<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 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 of incorporation) (IRS Employer Identification No.)
4440 PGA Boulevard, Suite 500
Palm Beach Gardens, Florida 33410
------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 627-7171
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of December 7, 2000
------- ----------------------------------
Common Stock, par value $0.33 1/3 42,083,969
<PAGE> 2
DYCOM INDUSTRIES, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets- 3
October 28, 2000 and July 29, 2000
Condensed Consolidated Statements of 4
Operations for the Three Months Ended
October 28, 2000 and October 30, 1999
Condensed Consolidated Statements of 5-6
Cash Flows for the Three Months Ended
October 28, 2000 and October 30, 1999
Notes to Condensed Consolidated 7-14
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-17
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 17
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
<PAGE> 3
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
October 28, July 29,
2000 2000
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $109,528,117 $105,701,950
Accounts receivable, net 144,928,991 144,291,699
Costs and estimated earnings in excess of billings 51,548,433 52,301,022
Deferred tax assets, net 5,976,682 6,039,264
Inventories 12,645,216 14,563,649
Other current assets 3,810,255 1,530,972
------------ ------------
Total current assets 328,437,694 324,428,556
------------ ------------
PROPERTY AND EQUIPMENT, net 109,427,636 101,092,862
------------ ------------
OTHER ASSETS:
Intangible assets, net 86,949,733 85,783,092
Other 3,215,533 2,695,084
------------ ------------
Total other assets 90,165,266 88,478,176
------------ ------------
TOTAL $528,030,596 $513,999,594
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 35,829,369 $ 42,922,557
Notes payable 2,701,494 2,594,413
Billings in excess of costs and estimated earnings 5,500 6,405
Accrued self-insured claims 4,583,269 4,232,243
Income taxes payable 13,683,773 5,916,000
Customer advances 13,479,100 11,762,547
Other accrued liabilities 34,485,343 47,324,948
------------ ------------
Total current liabilities 104,767,848 114,759,113
------------ ------------
NOTES PAYABLE 7,933,229 9,106,201
ACCRUED SELF-INSURED CLAIMS 6,397,673 5,554,417
DEFERRED TAX LIABILITIES, net 4,368,802 4,256,781
OTHER LIABILITIES 2,345,522 2,345,525
------------ ------------
Total liabilities 125,813,074 136,022,037
------------ ------------
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: 42,080,678
and 41,900,516 shares issued and
outstanding, respectively 14,026,893 13,966,839
Additional paid-in capital 224,154,964 221,593,083
Retained earnings 164,035,665 142,417,635
------------ ------------
Total stockholders' equity 402,217,522 377,977,557
------------ ------------
TOTAL $528,030,596 $513,999,594
============ ============
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
3
<PAGE> 4
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------
October 28, October 30,
2000 1999
------------- -------------
<S> <C> <C>
Contract revenues earned $ 234,690,421 $ 177,487,112
------------- -------------
Expenses:
Costs of earned revenues, excluding depreciation 172,987,011 132,101,816
General and administrative 18,134,737 14,810,307
Depreciation and amortization 9,133,325 7,490,882
------------- -------------
Total 200,255,073 154,403,005
------------- -------------
Interest income, net 1,302,886 743,335
Other income, net 276,493 221,578
------------- -------------
INCOME BEFORE INCOME TAXES 36,014,727 24,049,020
------------- -------------
PROVISION FOR INCOME TAXES:
Current 14,222,094 9,675,383
Deferred 174,603 (174,926)
------------- -------------
Total 14,396,697 9,500,457
------------- -------------
NET INCOME $ 21,618,030 $ 14,548,563
============= =============
EARNINGS PER COMMON SHARE:
Basic $ 0.51 $ 0.35
============= =============
Diluted $ 0.51 $ 0.35
============= =============
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic 41,988,910 41,262,236
============= =============
Diluted 42,649,136 41,831,632
============= =============
</TABLE>
See notes to condensed consolidated financial statements--unaudited
4
<PAGE> 5
DYCOM INDUSTRIES, INC.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------------
October 28, October 30,
2000 1999
------------- -------------
<S> <C> <C>
Increase (Decrease) in Cash and Equivalents from
OPERATING ACTIVITIES:
Net Income $ 21,618,030 $ 14,548,563
Adjustments to reconcile net cash provided by
operating activities:
Depreciation and amortization 9,133,325 7,490,882
Gain on disposal of assets (124,006) (150,767)
Deferred income taxes 174,603 (174,926)
Change in assets and liabilities:
Accounts receivable, net (67,616) (9,804,893)
Unbilled revenues, net 906,561 (5,236,521)
Other current assets (360,850) (5,164,354)
Other assets (519,549) (1,297,527)
Accounts payable (7,139,277) 10,681,291
Customer advances 1,716,553 (9,439,353)
Accrued self-insured claims and other liabilities (12,197,521) (1,244,060)
Accrued income taxes 7,767,773 4,098,023
------------- -------------
Net cash inflow from operating activities 20,908,026 4,306,358
------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (15,338,700) (12,551,323)
Proceeds from sale of assets 312,271 640,322
Acquisition expenditures, net of cash acquired (2,514,621) (9,379,839)
------------- -------------
Net cash outflow from investing activities (17,541,050) (21,290,840)
------------- -------------
FINANCING ACTIVITIES:
Principal payments on notes payable and bank lines-of-credit (1,569,690) (781,339)
Exercise of stock options 2,028,881 503,095
------------- -------------
Net cash inflow/(outflow) from financing activities 459,191 (278,244)
------------- -------------
NET CASH INFLOW/(OUTFLOW) FROM ALL ACTIVITIES 3,826,167 (17,262,726)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 105,701,950 97,995,283
------------- -------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 109,528,117 $ 80,732,557
============= =============
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
5
<PAGE> 6
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------
October 28, October 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 $ 261,914 $ 276,607
Income taxes 6,628,924 5,577,360
Property and equipment acquired and financed with:
Notes payable $ 280,280 $ --
During the three months ended October 28, 2000, the company acquired all of the
capital stock of Cable Connectors, Inc. at a cost of $3.3 million. In
conjunction with this acquisition, assets acquired and liabilities assumed were
as follows:
Fair market value of assets acquired, including goodwill $4,118,069
Consideration paid (including $0.6 million of common stock issued) 3,273,054
----------
Fair market value of liabilities assumed $ 845,015
==========
</TABLE>
See notes to condensed consolidated financial statements--unaudited.
6
<PAGE> 7
1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Unaudited
The accompanying condensed consolidated balance sheets of Dycom Industries, Inc.
("Dycom" or the "Company") as of October 28, 2000 and July 29, 2000, and the
related condensed consolidated statements of operations and cash flows for the
three months ended October 28, 2000 and October 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
months ended October 28, 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 2000, the Company acquired Lamberts' Cable Splicing Company
("LCS"), C-2 Utility Contractors, Inc. ("C-2"), and Artoff Construction Company,
Inc. ("ACC"). During fiscal 2001, the Company acquired Cable Connectors, Inc.
("CAB"). Each of these transactions was accounted for using the purchase method
of accounting. The Company's results include the results of LCS, C-2, ACC, and
CAB from their respective acquisition dates until October 28, 2000. 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 quarter of fiscal
2001, beginning July 30, 2000 and ending October 28, 2000. The unaudited results
of operations and cash flows of the Company for the quarter ended October 28,
2000 contains 91 days compared to 91 days for the unaudited results of
operations and cash flows for the quarter ended October 30, 1999.
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.
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.
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
7
<PAGE> 8
sold or retired, the cost and related accumulated depreciation are removed from
the accounts and the resulting gain or loss is included in income.
INTANGIBLE ASSETS -- The excess of the purchase price over the fair market value
of the tangible net assets of acquired businesses (goodwill) is amortized on a
straight-line basis over 20-40 years. The appropriateness of the carrying value
of goodwill is reviewed periodically by the Company at the subsidiary level. An
impairment loss is recognized when the projected future cash flows are less than
the carrying value of goodwill. No impairment loss has been recognized in the
periods presented. As of October 28, 2000 and July 29, 2000, net intangible
assets include $86.6 million and $85.4 million of net goodwill, respectively.
Amortization expense was $1,143,201 and $1,043,536 for the three months ended
October 28, 2000 and October 30, 1999. The intangible assets are net of
accumulated amortization of $7,695,291 at October 28, 2000 and $6,552,090 at
July 29, 2000, 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 condensed consolidated financial statements as an accrued
liability. The self-insured claims liability includes incurred but not reported
losses of $6,209,390 and $5,161,379 at October 28, 2000 and July 29, 2000,
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.
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. SFAS No. 133 did 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 an
impact on the financial results of the Company.
8
<PAGE> 9
3. COMPUTATION OF PER SHARE EARNINGS
The following is a reconciliation of the numerators and denominators of the
basic and diluted per share computation as required by SFAS 128.
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------
October 28, October 30,
2000 1999
----------- -----------
<S> <C> <C>
Net income available to common stockholders (numerator) $21,618,030 $14,548,563
=========== ===========
Weighted-average number of common shares (denominator) 41,988,910 41,262,236
=========== ===========
Earnings per common share - basic $ 0.51 $ 0.35
=========== ===========
Weighted-average number of common shares 41,988,910 41,262,236
Potential common stock arising from stock options 660,226 569,396
----------- -----------
Total shares (denominator) 42,649,136 41,831,632
=========== ===========
Earnings per common share-diluted $ 0.51 $ 0.35
=========== ===========
</TABLE>
4. ACQUISITIONS
In August 1999, the Company acquired Lamberts' Cable Splicing Company ("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 Utility Contractors, Inc. ("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.
In October 2000, the Company acquired Cable Connectors, Inc. ("CAB") for $2.7
million in cash and 13,286 shares of Dycom common stock for an aggregate
purchase price of $3.3 million before various transaction costs.
The Company has recorded the acquisitions of LCS, C-2, ACC, and CAB 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 LCS, C-2, ACC, and CAB are included in the accompanying condensed
consolidated 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 LCS, C-2, ACC, and CAB had
occurred on August 1, 1999:
For the Three Months Ended
------------------------------------
October 28, October 30,
2000 1999
------------ ------------
Total revenues $235,272,669 $187,800,608
Income before income taxes 36,039,077 25,194,926
Net income 21,632,737 15,239,647
Earnings per share:
Basic $ 0.52 $ 0.37
Diluted $ 0.51 $ 0.36
9
<PAGE> 10
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. 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 condensed financial statements include the
results of NFS for all periods presented.
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 month periods ending October
28, 2000 and October 30, 1999, respectively, are as follows:
Dycom NFS Combined
------------ ------------ ------------
Three month period ended
October 28, 2000
Total revenues $234,690,421 $ -- $234,690,421
Net income $ 21,618,030 $ -- $ 21,618,030
October 30, 1999
Total revenues $160,904,275 $ 16,582,837 $177,487,112
Net income $ 12,463,231 $ 2,085,332 $ 14,548,563
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.
10
<PAGE> 11
5. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
October 28, July 29,
2000 2000
------------ ------------
Contract billings $134,446,888 $134,740,946
Retainage 13,349,284 11,835,425
Other receivables 1,521,508 1,835,560
------------ ------------
Total 149,317,680 148,411,931
Less allowance for doubtful accounts 4,388,689 4,120,232
------------ ------------
Accounts receivable, net $144,928,991 $144,291,699
============ ============
For the periods indicated, the allowance for doubtful accounts changed as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------
October 28, October 30,
2000 1999
------------ ------------
<S> <C> <C>
Allowance for doubtful accounts at 7/29/2000 and 7/31/1999,
respectively $ 4,120,232 $ 4,129,280
Allowance for doubtful account balances from acquisitions -- --
Additions charged to bad debt expense 278,312 (307,934)
Amounts charged against the allowance, net of recoveries (9,855) (299,444)
------------ ------------
Allowance for doubtful accounts $ 4,388,689 $ 3,521,902
============ ============
</TABLE>
As of October 28, 2000 and July 29, 2000, the Company expected to collect all of
its retainage balances within twelve months.
6. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS
The accompanying condensed consolidated balance sheets include costs and
estimated earnings on contracts in progress, net of progress billings as
follows:
<TABLE>
<CAPTION>
October 28, July 29,
2000 2000
------------ ------------
<S> <C> <C>
Costs incurred on contracts in progress $ 46,606,062 $ 48,037,774
Estimated earnings thereon 15,416,206 13,855,362
------------ ------------
62,022,268 61,893,136
Less billings to date 10,479,335 9,598,519
------------ ------------
$ 51,542,933 $ 52,294,617
============ ============
Included in the accompanying consolidated balance
sheets under the captions:
Costs and estimated earnings in excess of billings $ 51,548,433 $ 52,301,022
Billings in excess of costs and estimated earnings 5,500 6,405
------------ ------------
$ 51,542,933 $ 52,294,617
============ ============
</TABLE>
11
<PAGE> 12
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:
October 28, July 29,
2000 2000
------------ ------------
Land $ 3,373,037 $ 3,373,037
Buildings 6,334,277 6,330,683
Leasehold improvements 1,607,489 1,574,013
Vehicles 114,891,065 102,489,730
Equipment and machinery 73,297,339 70,501,903
Furniture and fixtures 10,694,547 10,401,809
------------ ------------
Total 210,197,754 194,671,175
Less accumulated depreciation 100,770,118 93,578,313
------------ ------------
Property and equipment, net $109,427,636 $101,092,862
============ ============
Maintenance and repairs of property and equipment amounted to $4,093,283 and
$2,816,176 for the three months ended October 28, 2000 and October 30, 1999,
respectively.
8. NOTES PAYABLE
Notes payable are summarized by type of borrowings as follows:
October 28, July 29,
2000 2000
----------- -----------
Bank Credit Agreement - Term Loan $ 9,750,000 $10,750,000
Capital lease obligations -- 458
Equipment loans 884,723 950,156
----------- -----------
Total 10,634,723 11,700,614
Less current portion 2,701,494 2,594,413
----------- -----------
Notes payable - non-current $ 7,933,229 $ 9,106,201
=========== ===========
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 $14.3 million at
October 28, 2000, including letters of credit issued to the Company's insurance
administrators as part of its self-insurance program of $14.0 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 October 28, 2000, there was no outstanding balance on this facility resulting
in an available borrowing capacity of $50.0 million.
12
<PAGE> 13
The outstanding loans under the equipment acquisition and small business
purchase facility bear interest, at the option of the Company, at the bank's
prime interest rate minus 0.75% or LIBOR plus 1.5%. The advances under the
equipment acquisition and small business purchase facility are converted to term
loans with maturities not to exceed 48 months. The outstanding principal on the
equipment term loans is payable in monthly installments through February 2001.
As of October 28, 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 Term Loan bears interest, at the option of the company, at the bank's prime
interest rate minus 0.50% or LIBOR plus 1.75%. Principal and interest is payable
in semiannual installments through April 2002. The amount outstanding on the
term loan was $9.8 million at October 28, 2000 and bore interest at the rate of
8.375%.
The amended bank credit agreement contains restrictions which, among other
things, requires maintenance of certain financial ratios and covenants,
restricts encumbrances of assets and creation of indebtedness, and limits the
payment of cash dividends. Cash dividends are limited to 50% of each fiscal
year's after-tax profits. No cash dividends were paid during the periods
presented. At October 28, 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 April 2002.
Interest costs incurred on notes payable, all of which were expensed during the
three months ended October 28, 2000 and October 30, 1999 were $262,158 and
$242,531, respectively.
The interest rates on notes payable under the bank credit agreement are at
current rates and, therefore, the carrying amount approximates fair value.
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 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.
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<PAGE> 14
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, 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
-----------------------------------
October 28, October 30,
2000 1999
------------ ------------
<S> <C> <C>
Telecommunications $220,600,525 $159,318,826
Electrical utilities 4,188,718 7,411,419
Various customers - Utility line locating 9,901,178 10,756,867
------------ ------------
Total contract revenues $234,690,421 $177,487,112
============ ============
</TABLE>
SUBSEQUENT EVENT
On November 27, 2000, the Company entered into a Stock Purchase Agreement with
the stockholders of Point to Point Communications, Inc. whereby Point to Point
Communications will become a wholly owned subsidiary of Dycom. Dycom is
acquiring Point to Point Communications for approximately $65 million, including
a cash payment of approximately $52 million and the issuance of approximately
$13 million of common stock of the Company. The agreement is subject to
satisfaction of customary closing conditions, including completion of due
diligence procedures and approval under the Hart-Scott-Rodino Improvement Act.
14
<PAGE> 15
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:
For the Three Months Ended
-----------------------------
October 28, October 30,
2000 1999
----------- ----------
Contract revenues earned 100.0% 100.0%
Expenses:
Cost of earned revenues,
excluding depreciation 73.7 74.4
General and administrative 7.7 8.3
Depreciation and amortization 3.9 4.2
------ ------
Total 85.3 86.9
------ ------
Interest income, net 0.6 0.4
Other income, net 0.1 0.1
------ ------
Income before income taxes 15.4 13.6
------ ------
Provision for income taxes 6.1 5.4
------ ------
Net Income 9.3% 8.2%
====== ======
REVENUES. Contract revenues increased $57.2 million, or 32.2%, to $234.7 million
in the quarter ending October 28, 2000 from $177.5 million in the quarter ended
October 30, 1999. Of this increase, $61.3 million was attributable to specialty
contracting services provided to telecommunications companies, a decrease of
$0.9 million was attributable to underground utility locating services provided
to various utilities, and a decrease of $3.2 million was attributable to
construction and maintenance services provided to electrical utilities,
reflecting an increase in overall market demand for the Company's services.
During the quarter ended October 28, 2000, the Company recognized $220.6 million
of contract revenues from telecommunications services as compared to $159.3
million for the quarter ended October 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 $4.2 million from electric
construction and maintenance services in the quarter ended October 28, 2000 as
compared to $7.4 million in the quarter ended October 30, 1999. The Company
recognized contract revenues of $9.9 million from underground utility locating
services in the quarter ended October 28, 2000 as compared to $10.8 million in
the quarter ended October 30, 1999. Acquisitions subsequent to October 30, 1999
contributed $10.2 million of contract revenues during the quarter ended October
28, 2000, primarily in contract revenues from telecommunications services.
15
<PAGE> 16
Contract revenues from multi-year master service agreements and other long-term
agreements represented 72.1% of total contract revenues in the quarter ended
October 28, 2000 as compared to 75.5% in the quarter ended October 30, 1999, of
which contract revenues from multi-year master service agreements represented
42.1% of total contract revenues in the quarter ended October 28, 2000 as
compared to 43.1% in the quarter ended October 30, 1999.
COSTS OF EARNED REVENUES. Costs of earned revenues increased $40.9 million to
$173.0 million in the quarter ended October 28, 2000 from $132.1 million in the
quarter ended October 30, 1999, and decreased as a percentage of contract
revenues to 73.7% from 74.4%. 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.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $3.3 million to $18.1 million in the quarter ended October 28, 2000
from $14.8 million in the quarter ended October 30, 1999. The increase in
general and administrative expenses for the quarter ended October 28, 2000, as
compared to the quarter ended October 30, 1999, was primarily attributable to
increases in salaries, employee benefits, and payroll taxes of $2.7 million,
other general and administrative expense of $0.1, and an increase in the
provision for doubtful accounts of $0.5 million. General and administrative
expenses decreased as a percentage of contract revenues to 7.7% from 8.3% in the
quarter ended October 28, 2000 as compared to the quarter ended October 30,
1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $1.6
million to $9.1 million in the quarter ending October 28, 2000 as compared to
$7.5 million in the quarter ended October 30, 1999, but decreased as a
percentage of contract revenues to 3.9% from 4.2%. The $1.6 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 2001 and 2000, respectively.
INTEREST INCOME, net. Interest income, net increased $0.6 million to $1.3
million in the quarter ended October 28, 2000 from $0.7 million in the quarter
ended October 30, 1999. The increase was due to increased cash and equivalents
and favorable interest rates.
INCOME TAXES. The provision for income taxes was $14.4 million in the three
months ended October 28, 2000 as compared to $9.5 million in the same period
last year. The Company's effective tax rate was 40.0% in the three months ended
October 28, 2000 as compared to 39.5% 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.
Liquidity and Capital Resources
The Company's needs for capital are attributable primarily to its needs for
equipment to support its contractual commitments to customers and its needs for
working capital sufficient for general corporate purposes. Capital expenditures
have been financed by operating and capital leases, bank borrowings and
internal cash flow. The Company'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.
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. On November 27, 2000, the Company entered into a Stock Purchase
Agreement with the stockholders of Point to Point Communications, Inc. Dycom is
acquiring Point to Point Communications for approximately $65 million, including
a cash payment of approximately $52 million and the issuance of approximately
$13 million of common stock of the company. The agreement is subject to
satisfaction of customary closing conditions, including completion of due
diligence procedures and approval under the Hart-Scott-Rodino Improvement Act.
For the three months ended October 28, 2000, net cash provided by operating
activities was $20.9 million compared to $4.3 million for the three months ended
October 30, 1999. Net income and non-cash charges are the primary sources of
operating cash flow. Working capital items used $9.9 million of operating cash
flow for the three-month period ended October 28, 2000 principally through a
decrease in accounts payable and other accrued liabilities including the payment
of approximately $7.5 million of annual bonuses, offset by an increase in income
taxes payable.
In the three months ended October 28, 2000, net cash used in investing
activities was $17.5 million as compared to $21.3 million for the same period
last year. For the three months ended October 28, 2000, capital expenditures of
$15.3 million were for the normal replacement of equipment and purchases for the
start up of certain long-term contracts.
In the three months ended October 28, 2000, net cash provided by financing
activities was $0.5 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 $14.3 million at
October 28, 2000, including letters of credit issued to the Company's insurance
administrators as part of its self-insurance program of $14.0 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 October 28, 2000, there was no outstanding balance on this facility resulting
in an available borrowing capacity of $50.0 million.
16
<PAGE> 17
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 October 28, 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 Term Loan bears interest, at the option of the company, at the bank's prime
interest rate minus 0.50% or LIBOR plus 1.75%. Principal and interest is payable
in semiannual installments through April 2002. The amount outstanding on the
term loan was $9.8 million at October 28, 2000 and bore interest at the rate of
8.375%.
The amended bank credit agreement requires the Company to maintain certain
financial covenants and conditions, as well as restricting the encumbrances of
assets and the creation of additional indebtedness and limits the payment of
cash dividends. No cash dividends were paid during the periods presented. At
October 28, 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 October 28,
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
October 28, 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.
17
<PAGE> 18
PART II. OTHER INFORMATION
Item 2. Changes In Securities and Use of Proceeds
On October 2, 2000, the Company issued 13,286 shares of the Company's common
stock in connection with the acquisition of Cable Connectors, Inc. 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
------ -----------
(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
No reports of 8-K were filed on behalf of the Registrant during the quarter
ended October 28, 2000.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYCOM INDUSTRIES, INC.
Registrant
Date: December 11, 2000 /s/ Steven E. Nielsen
-------------------------------------
Steven E. Nielsen
President and Chief Executive Officer
Date: December 11, 2000 /s/ Richard L. Dunn
-------------------------------------
Richard L. Dunn
Senior Vice President, Chief Financial
Officer and Principal Accounting Officer
19
