-----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, PLdmLBBUAw0pLdoSUoDuJJHNS7D2SNyMNdAG7ukVdKitWuepLazkDQjoKZrPsV0y rhHMBnfi+puCs6UrDHpX4g== 0000067215-98-000002.txt : 19980311 0000067215-98-000002.hdr.sgml : 19980311 ACCESSION NUMBER: 0000067215-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980310 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: 98561016 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 January 31, 1998 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 March 6, 1998 _____ __________________________________ Common Stock, par value $0.33 1/3 12,886,766 2 DYCOM INDUSTRIES, INC. INDEX Page No. ________ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets- January 31, 1998 and July 31, 1997 3 Condensed Consolidated Statements of Operations for the Three Months Ended January 31, 1998 and 1997 4 Condensed Consolidated Statements of Operations for the Six Months Ended January 31, 1998 and 1997 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended January 31, 1998 and 1997 6-7 Notes to Condensed Consolidated Financial Statements 8-15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-20 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holder 21 Item 6. Exhibits and Reports on Form 8-K 21 SIGNATURES 22 3 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) January 31, July 31, 1998 1997 ASSETS CURRENT ASSETS: Cash and equivalents $ 29,454,502 $ 6,645,972 Accounts receivable, net 34,927,156 34,353,367 Costs and estimated earnings in excess of billings 11,424,220 10,479,974 Deferred tax assets, net 2,114,249 2,168,763 Other current assets 1,800,469 1,550,545 Total current assets 79,720,596 55,198,621 PROPERTY AND EQUIPMENT, net 29,833,292 27,543,238 OTHER ASSETS: Intangible assets, net 4,606,813 4,684,358 Deferred tax assets 304,980 424,205 Other 368,468 311,473 Total other assets 5,280,261 5,420,036 TOTAL $114,834,149 $ 88,161,895 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 6,195,512 $ 10,281,615 Notes payable 3,785,645 13,080,316 Billings in excess of costs and estimated earnings 470,940 Accrued self-insured claims 1,712,575 2,011,622 Income taxes payable 20,061 1,230,376 Other accrued liabilities 9,716,462 11,904,304 Total current liabilities 21,430,255 38,979,173 NOTES PAYABLE 9,135,675 9,012,066 ACCRUED SELF-INSURED CLAIMS 6,426,246 6,418,400 Total liabilities 36,992,176 54,409,639 COMMITMENTS AND CONTINGENCIES, Note 10 STOCKHOLDERS' EQUITY: Common stock, par value $.33 1/3 per share: 50,000,000 shares authorized; 12,883,071 and 10,867,877 shares issued and outstanding, respectively 4,294,357 3,622,625 Additional paid-in capital 62,077,025 25,421,701 Retained earnings 11,470,591 4,707,930 Total stockholders' equity 77,841,973 33,752,256 TOTAL $114,834,149 $ 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 January 31, January 31, 1998 1997 REVENUES: Contract revenues earned $ 61,914,247 $ 57,128,034 Other, net 708,106 147,277 Total 62,622,353 57,275,311 Expenses: Costs of earned revenues excluding depreciation 48,418,138 46,254,920 General and administrative 6,497,794 5,404,650 Depreciation and amortization 2,289,409 2,040,334 Total 57,205,341 53,699,904 INCOME BEFORE INCOME TAXES 5,417,012 3,575,407 PROVISION (BENEFIT) FOR INCOME TAXES: Current 1,809,833 1,592,992 Deferred 360,468 (331,751) Total 2,170,301 1,261,241 NET INCOME $ 3,246,711 $ 2,314,166 EARNINGS PER COMMON SHARE: Basic $0.26 $0.22 Diluted $0.25 $0.21 See notes to condensed consolidated financial statements--unaudited. 5 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Six Months Ended January 31, January 31, 1998 1997 REVENUES: Contract revenues earned $132,422,006 $113,450,390 Other, net 994,038 239,333 Total 133,416,044 113,689,723 Expenses: Costs of earned revenues excluding depreciation 103,980,781 91,264,570 General and administrative 13,287,851 10,755,628 Depreciation and amortization 4,564,968 4,112,878 Total 121,833,600 106,133,076 INCOME BEFORE INCOME TAXES 11,582,444 7,556,647 PROVISION (BENEFIT) FOR INCOME TAXES: Current 4,646,044 3,792,612 Deferred 173,739 (786,172) Total 4,819,783 3,006,440 NET INCOME $ 6,762,661 $ 4,550,207 EARNINGS PER COMMON SHARE: Basic $0.58 $0.42 Diluted $0.57 $0.42 See notes to condensed consolidated financial statements--unaudited. 6 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended January 31, January 31, 1998 1997 Increase (Decrease) in Cash and Equivalents from: OPERATING ACTIVITIES: Net income $ 6,762,661 $ 4,550,207 Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization 4,564,968 4,112,878 (Gain) on disposal of assets (229,591) (86,606) Deferred income taxes 173,739 (786,172) Changes in assets and liabilities: Accounts receivable, net (573,789) (7,795,048) Unbilled revenues, net (1,415,186) (1,749,032) Other current assets (249,924) (145,161) Other assets (56,995) (41,221) Accounts payable (4,086,103) 6,322,235 Accrued self-insured claims and other liabilities (2,479,043) (1,057,930) Accrued income taxes (1,015,832) 598,617 Net cash inflow from operating activities 1,394,905 3,922,767 INVESTING ACTIVITIES: Capital expenditures (7,388,349) (6,017,905) Proceeds from sale of assets 840,463 235,896 Net cash outflow from investing activities (6,547,886) (5,782,009) FINANCING ACTIVITIES: Borrowings on notes payable and bank lines-of-credit 7,811,741 2,904,577 Principal payments on notes payable and bank lines-of-credit (16,982,803) (2,968,385) Exercise of stock options 173,955 278,437 Proceeds from stock offering 36,958,618 Net cash inflow from financing activities 27,961,511 214,629 NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES 22,808,530 (1,644,613) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 6,645,972 3,927,736 CASH AND EQUIVALENTS AT END OF PERIOD $ 29,454,502 $ 2,283,123 See notes to condensed consolidated financial statements--unaudited. 7 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) For the Six Months Ended January 31, January 31, 1998 1997 SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NON-CASH INVESTING AND FINANCING ACTIVITIES: Cash paid during the period for: Interest $ 890,852 $ 827,528 Income taxes 5,664,751 3,209,615 Property and equipment acquired and financed with: Capital lease obligation $ 601,024 Income tax benefit related to incentive stock options exercised $ 194,483 $ 132,569 See notes to condensed consolidated financial statements--unaudited. 8 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Unaudited 1. The accompanying condensed consolidated balance sheets of Dycom Industries, Inc. ("Dycom" or the "Company") as of January 31, 1998 and July 31, 1997, and the related condensed consolidated statements of operations for the three and six months ended January 31, 1998 and 1997 and the condensed consolidated statements of cash flows for the six months ended January 31, 1998 and 1997 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 six months ended January 31, 1998 are not necessarily indicative of the results which may be expected for the entire year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION-- The condensed consolidated financial statements are unaudited. These statements include Dycom Industries, Inc. and its subsidiaries, all of which are wholly owned. On 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 results of CCG for all periods presented. See Note 4. The Company's operations consist primarily of engineering, construction and maintenance services provided to the telecommunications industry as well as, underground utility locating services and maintenance and construction services provided to the electric utility industry. 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. 9 "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 deposits, commercial paper, and various other financial instruments having a 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 a straight-line basis 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. No impairment loss has been recognized in the periods presented. Amortization expense was $77,545 for each of the six month periods ended January 31, 1998 and 1997. The intangible assets are net of accumulated amortization of $1,228,903 at January 31, 1998 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 $4,969,000 and $4,429,000 at January 31, 1998 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. 10 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 January 31, 1998 and July 31, 1997, deferred tax assets are net of a valuation allowance of $475,185. PER SHARE DATA--Earnings per common share-basic is computed using the weighted average common shares outstanding during the period. Earnings per common share- diluted is computed using the weighted average common shares outstanding during the period and the dilutive effect of common stock options, using the treasury stock method. See Note 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. This statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. This statement is effective for fiscal years beginning after December 15, 1997. In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information" which establishes standards for public business enterprises to report information about operating segments in 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 for periods beginning after December 15, 1997. Management is currently evaluating the requirements of SFAS No. 130 and 131, respectively. 11 3. ACCOUNTING CHANGE In February 1997, the FASB issued SFAS No. 128 "Earnings per Share" which changes the method of calculating earnings per share and was effective for the Company in the quarter ended January 31, 1998. All periods presented have been restated in accordance with the provisions of SFAS No. 128. The following is a reconciliation of the numerators and denominators of the basic and diluted per share computation as required by SFAS No. 128. For the Three Months Ended For the Six Months Ended January 31, January 31, January 31, January 31, 1998 1997 1998 1997 Net income available to common stockholders (numerator) $ 3,246,711 $ 2,314,166 $ 6,762,661 $ 4,550,207 Weighted-average number of common shares (denominator) 12,613,004 10,734,652 11,741,418 10,726,173 Earnings per common share - basic $0.26 $0.22 $0.58 $0.42 Weighted-average number of common shares 12,613,004 10,734,652 11,741,418 10,726,173 Common stock equivalents arising from stock options 191,060 188,034 187,272 213,836 Total shares (denominator) 12,804,064 10,922,686 11,928,690 10,940,009 Earnings per common share - diluted $0.25 $0.21 $0.57 $0.42 4. 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 three and six months condensed consolidated statements of operations and cash flows for the period ended January 31, 1997 combines the three and six months operations and cash flows for the period ended November 30, 1996 of CCG. 12 5. ACCOUNTS RECEIVABLE Accounts receivable, net consist of the following: January 31, July 31, 1998 1997 Contract billings $ 34,224,585 $ 32,586,289 Retainage 1,568,668 1,885,656 Other receivables 426,657 896,015 Total 36,219,910 35,367,960 Less allowance for doubtful accounts 1,292,754 1,014,593 Accounts receivable, net $ 34,927,156 $ 34,353,367 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: January 31, July 31, 1998 1997 Costs incurred on contracts in progress $ 17,880,968 $ 16,894,451 Estimated earnings thereon 3,047,592 3,222,120 20,928,560 20,116,571 Less billings to date 9,504,340 10,107,537 $ 11,424,220 $ 10,009,034 Included in the accompanying condensed consolidated balance sheets under the captions: Costs and estimated earnings in excess of billings $ 11,424,220 $ 10,479,974 Billings in excess of costs and estimated earnings (470,940) $ 11,424,220 $ 10,009,034 13 7. PROPERTY AND EQUIPMENT The accompanying condensed consolidated balance sheets include the following property and equipment: January 31, July 31, 1998 1997 Land $ 1,632,755 $ 1,942,247 Buildings 2,350,868 2,346,993 Leasehold improvements 1,396,793 1,356,861 Vehicles 35,352,189 32,232,343 Equipment and machinery 24,751,747 23,674,176 Furniture and fixtures 5,656,439 5,011,660 Total 71,140,791 66,564,280 Less accumulated depreciation and amortization 41,307,499 39,021,042 Property and equipment, net $ 29,833,292 $ 27,543,238 Certain subsidiaries of the Company entered into lease arrangements accounted for as capitalized leases. The carrying value of capital leases at January 31, 1998 and July 31, 1997 was $634,595 and $838,137, respectively, net of accumulated depreciation of $916,746 and $881,336, respectively. Capital leases are included as a component of equipment and machinery. 8. NOTES PAYABLE Notes payable are summarized by type of borrowings as follows: January 31, July 31, 1998 1997 Bank Credit Agreements: Revolving credit facility $ $ 10,113,484 Term-loan 7,650,000 8,550,000 Equipment term-loans 4,082,973 1,907,216 Capital lease obligations 524,961 722,927 Equipment loans 663,386 798,755 Total 12,921,320 22,092,382 Less current portion 3,785,645 13,080,316 Notes payable--non-current $ 9,135,675 $ 9,012,066 At January 31, 1998, 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. 14 The outstanding principal under the term-loan bears interest at the prime interest rate minus 0.50% (8.00% at January 31, 1998 and July 31, 1997). Principal and interest is payable in quarterly installments through April 2002. At January 31, 1998, the outstanding amount under the term-loan was $7.7 million. 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 January 31, 1998, the interest rates on the outstanding revolving equipment facility loans were at the LIBOR options ranging from 7.531% to 7.813%. On November 28, 1997, the Company repaid the outstanding balance of the revolving credit facility with proceeds from the public offering of its common stock. 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. At January 31, 1998, the outstanding amount owed under the revolving equipment facility was $4.1 million. At January 31, 1998, the Company had outstanding $9.1 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, 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 have been paid during the six month period ended January 31, 1998. The credit facility is secured by the Company's assets. At January 31, 1998, the Company was in compliance with all financial covenants and conditions. 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. 9. 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. The total offering proceeds, net of offering expenses of $432,726, are included in stockholders' equity at January 31, 1998. On November 28, 1997, the Company repaid the outstanding balance of its revolving credit facility 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. 15 10. 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, asserted amounts due from CCG for sales taxes and interest for the periods through August 31, 1995, aggregating approximately $1.3 million. Any sales taxes asserted against 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. 11. SUBSEQUENT EVENTS On February 23, 1998, the Company entered into merger agreements with Installation Technicians, Inc. ("ITI") and CableCom Inc. ("CCI") pursuant to which ITI and CCI will become wholly owned subsidiaries of the Company. Upon consumation of such mergers, the stockholders of CCI and ITI will receive, 1.2 million and 600,000 shares of common stock of the Company. CCI provides construction services to cable television multiple system operators throughout the United States. ITI provides construction and engineering services to local and long distance telephone companies throughout the United States. 16 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 For the Six Months Ended January 31, January 31, January 31, January 31, 1998 1997 1998 1997 Revenues: Contract revenues earned 100.0% 100.0% 100.0% 100.0% Other, net 1.1 0.3 0.7 0.2 Total revenues 101.1 100.3 100.7 100.2 Expenses: Cost of earned revenues, excluding depreciation 78.2 81.0 78.5 80.4 General and administrative 10.5 9.4 10.0 9.5 Depreciation and amortization 3.7 3.6 3.5 3.6 Total expenses 92.4 94.0 92.0 93.5 Income before income taxes 8.7 6.3 8.7 6.7 Provision for income taxes 3.5 2.2 3.6 2.7 Net Income 5.2% 4.1% 5.1% 4.0% Revenues. Contract revenues increased $4.8 million, or 8.4%, to $61.9 million in the quarter ending January 31, 1998 from $57.1 million in the quarter ended January 31, 1997. Of this increase, $4.3 million was attributable to the telecommunications services group and $0.9 million was attributable to the underground utility locating services group, reflecting an increased market demand for the Company's services. This increase was offset by a decline of $0.4 million attributable to the electric services group. During the quarter ended January 31, 1998, the Company recognized $53.2 million of contract revenues from the telecommunications services group as compared to $48.9 million for the same period last year. The increase in the Company's telecommunications services group contract revenues reflects increased volume of projects and activities associated with cable television construction services which increased by $5.0 million to $22.8 million in the quarter ending January 31, 1998 from $17.8 million in the same period last year. Also, the telecommunications services group experienced increased volume in its telephone engineering services, the design and installation of broadband networks and telephony splicing services which was offset by declines in contract revenues in outside plant services and premise wiring services. The Company recognized contract revenues of $4.9 million from electric utilities services in the quarter ending January 31, 1998 as compared to $5.3 million in the quarter ended January 31, 1997. This decline was a result of lower volume associated with bid contracts. The Company recognized contract revenues 17 of $3.8 million from underground utility locating services in the quarter ending January 31, 1998 as compared to $2.9 million in the same period last year, an increase of 31.0%. Contract revenues from long-term agreements in all service groups continues to be a significant source of the Company's revenues, representing approximately 85.5% of total contract revenues in the quarter ended January 31, 1998 compared to 79.7% for the same period last year. In addition, contract revenues from master service agreements represented approximately 41.7% and 48.0% of total contract revenues in the quarter ended January 31, 1998 and 1997, respectively. For the six month period ended January 31, 1998, contract revenues increased 16.7% to $132.4 million as compared to $113.5 million for the corresponding period last year. Of this increase, $15.4 million was attributable to the telecommunications services group, $1.8 million was attributable to the electric services group and $1.7 million was attributable to the underground utility locating services group, reflecting an increased market demand for the Company's services. During the six month period ended January 31, 1998, the Company recognized $114.0 million of contract revenues from the telecommunications services group as compared to $98.6 million for the same period last year, an increase of 15.6%. The increase in the Company's telecommunications services group contract revenues reflects increased volume of projects and activities associated with cable television construction services which increased by $11.9 million to $46.3 million in the six month period ended January 31, 1998 from $34.4 million in the same period last year. Also, the telecommunications services group experienced increased volume in its telephone engineering services, premise wiring, telephony splicing services and the design and installation of broadband networks which was partially offset by declines in contract revenues from outside plant services. The Company recognized contract revenues of $9.9 million from electric utilities services in the six month period ended January 31, 1998 as compared to $8.0 million in the six month period ended January 31, 1997, an increase of 23.8%. The Company recognized contract revenues of $8.5 million from underground utility locating services in the six month period ended January 31, 1998 as compared to $6.9 million in the same period last year, an increase of 23.2%. Contract revenues from long-term agreements represented approximately 84.1% of total contract revenues in the six month period ended January 31, 1998 as compared to 82.0% for the same period last year. In addition, contract revenues from master service agreements represented approximately 42.5% and 51.0% of total contract revenues in the six month period ended January 31, 1998 and 1997, respectively. Costs of Earned Revenues. Costs of earned revenues increased $2.1 million to $48.4 million in the quarter ended January 31, 1998 from $46.3 million in the quarter ended January 31, 1997, but decreased as a percentage of contract revenues to 78.2% from 81.0%. Subcontractor, equipment, and insurance costs declined as a percentage of contract revenues as a result of increased use of employee labor resulting in a reduction in the use of outside services, the buy-out of certain operating leases, and the effective management of the Company's insurance claims and positive results of its corporate safety program. For the six month period ended January 31, 1998, cost of earned revenues increased $12.7 million to $104.0 million as compared to $91.3 for the same period last year, but decreased as a percentage of contract revenues to 78.5% from 80.4%. Subcontractor, equipment, insurance and other direct costs declined as a percentage of contract revenues due to comparable factors which impacted the quarter ended January 31, 1998. General and Administrative Expenses. General and administrative expenses increased $1.1 million to $6.5 million in the quarter ending January 31, 1998 from $5.4 million in the quarter ended January 31, 1997. The increase in general and administrative expenses for the quarter ended January 31, 1998, as compared to the same period last year, was primarily attributable to an increase in administrative salaries, bonuses, employee benefits and payroll taxes of $0.8 million and an increase in legal and professional fees of $0.2 million. For the six month period ended January 31, 1998, general and administrative expenses increased $2.5 to $13.3 million as compared to $10.8 million for the same period last year. The increase in general and administrative expenses for the six month period ended January 31, 1998, as compared to the same period last year, was primarily attributable to increases in administrative salaries, bonuses, employee benefits and payroll taxes of $1.5 million, legal and professional fees of $0.4 million and other general and administrative expenses of $0.4 million. Depreciation and Amortization. Depreciation and amortization increased $0.3 million to $2.3 million in the quarter ending January 31, 1998 as compared to $2.0 million in same period last year. Depreciation and amortization increased $0.5 million to $4.6 million in the six month period ended January 31, 1998 as compared to $4.1 million for the same period last year. These increases in depreciation and amortization were due to the increase in capital expenditures of $7.4 million in the six month period ended January 31, 1998 as compared to $6.0 million in the six month period ended January 31, 1997, an increase of $1.4 million. The increase represents capital expenditures acquired in the ordinary course of business and the buy-out of certain operating leases on terms favorable to the Company. Income Taxes. The provision for income taxes was $4.8 million in the six month period ended January 31, 1998 as compared to $3.0 million in the same period last year. The Company's effective tax rate was 41.6% in the six month period ended January 31, 1998 as compared to 39.8% 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 leases, capital leases and bank borrowings. The Company's sources of cash have historically been from operating activities, bank borrowings and proceeds arising from the sale of idle and surplus equipment and real property. For the six month period ended January 31, 1998, net cash provided by operating activities was $1.4 million compared to $3.9 million for the six month period ended January 31, 1997. The decrease was primarily due to a decrease in accounts payable, other accrued liabilities and accrued income taxes. In the six month period ended January 31, 1998, net cash used in investing activities was $6.5 million as compared to $5.8 million for the same period last year. For the six month period ended January 31, 1998, capital expenditures of $7.4 million were for the normal replacement of equipment and the buy-out of certain operating leases on terms favorable to the Company. In addition to equipment purchases, the Company obtained approximately $1.2 million of equipment under noncancellable operating leases in the six month period ended January 31, 1998. 19 In the six month period ended January 31, 1998, net cash provided from financing activities was $28.0 million as compared to $0.2 million for the same period last year. The increase was primarily due to the proceeds on the sale of the Company's stock. On November 4, 1997, the Company concluded the public offering of 2,700,000 shares of its common stock. 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 to cover over-allotments. The Company received $7,654,500 on November 25,1997 as payment for the over-allotments. The total proceeds, net of offering expenses of $432,726, are included in stockholders' equity at January 31, 1998. The Company invested the proceeds, after paying off a portion of its outstanding indebtedness, in various short-term instruments having a maturity of three months or less. Net cash from financing activities was also provided by borrowings on the revolving equipment facility and the working capital facility. At July 31, 1997, the Company's newly acquired subsidiary, CCG, had a $6.6 million working capital bank credit facility. This facility was an arrangement made by CCG prior to the acquisition by Dycom. During the first quarter of the current fiscal year, 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 its revolving equipment facility. During the quarter ended January 31, 1998, the Company paid off the outstanding balance of the revolving credit facility of $9.1 million, including the new borrowings for CCG, with a portion of the stock offering proceeds. Also during the first quarter of the current fiscal year, the Company borrowed $1.0 million under the revolving equipment facility to buy-out certain existing operating leases on terms favorable to the Company. At January 31, 1998, 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 term-loan facility has a five-year maturity and bears interest at the bank's prime interest rate minus 0.50% (8.00% at January 31, 1998). The term-loan principal and interest is payable in quarterly installments through April 2002. During the six months ended January 31, 1998, the Company repaid $0.9 million 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%. At January 31, 1998, the interest rates were at the LIBOR plus 1.75% option (7.531% to 7.813%). During the six month period ended January 31, 1998, the Company repaid $0.5 million and has available borrowing capacity of $1.9 million under this facility. The revolving credit 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%. At January 31, 1998, there was no outstanding balance on this facility resulting in an available borrowing capacity of $10.0 million. The standby letter of credit facility is available for a one-year period. At January 31, 1998, the Company had $9.1 million in outstanding standby letters of credit issued as security to the Company's insurance administrators as part of its self-insurance program, leaving $0.9 million in available borrowing capacity. 20 The bank credit agreement requires the Company to maintain certain financial covenants and conditions, as well as restricting the encumbrances of assets and the creation of additional indebtedness and limits the payment of cash dividends. At January 31, 1998, the Company was in compliance with all covenants and conditions under the credit agreement. The Company foresees its capital resources together with existing cash balances to be sufficient to meet its financial obligations, including the scheduled debt payments under the 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 10Q, 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 aquisitions, financial needs or plans and the availability of financing, and plans relating to services of the Company, as well as assumptions relating to the foregoing. Such forward looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 21 PART II. OTHER INFORMATION __________________________ Item 4. Submission of Matters to a Vote of Security Holders. An annual meeting of shareholders of the Company was held on November 24, 1997 to consider and take action on the election of two directors to the Company's Board of Directors. The Company's nominees, Messrs. Steven E. Nielsen and Ronald P. Younkin were elected. Mr. Nielsen received 10,399,720 votes for and 10,866 against and Mr. Younkin received 10,397,852 for and 12,734 against. The directors whose terms continue after the annual meeting are Messrs. Adams, Pledger, Revell and Roseman. 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 on Form 8-K were filed on behalf of the Registrant during the quarter ended January 31, 1998. 22 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DYCOM INDUSTRIES, INC. Registrant Date: March 10, 1998 /s/ Thomas R. Pledger _________________ ____________________________ Thomas R. Pledger Chairman and Chief Executive Officer Date: March 10, 1998 /s/ Steven Nielsen _________________ ____________________________ Steven Nielsen President and Chief Operating Officer Date: March 10, 1998 /s/ Douglas J. Betlach _________________ ____________________________ Douglas J. Betlach Vice President, Treasurer, and Chief Financial Officer
EX-27 2
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DYCOM INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEET AT JANUARY 31, 1998 AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000067215 DYCOM INDUSTRIES, INC. 1 U.S. DOLLARS 6-MOS JUL-31-1998 JAN-31-1998 1 29,454,502 0 35,793,253 1,292,754 11,424,220 79,720,596 71,140,791 41,307,499 114,834,149 21,430,255 12,921,320 0 0 4,294,357 73,547,616 114,834,149 0 132,422,006 0 103,980,781 4,564,968 0 846,610 11,582,444 4,819,783 6,762,661 0 0 0 6,762,661 .58 .57
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