30,
2000 1999
----------- -----------
<S> <C> <C>
Contract revenues earned 100.0% 100.0%
Expenses:
Cost of earned revenues, excluding depreciation 74.7 74.2
General and administrative 8.5 10.0
Depreciation and amortization 4.0 4.0
----- -----
Total 87.2 88.2
Interest income, net 0.4 0.0
Merger-related expenses (0.4) 0.0
Other income, net 0.2 0.3
----- -----
Income before income taxes 13.0 12.1
----- -----
Provision for income taxes 5.3 4.8
----- -----
Net Income 7.7% 7.3%
===== =====
</TABLE>
REVENUES. Contract revenues increased $83.4 million, or 64.7%, to $212.3 million
in the quarter ending April 29, 2000 from $128.9 million in the quarter ended
April 30, 1999. Of this increase, $82.5 million was attributable to specialty
contracting services provided to telecommunications companies and $1.0 million
was attributable to underground utility locating services provided to various
utilities, reflecting an increase in overall market demand for the Company's
services.
During the quarter ended April 29, 2000, the Company recognized $197.4 million
of contract revenues from telecommunications services as compared to $114.9
million for the quarter ended April 30, 1999. The increase in the Company's
telecommunications service revenues reflects an increased volume of projects and
activities associated with cable television services, and an increase in
services performed in the design and installation of broadband networks,
telephone engineering services, telephony splicing services, premise wiring
services, and revenues from services performed under master service agreements.
The Company recognized contract revenues of $5.3 million from electric
construction and maintenance services in the quarter ended April 29, 2000 as
compared to $5.4 million in the quarter ended April 30, 1999. The Company
recognized contract revenues of $9.6 million from underground utility locating
services in the quarter ended April 29, 2000 as compared to $8.6 million in the
quarter ended April 30, 1999, an increase of 11.6%. Acquisitions subsequent to
April 30, 1999 contributed $30.4 million of contract revenues during the quarter
ended April 29, 2000, primarily in contract revenues from telecommunications
services.
Contract revenues from multi-year master service agreements and other long-term
agreements represented 79.8% of total contract revenues in the quarter ended
April 29, 2000 as compared to 82.8% in the quarter ended April 30, 1999, of
which contract revenues from multi-year master service agreements represented
52.0% of total contract revenues in the quarter ended April 29, 2000 as compared
to 45.5% in the quarter ended April 30, 1999.
Contract revenues increased $218.3 million, or 62.6%, to $567.0 million in the
nine months ending April 29, 2000 from $348.7 million in the nine months ended
April 30, 1999. Of this increase, $204.2 million was attributable to specialty
contracting services provided to telecommunications companies, $3.6 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 increase in overall market
demand for the Company's services.
During the nine months ended April 29, 2000, the Company recognized $519.3
million of contract revenues from telecommunications services as compared to
$315.1 million for the nine months ended April 30, 1999. The increase in the
Company's telecommunications service revenues reflects an increased volume of
projects and activities associated with cable television services, and an
increase in services performed in the
17
<PAGE> 18
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 $19.1 million from electric construction and maintenance services in
the nine months ended April 30, 2000 as compared to $15.5 million in the nine
months ended April 30, 1999. The Company recognized contract revenues of $28.6
million from underground utility locating services in the nine months ended
April 29, 2000 as compared to $18.1 million in the nine months ended April 30,
1999, an increase of 58.0%. Acquisitions subsequent to April 30, 1999
contributed $80.4 million of contract revenues during the nine months ended
April 29, 2000, primarily in contract revenues from telecommunications services.
Contract revenues from multi-year master service agreements and other long-term
agreements represented 77.6% of total contract revenues in the nine months ended
April 29, 2000 as compared to 84.1% in the nine months ended April 30, 1999, of
which contract revenues from multi-year master service agreements represented
48.3% of total contract revenues in the nine months ended April 29, 2000 as
compared to 46.3% in the nine months ended April 30, 1999.
COSTS OF EARNED REVENUES. Costs of earned revenues increased $63.6 million to
$159.6 million in the quarter ended April 29, 2000 from $96.0 million in the
quarter ended April 30, 1999, and increased as a percentage of contract revenues
to 75.2% from 74.5%. The Company experienced no material changes in the
composition of its costs of earned revenues during the quarter ended April 29,
2000.
Costs of earned revenues increased $164.6 million to $423.4 million in the nine
months ended April 29, 2000 from $258.8 million in the nine months ended April
30, 1999, and increased as a percentage of contract revenues to 74.7% from
74.2%. The Company experienced no material changes in the composition of its
costs of earned revenues during the nine months ended April 29, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $5.6 million to $18.1 million in the quarter ended April 29, 2000 from
$12.5 million in the quarter ended April 30, 1999. The increase in general and
administrative expenses for the quarter ended April 29, 2000, as compared to the
quarter ended April 30, 1999, was primarily attributable to increases in
salaries, employee benefits, and payroll taxes of $2.8 million, legal and
professional fees of $0.6 million, other general and administrative expenses of
$1.0 million, and an a increase in the provision for doubtful accounts of $1.2
million. General and administrative expenses decreased as a percentage of
contract revenues to 8.5% from 9.7% in the quarter ended April 29, 2000 as
compared to the quarter ended April 30, 1999.
General and administrative expenses increased $13.4 million to $48.2 million in
the nine months ended April 29, 2000 from $34.8 million in the nine months ended
April 30, 1999. The increase in general and administrative expenses for the nine
months ended April 29, 2000, as compared to the nine months ended April 30,
1999, was primarily attributable to increases in salaries, employee benefits,
and payroll taxes of $7.5 million, legal and professional fees of $1.4 million,
other general and administrative expenses of $4.3 million and an increase in the
provision for doubtful accounts of $0.2 million. General and administrative
expenses decreased as a percentage of contract revenues to 8.5% from 10.0% in
the nine months ended April 29, 2000 as compared to the nine months ended April
30, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $2.5
million to $7.8 million in the quarter ending April 29, 2000 as compared to $5.3
million in the quarter ended April 30, 1999, but decreased as a percentage of
contract revenues to 3.7% from 4.1%.
Depreciation and amortization increased $8.7 million to $22.8 million in the
nine months ending April 29, 2000 as compared to $14.1 million in the nine
months ended April 30, 1999, but remained consistent as a percentage of contract
revenues at 4.0%.
MERGER-RELATED EXPENSES. During the three and nine months ended April 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.
INCOME TAXES. The provision for income taxes was $11.2 million in the three
months ended April 29, 2000 as compared to $6.0 million in the same period last
year. The Company's effective tax rate was 43.6% in the three months ended April
29, 2000 as compared to 38.4% in the same period last year. The effective tax
rate differs from the statutory rate due to state income taxes, the amortization
of intangible assets that do not provide a tax benefit, and other non-deductible
expenses, for tax purposes. During the three months ended April 29, 2000, the
Company incurred $2.4 million of merger-related expenses for which no tax
benefit was recorded.
The provision for income taxes was $30.2 million in the nine months ended April
29, 2000 as compared to $16.6 million in the same period last year. The
Company's effective tax rate was 41.0% in the nine months ended April 29, 2000
as compared to 39.6% in the same period last year. The effective tax rate
differs from the statutory rate due to state income taxes, the amortization of
intangible assets that do not provide a tax benefit, and other non-deductible
expenses, for tax purposes. During the nine months ended April 29, 2000, the
Company incurred $2.4 million of merger-related expenses for which no tax
benefit was recorded.
18
<PAGE> 19
Liquidity and Capital Resources
The Company's needs for capital are attributable primarily to its needs for
equipment to support its contractual commitments to customers and its needs for
working capital sufficient for general corporate purposes. Capital expenditures
have been financed by operating and capital leases, bank borrowings and internal
cash flow. To the extent that the Company seeks to grow by acquisitions that
involve consideration other than Company stock, the Company's capital
requirements may increase, although the Company is not currently subject to any
commitments or obligations with respect to any acquisitions. The Company's
sources of cash have historically been from operating activities, equity
offerings, bank borrowings, and from proceeds arising from the sale of idle and
surplus equipment and real property.
For the nine months ended April 29, 2000, net cash provided by operating
activities was $36.0 million compared to $27.8 million for the nine months ended
April 30, 1999. Net income and non-cash charges are the primary sources of
operating cash flow. Working capital items used $29.6 million of operating cash
flow for the nine-month period ended April 29, 2000 principally through an
increase in accounts receivable, unbilled revenues and other current assets,
together with a decrease in customer advances, offset by an increase in accounts
payable and a decrease in other long-term assets.
In the nine months ended April 29, 2000, net cash used in investing activities
was $60.2 million as compared to $69.7 million for the same period last year.
For the nine months ended April 29, 2000, capital expenditures of $32.8 million
were for the normal replacement of equipment and purchases for the start up of
certain long-term contracts.
In August 1998, the Company purchased a 13.0% equity interest in Witten
Technologies, Inc. ("Witten") for $3.0 million. Witten has developed, and is the
owner of, various proprietary technologies and materials relating to
ground-penetrating radar and the use of other electromagnetic frequencies. In
addition to the equity received, the Company has acquired an exclusive license
to market certain technologies within the United States and Canada. The
Company's investment in Witten is being accounted for using the equity method of
accounting.
On August 2, 1999, the Company acquired all of the outstanding common stock of
LCS for $10.0 million in cash and 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. On January 4, 2000, the Company acquired all of the outstanding
common stock of C-2 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. On January 4, 2000, the Company acquired all of the outstanding
common stock of ACC for $2.2 million in cash and 30,081 shares of Dycom's common
stock for an aggregate purchase price of $3.0 million before various transaction
costs. Located in Gold Hill, Oregon, ACC's primary business is the construction
and maintenance of telecommunications systems. On February 1, 2000, the Company
acquired all of the outstanding common stock of KHS for $1.0 million in cash and
5,431 shares of Dycom's common stock for an aggregate purchase price of $1.2
million before various transaction costs. Located in Rocky Mount, North
Carolina, KHS's primary business is the construction and maintenance of
telecommunications systems.
In the nine months ended April 29, 2000, net cash provided by financing
activities was $0.2 million, which was primarily attributable to the proceeds
from the exercise of stock options net of principal payments on long-term notes.
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 total outstanding standby letters of credit of $13.7 million at
April 29, 2000, including letters of credit issued to the Company's insurance
administrators as part of its self-insurance program of $13.4 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 April 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
19
<PAGE> 20
bank's prime interest rate minus 0.75% or LIBOR plus 1.50%. The advances under
the equipment acquisition and small business purchase facility are converted to
term loans with maturities not to exceed 48 months. The outstanding principal on
the equipment term loans is payable in quarterly installments though February
2001. There were no amounts outstanding on the equipment acquisition and small
business purchase facility at April 29, 2000, 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% (7.94% at April 29, 2000). Principal and interest is
payable in semiannual installments through April 2003. The amount outstanding on
the term loan was $10.8 million at April 29, 2000.
The amended bank credit agreement requires the Company to maintain certain
financial covenants and conditions, as well as restricting the encumbrances of
assets and the creation of additional indebtedness and limits the payment of
cash dividends. No cash dividends were paid during the periods presented. At
April 29, 2000, the Company was in compliance with all covenants and conditions
under the credit agreement.
The Company believes its capital resources, together with existing cash
balances, to be sufficient to meet its financial obligations, including the
scheduled debt payments under the amended bank credit agreement and operating
lease commitments, and to support the Company's normal replacement of equipment
at its current level of business for at least the next twelve months. The
Company's future operating results and cash flows may be affected by a number of
factors including the Company's success in bidding on future contracts and the
Company's continued ability to effectively manage controllable costs.
Special Note Concerning Forward Looking Statements
This Quarterly Report on Form 10-Q, including the Notes to Condensed Financial
Statements and this Management's Discussion and Analysis of Financial Condition
and Results of Operations, contains forward looking statements. The words
"believe," "expect," "anticipate," "intends," "forecast," "project," and similar
expressions identify forward looking statements. Such statements may include,
but may not be limited to, the anticipated outcome of contingent events,
including litigation, projections of revenues, income or loss, capital
expenditures, plans for future operations, growth and acquisitions, financial
needs or plans and the availability of financing, and plans relating to services
of the Company, as well as assumptions relating to the foregoing. Such forward
looking statements are within the meaning of that term in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company considered the provision of Financial Reporting Release No. 48,
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." The Company
had no holdings of derivative financial or commodity instruments at April 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
April 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.
20
<PAGE> 21
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On February 1, 2000, the Company issued 5,431 shares of the Company's common
stock for the acquisition of KHS. These shares were issued in a manner not
involving a public offering and therefore did not require registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
On March 8, 2000, the Company issued 2,726,210 shares of the Company's common
stock for the acquisition of all of the outstanding capital stock of Niels Fugal
Sons Company, These shares were issued in a manner not involving a public
offering and therefore did not require registration under the Securities Act of
1933, as amended, pursuant to Section 4(2) thereof.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits furnished pursuant to the requirements of Form 10-Q:
Number Description
------ -----------
(10.1) Employment Contract - Robert J. Delark, Senior Vice
President and Chief Administrative Officer.
(10.2) Employment Contract - Richard L. Dunn, Senior Vice
President and Chief Financial Officer.
(11) Statement re computation of per share earnings All
information required by Exhibit 11 is presented within
Note 3 of the Company's condensed consolidated
financial statements in accordance with the provisions
of SFAS No. 128.
(27) Financial Data Schedule
(b) Reports On Form 8-K
The following report on Form 8-K was filed on behalf of the Registrant during
the quarter ended April 29, 2000:
(i) The acquisition of NFS pursuant to an Agreement and Plan of Merger, dated
February 14, 2000.
Items Reported: 2 and 7
Date Filed: March 17, 2000
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYCOM INDUSTRIES, INC.
Registrant
Date: June 9, 2000 /s/ Steven E. Nielsen
-------------------------------------
Steven E. Nielsen
President and Chief Executive Officer
Date: June 9, 2000 /s/ Thomas R. Pledger
-------------------------------------
Thomas R. Pledger
Executive Chairman
Date: June 9, 2000 /s/ Richard L. Dunn
-------------------------------------
Richard L. Dunn
Senior Vice President and Chief
Financial Officer
Date: June 9, 2000 /s/ Randal L. Martin
-------------------------------------
Randal L. Martin
Vice President, Controller, and
Principal Accounting Officer
22
