-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HA36vhXWlLfc3n2/jlu+3gX1jY6JetvHxAg9agpMmxpe/zTHpN1wgVEbto87ZR7z z4jXrJ9GoTbaCdywuwTPdQ== 0000067215-97-000021.txt : 19971216 0000067215-97-000021.hdr.sgml : 19971216 ACCESSION NUMBER: 0000067215-97-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19971212 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYCOM INDUSTRIES INC CENTRAL INDEX KEY: 0000067215 STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623] IRS NUMBER: 591277135 STATE OF INCORPORATION: FL FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10613 FILM NUMBER: 97737302 BUSINESS ADDRESS: STREET 1: 4440 PGA BLVD. STE 600 STREET 2: FIRST UNION CENTER CITY: PALM BEACH GARDENS STATE: FL ZIP: 33410 BUSINESS PHONE: 5616277171 MAIL ADDRESS: STREET 1: P O BOX 3524 STREET 2: SUITE 860 CITY: WEST PALM BEACH STATE: FL ZIP: 33402 FORMER COMPANY: FORMER CONFORMED NAME: MOBILE HOME DYNAMICS INC DATE OF NAME CHANGE: 19820302 10-Q 1 DYCOM INDUSTRIES, INC. 10-Q 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 October 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________to________ Commission file number 0-5423 DYCOM INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Florida 59-1277135 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4440 PGA Boulevard, Suite 600 Palm Beach Gardens, Florida 33410 (Address of principal executive office) (Zip Code) (561) 627-7171 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of December 5, 1997 _____ __________________________________ Common Stock, par value $0.33 1/3 12,869,825 2 DYCOM INDUSTRIES, INC. INDEX Page No. ________ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets- October 31, 1997 and July 31, 1997 3 Condensed Consolidated Statements of Operations for the Three Months Ended October 31, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended October 31, 1997 and 1996 5-6 Notes to Condensed Consolidated Financial Statements 7-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-17 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 EXHIBIT INDEX 20 3 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) October 31, July 31, 1997 1997 ASSETS CURRENT ASSETS: Cash and equivalents $ 3,279,190 $ 6,645,972 Accounts receivable, net 36,901,224 34,353,367 Costs and estimated earnings in excess of billings 11,091,124 10,479,974 Deferred tax assets, net 2,156,781 2,168,763 Other current assets 1,459,650 1,550,545 Total current assets 54,887,969 55,198,621 PROPERTY AND EQUIPMENT, net 30,519,748 27,543,238 OTHER ASSETS: Intangible assets, net 4,645,585 4,684,358 Deferred tax assets 622,916 424,205 Other 301,777 311,473 Total other assets 5,570,278 5,420,036 TOTAL $ 90,977,995 $ 88,161,895 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 7,780,554 $ 10,281,615 Notes payable 12,980,382 13,080,316 Billings in excess of costs and estimated earnings 470,940 Accrued self-insured claims 2,440,889 2,011,622 Income taxes payable 2,675,901 1,230,376 Other accrued liabilities 10,384,904 11,904,304 Total current liabilities 36,262,630 38,979,173 NOTES PAYABLE 10,084,099 9,012,066 ACCRUED SELF-INSURED CLAIMS 7,339,363 6,418,400 Total liabilities 53,686,092 54,409,639 COMMITMENTS AND CONTINGENCIES, Note 9 STOCKHOLDERS' EQUITY: Common stock, par value $.33 1/3 per share: 50,000,000 shares authorized; 10,871,480 and 10,867,877 shares issued and outstanding, respectively 3,623,826 3,622,625 Additional paid-in capital 25,444,197 25,421,701 Retained earnings 8,223,880 4,707,930 Total stockholders' equity 37,291,903 33,752,256 TOTAL $ 90,977,995 $ 88,161,895 See notes to condensed consolidated financial statements--unaudited. 4 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended October 31, October 31, 1997 1996 REVENUES: Contract revenues earned $ 70,507,759 $ 56,322,356 Other, net 285,932 92,056 Total 70,793,691 56,414,412 Expenses: Costs of earned revenues excluding depreciation 55,562,643 45,009,650 General and administrative 6,790,057 5,350,978 Depreciation and amortization 2,275,559 2,072,544 Total 64,628,259 52,433,172 INCOME BEFORE INCOME TAXES 6,165,432 3,981,240 PROVISION (BENEFIT) FOR INCOME TAXES: Current 2,836,211 2,199,620 Deferred (186,729) (454,421) Total 2,649,482 1,745,199 NET INCOME $ 3,515,950 $ 2,236,041 EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary $0.32 $0.20 Fully diluted $0.32 $0.20 SHARES USED IN COMPUTING EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary 11,054,559 10,951,181 Fully diluted 11,066,972 10,951,460 See notes to condensed consolidated financial statements--unaudited. 5 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended October 31, October 31, 1997 1996 Increase (Decrease) in Cash and Equivalents from: OPERATING ACTIVITIES: Net income $ 3,515,950 $ 2,236,041 Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization 2,275,559 2,072,544 (Gain) on disposal of assets (50,412) (19,612) Deferred income taxes (186,729) (454,421) Changes in assets and liabilities: Accounts receivable, net (2,547,857) (1,914,985) Unbilled revenues, net (1,082,090) (2,178,706) Other current assets 90,895 (18,032) Other assets 9,696 10,566 Accounts payable (2,501,061) 2,629,987 Accrued self-insured claims and other liabilities (169,170) 434,394 Accrued income taxes 1,445,525 599,905 Net cash inflow from operating activities 800,306 3,397,681 INVESTING ACTIVITIES: Capital expenditures (5,265,198) (2,411,316) Proceeds from sale of assets 102,314 84,734 Net cash outflow from investing activities (5,162,884) (2,326,582) FINANCING ACTIVITIES: Borrowings on notes payable and bank lines-of-credit 7,811,741 Principal payments on notes payable and bank lines-of-credit (6,839,642) (1,151,036) Exercise of stock options 23,697 234,058 Net cash inflow (outflow)from financing activities 995,796 (916,978) NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES (3,366,782) 154,121 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 6,645,972 3,927,736 CASH AND EQUIVALENTS AT END OF PERIOD $ 3,279,190 $ 4,081,857 See notes to condensed consolidated financial statements--unaudited. 6 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) For the Three Months Ended October 31, October 31, 1997 1996 SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NON-CASH INVESTING AND FINANCING ACTIVITIES: Cash paid during the period for: Interest $ 531,171 $ 607,964 Income taxes 1,392,751 1,673,757 Property and equipment acquired and financed with: Capital lease obligations $ 394,848 See notes to condensed consolidated financial statements--unaudited. 7 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 October 31, 1997 and July 31, 1997, and the related condensed consolidated statements of operations and cash flows for the three months ended October 31, 1997 and 1996 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 31, 1997 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 include Dycom Industries, Inc. and its subsidiaries, all of which are wholly owned. On July 29, 1997, Communications Construction Group, Inc. ("CCG") was merged with and into the Company through an exchange of common stock. The merger was accounted for as a pooling of interests. Accordingly, the Company's condensed consolidated financial statements include the result of CCG for all periods presented. See Note 3. The Company's operations consist primarily of telecommunication and electric utility services contracting. All material intercompany accounts and transactions have been eliminated. USE OF ESTIMATES-- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements. Estimates are used in the Company's revenue recognition of work-in-process, allowance for doubtful accounts, self-insured claims liability, deferred tax asset valuation allowance, depreciation and amortization, and in the estimated lives of assets, including intangibles. REVENUE-- Income on 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. As some of these contracts extend over one or more years, revisions in cost and profit estimates during the course of the work are reflected in the accounting period as the facts that require the revision become known. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is accrued. Income on short-term unit contracts is recognized as the related work is completed. Work-in-process on unit contracts is based on management's estimate of work performed but not billed. "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". 8 CASH AND EQUIVALENTS-- Cash and equivalents include cash balances in excess of the daily requirements which are invested in overnight repurchase agreements, certificates of deposits, 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. The carrying amount reported in the condensed consolidated balance sheets for cash and equivalents approximates its fair value. PROPERTY AND EQUIPMENT-- Property and equipment is stated at cost, reduced in certain cases by valuation reserves. 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--3-10 years; and furniture and fixtures--3-10 years. Maintenance and repairs are expensed as incurred; expenditures that enhance the value of the property or extend its useful life are capitalized. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income. INTANGIBLE ASSETS-- The excess of the purchase price over the fair market value of the tangible net assets of acquired businesses (goodwill) is amortized on the straight-line method over 40 years. The appropriateness of the carrying value of goodwill is reviewed periodically by the Company at the subsidiary level. An impairment loss is recognized when the projected future cash flows is less than the carrying value of goodwill. Amortization expense was $38,773 for each of the three month periods ended October 31, 1997 and 1996. The intangible assets are net of accumulated amortization of $1,190,131 at October 31, 1997 and $1,151,358 at July 31, 1997. SELF-INSURED CLAIMS LIABILITY-- The Company is primarily self-insured, up to certain limits, for automobile and general liability, workers' compensation, and employee group health claims. A liability for unpaid claims and the associated claim expenses, including incurred but not reported losses, is actuarially determined and reflected in the condensed consolidated financial statements as an accrued liability. The self-insured claims liability includes incurred but not reported losses of $5,009,000 and $4,429,000 at October 31, 1997 and July 31, 1997, respectively. The determination of such claims and expenses and the appropriateness of the related liability is continually reviewed and updated. INCOME TAXES-- The Company and its subsidiaries file a consolidated federal income tax return. Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. A valuation allowance is provided when it is more likely than not that some portion of the Company's deferred tax assets will not be realized. The valuation allowance recorded in the condensed consolidated financial statements reduces deferred tax assets to an amount that represents management's best estimate of the amount of deferred tax assets that more likely than not will be realized. Management's estimate and conclusion is based on the available evidence supporting the reversing deductible temporary differences being offset by reversing taxable temporary differences and the existence of sufficient taxable income within the current carryback periods. Accordingly, at October 31, 1997 and July 31, 1997, deferred tax assets are net of a valuation allowance of $475,185. 9 PER SHARE DATA-- Earnings per common and common equivalent share are computed using the weighted average shares of common stock outstanding plus the common stock equivalents arising from the effect of dilutive stock options, using the treasury stock method. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS-- In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share" which changes the method of calculating earnings per share and is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. SFAS No. 128 requires the presentation of "basic" earnings per share and "diluted" earnings per share on the face of the income statement. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average shares of outstanding common stock. The calculation of diluted earnings per share is similar to basic earnings per share except the denominator includes dilutive common stock equivalents such as stock option and warrants. The Company will adopt SFAS No. 128 in the second quarter of fiscal 1998 as early adoption is not permitted. The calculation of earnings per share under SFAS No. 128 is not expected to be materially different than the current calculation of earnings per share. The pro forma basic earnings per share and diluted earnings per share calculated in accordance with SFAS No. 128 for the three-month periods ended October 31, are as follows: 1997 1996 Pro forma basic earnings per share $0.32 $0.21 Pro forma diluted earnings per share $0.32 $0.20 In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. This statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. This statement is effective for fiscal years beginning after December 15, 1997. In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information" which establishes standards for public business enterprises to report information about operating segments in interim financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. It also establishes the standards for related disclosures about products and services, geographic areas, and major customers. This statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. The financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement is effective for financial statements beginning after December 15, 1997. Management is currently evaluating the requirements of SFAS No. 130 and 131, respectively. 10 3. ACQUISITION On July 29, 1997, the Company consummated the CCG acquisition by merger. The Company issued 2,053,242 shares of common stock in exchange for all the outstanding capital stock of CCG. Dycom has accounted for the acquisition as a pooling of interests and, accordingly, the Company's historical condensed financial statements include the results of CCG for all periods presented. Prior to the acquisition, CCG used a fiscal year ending May 31 and as of July 31, 1997 adopted Dycom's fiscal year. The Company's first quarter condensed consolidated statements of operations and cash flows for the period ended October 31, 1996 combines the first quarter of operations and cash flows for the period ended August 31, 1996 of CCG. 4. ACCOUNTS RECEIVABLE Accounts receivable, net consist of the following: October 31, July 31, 1997 1997 Contract billings $ 35,766,488 $ 32,586,289 Retainage 1,715,349 1,885,656 Other receivables 625,423 896,015 Total 38,107,260 35,367,960 Less allowance for doubtful accounts 1,206,036 1,014,593 Accounts receivable, net $ 36,901,224 $ 34,353,367 5. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS The accompanying condensed consolidated balance sheets include costs and estimated earnings on contracts in progress, net of progress billings as follows: October 31, July 31, 1997 1997 Costs incurred on contracts in progress $ 17,397,147 $ 16,894,451 Estimated earnings thereon 3,227,133 3,222,120 20,624,280 20,116,571 Less billings to date 9,533,156 10,107,537 $ 11,091,124 $ 10,009,034 Included in the accompanying condensed consolidated balance sheets under the captions: Costs and estimated earnings in excess of billings $ 11,091,124 $ 10,479,974 Billings in excess of costs and estimated earnings (470,940) $ 11,091,124 $ 10,009,034 11 6. PROPERTY AND EQUIPMENT The accompanying condensed consolidated balance sheets include the following property and equipment: October 31, July 31, 1997 1997 Land $ 1,942,247 $ 1,942,247 Buildings 2,350,868 2,346,993 Leasehold improvements 1,372,301 1,356,861 Vehicles 35,707,584 32,232,343 Equipment and machinery 24,825,972 23,674,176 Furniture and fixtures 5,298,455 5,011,660 Total 71,497,427 66,564,280 Less accumulated depreciation and amortization 40,977,679 39,021,042 Property and equipment, net $ 30,519,748 $ 27,543,238 Certain subsidiaries of the Company entered into lease arrangements accounted for as capitalized leases. The carrying value of capital leases at October 31, 1997 and July 31, 1997 was $769,851 and $838,137, respectively, net of accumulated depreciation of $920,451 and $881,336 respectively. Capital leases are included as a component of equipment and machinery. 7. NOTES PAYABLE Notes payable are summarized by type of borrowings as follows: October 31, July 31, 1997 1997 Bank Credit Agreements: Revolving credit facility $ 9,111,553 $ 10,113,484 Term-loan 8,100,000 8,550,000 Equipment term-loans 4,454,841 1,907,216 Capital lease obligations 656,279 722,927 Equipment loans 741,808 798,755 Total 23,064,481 22,092,382 Less current portion 12,980,382 13,080,316 Notes payable--non-current $ 10,084,099 $ 9,012,066 At October 31, 1997, the Company's credit agreement provides for (i) a five-year term-loan in the principal amount of $9.0 million, (ii) a $6.0 million revolving equipment facility, (iii) a $10.0 million revolving credit facility, and (iv) a $10.0 million standby letter of credit facility. The revolving credit facility, the revolving equipment facility and the standby letter of credit facility are available for a one-year period. 12 The outstanding principal under the term-loan bears interest at the prime interest rate minus 0.50% (8.00% at October 31, 1997 and July 31, 1997). Principal and interest is payable in quarterly installments through April 2002. The loans outstanding under the revolving credit facility and the revolving equipment facility bear interest, at the option of the Company, at the prime interest rate minus 1.00% or LIBOR plus 1.50% and at the prime interest rate minus 0.75% or LIBOR plus 1.75%, respectively. At October 31, 1997, the interest rates on the outstanding revolving credit facility and revolving equipment facility loans were at the LIBOR options ranging from 7.125% to 7.625%. During the quarter ending October 31, 1997, the Company borrowed $4.9 million under the revolving credit facility to pay off a subsidiary's previously existing credit facility. At October 31, 1997, the outstanding amounts under the term-loan and revolving credit facility were $8.1 million and $9.1 million, respectively. The advances under the revolving equipment 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. During the quarter ending October 31, 1997, the Company borrowed $1.0 million to buyout existing operating leases and $1.7 million to refinance equipment under a subsidiary's previously existing bank credit facility. At October 31, 1997, the outstanding amount owed under the revolving equipment facility was $4.5 million. At October 31, 1997, the Company had outstanding $8.9 million in standby letters of credit issued to the Company's insurance administrators as part of its self-insurance program. The bank credit agreement contains restrictions which, among other things, require maintenance of certain financial ratios and covenants, restricts encumbrances of assets and creation of indebtedness, and limits the payment of cash dividends. Cash dividends are limited to 50% of each fiscal year's after-tax profits. No cash dividends have been paid during the three month period ending October 31, 1997. The credit facility is secured by the Company's assets. At October 31, 1997, the Company was in compliance with all financial covenants and conditions. At July 31, 1997, the Company's newly acquired subsidiary, CCG, had a $6.6 million revolving bank credit facility of which $5.9 million was outstanding. The interest rate on this facility was at the bank's prime interest rate plus 0.75% and was collateralized by 75% of the eligible trade accounts receivable, inventory, and certain real property owned by a partnership, whose general partners are the former shareholders of CCG. This facility was an existing arrangement made by CCG prior to the acquisition by Dycom. During the quarter ending October 31, 1997, the Company paid off the outstanding balance of $6.6 million by borrowing $4.9 against its revolving credit facility and $1.7 million against the revolving equipment facility. In addition to the borrowings under the 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 December 2001. 13 8. STOCK OFFERING The Company concluded the public offering of 2,700,000 shares of its common stock on November 4, 1997. The Company offered 1,573,378 shares and selling shareholders offered 1,126,622 shares at an offering price of $20.00 per share. The Company received $29,736,844 on November 10, 1997 which is net of an underwriting discount of $1.10 per share. Additionally, the underwriters exercised their option to purchase 405,000 shares to cover over-allotments. The Company received $7,654,500 on November 25, 1997 as payment for the over-allotments. On November 28, 1997, the Company repaid the outstanding balance of its revolving working capital indebtedness of $9.1 million and will use the balance of the proceeds to fund the Company's growth strategy, including acquisitions, working capital and capital expenditures and for other general corporate purposes. 9. COMMITMENTS AND CONTINGENCIES In September 1995, the State of New York commenced a sales and use tax audit of CCG for the years 1989 through 1995. As a result of the audit, certain additional taxes were paid by CCG in fiscal 1996. In addition, the State of New York concluded that cable television service providers are subject to New York State sales taxes for the construction of cable television distribution systems, and by a Notice dated January 1997, the asserted amounts due from CCG for sales taxes and interest for the periods through August 31, 1995, aggregated approximately $1.3 million. Any sales taxes asserted against CCG may be offset by use taxes already paid by the customers of CCG. The Company intends to vigorously contest the assertion. The Company is unable to assess the likelihood of any particular outcome at this time or to quantify the effect a resolution of this matter may have on the Company's consolidated financial statements. In the normal course of business, certain subsidiaries of the Company have pending and unasserted claims. Although the ultimate resolution and liability of these claims cannot be determined, management believes the final disposition of these claims will not have a material adverse impact on the Company's consolidated financial statements. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated financial condition and results of operations. The discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto. Results of Operations The following table sets forth, as a percentage of contract revenues earned, certain items in the Company's Statement of Operations for the periods indicated: For the Three Months Ended OCTOBER 31, OCTOBER 31, 1997 1996 Revenues: Contract revenues earned 100.0% 100.0% Other, net 0.4 0.2 Total revenues 100.4 100.2 Expenses: Cost of earned revenue, excluding depreciation 78.9 79.9 General and administrative 9.6 9.5 Depreciation and amortization 3.2 3.7 Total expenses 91.7 93.1 Income before income taxes 8.7 7.1 Provision for income taxes 3.7 3.1 Net Income 5.0% 4.0% Revenues. Contract revenues increased $14.2 million, or 25.2%, to $70.5 million in the quarter ending October 31, 1997 from $56.3 million in the quarter ended October 31, 1996. Of this increase, $11.1 million was attributable to the telecommunications services group, $2.3 million was attributable to the electric services group and $0.8 million was attributable to the underground utility locating services group, reflecting an increased market demand for the Company's services. During the quarter ending October 31, 1997, the Company recognized $60.8 million of contract revenues from the telecommunications services group as compared to $49.7 million for the same period last year. The increase in the Company's telecommunications services group reflects an increased volume of projects and activity associated with the cable television services group which increased by $6.9 million to $23.5 million in the quarter ending October 31, 1997 from $16.6 million in the same period last year. Also, the telecommunications services group experienced an increased volume in its telephone engineering services, premise wiring services, and telephony splicing services which was partially offset by declines in contract revenues in the design and installation of broadband networks and outside plant services. The Company recognized contract revenues of $5.0 million from electric utilities services in the quarter ending October 31, 1997 as compared to $2.7 million in the quarter ended October 31, 1996, an increase of 85.2%. The Company recognized contract revenues of $4.7 million from underground utility locating services in the quarter ending October 31, 1997 as compared to $3.9 million in the same period last year, an increase of 15 20.5%. Contract revenues from long-term agreements in all service groups, continues to be a significant source of the Company's revenues, representing approximately 82.9% of total contract revenues in the quarter ending October 31, 1997 compared to 84.4% for the same period last year. In addition, contract revenues from master service agreements represented approximately 43.2% and 54.1% of total contract revenues in the quarter ended October 31, 1997 and 1996, respectively. Cost of Earned Revenues. Cost of earned revenues increased $10.6 million to $55.6 million in the quarter ending October 31, 1997 from $45.0 million in the quarter ended October 31, 1996, but decreased as a percentage of contract revenues to 78.9% from 79.9%. Direct labor, subcontractor, equipment costs and other direct costs declined slightly as a percentage of contract revenues as a result of improved productivity in the labor force and the utilization of more modern equipment. General and Administrative Expenses. General and administrative expenses increased $1.4 million to $6.8 million in the quarter ending October 31, 1997 from $5.4 million in the quarter ended October 31, 1996. The increase in general and administrative expenses was primarily attributable to a $0.6 million increase in administrative salaries, bonuses, employee benefits and payroll taxes and a $0.3 million increase in professional fees. Depreciation and Amortization. Depreciation and amortization increased $0.2 million to $2.3 million in the quarter ending October 31, 1997 as compared to $2.1 million in same period last year. This increase in depreciation and amortization is due to the increase in capital expenditures of $5.3 million in the quarter ending October 31, 1997 as compared to $2.4 million in the quarter ended October 31, 1996, an increase of $2.9 million. The increase represents capital expenditures acquired in the ordinary course of business and the buyout of certain operating leases on terms favorable to the Company. Income Taxes. The provision for income taxes was $2.6 million in the quarter ending October 31, 1997 as compared to $1.7 million in the same period last year. The Company's effective tax rate was 43.0% in the quarter ending October 31, 1997 as compared to 43.8% in the quarter ended October 31, 1996. 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. On August 5, 1997, The Taxpayer's Relief Act of 1997 (the"Act") was signed into law. The Act will not have a material effect on the Company's consolidated financial statements. 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 leases and by bank borrowings. The Company's sources of cash have historically been from operating activities, bank borrowings and from proceeds arising from the sale of idle and surplus equipment and real property. For the quarter ending October 31, 1997, net cash provided by operating activities was $0.8 million compared to $3.4 million for the quarter ended October 31, 1996. The decrease was due to a decrease in accounts payable and an increase in accounts receivable. The increase in accounts receivable, however, resulted in a decrease in the net days of contract revenues in trade receivables, including retainage, from 49 days at October 31, 1997 compared to 56 days at October 31, 1996. 16 In the quarter ending October 31, 1997, net cash used in investing activities was $5.2 million as compared to $2.3 million for the same period last year. For the quarter ending October 31, 1997, these expenditures were for the normal replacement of equipment and the buyout of certain operating leases on terms favorable to the Company. In addition to equipment purchases, the Company obtained approximately $0.5 million of equipment under noncancellable operating leases in the quarter ending October 31, 1997. At October 31, 1997, the Company's credit agreement provides for (i) a five-year term-loan in the principal amount of $9.0 million, (ii) a $6.0 million revolving equipment facility, (iii) a $10.0 million revolving credit facility, and (iv) a $10.0 million standby letter of credit facility. The credit agreement requires the Company to maintain certain financial covenants and conditions such as not more than a 3.0:1 debt-to-equity ratio, a current ratio of not less than 1.4:1, a quick ratio of not less than 0.75:1, and net profit levels of $4.8 million increasing in $750,000 increments, as well as placing restrictions on encumbrances of assets and creation of additional indebtedness. The credit agreement also limits the payment of cash dividends to 50% of the fiscal net after tax profits. At October 31, 1997, the Company was in compliance with all covenants and conditions under the credit facility. The revolving working capital facility is available for a one-year period and bears interest, at the option of the Company, at the bank's prime interest rate minus 1.00% or LIBOR plus 1.50%. During the quarter ending October 31, 1997, the Company borrowed $4.9 million to pay off a subsidiary's previously existing credit facility. As of October 31, 1997, the Company had an available borrowing capacity of $0.9 million. The interest rate on the outstanding balance as of October 31, 1997 was at LIBOR plus 1.50% (7.125% to 7.375%). The term loan facility has a five-year maturity and bears interest at the bank's prime interest rate minus 0.50% (8.00% at October 31, 1997). The term loan principal and interest is payable in quarterly installments through April 2002. During the quarter ended October 31, 1997, the Company repaid $450,000 on this facility. The revolving equipment acquisition facility is available for a one-year period and bears interest, at the option of the Company, at the bank's prime interest rate minus 0.75% or LIBOR plus 1.75%. Advances against this facility are converted to term loans with maturities not to exceed 48 months. The outstanding principal on the equipment acquisition term loans is payable in monthly installments through February 2001. During the quarter ending October 31, 1997, the Company borrowed $1.0 million to buyout existing operating leases and $1.7 million to refinance equipment under a subsidiary's previously existing bank credit facility. The Company repaid $0.1 million and has available borrowing capacity of $1.5 million under this facility. At October 31, 1997, the interest rate on the outstanding equipment acquisition term loans was at LIBOR plus 1.75% (7.125% to 7.625%). The standby letter of credit facility is available for a one-year period. At October 31, 1997, the Company had $8.9 million in outstanding standby letters of credit issued as security to the Company's insurance administrators as part of its self-insurance program, leaving $1.1 million in available borrowing capacity. At July 31, 1997, the Company's newly acquired subsidiary, CCG, had a $6.6 million working capital bank credit facility. The interest rate on this facility was at the bank's prime interest rate plus 0.75% and was collateralized by 75% of eligible trade accounts receivable, inventory, and certain real property owned by a partnership, whose general partners are the former shareholders of CCG. This facility was an 17 existing arrangement made by CCG prior to the acquisition by Dycom. During the quarter ending October 31, 1997, the Company paid off the outstanding balance of $6.6 million by borrowing $4.9 million under its revolving credit facility and $1.7 million under the equipment facility. The Company concluded the public offering of 2,700,000 shares of its common stock on November 4, 1997. The Company offered 1,573,378 shares and selling shareholders offered 1,126,622 shares at an offering price of $20.00 per share. The Company received $29,736,844 on November 10, 1997 which is net of an underwriting discount of $1.10 per share. Additionally, the underwriters exercised their option to purchase 405,000 shares to cover over-allotments. The Company received $7,654,500 on November 25, 1997 as payment for the over-allotments. On November 28, 1997, the Company repaid the outstanding balance of its revolving working capital indebtedness of $9.1 million and will use the balance of the proceeds to fund the Company's growth strategy, including acquisitions, working capital and capital expenditures and for other general corporate purposes. The Company foresees its capital resources together with existing cash balances to be sufficient to meet its financial obligations, including the scheduled debt payments under the 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. 18 PART II. OTHER INFORMATION __________________________ Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibits furnished pursuant to the requirements of Form 10-Q: See Exhibit Index on Page 20 (b) Reports On Form 8-K The following reports on Form 8-K were filed on behalf of the Registrant during the quarter ended October 31, 1997: (i) The acquisition of Communications Construction Group, Inc. pursuant to an agreement and plan of merger dated July 29, 1997. Items Reported: 2, 7 Date Filed: August 13, 1997 Financial Statements Filed: Audited financial statements of Communications Construction Group, Inc. for the fiscal years ended May 31, 1997 and 1996. Unaudited pro forma combined consolidated balance sheets as of April 30, 1997. Unaudited pro forma combined consolidated statements of operations for the nine months ended April 30, 1997 and 1996. Unaudited pro forma combined consolidated balance sheets as of July 31, 1996 and 1995. Unaudited pro forma combined consolidated statements of operations for the fiscal years ended July 31, 1996, 1995, and 1994. (ii) Form 8-K/A was filed on November 5, 1997 for the Form 8-K filed on August 13, 1997 to correct a transmission error that appeared on Item 7. (iii) On October 1, 1997, the registrant announced its operating results for the month ending August 31, 1997. Items Reported: 5 Date Filed: October 16, 1997 Financial Statements Filed: None 19 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DYCOM INDUSTRIES, INC. Registrant Date: December 12, 1997 /s/ Thomas R. Pledger _________________ ____________________________ Thomas R. Pledger Chairman and Chief Executive Officer Date: December 12, 1997 /s/ Steven Nielsen _________________ ____________________________ Steven E. Nielsen President and Chief Operating Officer Date: December 12, 1997 /s/ Douglas J. Betlach _________________ ____________________________ Douglas J. Betlach Vice President, Treasurer, and Chief Financial Officer 20 EXHIBIT INDEX Number Description ______ ___________ (11) Statement re computation of per share earnings (27) Financial Data Schedule EX-11 2 [DESCRIPTION] EXHIBIT 11
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS THE QUARTERS ENDED OCTOBER 31, 1997 AND 1996 (WHOLE DOLLARS EXCEPT PER SHARE DATA) October 31, October 31, 1997 1996 Net Income (Loss) Applicable to Common stock $3,515,950 $2,236,041 ========= ========== Primary Earnings (Loss): Weighted average number of common shares outstanding 10,867,877 10,717,691 Common share equivalents arising from stock options 186,682 233,490 ---------- ---------- Weighted average number of common shares as adjusted 11,054,559 10,951,181 ========== ========== Net Income (Loss) per common and common equivalent share $ 0.32 $ 0.20 ========== ========== Fully Diluted Earnings (Loss): Weighted average number of common shares outstanding 10,867,877 10,717,691 Common share equivalents arising from stock options 199,095 233,769 ---------- ---------- Weighted average number of Common shares as adjusted 11,066,972 10,951,460 ========== ========== Net Income (Loss) per common and common equivalent share $ 0.32 $ 0.20 ========== ==========
EX-27 3
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DYCOM INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1997 AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000067215 DYCOM INDUSTRIES, INC. 1 U.S. DOLLARS 3-MOS JUL-31-1998 OCT-31-1997 1 3,279,190 0 37,481,837 1,206,036 11,091,124 54,887,969 71,497,427 40,977,679 90,977,995 36,262,630 23,064,481 0 0 3,623,826 33,668,077 90,977,995 0 70,507,759 0 55,562,643 2,275,559 0 491,560 6,165,432 2,649,482 3,515,950 0 0 0 3,515,950 0.32 0.32
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