-----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, PQ1BayYvXkaG6dZci9JJ65UOx9iFNqA6hrXjiHwR/iwyv/ciuJPrQXrG+yyYn4Ck Jl6VoKpjpXARFSDu3g+cOw== 0000950123-99-003906.txt : 19990430 0000950123-99-003906.hdr.sgml : 19990430 ACCESSION NUMBER: 0000950123-99-003906 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990429 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: S-3/A SEC ACT: SEC FILE NUMBER: 333-76949 FILM NUMBER: 99604719 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 S-3/A 1 AMENDMENT #1 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1999 REGISTRATION NO. 333-76949 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- 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.)
FIRST UNION CENTER 4440 PGA BOULEVARD, SUITE 500 PALM BEACH GARDENS, FLORIDA 33410 (561) 627-7171 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) --------------------- MARC R. TILLER, ESQ. GENERAL COUNSEL AND CORPORATE SECRETARY FIRST UNION CENTER 4440 PGA BOULEVARD, SUITE 500 PALM BEACH GARDENS, FLORIDA 33410 (561) 627-7171 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- COPIES TO: RICHARD B. VILSOET, ESQ. LAWRENCE R. SEIDMAN, ESQ. SHEARMAN & STERLING PIPER & MARBURY L.L.P. 599 LEXINGTON AVENUE 36 SOUTH CHARLES STREET NEW YORK, NEW YORK 10022 BALTIMORE, MARYLAND 21201-3018 (212) 848-4000 (410) 539-2530
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: as soon as practicable after this registration statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 The information in this prospectus is not complete and may be changed without notice. Dycom Industries, Inc. may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and Dycom Industries, Inc. is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Prospectus (Not Complete) Issued April 28, 1999 2,700,000 Shares (DYCOM LOGO) COMMON STOCK --------------------- Dycom Industries, Inc. is offering 2,500,000 shares of common stock and selling stockholders are offering 200,000 shares of common stock in a firmly underwritten offering. Dycom Industries, Inc. will not receive any proceeds from the sale of the shares by the selling stockholders. --------------------- Our common stock is listed on the New York Stock Exchange under the symbol "DY." On April 27, 1999, the last reported sale price of our common stock on the New York Stock Exchange was $46 5/8 per share. --------------------- INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. ---------------------
PER SHARE TOTAL --------- -------- Offering Price.............................................. $ $ Discounts and Commissions to Underwriters................... $ $ Offering Proceeds to Company................................ $ $ Offering Proceeds to Selling Stockholders................... $ $
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Dycom Industries, Inc. and the selling stockholders have granted the underwriters the right to purchase up to 375,000 and 30,000 additional shares of common stock, respectively, to cover any over-allotments. The underwriters can exercise this right at any time within thirty days after the offering. NationsBanc Montgomery Securities LLC expects to deliver the shares of common stock to investors on , 1999. NATIONSBANC MONTGOMERY SECURITIES LLC MORGAN STANLEY DEAN WITTER MORGAN KEEGAN & COMPANY, INC. --------------------- , 1999 3 (MAP OF THE UNITED STATES SHOWING LOCATION OF DYCOM OFFICES) 4 TABLE OF CONTENTS
PAGE ---- Prospectus Summary.......................................... 2 Risk Factors................................................ 7 Use of Proceeds............................................. 11 Price Range of Common Stock and Dividend Policy............. 11 Capitalization.............................................. 12 Summary Consolidated Financial Data......................... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 15 Business.................................................... 25 Management.................................................. 34 Principal and Selling Stockholders.......................... 36 Description of Capital Stock................................ 37 Underwriting................................................ 40 Certain Legal Matters....................................... 41 Experts..................................................... 42 Where You Can Find More Information......................... 42 Incorporation of Certain Documents by Reference............. 42 Index to Consolidated Financial Statements.................. F-1 Index to Pro Forma Unaudited Condensed Consolidated Financial Statements...................................... P-1
FORWARD-LOOKING STATEMENTS This prospectus (including the documents incorporated by reference in this prospectus) contains forward-looking statements regarding our plans, expectations, estimates and beliefs. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as "believes," "anticipates," "expects," "intends," "forecast," "project," "plans," "will," "may" and other similar expressions. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements in these documents include, but are not necessarily limited to, those relating to: - industry trends; - ability to carry out our growth strategies; - our future operating performance; - potential acquisitions; - ability to win new customer contracts; - availability of financing; - year 2000 compliance; and - the anticipated outcome of contingent events, including litigation. --------------------- YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS (INCLUDING THE INFORMATION INCORPORATED BY REFERENCE IN THIS PROSPECTUS). WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "DYCOM," "WE," "US" AND "OUR" REFERS TO DYCOM INDUSTRIES, INC. (UNLESS THE CONTEXT OTHERWISE REQUIRES). 1 5 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and may not contain all of the information that you should consider before investing in the common stock. You should read the entire prospectus carefully, including the "Risk Factors" section and the financial statements and the related notes included herein. Unless otherwise indicated, all references in this prospectus to pro forma financial information give effect to our recent acquisitions of Locating, Inc., a Washington corporation ("Locating"), Ervin Cable Construction, Inc., a Kentucky corporation ("ECC"), and Apex Digital TV, Inc., a Kentucky corporation ("Apex"), as if such transactions had been consummated at the beginning of or as of the periods indicated. See "Business -- Recent Acquisitions" and the Pro Forma Unaudited Condensed Consolidated Financial Statements included in this prospectus. Unless otherwise indicated, all information in this prospectus reflects a 3-for-2 stock split effected in the form of a stock dividend by Dycom on January 4, 1999. The information in this prospectus assumes no exercise of the over-allotment option to purchase additional shares of common stock granted to the underwriters. THE COMPANY We are a leading provider of engineering, construction and maintenance services to telecommunications and utility providers throughout the United States. Our comprehensive range of services include: - telecommunications services: - the engineering, placement and maintenance of aerial, underground and buried cable systems owned by telephone companies, competitive access providers and cable television providers; - the installation of integrated voice, data, and video local and wide area networks within office buildings and similar structures; - the installation of direct broadcast satellite systems; - underground utility locating services used to map and mark underground utilities; and - power line construction and maintenance services. For the six-month period ended January 31, 1999, telecommunications services contributed approximately 90% of our contract revenues, underground utility locating services contributed approximately 5% and electrical construction and maintenance services contributed approximately 5%. We operate through fourteen wholly-owned, independently operating subsidiaries. We have long-standing relationships with telecommunications and utility providers such as BellSouth Telecommunications, Inc., Comcast Cable Communications, Inc., MediaOne, Inc., Tele-Communications, Inc., Sprint Corporation, GTE Corporation, U.S. West Communications, Inc. and Florida Power and Light Company. For the six-month period ended January 31, 1999, approximately 88% of our revenues came from multi-year master service agreements and other long-term agreements with large telecommunications providers and electric utilities. The telecommunications industry is undergoing rapid change due to deregulation, increased competition and growing consumer demand for enhanced telecommunications services, thereby creating demand for engineering and construction of additional infrastructure for new and existing telecommunications providers. To meet the increasing need for telecommunications infrastructure, telecommunications providers have been increasingly outsourcing their infrastructure engineering, construction and maintenance requirements to reduce investment in capital equipment, improve flexibility in workforce scheduling, expand geographically without incremental hiring and focus on their core competencies. As a result, we believe there are significant opportunities to expand our business internally and through acquisitions. 2 6 Internal Growth Strategy: Our internal growth strategy has four principal elements: - Increase the volume of services to our existing customers; - Expand the scope of services to our existing customers; - Broaden our customer base; and - Geographically expand our service area. Acquisition Strategy: We have pursued a strategy of selective acquisitions involving established, well respected construction and service companies. We believe a variety of acquisition opportunities exist within our industry to provide us with customer, geographic and product line diversification. Our key acquisition criteria are profitability in excess of industry standards, stable and growing customer base, proven operational and technical competence, and experienced management that fits with our decentralized operating structure. We recently acquired the following companies: - Locating, Inc. In February 1999, we acquired this Washington state-based company which provides underground utility locating services used to map and mark utilities for cable television providers, multiple system operators, telephone companies and electrical and gas utilities. This acquisition expands our presence in the underground utility locating services industry and our geographic presence in the West Coast region of the United States. - Ervin Cable Construction, Inc. In March 1999, we acquired this Kentucky-based company, which builds and installs new cable television systems and provides repair and expansion services to cable television systems in several states. This acquisition expands and diversifies our client base and furthers our presence in the Midwest region of the United States. - Apex Digital TV, Inc. In March 1999, we acquired this Kentucky-based company, which installs direct broadcast satellite systems and provides cable sales and repair services in several Midwestern states. This acquisition provides us an extension into a related new business line. On a pro forma basis, these acquisitions would have provided us with additional revenues of approximately $68.6 million and $33.8 million for the fiscal year ended July 31, 1998 and the six-month period ended January 31, 1999, respectively. --------------------- We are incorporated under the laws of the State of Florida. Our principal executive offices are located at First Union Center, 4440 PGA Boulevard, Suite 500, Palm Beach Gardens, Florida 33410. Our telephone number is (561) 627-7171. 3 7 THE OFFERING Common stock offered by Dycom....... 2,500,000 shares Common stock offered by selling stockholders........................ 200,000 shares Total shares to be offered.......... 2,700,000 shares Common stock outstanding after the offering............................ 25,546,063 shares(1) Use of proceeds..................... To fund our growth strategy, including acquisitions, working capital and capital expenditures, and for other general corporate purposes. We also intend to use the proceeds to repay indebtedness under our revolving credit facility, subject to reborrowing. We will not receive any proceeds from the sale of shares in the offering by the selling stockholders. New York Stock Exchange Symbol...... DY - --------------- (1) This does not include 886,865 shares of common stock issuable upon exercise of outstanding options. 4 8 SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA Set forth below is certain of our historical consolidated financial information as well as certain consolidated pro forma financial information. The consolidated financial data as of January 31, 1999 and for the six months ended January 31, 1998 and 1999 are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which consist only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for these periods. The following pro forma consolidated statements of operations data present our financial results adjusted for the acquisitions of Locating, ECC and Apex. Such information is presented as if each of these acquisitions had occurred at the beginning of the periods presented. The following pro forma consolidated balance sheet data presents our financial position adjusted for the Locating, ECC and Apex acquisitions as if each of these acquisitions had occurred as of January 31, 1999. The supplemental pro forma financial data presents our statements of operations adjusted to reflect a provision for income taxes on pooled companies which were previously "S Corporations" and recorded no provision for federal income taxes. The summary pro forma financial data does not purport to be indicative of the results of operations that would have been achieved had such acquisitions been consummated as of the assumed dates, nor are the results intended to be indicative of our future results of operations. The following information should be read in conjunction with our consolidated financial statements and notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Pro Forma Unaudited Condensed Consolidated Financial Statements included in this prospectus.
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, JANUARY 31, ------------------------------------------------------ ---------------------------------------- 1996 1997 1998 1998 1999 ----------- ----------- -------------------------- ----------- -------------------------- ACTUAL PRO FORMA(3) ACTUAL PRO FORMA(3) ----------- ------------ ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Total revenues................ $ 247,295 $ 312,419 $ 371,363 $ 439,941 $ 172,897 $ 206,757 $ 240,570 Income before income taxes.... 14,055 23,770 36,081 39,838 15,655 23,777 25,514 Net income.................... 9,922 15,814 23,036 24,959 10,604 14,144 14,821 Earnings per common share:(1) Basic........................ $ 0.53 $ 0.84 $ 1.09 $ 1.14 $ 0.52 $ 0.64 $ 0.65 =========== =========== =========== =========== =========== =========== =========== Diluted...................... $ 0.52 $ 0.83 $ 1.07 $ 1.12 $ 0.51 $ 0.63 $ 0.64 =========== =========== =========== =========== =========== =========== =========== SUPPLEMENTAL PRO FORMA FINANCIAL DATA(2): Income before income taxes.... $ 14,055 $ 23,770 $ 36,081 $ 15,655 Pro forma provision for income taxes........................ 4,860 9,841 14,420 6,515 ----------- ----------- ----------- ----------- Pro forma net income.......... $ 9,195 $ 13,929 $ 21,661 $ 9,140 =========== =========== =========== =========== Pro forma earnings per common share:(1) Basic........................ $ 0.49 $ 0.74 $ 1.02 $ 0.45 =========== =========== =========== =========== Diluted...................... $ 0.48 $ 0.73 $ 1.01 $ 0.44 =========== =========== =========== =========== Shares used in computing earnings per common share and pro forma earnings per common share:(1) Basic........................ 18,624,564 18,863,987 21,172,025 21,946,219 20,312,127 22,144,794 22,918,988 Diluted...................... 18,989,729 19,123,034 21,482,634 22,256,828 20,593,035 22,525,818 23,300,012
(footnotes on following page) 5 9
JANUARY 31, 1999 ---------------------------------------------- PRO FORMA ACTUAL PRO FORMA(3) AS ADJUSTED(4) -------------- ------------ -------------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............................. $ 33,986 $ 35,810 $110,368 Working capital....................................... 78,149 73,826 158,363 Total assets.......................................... 180,740 255,928 330,487 Long-term debt, including current portion............. 15,925 48,476 12,750 Total stockholders' equity............................ 114,732 146,890 257,174
- --------------- (1) Earnings per common share-basic is calculated by dividing the net income applicable to common shares by the weighted average shares outstanding during the period. Earnings per common share-diluted includes the dilutive effect of common stock options. (2) The provision for income taxes and net income have been adjusted to reflect a pro forma tax provision for pooled companies which were previously "S Corporations" and recorded no provision for income taxes. See Note 1 of the Notes to our Consolidated Financial Statements. (3) The statement of operations data has been adjusted to reflect the acquisitions of Locating, ECC and Apex as if they occurred at the beginning of the periods presented and the consolidated balance sheet data has been adjusted to reflect these acquisitions as if they occurred on January 31, 1999. In addition to cash consideration, we issued 774,194 shares of our common stock in connection with these acquisitions. See "Business -- Recent Acquisitions" and the Pro Forma Unaudited Condensed Consolidated Financial Statements included in this prospectus. (4) The pro forma consolidated balance sheet data has been adjusted to give effect to our estimated net proceeds from the offering and the application of those proceeds. 6 10 RISK FACTORS Investing in the common stock will provide you with an equity ownership interest in Dycom. Before you invest in the common stock, you should be aware of the various risks associated with an investment in our common stock. Such risks may materially and adversely affect our business, financial condition or results of operations. In such case, the trading price of the common stock could decline, and you could lose all or part of your investment. You should carefully consider the following factors as well as other information contained in this prospectus before deciding to invest in the common stock. OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY We have experienced and expect to continue to experience quarterly variations in revenues and net income as a result of many factors, including: - the timing and volume of customers' construction and maintenance projects, - budgetary spending patterns of customers, - the commencement or termination of master service agreements and other long-term agreements with our customers, - costs incurred to support growth internally or through acquisitions, - fluctuations in results of operations caused by acquisitions, - changes in our mix of customers, contracts and business activities, and - fluctuations in insurance expense accruals due to changes in claims experience and actuarial assumptions. Revenues and net income in our second quarter and, occasionally, our third quarter have in the past been, and may in the future be, adversely affected by weather conditions and year-end budgetary spending patterns of our customers. WE DEPEND ON A SMALL GROUP OF KEY CUSTOMERS Our customer base is highly concentrated. Our top five customers in fiscal 1996, 1997, 1998 and the six months ended January 31, 1999 accounted in the aggregate for approximately 68%, 63%, 65% and 62%, respectively, of our total contract revenues. During fiscal 1998 and the six months ended January 31, 1999, approximately 22% and 23%, respectively, of our total contract revenues were derived from BellSouth Telecommunications, Inc., 24% and 21%, respectively, from Comcast Cable Communications, Inc. and 7% and 5%, respectively, from GTE Corporation. We believe that a substantial portion of our contract revenues and operating income will continue to be derived from a concentrated group of key customers. The loss of any key customer, if not replaced, could have a material adverse effect on our business. OUR MASTER SERVICE AGREEMENTS MAY BE TERMINATED OR MAY NOT BE RENEWED We derive a substantial portion of revenues pursuant to multi-year master service agreements. We are currently a party to 52 master service agreements, including 33 such agreements with BellSouth Telecommunications, Inc., GTE Corporation, Sprint Corporation, U.S. West Communications, Inc. and Florida Power and Light Company, collectively. Under the terms of these agreements, our customers can typically terminate the agreement on 90 days prior written notice. The termination of any such agreements or our failure to renew master service agreements with our customers could have a material adverse effect on our business. OUR CUSTOMERS' FUTURE REQUIREMENTS MAY BE LESS THAN OUR BACKLOG ESTIMATE Our backlog is comprised of the uncompleted portion of services to be performed under job-specific agreements and the estimated value of future services that we expect to provide our customers under 7 11 master service agreements. Our master service agreements are generally exclusive requirements contracts with certain exceptions, including the customer's option to perform the services with its own regularly employed personnel. Accordingly, there can be no assurance as to our customers' requirements during a particular period or that our estimates of such requirements, including those used to formulate backlog, are accurate at any point in time. WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR ACQUISITION STRATEGY As part of our growth strategy, we may acquire companies that expand, complement or diversify our business. We regularly review various strategic acquisition opportunities and periodically engage in discussions regarding such possible acquisitions. We cannot assure you that we will be able to identify attractive acquisition candidates, enter into acceptable acquisition agreements or close any such transactions. Currently, we are not party to any agreements, understandings or arrangements regarding any material acquisitions. Failure to achieve our acquisition strategy could materially and adversely affect our ability to sustain growth and maintain our competitive position. In addition, increased competition for acquisition candidates could increase the cost of making acquisitions and reduce the number of attractive companies to be acquired. Although we maintain a decentralized operating structure, we may encounter difficulties in integrating acquired companies or their management teams. We may also encounter difficulties in retaining key personnel or customers. These difficulties could increase the cost of any acquisition or reduce or eliminate any expected benefit. In addition, acquisitions may have adverse effects on our results of operations caused by amortization of acquired intangible assets or unanticipated liabilities or contingencies. We may be required to incur debt or issue equity to pay for any future acquisitions, and these sources of financing may not be available to us on favorable terms or at all. In addition, if we use common stock to pay for future acquisitions, the value of your common stock may become diluted. If we cannot use common stock or borrow sufficient funds to pay for future acquisitions, our growth strategy could be limited. WE FACE INTENSE COMPETITION The telecommunications services industry is highly competitive and we compete with other companies in most of the markets in which we operate. Some of our competitors may have greater financial, technical and marketing resources than we do. A significant portion of our revenues are currently derived from master service agreements and price is often an important factor in the award of such agreements. Accordingly, we could be outbid by our competitors in an effort to procure such business. Despite the current trend toward outsourcing, we may also face competition from existing or prospective customers who employ in-house personnel to perform some of the same types of services as we provide. In addition, there are relatively few, if any, significant barriers to entry into the markets in which we operate and, as a result, any organization that has adequate financial resources and access to technical expertise may become one of our competitors. FUTURE DEVELOPMENTS IN THE TELECOMMUNICATIONS INDUSTRY MAY REDUCE DEMAND FOR OUR SERVICES Certain factors related to the telecommunications industry may affect the demand for the services which we provide. The telecommunications providers may be unable to raise the capital necessary to develop the telecommunications networks. There may be a disappointing public demand for Internet access and other interactive multimedia services or decreases in the preference of our customers toward outsourcing telecommunications engineering, construction and maintenance services. In addition, wireline telecommunications systems may be displaced by other technologies, such as wireless technologies, and improvements in technology may allow telecommunications providers to significantly improve their networks without physically upgrading them. Although changes in telecommunications regulations do not affect us directly, the effect of such regulations on our customers may, in turn, adversely impact our business and results of operations. 8 12 WE MAY FACE RISKS RELATED TO YEAR 2000 PROBLEMS Year 2000 technology risks refer to the potential harm resulting from computer programs that identify dates by the last two digits of the year rather than using the full four digits. As such, dates as of January 1, 2000 could be misidentified and such programs could fail. We have reviewed our computer systems to identify those areas that could be adversely affected by year 2000 software failures. We have converted approximately 85% of our information systems to be year 2000 compliant. We have incurred approximately $1.4 million through January 31, 1999 and will incur approximately $0.5 million in the remainder of fiscal 1999 to complete the information system conversions, including the implementation and conversion costs of our recently acquired subsidiaries. Although we expect that any additional expenditures that may be required for the year 2000 conversions will not be material, there can be no assurance in this regard. Additionally, we believe that the year 2000 problem could have a negative impact on certain of our customers and other entities with which we transact business, which may have a material adverse effect on our business. WE ARE SELF-INSURED AGAINST POTENTIAL LIABILITIES We are primarily self-insured, up to a limited amount, for automobile, general liability, workers' compensation and employee group health claims. A liability for unpaid claims and associated expenses, including incurred but not reported losses, is actuarially determined and reflected in our consolidated balance sheet as an accrued liability. The determination of such claims and expenses and the extent of the accrued liability are continually reviewed and updated. If we were to experience insurance claims or costs above our estimates and were unable to offset such increases with earnings, our business could be materially and adversely affected. WE ARE DEPENDENT ON KEY PERSONNEL We are highly dependent upon the continued services and experience of our senior management team, including Thomas R. Pledger, our Executive Chairman and Chairman of the Board of Directors, Steven Nielsen, our President and Chief Executive Officer, and one or more managers of key operating subsidiaries. The loss of the services of these individuals or other members of our senior management could have a material adverse effect on our business. OUR COMMON STOCK PRICE MAY BE VOLATILE The market price for our common stock has been, and may continue to be, highly volatile. Numerous factors could have a significant effect on the market price of our common stock. Such factors include the announcements of fluctuations in operating results, new contracts or customers and acquisitions by either us or one of our competitors. The market price of our common stock is also influenced by market conditions for telecommunications or telecommunications services company stocks in general and by changes in recommendations or earnings estimates by securities analysts. In addition, the stock market has experienced significant price and volume fluctuations in recent years that have been unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the market price of our common stock. FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE Future sales of substantial amounts of our common stock in the public market, including the shares covered by this prospectus, or the perception that such sales could occur, could adversely affect the market price of our common stock. As of April 27, 1999, we had outstanding 23,046,063 shares of common stock, plus 886,865 shares of common stock reserved for issuance upon exercise of outstanding options, including 80,868 options which are currently exercisable. Substantially all of the outstanding shares of our common stock are either freely salable or salable subject to certain volume and manner of sale restrictions pursuant to Rule 144 of the Securities Act of 1933. 9 13 In connection with the acquisition of Communications Construction Group, Inc. ("CCG"), Cable Com Inc. ("CCI"), Installation Technicians, Inc. ("ITI"), ECC and Apex, we issued an aggregate of 6,554,057 shares of common stock to their stockholders. As of April 27, 1999, 1,817,046 of these shares were still available for future sale by such holders. Holders who received these shares hold their shares subject to the limitations of Rule 144. We have granted these holders certain registration rights. Former stockholders of CCI, ITI, ECC and Apex have the right to have their shares of common stock included in certain registration statements covering the sale of securities by Dycom or the sale of common stock by selling stockholders. ANTI-TAKEOVER PROVISIONS MAY INHIBIT CHANGES OF CONTROL Our articles of incorporation and by-laws contain provisions which may deter, discourage or make more difficult a takeover or change of control of Dycom by another corporation. These anti-takeover provisions include: - the authority of our board of directors to issue up to 1,000,000 shares of preferred stock without stockholder approval on such terms and with such rights as our board of directors may determine, and - the requirement of a classified board of directors serving staggered three-year terms. We have also adopted a shareholder rights plan and have executed change of control agreements with key officers, which may make it more difficult to effect a change in control of Dycom and replace incumbent management. Lastly, we are subject to certain anti-takeover provisions of the Florida Business Corporation Act. These anti-takeover provisions could discourage or prevent a change of control even if such change of control would be beneficial to stockholders and could adversely affect the market price of our common stock. 10 14 USE OF PROCEEDS We estimate that we will receive net proceeds from the sale of the 2,500,000 shares of common stock offered by us, assuming a public offering price of $46 5/8 per share and after deducting underwriting discounts and estimated expenses payable by us, of $110.3 million ($126.9 million if the underwriters' over-allotment options are exercised in full). We will not receive any proceeds from the sale of shares of common stock offered by the selling stockholders. We intend to use the net proceeds of the offering to fund our growth strategy, including acquisitions, working capital and capital expenditures and for other general corporate purposes. We also intend to use the net proceeds of the offering to repay approximately $35.7 million of indebtedness under our revolving credit facility, subject to reborrowings. The indebtedness to be repaid out of the net proceeds from the offering bears interest averaging 6.8% per annum and its maturity is up to 45 months. This indebtedness was incurred under our revolving credit facility in connection with the acquisitions of Locating and ECC. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and Note 8 of the Notes to Consolidated Financial Statements for a further description of our indebtedness. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY Our common stock is traded on the New York Stock Exchange under the symbol "DY." The following table sets forth, for the periods indicated, the high and low closing sale prices of our common stock as reported on the New York Stock Exchange. The table has been adjusted to reflect the 3-for-2 stock split effected in the form of a stock dividend and paid in January 1999.
HIGH LOW ---- --- FISCAL YEAR ENDED JULY 31, 1997 First Quarter............................................. $ 9 5/8 $ 7 11/16 Second Quarter............................................ 8 3/16 6 3/16 Third Quarter............................................. 8 3/16 6 11/16 Fourth Quarter............................................ 12 6 3/16 FISCAL YEAR ENDED JULY 31, 1998 First Quarter............................................. 18 5/16 11 Second Quarter............................................ 17 5/8 12 13/16 Third Quarter............................................. 19 5/16 15 5/16 Fourth Quarter............................................ 24 3/4 16 13/16 FISCAL YEAR ENDING JULY 31, 1999 First Quarter............................................. 23 13/16 17 7/8 Second Quarter............................................ 39 3/4 23 5/16 Third Quarter (through April 27).......................... 48 31 3/8
On April 27, 1999, the closing sale price of our common stock as reported on the New York Stock Exchange was $46 5/8 per share. The number of stockholders of record on April 27, 1999 was approximately 640. Since 1982 we have not paid any cash dividends and we currently intend to continue to retain future earnings. Our board of directors will determine any future change in dividend policies based on financial conditions, profitability, cash flow, capital requirements, and business outlook, as well as other factors relevant at the time. Our credit facility expressly limits the payment of cash dividends to fifty percent of each fiscal year's net income. The credit facility's restrictions regarding our debt to net worth, quick and current ratios also affect our ability to pay dividends. 11 15 CAPITALIZATION The following table sets forth our capitalization (i) on an actual basis as of January 31, 1999, (ii) on a pro forma basis to reflect the acquisitions of Locating, ECC and Apex and (iii) on a pro forma as adjusted basis to give effect to our receipt of the estimated net proceeds from the sale of 2,500,000 shares of common stock offered by us at an estimated public offering price of $46 5/8 per share and the application of the estimated net proceeds therefrom. The information set forth in the table below should be read in conjunction with our Consolidated Financial Statements and the notes thereto and the Pro Forma Unaudited Condensed Consolidated Financial Statements included elsewhere in this prospectus.
JANUARY 31, 1999 ------------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------------ ------------ ------------ Long-term debt, including current portion(1)......... $ 15,925,238 $ 48,475,649 $ 12,750,000 Stockholders' equity: Preferred Stock, $1.00 par value, 1,000,000 shares authorized; no shares issued and outstanding.... -- -- -- Common Stock, $0.33 1/3 par value; 50,000,000 shares authorized; 22,240,400 shares issued and outstanding; 23,014,594 shares issued and outstanding pro forma; and 25,514,594 shares issued and outstanding pro forma as adjusted(2)..................................... 7,413,466 7,671,531 8,504,864 Additional paid-in capital......................... 62,198,781 94,098,799 203,549,841 Retained earnings.................................. 45,119,412 45,119,412 45,119,412 ------------ ------------ ------------ Total stockholders' equity................. 114,731,659 146,889,742 257,174,117 ------------ ------------ ------------ Total capitalization....................... $130,656,897 $195,365,391 $269,924,117 ============ ============ ============
- --------------- (1) Long-term debt, including current maturities of $4,743,624, actual, $12,978,924, pro forma, and $3,000,000, pro forma as adjusted. For information concerning our long-term debt, see Note 8 of the Notes to Consolidated Financial Statements. (2) This information is based on shares outstanding at January 31, 1999 and does not include 886,865 shares of common stock issuable upon exercise of outstanding options. 12 16 SUMMARY CONSOLIDATED FINANCIAL DATA The following table sets forth our summary consolidated financial data for the periods indicated including certain consolidated pro forma financial information. The summary consolidated financial data as of July 31, 1997 and 1998 and for each of the three years in the period ended July 31, 1998 are derived from our consolidated financial statements included elsewhere in this prospectus that have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is included elsewhere in this prospectus. The summary consolidated balance sheet data as of July 31, 1996 has also been derived from audited financial statements. The financial statements of CCG (consolidated with our financial statements, and not presented herein) have been audited by Nowalk & Associates, independent auditors, as stated in their report, which is included herein and incorporated by reference herein. Our Consolidated Financial Statements and all financial and operating data derived therefrom have been combined for all periods presented to include the financial condition and results of operations of CCG, CCI and ITI. The summary consolidated financial data as of January 31, 1999 and for the six months ended January 31, 1998 and 1999 are derived from our unaudited financial statements included elsewhere in this prospectus and include all adjustments (consisting only of normal recurring adjustments) which are necessary to present fairly the results of operations and financial position for such periods. The results for the six months ended January 31, 1999 are not necessarily indicative of the results to be expected for the full year. The pro forma statements of operations data present our financial position adjusted for the acquisitions of Locating, ECC and Apex. Such information is presented as if each of these acquisitions had occurred at the beginning of the periods presented. The pro forma balance sheet data presents our financial position adjusted for the Locating, ECC and Apex acquisitions as if each of these acquisitions had occurred as of January 31, 1999. The supplemental pro forma data presents our statements of operations adjusted to reflect a provision for income taxes on pooled companies which were previously "S Corporations" and recorded no provision for income taxes. The summary pro forma data does not purport to be indicative of the results of operations that would have been achieved had such acquisitions been consummated as of the assumed dates, nor are the results intended to be indicative of our future results of operations. The following data should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements and notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Pro Forma Unaudited Condensed Consolidated Financial Statements included elsewhere in this prospectus and the individual financial statements and notes thereto of certain acquired businesses incorporated by reference herein. 13 17
FISCAL YEAR ENDED JULY 31, SIX MONTHS ENDED JANUARY 31, ------------------------------------------------------ ---------------------------------------- 1996 1997 1998 1998 1999 ----------- ----------- -------------------------- ----------- -------------------------- ACTUAL PRO FORMA(4) ACTUAL PRO FORMA(4) ----------- ------------ ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Contract revenues earned................. $ 245,937 $ 311,238 $ 368,714 $ 436,411 $ 171,813 $ 205,340 $ 238,754 Other, net............... 1,358 1,181 2,649 3,530 1,084 1,417 1,816 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total revenues..... $ 247,295 $ 312,419 $ 371,363 $ 439,941 $ 172,897 $ 206,757 $ 240,570 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Expenses: Cost of earned revenues, excluding depreciation........... $ 198,438 $ 246,026 $ 285,038 $ 334,811 $ 134,957 $ 154,649 $ 179,130 General and administrative......... 24,368 30,809 36,747 47,873 15,962 20,214 25,843 Depreciation and amortization........... 10,434 11,814 13,497 17,419 6,323 8,117 10,083 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total expenses..... 233,240 288,649 335,282 400,103 157,242 182,980 215,056 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income before income taxes.................... 14,055 23,770 36,081 39,838 15,655 23,777 25,514 Provision for income taxes(1)................. 4,133 7,956 13,045 14,879 5,051 9,633 10,693 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income................. $ 9,922 $ 15,814 $ 23,036 $ 24,959 $ 10,604 $ 14,144 $ 14,821 =========== =========== =========== =========== =========== =========== =========== Earnings per common share:(2) Basic.................... $ 0.53 $ 0.84 $ 1.09 $ 1.14 $ 0.52 $ 0.64 $ 0.65 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Diluted.................. $ 0.52 $ 0.83 $ 1.07 $ 1.12 $ 0.51 $ 0.63 $ 0.64 =========== =========== =========== =========== =========== =========== =========== SUPPLEMENTAL PRO FORMA FINANCIAL DATA(3): Income before income taxes.................... $ 14,055 $ 23,770 $ 36,081 $ 15,655 Pro forma provision for income taxes(1).......... 4,860 9,841 $ 14,420 6,515 ----------- ----------- ----------- ----------- Pro forma net income....... $ 9,195 $ 13,929 $ 21,661 $ 9,140 =========== =========== =========== =========== Pro forma earnings per common share:(1) Basic.................... $ 0.49 $ 0.74 $ 1.02 $ 0.45 ----------- ----------- ----------- ----------- Diluted.................. $ 0.48 $ 0.73 $ 1.01 $ 0.44 =========== =========== =========== =========== Shares used in computing earnings per common share and pro forma earnings per common share:(2) Basic.................... 18,624,564 18,863,987 21,172,025 21,946,219 20,312,127 22,144,794 22,918,988 Diluted.................. 18,989,729 19,123,034 21,482,634 22,256,828 20,593,035 22,525,818 23,300,012
JULY 31, JANUARY 31, 1999 --------------------------- ------------------------------------------ PRO FORMA 1996 1997 1998 ACTUAL PRO FORMA(4) AS ADJUSTED (5) ------- ------- ------- --------- ------------ --------------- (DOLLARS IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents.................... $ 3,060 $ 5,276 $35,927 $33,986 $35,810 $110,368 Working capital.............................. 12,360 20,903 81,211 78,149 73,826 158,363 Total assets................................. 82,483 112,512 166,318 180,740 255,928 330,487 Long-term debt, including current portion.... 24,507 31,308 18,136 15,925 48,476 12,750 Total stockholders' equity................... 27,785 42,427 98,379 114,732 146,890 257,174
- --------------- (1) The results of operations for fiscal 1996, 1997 and 1998 include a $1.1 million, $0.3 million and $0.4 million reduction in the deferred tax valuation allowance, respectively. (2) Earnings per common share-basic is calculated by dividing the net income applicable to common shares by the weighted average shares outstanding during the period. Earnings per common share-diluted includes the dilutive effect of common stock options. (3) The provision for income taxes and net income have been adjusted to reflect a pro forma tax provision for pooled companies which were previously "S Corporations" and recorded no provision for income taxes. See Note 1 of the Notes to Consolidated Financial Statements. (4) The statement of operations data has been adjusted to reflect the acquisitions of Locating, ECC and Apex as if they occurred at the beginning of the periods presented and the consolidated balance sheet data has been adjusted to reflect these acquisitions as if they occurred on January 31, 1999. In addition to cash consideration, we issued 774,194 shares of our common stock in connection with these acquisitions. See "Business -- Recent Acquisitions" and the Pro Forma Unaudited Condensed Consolidated Financial Statements included in this prospectus. (5) The pro forma consolidated balance sheet data has been adjusted to give effect to our estimated net proceeds from the offering and the application of those proceeds. 14 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We derive most of our contract revenues earned from engineering, construction and maintenance services to the telecommunications industry. Additionally, we provide 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 perform underground utility locating and electric utility contracting services. We currently perform work for more than 25 local exchange carriers, cable television multiple system operators, long distance carriers, competitive access providers, and electric utilities throughout the United States. We expect that future growth in contract revenues earned will be generated from (i) increasing the volume of services to existing customers; (ii) expanding the scope of services to existing customers; (iii) broadening our customer base; and (iv) geographically expanding our service area. We expect to grow through internal sources as well as through acquisitions. Other revenues include interest income and gain on sale of surplus equipment. In July 1997, we completed the acquisition of CCG and in April 1998, we completed the acquisitions of CCI and ITI. Each of these transactions was accounted for as a pooling of interests. Our financial statements and all financial and operating data derived therefrom have been combined for all periods presented herein to include the financial condition and results of operations of CCG, CCI and ITI. CCG and CCI provide construction services to cable television multiple system operators, and ITI provides construction and engineering services to local and long distance telephone companies. We provide services to our customers pursuant to multi-year master service agreements and other long- and short-term contracts for particular projects. Under master service agreements, we agree to provide, for a period of several years, all specified service requirements to our customer within a given geographical territory. Under the terms of such agreements, the customer can typically terminate the agreement with 90 days prior written notice. The customer, with certain exceptions, agrees to purchase such requirements from us. Materials to be used in these jobs are generally provided by the customer. Master service agreements generally provide that we will furnish a specified unit of service for a specified unit price (e.g., fiber optic cable will be installed underground for a specified rate of dollars per foot). We recognize revenue under master service agreements as the related work is performed. We are currently a party to 52 master service agreements, which may be either bid or negotiated. Master service agreements are typically bid initially and may be extended by negotiation. The remainder of our services are provided pursuant to contracts for particular jobs. Long-term contracts relating to specific projects have terms in excess of one year from the contract date. Short-term contracts are generally from three to four months in duration from the contract date, depending upon the size of the project. Contract revenues from multi-year master service agreements and other long-term agreements represented 90% and 88%, respectively, of total contract revenues in fiscal 1998 and for the six-month period ended January 31, 1999. Contract revenues for fiscal 1998 and for the six-month period ended January 31, 1999 from multi-year master service agreements represented 49% and 47%, respectively, of total contract revenues. Cost of earned revenues includes all direct costs of providing services under our contracts, other than depreciation on fixed assets owned by us or utilized by us under capital leases, which are included in depreciation and amortization expense. Cost of earned revenues includes all costs of construction personnel, subcontractor costs, all costs associated with operation of equipment, excluding depreciation, materials not supplied by the customer and insurance. Because we are primarily self-insured for automobile and general liability, workers' compensation, and employee group health claims, a change in experience or actuarial assumptions that did not affect the rate of claims payments could nonetheless materially adversely affect results of operations in a particular period. General and administrative costs include all costs of holding company and subsidiary management personnel, rent, utilities, travel and centralized costs such as insurance administration, interest on debt, professional costs and certain clerical and administrative overhead. Our management personnel, including subsidiary management, undertake all 15 19 sales and marketing functions as part of their management responsibilities and, accordingly, we do not incur material selling expenses. We were founded in 1969 and witnessed significant growth during the 1980's as the result of increasing competitive growth in the long distance telephone market and the needs of the long distance carriers to replace their copper cabling with fiber optic cable. Through 1990, we acquired nine operating subsidiaries. As long distance carriers completed most of their long haul lines in the late 1980's, we shifted our focus to the local exchange carrier market. During the early 1990's, our results of operations were materially adversely affected by a number of internal developments, including (i) adjustments taken to insurance reserves in fiscal 1991, (ii) write-offs of intangible assets, including goodwill, of $24.3 million and $1.4 million in fiscal 1993 and fiscal 1994, respectively, incurred in connection with four acquisitions, which contributed to substantial net losses in those years, and (iii) significant costs and distraction of management attention associated with a range of litigation and a governmental investigation, including shareholder litigation and protracted litigation with a former officer involved in a takeover effort. All of these matters were concluded in or before fiscal 1995. We do not believe that any of the events or circumstances we faced in the early 1990's are indicative of the manner in which we currently operate or future prospects. RECENT ACQUISITIONS In February 1999, we acquired Locating, a Washington state-based company, for $10.0 million. Locating provides underground utility locating services used to map and mark utilities for cable television providers, multiple system operators, telephone companies and electrical and gas utilities. Locating will operate as a wholly-owned subsidiary of Dycom. In March 1999, we completed the acquisitions of ECC, a Kentucky-based company that builds and installs new cable television systems and provides repair and expansion services to cable television systems in several states, and Apex, also a Kentucky-based company, which installs direct broadcast satellite systems and provides cable sales and repair services in several states, for an aggregate purchase price of $21,750,000 and 774,194 shares of our common stock. Prior to the acquisitions of ECC and Apex, the three stockholders of ECC owned 80% of the outstanding shares of common stock of Apex. Both ECC and Apex will operate as wholly-owned subsidiaries of Dycom. On a pro forma basis, these acquisitions would have provided us with additional revenues of $68.6 million and $33.8 million for the fiscal year ended July 31, 1998 and the six-month period ended January 31, 1999, respectively. See the Pro Forma Unaudited Condensed Consolidated Financial Statements included in this prospectus. 16 20 RESULTS OF OPERATIONS The following table sets forth, as a percentage of contract revenues earned, certain items in our statement of operations for the periods indicated:
SIX MONTHS FISCAL YEAR ENDED ENDED JULY 31, JANUARY 31, ----------------------- -------------- 1996 1997 1998 1998 1999 ----- ----- ----- ----- ----- REVENUES: Contract revenues earned....................... 100.0% 100.0% 100.0% 100.0% 100.0% Other, net..................................... 0.6 0.4 0.7 0.6 0.7 ----- ----- ----- ----- ----- Total revenues......................... 100.6 100.4 100.7 100.6 100.7 EXPENSES: Cost of earned revenues, excluding depreciation................................ 80.7 79.0 77.3 78.5 75.3 General and administrative..................... 9.9 9.9 10.0 9.3 9.8 Depreciation and amortization.................. 4.3 3.8 3.6 3.7 4.0 ----- ----- ----- ----- ----- Total expenses......................... 94.9 92.7 90.9 91.5 89.1 ----- ----- ----- ----- ----- Income before income taxes....................... 5.7 7.7 9.8 9.1 11.6 Provision for income taxes....................... 1.7 2.6 3.6 2.9 4.7 ----- ----- ----- ----- ----- Net income....................................... 4.0 5.1 6.2 6.2 6.9% ===== Pro forma adjustment to income tax provision(1)................................... 0.3 0.6 0.3 0.9 ----- ----- ----- ----- Pro forma net income(1).......................... 3.7% 4.5% 5.9% 5.3% ===== ===== ===== =====
- --------------- (1) Reflects a provision for federal income taxes on pooled companies which were previously "S Corporations" and recorded no provision for federal income taxes. See Note 1 of the Notes to Consolidated Financial Statements. SIX MONTHS ENDED JANUARY 31, 1999 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1998 Revenues. For the six-month period ended January 31, 1999, contract revenues increased $33.5 million, or 19.5%, to $205.3 million as compared to $171.8 million for the corresponding period in the previous fiscal year. Of this increase, $32.3 million was attributable to the telecommunications services group, $1.0 million was attributable to the underground utility locating services group, and $0.2 million was attributable to the electrical construction and maintenance services group, reflecting an increased market demand for our services. During the six-month period ended January 31, 1999, we recognized $185.7 million of contract revenues from the telecommunications services group as compared to $153.4 million for the same period in the previous fiscal year, an increase of 21.1%. The increase in our telecommunications services group contract revenues reflects increased volume of projects and activities associated with cable television construction services which increased by $10.8 million to $84.0 million in the six-month period ended January 31, 1999. Of the remaining $21.5 million increase in telecommunications contract revenues, $16.1 million related to geographic expansion and an increased volume of services to existing customers under the terms of several new master service agreements. Contract revenues recognized from the electrical construction and maintenance services group was $10.1 million and $9.9 million, respectively, for the six months ended January 31, 1999 and 1998. We recognized contract revenues of $9.5 million from the underground utility locating services group in the six months ended January 31, 1999 as compared to $8.5 million in the same period last year, an increase of 11.2%. Contract revenues from multi-year master service agreements and other long-term agreements represented 88% and 89% of total contract revenues in the six months ended January 31, 1999 and 1998, respectively. Contract revenues from multi-year master service agreements represented 47% of total contract revenues in each of the six months ended January 31, 1999 and 1998. 17 21 Costs of Earned Revenues. Costs of earned revenues increased $19.6 million to $154.6 million in the six months ended January 31, 1999 from $135.0 million in the six months ended January 31, 1998, but decreased as a percentage of contract revenues to 75.3% from 78.5%. Insurance and equipment costs declined as a percentage of contract revenues as a result of effective management of insurance claims, positive results of the corporate safety program, and the buy-out of certain operating leases. Other factors affecting the improved operating margin include increased productivity of our labor force combined with the effective utilization of subcontractors to meet labor demands. General and Administrative Expenses. General and administrative expenses increased $4.2 million to $20.2 million in the six months ended January 31, 1999 from $16.0 million in the six months ended January 31, 1998. The increase in general and administrative expenses for the six months ended January 31, 1999, as compared to the same period last year, was primarily attributable to increases in administrative salaries, employee benefits and payroll taxes of $3.0 million, registration costs of $0.4 million, and other general and administrative expenses of $1.2 million offset by a reduction in interest costs of $0.4 million associated with the declining balance of notes payable. Depreciation and Amortization. Depreciation and amortization increased $1.8 million to $8.1 million in the six months ending January 31, 1999 as compared to $6.3 million in the same period last year. The increase in depreciation and amortization was due to capital expenditures of $22.8 million in the six-month period ended January 31, 1999 as compared to $10.0 million in the six-month period ended January 31, 1998, an increase of $12.8 million. The increased purchases represent capital expenditures in the ordinary course of business, equipment purchased for the start-up of certain long-term contracts, and the buy-out of operating leases on terms favorable to us. Income Taxes. The provision for income taxes was $9.6 million in the six-month period ended January 31, 1999 as compared to $5.1 million in the same period last year. Our effective tax rate was 40.5% in the six-month period ended January 31, 1999 as compared to 32.3% in the same period last year. The effective tax rate differs from the statutory rate due to state income taxes, income of Subchapter S Corporations (CCI and ITI) being taxed to their stockholders, the amortization of intangible assets that do not provide a tax benefit, and other non-deductible expenses for tax purposes. For the six-month period ended January 31, 1998, the provision for income taxes has been adjusted to reflect a pro forma tax provision for pooled companies which were previously Subchapter S Corporations. The pro forma provision for income taxes was $6.5 million and the pro forma effective tax rate was 41.6% for the six month period ended January 31, 1998. Net Income. Net income increased to $14.1 million for the six-month period ended January 31, 1999 as compared with net income of $10.6 million in the corresponding period in fiscal year 1998, a 33.4% increase. YEAR ENDED JULY 31, 1998 COMPARED TO YEAR ENDED JULY 31, 1997 Revenues. Contract revenues increased $57.5 million, or 18.5%, to $368.7 million in fiscal 1998 from $311.2 million in fiscal 1997. Of this increase, $51.8 million was attributable to the telecommunications services group, $2.8 million was attributable to the electrical construction and maintenance services group and $2.9 million was attributable to the underground utility locating services group, reflecting an increased overall market demand for our services. During fiscal 1998, we recognized $330.6 million of contract revenues from the telecommunications services group as compared to $278.8 million in fiscal 1997. The increase in our telecommunications services group contract revenues reflects an increased volume of projects and activity in fiscal 1998 associated with cable television services, which increased by $36.9 million to $153.5 million in fiscal 1998 from $116.6 million in fiscal 1997. Contract revenues in the telecommunications services group also increased for 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. We recognized contract revenues of $20.2 million from the electrical construction and maintenance services group in fiscal 1998 as compared to $17.4 million fiscal 18 22 1997, an increase of 16.1%. We recognized contract revenues of $17.9 million from underground utility locating services in fiscal 1998 as compared to $15.0 million in fiscal 1997, an increase of 19.3%. Contract revenues from multi-year master service agreements and other long-term agreements represented 90% of total contract revenues in fiscal 1998 as compared to 84% in fiscal 1997, of which contract revenues from multi-year master service agreements represented 49% of total contract revenues in fiscal 1998 as compared to 51% in fiscal 1997. Cost of Earned Revenues. Cost of earned revenues increased $39.0 million to $285.0 million in fiscal 1998 from $246.0 million in fiscal 1997, but decreased as a percentage of contract revenues to 77.3% from 79.0%. Direct materials, equipment costs, and other direct 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 $5.9 million to $36.7 million in fiscal 1998 from $30.8 million in fiscal 1997, and increased slightly as a percentage of contract revenues to 10.0% from 9.9%. The increase in general and administrative expenses was primarily attributable to a $2.4 million increase in administrative salaries, bonuses, employee benefits and payroll taxes and an increase of $1.2 million in the provision for doubtful accounts. Acquisition and merger related expenses charged to general and administrative expenses were $0.6 million and $0.4 million in fiscal 1998 and 1997, respectively. Depreciation and Amortization. Depreciation and amortization expense increased $1.7 million to $13.5 million in fiscal 1998 from $11.8 million in fiscal 1997, but decreased as a percentage of contract revenues to 3.6% from 3.8%. The increase in amount reflects the depreciation of additional capital expenditures incurred in the ordinary course of business. Income Taxes. The provision for income taxes was $13.0 million in fiscal 1998 as compared to $8.0 million in fiscal 1997. The provision for income taxes for 1998 reflects a reduction of $0.4 million in a valuation allowance relative to certain deferred tax assets. Our effective tax rate was 36.2% in fiscal 1998 as compared to 33.5% in fiscal 1997. The effective tax rate differs from the statutory tax rate due to state income taxes, income of Subchapter S Corporations (CCI and ITI) being taxed to their stockholders, the amortization of intangible assets that do not provide a tax benefit, other non-deductible expenses for tax purposes and the reduction in a valuation allowance relative to certain deferred tax assets. As of the date of the merger, CCI and ITI recognized a combined deferred tax liability of $0.6 million which was included in the results of operations for the quarter ended April 30, 1998. The pro forma provision for income taxes to give effect to pooled S Corporations was $14.4 million in fiscal 1998 as compared to $9.8 million in fiscal 1997. The pro forma effective tax rate was 40.0% in fiscal 1998 and 41.4% in fiscal 1997. Net Income. Net income increased to $23.0 million in fiscal 1998 from $15.8 million in fiscal 1997, a 45.7% increase. Pro forma net income increased to $21.7 million in fiscal 1998 from $13.9 million in fiscal 1997, a 55.5% increase. YEAR ENDED JULY 31, 1997 COMPARED TO YEAR ENDED JULY 31, 1996 Revenues. Contract revenues increased $65.3 million, or 26.6%, to $311.2 million in fiscal 1997 from $245.9 million in fiscal 1996. Of this increase, $57.3 million was attributable to the telecommunications services group, $6.7 million was attributable to the electrical construction and maintenance services group and $1.3 million was attributable to the underground utility locating services group, reflecting an increased overall market demand for our services. During fiscal 1997, we recognized $278.8 million of contract revenues from the telecommunications services group as compared to $221.5 million in fiscal 1996. The increase in our telecommunications services group reflects an increased volume of projects and activity in fiscal 1997 associated with cable television services, which increased by $32.4 million to $116.6 million in fiscal 1997 from $84.2 million in fiscal 1996, the design and installation of broadband networks, telephony engineering services, and premise wiring services, partially offset by a slight decline in contract revenues from services performed under master service agreements. Contract revenues from master service 19 23 agreements were a significant source of our revenues, representing approximately 51% of total contract revenues in fiscal 1997 as compared to 56% in fiscal 1996. We recognized contract revenues of $17.4 million from electrical construction and maintenance services in fiscal 1997 as compared to $10.7 million in fiscal 1996, an increase of 62.6%. We recognized contract revenues of $15.0 million from underground utility locating services in fiscal 1997 as compared to $13.7 million in fiscal 1996, an increase of 9.5%. Contract revenues from long-term agreements represented 84% of total contract revenues in fiscal 1997 as compared to 87% in fiscal 1996. In addition, contract revenues from master service agreements continued to be a significant source of our revenues, representing 51% of total contract revenues in fiscal 1997 as compared to 56% in fiscal 1996. Costs of Earned Revenues. Costs of earned revenues increased $47.6 million to $246.0 million in fiscal 1997 from $198.4 million in fiscal 1996, but decreased as a percentage of contract revenues to 79.0% from 80.7%. Direct labor, equipment and materials 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. Additionally, insurance costs declined by approximately $1.6 million as a result of fewer claims arising in fiscal 1997. General and Administrative Expenses. General and administrative expenses increased $6.4 million to $30.8 million in fiscal 1997 from $24.4 million in fiscal 1996, but remained stable at 9.9% of contract revenues. The increase in general and administrative expenses was primarily attributable to a $4.1 million increase in administrative salaries, bonuses, employee benefits and payroll taxes. We also incurred professional and related expenses associated with the CCG Acquisition of $0.4 million in fiscal 1997. Depreciation and Amortization. Depreciation and amortization expense increased $1.4 million to $11.8 million in fiscal 1997 from $10.4 million in fiscal 1996, but decreased as a percentage of contract revenues to 3.8% from 4.3%. The increase in amount reflects the depreciation of additional capital expenditures incurred in the ordinary course of business. Income Taxes. The provision for income taxes was $8.0 million in fiscal 1997 as compared to $4.1 million in fiscal 1996. The provision for income taxes for fiscal 1996 reflects a reduction of $1.1 million in a valuation allowance relative to certain deferred tax assets. Our effective tax rate was 33.5% in fiscal 1997 as compared to 29.4% in fiscal 1996. The effective tax rate differs from the statutory tax rate due to state income taxes, taxable income of Subchapter S Corporations (CCI and ITI) being taxed to their stockholders, the amortization of intangible assets that do not provide a tax benefit, other non-deductible expenses for tax purposes and, in fiscal 1996, the reduction in a valuation allowance relative to certain deferred tax assets. The pro forma provision for income taxes to give effect to pooled S Corporations was $9.8 million in fiscal 1997 as compared to $4.9 million in fiscal 1996. The pro forma effective tax rate was 41.4% in fiscal 1997 and 34.6% in fiscal 1996. Net Income. Net income increased to $15.8 million in fiscal 1997 from $9.9 million in fiscal 1996, a 59.4% increase. 20 24 QUARTERLY RESULTS OF OPERATIONS The following table sets forth historical financial data for the fiscal quarters of 1997, 1998 and 1999 through January 31, 1999. This quarterly information is unaudited, but has been prepared on a basis consistent with our audited financial statements presented elsewhere herein and, in our opinion, includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the quarters presented. The operating results for any quarter are not necessarily indicative of the results for any future period.
QUARTER ENDED --------------------------------------------------------------- FISCAL YEAR 1997 FISCAL YEAR 1998 ----------------------------------------- ------------------- OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, 1996 1997 1997 1997 1997 1998 -------- -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Total revenues..................... $72.2 $71.8 $80.8 $87.6 $91.4 $81.5 Income before income taxes......... 5.1 4.0 6.1 8.6 8.4 7.3 Net income......................... 3.4 2.6 4.2 5.6 5.7 4.9 Earnings per share: Basic............................ $0.18 $0.14 $0.22 $0.30 $0.30 $0.23 Diluted.......................... 0.18 0.13 0.22 0.29 0.30 0.22 Pro forma net income(1)............ $ 2.9 $ 2.5 $ 3.6 $ 4.9 $ 4.8 $ 4.3 Pro forma earnings per share:(1) Basic............................ $0.15 $0.13 $0.19 $0.26 $0.25 $0.20 Diluted.......................... 0.15 0.13 0.19 0.26 0.25 0.20 AS A PERCENTAGE OF TOTAL REVENUES: Total revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Income before income taxes......... 7.1 5.5 7.5 9.9 9.2 8.9 Net income......................... 4.7 3.6 5.2 6.5 6.3 6.0 Pro forma net income(1)............ 4.0 3.5 4.5 5.6 5.3 5.3 QUARTER ENDED ----------------------------------------- FISCAL YEAR 1998 FISCAL YEAR 1999 ------------------- ------------------- APR. 30, JULY 31, OCT. 31, JAN. 31, 1998 1998 1998 1999 -------- -------- -------- -------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Total revenues..................... $96.9 $101.6 $109.3 $97.5 Income before income taxes......... 8.8 11.6 12.6 11.2 Net income......................... 5.3 7.1 7.5 6.7 Earnings per share: Basic............................ $0.24 $ 0.32 $ 0.34 $0.30 Diluted.......................... 0.24 0.32 0.33 0.29 Pro forma net income(1)............ $ 5.4 Pro forma earnings per share:(1) Basic............................ $0.25 Diluted.......................... 0.24 AS A PERCENTAGE OF TOTAL REVENUES: Total revenues..................... 100.0% 100.0% 100.0% 100.0% Income before income taxes......... 9.1 11.4 11.6 11.5 Net income......................... 5.5 7.0 6.9 6.9 Pro forma net income(1)............ 5.6
- --------------- (1) Reflects a provision for federal income taxes on pooled companies which were previously "S Corporations" and recorded no provision for federal income taxes. See Note 1 of the Notes to Consolidated Financial Statements. We have historically experienced variability in revenues, income before income taxes and net income on a quarterly basis. A significant amount of this variability is due to the fact that our business is subject to seasonal fluctuations, with activity in our second and occasionally third fiscal quarters (the quarters ended January 31 and April 30 in a given fiscal year) being adversely affected by weather. For example, our revenues, income before income taxes and net income for the second quarter of fiscal 1997 and 1998 were adversely affected by severe winter weather, including significant snowfall, experienced during that time. In addition, budgetary spending patterns of significant customers, which often run on a calendar year basis, have resulted in greater volatility of second fiscal quarter results. We have witnessed increased sales of engineering services in recent years, and an increase in the level of such services may offset the effect of these seasonal factors, although no assurance can be given. We have experienced and expect to continue to experience quarterly fluctuations in revenues, income before income taxes and net income as a result of other factors, including the timing and volume of customers' construction and maintenance projects, the commencement, renewal or termination of master service agreements, safety performance and the timing of additional costs to support growth by acquisition or otherwise. LIQUIDITY AND CAPITAL RESOURCES Our needs for capital are attributable primarily to our needs for equipment to support our contractual commitments to customers and our needs for working capital sufficient for general corporate purposes. Capital expenditures have been financed by operating and capital leases, bank borrowings and internal cash 21 25 flow. To the extent that we seek to grow by acquisitions that involve consideration other than our stock, our capital requirements may increase, although we are not currently subject to any commitments or obligations with respect to any acquisitions. Our sources of cash have historically been from operating activities, bank borrowings, proceeds arising from the sale of idle and surplus equipment and real property, and the public offering of our common stock. For fiscal 1998, net cash provided by operating activities was $30.6 million compared to $12.8 million for fiscal 1997 and $19.5 million for fiscal 1996. Net income and non-cash charges are the primary sources of operating cash flow. The increase in net cash provided by operating activities in fiscal 1998 was due primarily to an increase in net income and other non-cash expenses. The increase was also attributable to funds advanced by a customer for materials and start-up expenses related to certain long-term construction contracts. The amounts advanced at July 31, 1998 were $9.4 million. For the six-month period ended January 31, 1999, net cash provided by operating activities was $24.3 million compared to $10.4 million for the six-month period ended January 31, 1998. Working capital items contributed $2.2 million to operating cash flow for the six-month period ended January 31, 1999 principally through a decrease in accounts receivable and an increase in accounts payable offset by an increase in other current assets and unbilled revenues and a decrease in income taxes payable. For fiscal 1998, net cash used in investing activities for capital expenditures was $21.5 million, compared to $16.1 million in fiscal 1997 and $13.5 million in fiscal 1996. For fiscal 1998 and fiscal 1997, these capital expenditures were for the normal replacement of equipment and the buy out of certain operating leases on terms favorable to us. For fiscal 1996, these capital expenditures were for normal equipment replacement and for additional equipment purchases made by the underground utility locating group to service new geographic areas. In addition to equipment purchases, we obtained approximately $2.2 million of equipment in fiscal 1998, $3.3 million of equipment in fiscal 1997, and $3.0 million of equipment in fiscal 1996 under noncancellable operating leases. In the six-month period ended January 31, 1999, net cash used in investing activities was $26.0 million as compared to $9.0 million for the same period last year. For the six-month period ended January 31, 1999, capital expenditures of $22.8 million were for the normal replacement of equipment in the ordinary course of business, equipment purchased for the start up of certain long-term contracts, and the buy-out of operating leases on terms favorable to us. In August 1998, we purchased a 13.0% equity interest in Witten Technologies, Inc. ("Witten") for $3.0 million. Witten has developed, and is the owner of, various proprietary technologies and materials relating to ground-penetrating radar and the use of other electromagnetic frequencies. In addition to the equity received, we have acquired an exclusive license to market certain technologies within the United States and Canada. Witten is being accounted for as an unconsolidated affiliate. Additionally, we purchased assets of a business, which included a non-compete agreement, for $750,000 for use in the telecommunications services group. At January 31, 1999, we had outstanding borrowings of $15.4 million against our $85.0 million credit facility consisting of (i) $2.6 million of advances under the equipment and small business purchase facility and (ii) $12.8 million outstanding under the term-loan facility. The interest rate on the outstanding equipment advances was at LIBOR plus 1.75% or 7.0% and the interest rate on the outstanding term loan was at the bank's prime interest rate minus 0.50% or 7.25%. In addition, we had $11.4 million in outstanding letters of credit issued as security to our insurance administrators as part of our self-insurance program. At January 31, 1999, we had available borrowing capacity of $22.4 million under the revolving equipment acquisition and small business purchase facility, $30.0 million under the revolving working capital facility and $3.6 million under the standby letter of credit facility. During the six months ended January 31, 1999, we repaid $1.5 million on this facility. Subsequent to January 31, 1999, we utilized the available credit facility to finance the cash portion of the Locating and ECC acquisitions. The total cash portion of these acquisitions was $31.8 million. On April 27, 1999, we signed a $90.25 million amendment to our credit facility which increases the level of available financing to $175.25 million and extends the facility's maturity to April 2002. The credit agreement is with a syndicate of banks led by Dresdner Bank Lateinamerika AG Miami Agency (the 22 26 "Bank") and provides for (i) a $17.5 million standby letter of credit facility, (ii) a $50.0 million revolving working capital facility, (iii) a $12.75 million five-year term loan, and (iv) a $95.0 million equipment acquisition and small business purchase facility. The revolving working capital facility bears interest at either the LIBOR rate plus 1.25% per annum or the Bank's prime rate minus 1.125% per annum. The term loan bears interest at either the LIBOR rate plus 1.75% per annum or the Bank's prime rate minus 0.50% per annum. The equipment acquisition and small business purchase facility bears interest at either the LIBOR rate plus 1.50% per annum or the Bank's prime rate minus 0.75% per annum. The obligations under the amended credit agreement are guaranteed by our subsidiaries and secured by security interests in certain property and assets of us and our subsidiaries. The amended credit agreement requires us to maintain certain financial covenants and conditions. The amended credit agreement restricts encumbrances on assets and the creation of additional indebtedness and limits the payment of cash dividends to fifty percent of each fiscal year's net income. All obligations under this credit agreement are guaranteed by our subsidiaries and secured by certain property and assets of Dycom and its subsidiaries. Our acquired subsidiaries, CCI and ITI, had outstanding credit facilities prior to our acquisition of such companies. CCI had a $5.2 million revolving credit facility for funding working capital and a $2.0 million term note incurred to purchase equipment. ITI had a $2.0 million revolving credit facility for funding working capital and a $0.5 million multiple advance term facility for equipment acquisitions. During the fourth quarter of fiscal 1998, we paid off the outstanding balances of $8.1 million under these facilities with existing cash balances and subsequently terminated such facilities. In the six-month period ended January 31, 1999, net cash used in financing activities was $0.2 million which was primarily attributable to normal debt payments, under the terms of our bank credit agreement, of $2.4 million offset by funds received from the exercise of stock options of $2.2 million during the period. We foresee our capital resources together with existing cash balances to be sufficient to meet our financial obligations, including the scheduled debt payments under our credit agreement and operating lease commitments, and to support our normal replacement of equipment at our current level of business for at least the next twelve months. Our future operating results and cash flows may be affected by a number of factors including our success in bidding on future contracts and our continued ability to effectively manage controllable costs. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS 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 annual 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 23 27 in assessing performance. This statement is effective for financial statements for periods beginning after December 15, 1997. In February 1998, the FASB issued SFAS No. 132 "Employees Disclosures About Pension and Other Postretirement Benefits," which revises certain disclosures about pension and other postretirement benefit plans. This statement does not change the measurement and recognition methods for pensions or postretirement benefits costs reported in financial statements. This statement is effective for fiscal years beginning after December 15, 1997. In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," which establishes standards for the accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for financial statements for periods beginning after June 15, 1999. We are currently evaluating the requirements and related disclosures of SFAS No. 130, 131, 132 and 133. YEAR 2000 COMPLIANCE We have reviewed our computer systems to identify those areas that could be adversely affected by year 2000 software failures. We have converted approximately 85% of our information systems to be year 2000 compliant. We have incurred approximately $1.4 million through January 31, 1999 and will incur approximately $0.5 million in the remainder of fiscal 1999 to complete the information system conversions, including the implementation and conversion cost of our recently acquired subsidiaries. We believe that our systems are year 2000 compliant and any additional expenditures that may be required in connection with the year 2000 issue are not expected to be material. In addition, we believe that many of our customers, particularly local exchange and long distance carriers and cable multiple system operators, are also impacted by the year 2000 issue, which in turn could affect us. We are assessing the compliance efforts of our major customers and suppliers. If the systems of certain of our customers and suppliers, particularly the local exchange and long distance carriers and cable multiple system operators and others on whose services we depend or with whom our systems interface, are not year 2000 compliant, it could have a material adverse effect on us. We will be formulating a contingency plan prior to the end of the current fiscal year to address the possible side effects, if any, of our customers and suppliers experiencing year 2000 problems. 24 28 BUSINESS OVERVIEW We are a leading provider of engineering, construction and maintenance services to telecommunications and utility providers throughout the United States. Our comprehensive range of telecommunications services include the engineering, placement and maintenance of aerial, underground, and buried fiber-optic, coaxial and copper cable systems owned by local and long distance telephone companies, competitive local exchange carriers, and cable television multiple system operators. Additionally, we provide similar services related to the installation of integrated voice, data, and video local and wide area networks within office buildings and similar structures and the installation of direct broadcast satellite systems. We also perform underground utility locating and electric utility contracting services. For fiscal 1998 and for the six-month period ended January 31, 1999, telecommunications services contributed approximately 90% of our contract revenues, underground utility locating services contributed approximately 5% and electrical construction and maintenance services contributed approximately 5%. Through our fourteen wholly-owned and independently operating subsidiaries, we have long-standing relationships with many leading local exchange carriers, long distance providers, competitive access providers, cable television multiple system operators and electric utilities. Such key customers include BellSouth Telecommunications, Inc., Comcast Cable Communications, Inc., MediaOne, Inc., Tele-Communications, Inc., Sprint Corporation, GTE Corporation, U.S. West Communications, Inc. and Florida Power and Light Company. During fiscal 1998 and the six-month period ended January 31, 1999, approximately 90% and 88%, respectively, of our revenues came from multi-year master service agreements and other long-term agreements with large telecommunications providers and electric utilities. RECENT ACQUISITIONS In July 1997, we acquired CCG, a Pennsylvania-based provider of construction services to cable television multiple system operators. In April 1998, we acquired CCI, a Georgia-based firm that provides construction services to cable television multiple system operators, and ITI, a Missouri-based firm that provides construction and engineering services to local and long distance telephone companies. Each of these acquisitions was accounted for as a pooling of interests. These transactions have diversified our telephone company customer base to include a broader mix of work for cable television multiple system operators. The acquisition of CCG also created a greater geographic presence for us in the Mid-Atlantic, Midwest and Northeast regions of the United States, while the acquisitions of CCI and ITI have further expanded our operations in the Midwest, Upper Midwest, Rocky Mountain and West Coast regions of the United States. In February 1999, we acquired Locating, a Washington state-based company, for $10.0 million. Locating provides underground utility locating services used to map and mark utilities for cable television providers, multiple system operators, telephone companies and electrical and gas utilities. Our acquisition of Locating expands our presence in the underground utility locating services industry and our geographic presence in the West Coast region of the United States. On March 31, 1999, we completed the acquisitions of ECC, a Kentucky-based company that builds and installs new cable television systems and provides repair and expansion services to cable television systems in several states, and Apex, also a Kentucky-based company, which installs direct broadcast satellite systems and provides cable sales and repair services in several Midwestern states, for an aggregate purchase price of $21,750,000 and 774,194 shares of our common stock. Prior to the acquisitions of ECC and Apex, the three stockholders of ECC owned 80% of the outstanding shares of common stock of Apex. Both ECC and Apex will operate as wholly-owned subsidiaries of Dycom. In connection with the acquisitions of CCG, CCI, ITI, Locating and ECC we entered into five year employment contracts with certain executive officers and selling stockholders of each of the acquired companies. 25 29 INDUSTRY OVERVIEW The telecommunications industry is undergoing rapid change. Deregulation, competitive deployment of networks and growth in consumer demand for enhanced telecommunications services create the need for the construction of additional telecommunications infrastructure for new and existing providers. As a result of this increased need for upgraded and expanded telecommunications infrastructure and the focus on reducing costs, telecommunications providers have been outsourcing and are expected to continue to outsource their telecommunications infrastructure engineering, construction and maintenance requirements. Deregulation. The Telecom Act, enacted on February 8, 1996, substantially revised the Federal Communications Act of 1934. It established a dual federal-state regulatory framework for eliminating certain barriers to competition faced by competitors of incumbent local exchange carriers. Among other things, it preempts state and local government control over access to the telecommunications market and opens such market to new entrants. The elimination of entry barriers will lead to increased construction of competing telecommunications networks as competitive telecommunications providers, existing as well as new, expand into new markets and offer services that once were reserved for incumbents. The competition generated by the Telecom Act is expected to continue to spur existing service providers to expand and improve their existing facilities. While the Telecom Act significantly removed barriers to competition, many state regulatory commissions have modified regulation of telecommunications providers. Historically, telecommunications providers were limited by state regulations to earning a predetermined return on capital investments. Since 1994, most of the states have repealed such regulations, substituting regulations which limit the price telecommunications providers may charge consumers, while eliminating the caps on the profits they may earn. These new state regulatory frameworks eliminate profit guarantees for telecommunications providers, while offering the potential for enhanced profitability. The combined effect of increased competition and the prospects for greater profitability will lead new and existing telecommunications providers to become increasingly efficient in constructing and maintaining telecommunications infrastructure. Competitive Deployment of Networks. Telecommunications providers and cable television multiple system operators are actively expanding networks to provide their customers with a combined offering of voice, video and data communications services. Additionally, electric utilities are currently using fiber optic technology to develop and maintain demand monitoring systems. These systems can be used as a means of controlling the need to build additional generation capacity and also provide electric utilities opportunities to market excess communications capacity to telecommunications providers. Once built, these systems will require continuous maintenance and periodic upgrading. Such additional telecommunications infrastructure will also permit long distance carriers and content providers to connect customers without the need to pay exchange access fees to their competitors, local exchange carriers or cable companies. Growth in Consumer Demand. Increasing consumer demand is also spurring growth in the telecommunications industry. Not only has the amount of traditional telephone voice traffic increased, but the growth of personal computers and modems has created significant data traffic from a wide variety of sources. For example, businesses with multiple locations increasingly require geographically dispersed local area networks to be linked in sophisticated wide area networks handling large volumes of telecommunications traffic. In addition, the Internet has expanded beyond its traditional data transmission and file-sharing functions to offer e-mail, new data sources, commercial services, transaction processing, independent bulletin boards, the World Wide Web and voice transmission. To handle the growing volume of communications traffic and to provide faster and higher quality transmission, telecommunications providers will be required to upgrade and expand their telecommunications networks and related infrastructure. Consumer demand for services provided over fiber optic cable has resulted in a demand for broader bandwidth. Limited by the size of the cable or other facilities through which communications flow, bandwidth controls both the speed and breadth of voice, video and data communications. Because of the physical limitations of the existing network facilities, there is an immediate need to upgrade facilities with new and innovative technology, expanding and, in many cases, replacing existing telecommunications 26 30 infrastructure to allow for increased bandwidth and the resultant faster and greater volume of communications flow. Even local governments are increasingly becoming directly involved in telecommunications network construction because of the perception that telecommunications infrastructure is essential to economic growth. Local governments spur increased demand for cable television construction services by imposing requirements for improved services as a precondition to renewal of franchises. Additionally, in some cases, local governments view the construction of such infrastructure as an appropriate governmental response to private enterprises' failure to act in a timely manner, and the cost of expanding and upgrading telecommunications infrastructure is appearing more frequently in governmental budgets. Increased Outsourcing. The need to upgrade and expand telecommunications infrastructure as a result of deregulation, competitive deployment of networks and the growth in consumer demand for enhanced telecommunications services is expected to continue to stimulate telecommunications providers to increase the current level of outsourcing to independent contractors who serve the industry. The outsourcing trend has largely been driven by the efforts of telecommunications providers to reduce costs and to focus on their core competencies. Independent contractors, such as us, typically have lower cost structures than the telecommunications providers, primarily as a result of the independent contractors' lower direct and overhead cost structures. In addition, we believe that telecommunications providers are seeking comprehensive solutions to their infrastructure needs by utilizing fewer qualified contractors to provide a full range of telecommunications infrastructure services. Participant Consolidation. Historically, our industry has been highly fragmented. Although industry annual revenues are estimated to be several billions of dollars, few of these companies are publicly traded. Most companies in our industry are small, privately-held companies with annual revenues of less than $100 million. While the industry has attracted some participation in the past from pipeline and power plant construction firms, to date these firms have not significantly impacted the industry. In response to the newly deregulated operating environment, the industry has experienced some increase in business combinations among the smaller private firms. The resulting combinations, for the most part, however, may be unable, due to resource constraints, to adequately meet the standards demanded by telecommunications providers seeking to outsource their telecommunications infrastructure services function. Going forward, service firms will need significant management expertise, technical capabilities and capital resources to provide the level of service necessary to gain significant market share. As a result, we believe that the industry will experience consolidation in the future and that strategic acquisition opportunities will continue to become available. THE DYCOM SOLUTION We provide a comprehensive solution to telecommunications providers throughout the United States who need to deploy large and complex telecommunications infrastructure quickly and with a high level of quality. Our ability to serve a wide and diverse geographic area and our demonstrated expertise in engineering and construction project management give us a distinct competitive advantage in obtaining customer service contracts. As telecommunications providers begin to offer new and expanded services on a global basis, the time to market for these services is a critical factor in their success. We are able to rapidly mobilize our capital equipment, financial assets and personnel resources to effectively respond to the increasing scale and time constraints of customer demands. In addition, we have recently begun to offer our customers integrated engineering, procurement, construction and maintenance services on large-scale turnkey projects, which we believe distinguishes us from many of our competitors. We have offered our telecommunications engineering, construction and maintenance services solution on a national basis to local and long distance communications carriers, competitive access providers, cable television multiple system operators and electric utilities since 1984. 27 31 BUSINESS STRATEGY Our objective is to be a leading high quality and cost effective provider of engineering, construction and maintenance services to the telecommunications industry. To meet this objective, we have identified the following key business strategies: Leverage Expertise and Leadership Position. We believe that in this highly fragmented industry, our technical expertise and reputation should give us a competitive advantage in securing new business from our current customers, as well as from new customers. We believe that our reputation for quality and reliability, operating efficiency, financial and personnel resources, and technical expertise (e.g., ability to serve a wide geographic area and ability to provide customers with a comprehensive solution) provide us with a competitive advantage in bidding for and winning new contracts. We intend to pursue the larger, more technically complex telecommunications infrastructure projects where our technical expertise and reputation should have a greater impact. In addition, we believe that our ability to provide integrated engineering, procurement, construction and maintenance services on large-scale turnkey projects distinguishes us from many of our competitors. Effectively Utilize Decentralized Management. In order to enhance customer service, we maintain a focused, decentralized management structure. Our holding company structure emphasizes the importance of local subsidiary-based management teams, which are granted significant operating flexibility in running their business. We believe that this decentralized operating structure enables management to make decisions and mobilize resources more quickly based on knowledge of the local markets and the specific needs of their customers. We complement the decentralized operating structure by sharing operating information among our subsidiaries. Reduce Operating Costs and Increase Productivity. We believe that the cost savings in centralizing administrative tasks, such as insurance, asset management, and information technology through our holding company structure, combined with decentralized operating management, enables us to be a more cost- effective provider of telecommunications engineering, construction and maintenance services. As a service provider, the productivity of our own work force and the work of our subcontractors has the single largest impact on our cost structure. High quality, decentralized management assists us in maintaining quality performance from our work force, as well as managing our costs. In order to respond to peak demands for our services and to control labor expenses, we also redeploy manpower among our subsidiaries. Refine and Enhance Formal Estimating Process. We utilize proprietary software to collect, maintain and statistically analyze extensive amounts of historical cost and pricing information. Our operating subsidiaries collect detailed cost and pricing information on a state by state, customer by customer and job by job basis. We use this data and analysis as part of a formal estimating process when reviewing new business opportunities. We believe that, as a result of this process, we are able to price jobs more accurately and more effectively allocate our resources. We will continually seek to enhance the effectiveness of our proprietary software system by expanding the amount of information that we gather and improving our analysis of the data. GROWTH STRATEGY As a result of the increased demand for telecommunications engineering, construction and maintenance services, greater emphasis on outsourcing of such services by telecommunications providers, and the fragmented nature of the industry, we believe there are significant opportunities to expand our business internally and through acquisitions. Internal Growth. We are focused on generating internal growth by: (i) increasing the volume of services to existing customers; (ii) expanding the scope of services to existing customers; (iii) broadening our customer base; and (iv) geographically expanding our service area. We are also seeking to reduce operating expenses and improve operating margins by centralizing costs such as insurance administration, asset management and information technology, thereby eliminating redundancies at the subsidiary level. Additionally, the competitive pressures of deregulation have prompted several existing customers to 28 32 increase the outsourcing of noncore activities, which can provide opportunities for enhancing internal growth without necessarily requiring us to achieve market share gains. Growth Through Acquisitions. As part of our growth strategy, we intend to capitalize on the current opportunity to make strategic acquisitions of engineering, construction and maintenance services companies serving the telecommunications industry throughout the United States. We continually review and evaluate potential acquisition candidates and believe that as competition intensifies, smaller companies will seek to consolidate with companies such as us. We target acquisitions that provide complementary services in existing markets that we serve or allow expansion into new geographic areas. For our acquisition targets, our key criteria are profitability in excess of industry standards, stable and growing customer base, proven operational and technical competence, and experienced management that fits within our decentralized operating structure. Further, we seek the opportunity to realize cost savings by eliminating redundant costs and achieving economies of scale in certain items such as insurance, information technologies and administrative functions. We believe that we can attain significant revenue and earnings growth through acquisitions; however, there can be no assurance that we will be able to acquire and integrate such businesses successfully or that such acquisitions will have a positive effect on our operating results. We believe that a variety of attractive consolidation opportunities exist within the currently fragmented telecommunications engineering, construction and maintenance services industry and, while we are not currently a party to any agreements, understanding or arrangements regarding any material acquisitions, we are currently evaluating a number of potential acquisition prospects. We believe that additional acquisition opportunities may be available to implement our acquisition strategy upon completion of this offering. SERVICES Telecommunications Services Engineering. We provide outside plant engineers and drafters to local exchange carriers and competitive access providers. We design aerial, buried and underground fiber optic and copper cable systems from the telephone central office to the ultimate consumer's home or business. Engineering services for local exchange carriers include the design of service area concept boxes, terminals, buried and aerial drops, transmission and central office equipment design and the proper administration of feeder and distribution cable pairs. For competitive access providers, we design building entrance laterals, fiber rings and conduit systems. We obtain rights of way and permits in support of engineering activities, and provide construction management and inspection personnel in conjunction with engineering services or on a stand alone basis. For cable television multiple system operators, we perform make ready studies, strand mapping, field walk out, computer-aided radio frequency design and drafting, and fiber cable routing and design. Construction and Maintenance. The services we provide include the placing and splicing of cable, excavation of trenches in which to place the cable, placement of related structures such as poles, anchors, conduits, manholes, cabinets and closures, placement of drop lines from the main distribution lines to the customer's home or business, and maintenance and removal of these facilities. In addition, we install and maintain transmission and central office equipment. We have the capacity to directionally bore the placement of cables, a highly specialized and increasingly necessary method of placing buried cable networks in congested urban and suburban markets where trenching is highly impractical. With our acquisition of Apex, we provide installation and maintenance services of direct broadcast satellite systems. Premise Wiring. We also provide premise wiring services to a variety of large corporations and certain governmental agencies. These services, unlike the engineering, construction and maintenance services provided under various master service agreements and to cable television multiple system operators, are limited to the installation, repair and maintenance of telecommunications infrastructure within improved structures. Projects include the placement and removal of various types of cable within buildings and individual offices. These services generally include the development of communication networks within a company or government agency related primarily to the establishment and maintenance 29 33 of computer operations, telephone systems, Internet access and communications monitoring systems established for purposes of monitoring environmental controls or security procedures. Underground Utility Locating Services We are a provider of underground utility locating services, primarily to telecommunications providers. Under a variety of state laws, excavators are required to locate underground utilities prior to excavating. Utilities located include telephone, cable television, power and gas. Recently, excavators performing telecommunications network upgrades and expansions have generated significant growth in requests for underground utility locating, and we expect this trend to continue. We are currently a party to 30 underground utility locating contracts. We offer these services throughout the United States. Electrical Construction and Maintenance Services We perform electrical construction and maintenance services for electric companies. This construction is performed primarily as a stand alone service, although at times it is performed in conjunction with services for telecommunications providers. These services include installing and maintaining electrical transmission and distribution lines, setting utility poles and stringing electrical lines, principally above ground. The work performed often involves high voltage splicing and, on occasion, the installation of underground high voltage distribution systems. We also provide the repair and replacement of lines which are damaged or destroyed as a result of weather conditions. Revenues by Service Group For the fiscal years ended July 31, 1996, 1997 and 1998 and the six-month periods ended January 31, 1998 and 1999, the percentages of our total contract revenues earned were derived from telecommunications services, underground utility locating services and electrical construction and maintenance services as set forth below.
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, JANUARY 31, --------------------------- -------------- 1996 1997 1998 1998 1999 ----- ----- ----- ---- ---- Telecommunications services....................... 90% 90% 90% 89% 90% Underground utility locating services............. 6 5 5 5 5 Electrical construction and maintenance services........................................ 4 5 5 6 5 --- --- --- --- --- Total................................... 100% 100% 100% 100% 100% === === === === ===
CUSTOMER RELATIONSHIPS Our current customers include local exchange carriers such as BellSouth Telecommunications, Inc., SBC Communications, Inc., U.S. West Communications, Inc., Sprint Corporation, Ameritech Corporation, GTE Corporation, The Southern New England Telephone Company, Citizen Utilities and Cincinnati Bell Telephone. We also currently provide telecommunications engineering, construction and maintenance services to a number of cable television multiple system operators including Comcast Cable Communications Inc., Cablevision, Inc., Falcon Cable Media, Time Warner, Inc. and MediaOne, Inc. We also provide our services to long distance carriers such as MCI Telecommunications Corporation and AT&T Corporation, as well as to competitive access providers such as MFS Communications Company, Inc. Premise wiring services have been provided to, among others, Lucent Technologies, Inc., Duke University, International Business Machines Corporation, and several state governments. The Company also provides construction and maintenance support to Lee County Electrical Cooperative, Florida Power and Light Company, and Florida Power Corporation. While our customer base has broadened in recent years, our customer base remains highly concentrated, with our top five customers in fiscal years 1996, 1997 and 1998 and the first six months of 30 34 fiscal year 1999 accounting in the aggregate for approximately 68%, 63%, 65% and 62%, respectively, of our contract revenues. During fiscal 1998 and the six-month period ended January 31, 1999, approximately 22% and 23%, respectively, of our contract revenues were derived from BellSouth Telecommunications, Inc., 24% and 21%, respectively, from Comcast Cable Communications, Inc. and 7% and 5%, respectively, from GTE Corporation. We believe that a substantial portion of our contract revenues and operating income will continue to be derived from a concentrated group of customers. The loss of any of such customers could have a material adverse effect on our business, financial condition and results of operations. A significant amount of our business is performed under master service agreements. These agreements with telecommunications providers are generally exclusive requirement contracts, with certain exceptions, including the customer's option to perform the services with its own regularly employed personnel. The agreements are typically three to five years in duration, although the terms typically permit the customer to terminate the agreement upon 90 days' prior written notice. Each agreement contemplates hundreds of individual construction and maintenance projects valued generally at less than $10,000 each. We bid on other jobs on a nonrecurring basis. Although historically master service agreements have been awarded through a competitive bidding process, recent trends have been toward securing or extending such contracts on negotiated terms. With the rapid expansion of the telecommunications market and the immediate need for upgrading existing, as well as constructing new, telecommunications infrastructure, we believe that more master service agreements will be awarded on the basis of negotiated terms as opposed to the competitive bidding process. Our sales and marketing efforts are primarily the responsibility of the management of our operating subsidiaries. BACKLOG We view our backlog to be comprised of the uncompleted portion of services to be performed under job-specific contracts and the estimated value of future services that we expect to provide under long-term requirements contracts. Our backlog at January 31, 1999 was $728.6 million. We expect to complete approximately 45% of this backlog during the next twelve months. Due to the nature of our contractual commitments, in many instances our customers are not committed to specific volumes of services to be purchased under a contract, but rather we are committed to perform these services if requested by the customer. However, the customer is obligated to obtain these services from us if they are not performed by the customer internally. Many of the contracts are multi-year agreements, and we include in our backlog the full amount of services projected to be performed over the life of the contract based on our historical relationships with our customers and experience in procurements of this nature. Historically, we have not experienced a material variance between the amount of services we expect to perform under a contract and the amount actually performed for a specified period. There can be no assurance, however, as to the customer's requirements during a particular period or that such estimates at any point in time are accurate. SAFETY AND RISK MANAGEMENT We are committed to ensuring that our employees perform their work in the safest possible manner. We regularly communicate with our employees to promote safety and to instill safe work habits. Our risk manager, a holding company employee, reviews all accidents and claims throughout the operating subsidiaries, examines trends and implements changes in procedures or communications to address any safety issues. The primary claims arising in our business are workers' compensation and other personal injuries, various general liabilities, and vehicle liability (personal injury and property damage). We are self-insured for automobile liability up to $250,000, for general liability up to $250,000, and for workers' compensation, in states where we elect to do so, up to $500,000 per occurrence and $10.5 million annual aggregate. We have umbrella coverage up to a policy limit of $51.0 million. 31 35 We carefully monitor claims and participate actively in claims estimates and adjustments. The estimated costs of self-insured claims, which include estimates for incurred but not reported claims, are accrued as liabilities on our balance sheet. Due to changes in our loss experience in recent years, insurance accruals have varied from year to year and have had an effect on operating margins. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 1 of the Notes to Consolidated Financial Statements. COMPETITION The telecommunications engineering, construction and maintenance services industry in which we operate is highly competitive, requiring substantial resources and skilled and experienced personnel. We compete with other independent contractors in most of the markets in which we operate, several of which are large domestic companies that have greater financial, technical and marketing resources than us. In addition, there are relatively few, if any, barriers to entry into the markets in which we operate and, as a result, any organization that has adequate financial resources and access to technical expertise may become a competitor to us. A significant portion of our revenues are currently derived from master service agreements and price is often an important factor in the award of such agreements. Accordingly, we could be outbid by our competitors in an effort to procure such business. There can be no assurance that our competitors will not develop the expertise, experience and resources to provide services that are equal or superior in both price and quality to our services, or that we will be able to maintain or enhance our competitive position. We may also face competition from the in-house service organizations of our existing or prospective customers, including telecommunications providers, which employ personnel who perform some of the same types of services as those provided by us. Although a significant portion of these services is currently outsourced, there can be no assurance that our existing or prospective customers will continue to outsource telecommunications engineering, construction and maintenance services in the future. We believe that the principal competitive factors in the market for telecommunications engineering, construction and maintenance services include technical expertise, reputation, price, quality of service, availability of skilled technical personnel, geographic presence, breadth of service offerings, adherence to industry standards and financial stability. We believe that we compete favorably with our competitors on the basis of these competitive factors. EMPLOYEES As of March 31, 1999, we employed 5,205 persons. Our workforce is primarily non-unionized. We have never experienced a work stoppage or strike. The number of employees of Dycom and our subsidiaries varies according to the work in progress. As a matter of course, we maintain a nucleus of technical and managerial personnel from which we draw to supervise all projects. We add additional employees as needed to complete specific projects. We believe that our employee relations are good. MATERIALS In many cases, our customers supply most or all of the materials required for a particular contract and we provide the personnel, tools and equipment to perform the installation services. However, with respect to certain of our contracts, we may supply part or all of the materials required. In these instances, we are not dependent upon any one source for the products which we customarily utilize to complete the job. We are not presently experiencing, not do we anticipate experiencing, any difficulties in procuring an adequate supply of materials. FACILITIES We lease our executive offices in Palm Beach Gardens, Florida. Our subsidiaries operate from owned or leased administrative offices, district field offices, equipment yards, shop facilities and temporary storage locations. We own facilities in Phoenix, Arizona; Durham, North Carolina; Pinellas Park, Florida; Sturgis, Kentucky; and West Palm Beach, Florida. We also lease, pursuant to long-term noncancellable leases, 32 36 facilities in West Chester, Pennsylvania; Kimberling City, Missouri; Lithonia, Georgia; Knoxville, Tennessee; Issaquah, Washington; and Greensboro, North Carolina. We also lease and own other smaller properties as necessary to enable us to efficiently perform our obligations under master service agreements and other specific contracts. We believe that our facilities are adequate for our current operations. LEGAL PROCEEDINGS 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 us may be offset by use taxes already paid by our customers. We intend to vigorously contest the assertion. We are 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 our consolidated financial statements. See Note 17 of the Notes to Consolidated Financial Statements. In the normal course of business, certain of our subsidiaries have other 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 Dycom's consolidated financial condition or results of operations. 33 37 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The table below sets forth the names and ages of each of our directors and executive officers, as well as the positions and offices held by such persons. A summary of the background and experience of each of these individuals is set forth after the table. Each director holds office for a three year term and until his successor has been elected and qualified. A number of executive officers have employment agreements, while others serve at the discretion of our board of directors. There are no family relationships among our directors or executive officers.
NAME AGE POSITION - ---- --- -------- Thomas R. Pledger.......................... 61 Executive Chairman and Chairman of the Board of Directors Steven E. Nielsen.......................... 36 President, Chief Executive Officer and Director Louis W. Adams, Jr......................... 60 Director Thomas G. Baxter........................... 52 Director Walter L. Revell........................... 64 Director Joseph M. Schell........................... 53 Director Ronald P. Younkin.......................... 57 Director Kenneth G. Geraghty........................ 48 Senior Vice President and Chief Administrative Officer Douglas J. Betlach......................... 47 Vice President, Chief Financial Officer and Treasurer Marc R. Tiller............................. 29 General Counsel and Corporate Secretary
Thomas R. Pledger is our Executive Chairman and Chairman of the Board of Directors. Mr. Pledger has been in the industry since 1960, and in 1968 became President of Burnup & Sims, Inc., which went public that year and was acquired by MasTec, Inc. in 1994. Mr. Pledger left Burnup & Sims in 1976. Mr. Pledger's relationship with us began in 1979 as a consultant. He became a Director in 1981 and President and Chief Executive Officer in 1984. His current employment contract with us expires March 9, 2004. Under the terms of his employment contract, Mr. Pledger will become our Chairman Emeritus effective January 13, 2003 for the remainder of the term of the employment contract. He serves on the board's Executive and Nominating Committees, as well as on the board of directors for each of our subsidiaries. Steven E. Nielsen is our President and Chief Executive Officer. His employment contract expires on March 9, 2004. Mr. Nielsen has held this position since March 10, 1999 and has been with us since 1993. As a member of our board of directors since 1996, he serves on the board's Executive and Nominating Committee, as well as on the board of directors for each of our subsidiaries. He previously served as President of Ansco & Associates, Inc. and Fiber Cable, Inc., two of our subsidiaries, and as our Chief Operating Officer. Prior to joining us, Mr. Nielsen was Division Manager/Regional Manager of Henkels & McCoy, Inc., a gas, power and telephone utility contractor, from 1991 to 1993, and was employed in various positions with this company or a predecessor since 1985. Louis W. Adams, Jr. is a retired attorney and formerly a partner with the law firm of Adams & Adams. Mr. Adams has been on the board since 1969 and currently serves on the board's Audit and Compensation Committee. Mr. Adams is also a member of the board of directors of each of our subsidiaries, other than CCG, CCI, ITI, Locating, ECC and Apex. Thomas G. Baxter has been a Director since January 4, 1999. Mr. Baxter has been an Operating Partner of Evercore Partners, an investment company. Prior to joining Evercore, Mr. Baxter served as President of Comcast Cable Communications, Inc. from 1990 to 1998. Mr. Baxter also serves on the board of directors of Worldgate Communications, which provides television-based Internet services. 34 38 Walter L. Revell has been a Director since 1993 and currently serves on the board's Audit and Compensation, and Finance Committees. He has been Chairman and Chief Executive Officer of H.J. Ross Associates, Inc. since 1991. The firm provides consulting engineering, architectural and planning services. Mr. Revell also serves on the board of directors of RISCORP, Inc., an insurance holding company, The St. Joe Company, a diversified corporation in real estate, forestry and transportation, and several privately held companies. Joseph M. Schell has been a Director since April 1, 1999 and currently serves on the board's Finance Committee. Mr. Schell was formerly a Senior Managing Director, Director of Investment Banking and a member of the Executive Committee of and currently serves as a consultant to NationsBanc Montgomery Securities LLC, an underwriter for this offering. Prior to his fourteen years with NationsBanc Montgomery Securities LLC, Mr. Schell was with Kidder, Peabody and Company in New York providing investment banking services to that firm's utility and energy clients. Ronald P. Younkin is President of Greenlawn Mobile Home Sales, Inc., which sells mobile homes and operates mobile home parks. Mr. Younkin has been one of our Directors since 1975. Mr. Younkin serves on the board's Audit and Compensation, Executive, and Nominating Committees. Kenneth G. Geraghty is Senior Vice President and Chief Administrative Officer. Mr. Geraghty has been with us since March 29, 1999. He was previously employed by Massachusetts Mutual Life Insurance Company from 1997 through 1999 as the Senior Vice President, Strategic Finance, American Express Company from 1996 through 1997 as the Vice President, Change Management, and from 1994 to 1996 as the Executive Director, Business Planning. Douglas J. Betlach is Vice President, Chief Financial Officer and Treasurer. Mr. Betlach has been with us since 1992. He previously served in various financial capacities at Del Monte Processed Foods, RJR Nabisco, Inc. and Price Waterhouse & Co. Marc R. Tiller has been employed by us since 1998. He is our General Counsel and Corporate Secretary. He attended law school from June 1995 to May 1998 and served as a Claims Representative for Florida Farm Bureau Insurance Company during the four prior years. 35 39 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth, as of April 27, 1999, and adjusted at that date to reflect the sale of the common stock offered hereby, information with respect to the beneficial ownership of our common stock by, as indicated by the letter next to each such beneficial owner, (a) each selling stockholder in the offering, (b) each person known to us to beneficially own more than 5% of the outstanding shares of our common stock, (c) each of our directors and each of our executive officers, and (d) all of our executive officers and directors as a group. Unless otherwise indicated, each such stockholder has sole voting and investment power with respect to the shares beneficially owned by such stockholder.
BEFORE STOCK OFFERING(1) AFTER STOCK OFFERING ------------------------- SHARES BEING --------------------- NAME OF OWNER NUMBER PERCENT OFFERED NUMBER PERCENT - ------------- --------- ---------- ------------ ---------- -------- VGH Partners LLC(b)..................... 1,575,000 6.8% 1,575,000 6.2% Vinik Asset Management LLC 260 Franklin Street Boston, MA 02110 Mary Irene Younkin(a)(2)................ 906,504 3.9% 65,000 841,504 3.3% Thomas R. Pledger(a),(c)................ 832,540 3.6% 100,000 732,540 2.9% Ronald P. Younkin(a),(c)(3)............. 221,985 * 33,000 186,985 * Steven E. Nielsen(c)(4)................. 48,339 * 48,339 * Kenneth G. Gereghty(c).................. 22,500 * 22,500 * Douglas J. Betlach(c)................... 16,318 * 16,318 * Louis W. Adams(c)....................... 15,351 * 15,351 * Linda C. Younkin(a)(5).................. 221,985 * 2,000 186,985 * Walter L. Revell(c)..................... 9,000 * 9,000 * All executive officers and directors as a group(d)(4)......................... 1,147,042 5.0% 133,000 1,014,042 4.0%
- --------------- * Less than 1%. (1) Class includes outstanding shares and stock options held by officers and directors exerciseable within 60 days after April 21, 1999. (2) Includes 99,000 shares owned by Mary Irene Younkin Intervivos Charitable Remainder Unitrust, as to which Mrs. Younkin disclaims beneficial ownership. (3) Includes 18,991 shares owned by Mr. Younkin's wife and children as to which he disclaims any beneficial interest. (4) Includes shares that may be acquired within 60 days after April 21, 1999 upon exercise of stock options as follows: Mr. Nielsen 19,989 and all directors and officers as a group 19,989. (5) Includes 209,985 shares owned by Ms. Younkin's husband and children as to which she disclaims any beneficial interest. 36 40 DESCRIPTION OF CAPITAL STOCK We have authorized the issuance of 50,000,000 shares of common stock, $0.33 1/3 par value per share, and 1,000,000 shares of preferred stock, $1.00 par value per share. COMMON STOCK On April 27, 1999, there were 23,046,063 outstanding shares of common stock held by 640 stockholders of record. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders. Holders of common stock do not have cumulative voting rights. Therefore, holders of more than 50% of the shares of common stock are able to elect all our directors eligible for election in a given year. The holders of common stock are entitled to dividends and other distributions out of assets legally available if and when declared by the board of directors. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to share pro rata in the distribution of all of our assets remaining available for distribution after satisfaction of all liabilities, including any prior rights of any preferred stock which may be outstanding. There are no redemption or sinking fund provisions applicable to the common stock. The transfer agent and registrar for the common stock is First Union National Bank of North Carolina, Charlotte, North Carolina. PREFERRED STOCK There are no shares of preferred stock outstanding. Series of the preferred stock may be created and issued from time to time by our board of directors, with such rights and preferences as they may determine. ANTI-TAKEOVER PROVISIONS On June 1, 1992, we approved a shareholder rights plan. All stockholders of record on June 15, 1992 were issued a right (a "Right") for each outstanding share of our common stock. Common stock issued after the record date but prior to the Separation Time (as defined in the shareholder rights plan) will also receive one Right. Each Right entitles the holder to purchase one-half share of common stock for an exercise price of $12.00, subject to certain adjustments. The Right is exercisable only when a triggering event occurs. Among the triggering events are (1) a person or group's acquisition of 20% or more of our common stock, (2) the commencement of a tender offer which would result in a person or group owning 20% or more of our common stock, or (3) the acquisition of at least 10% of our common stock and such acquisition is determined to have effects adverse to us. We can redeem the Rights at $0.01 per Right, subject to certain adjustments, at any time prior to ten days after a triggering event occurs. The Rights will expire on the earlier of certain events set forth in the shareholder rights plan and June 1, 2002. While the Rights will not prevent a takeover of Dycom, they have certain anti-takeover effects by causing substantial dilution to an acquiring party when a triggering event occurs, to the extent that the board of directors has not previously redeemed the Rights. We have agreements with certain of our executive officers which provide for substantial compensation (in general terms, double the officer's salary and bonuses paid the previous year), upon a change of control in our company. Thomas R. Pledger's employment agreement also permits him to terminate his employment in the event of a change of control. The current total amount of payments under these agreements upon a change in control would be approximately $4.5 million. Such payments would be triggered by any person's acquisition of more than fifty percent of our outstanding securities, the sale or transfer of substantially all of our assets to someone other than one of our wholly-owned subsidiaries, or a change of control of the board of directors. Our articles of incorporation provide that the board of directors is divided into three classes, as nearly equal in number as possible, with one class of directors being elected each year for a three-year term. The 37 41 classification of the board may have the effect of delaying a change in a majority of the members of our board of directors. Our articles of incorporation require approval of 80% of the outstanding shares of our capital stock entitled to vote in elections of directors for any merger with or into another corporation or any sale or transfer of all or a substantial part of our assets to, or any sale or transfer to us or any subsidiary in exchange for our securities or any assets (except assets valued at less than $1,000,000) of, any other corporation or person, if at the time such other corporation or person is the beneficial owner, or is affiliated with the beneficial owner, of more than 20% of the outstanding shares of our capital stock entitled to vote in elections of directors. This requirement is not applicable to any such transaction with another corporation which was approved by our board of directors prior to the time that such other corporation became a holder of more than 20% of the outstanding shares of our capital stock. The Florida Business Corporation Act contains provisions eliminating the voting rights of "control shares," which are defined as shares which give any person, directly or indirectly, ownership of, or the power to direct the exercise of voting power with respect to, 20% or more of the outstanding voting power of an "issuing public corporation." A corporation is an issuing public corporation if it has at least 100 shareholders, its principal place of business, principal office or substantial assets are in Florida and either more than 10% of its shareholders reside in Florida, more than 10% of its shares are owned by Florida residents or 1,000 shareholders reside in Florida. The voting rights of control shares are not eliminated if the articles of incorporation or the bylaws of the corporation prior to the acquisition provide that the statute does not apply. Voting rights are restored to control shares if, subsequent to their acquisition, the corporation's shareholders (other than the holder of control shares, officers of the corporation and employee directors) vote to restore such voting rights. The Florida Business Corporation Act also restricts "affiliated transactions" (mergers, consolidations, transfers of assets and other transactions) between "interested shareholders" (the beneficial owners of 10% or more of the corporation's outstanding shares) and the corporation or any subsidiary. Affiliated transactions must be approved by two-thirds of the voting shares not beneficially owned by the interested shareholder or by a majority of the corporation's "disinterested" directors. The statutory restrictions do not apply if the corporation has had fewer than 300 shareholders of record for three years, the interested shareholder has owned at least 80% of the outstanding shares for five years, the interested shareholder owns at least 90% of the corporation's outstanding voting shares, or certain consideration is paid to all shareholders. The provisions of our articles and by-laws, the existence of the shareholder rights plan and the change of control agreements and the application of the anti-takeover provisions of the Florida Business Corporation Act could have the effect of discouraging, delaying or preventing a change of control not approved by the board of directors which could affect the market price of our common stock. INDEMNIFICATION Our by-laws require us to indemnify each of our directors and officers to the fullest extent permitted by law and limits the liability of our directors and stockholders for monetary damages in certain circumstances. The provisions of the Florida Business Corporation Act that allow such indemnification do not eliminate the duty of care of a director and, in appropriate circumstances, equitable remedies such as injunctive or other forms of nonmonetary relief will remain available. In addition, each director continues to be subject to liability for (a) criminal violations, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (b) deriving an improper personal benefit from a transaction, (c) voting for or assenting to an unlawful distribution, and (d) willful misconduct or a conscious disregard for our best interests in a proceeding by or on our behalf or in a proceeding by or on behalf of a stockholder. The statute does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. 38 42 DIVIDEND RESTRICTIONS Our credit agreement currently limits our ability to pay dividends on the common stock to 50% of net income for the fiscal year. The credit agreement's restrictions on our debt-to-net worth, quick and current ratios also affect our ability to pay dividends. The payment of dividends on the common stock is also subject to the preference that may be applicable to any then outstanding preferred stock. 39 43 UNDERWRITING NationsBanc Montgomery Securities LLC, Morgan Stanley Dean Witter and Morgan Keegan & Company, Inc. (the "Underwriters"), have severally agreed, subject to the terms and conditions set forth in an underwriting agreement among the Underwriters, Dycom and the selling stockholders (the "Underwriting Agreement"), to purchase from Dycom and the selling stockholders the number of shares of common stock indicated below opposite their respective names at the public offering price less the discounts and commissions to underwriters set forth on the cover page of this prospectus and in the table below. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, and that the Underwriters are committed to purchase all of such shares if any are purchased.
NUMBER OF UNDERWRITER SHARES ----------- ---------- NationsBanc Montgomery Securities LLC....................... Morgan Stanley Dean Witter.................................. Morgan Keegan & Company, Inc. .............................. ---------- Total............................................. 2,700,000 ==========
The Underwriters have advised Dycom and the selling stockholders that the Underwriters propose initially to offer the common stock to the public on the terms set forth on the cover page of this prospectus. The Underwriters may allow to selected dealers a concession of not more than $ per share, and the Underwriters may allow, and such dealers may reallow, a concession of not more than $ per share to certain other dealers. After the offering, the offering price and other selling terms may be changed by the Underwriters. The common stock is offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject an order in whole or in part. The Underwriters may offer the shares of common stock through a selling group. Dycom and the selling stockholders have granted an option to the Underwriters, exercisable during the 30-day period after the date of this prospectus, to purchase up to a maximum of 375,000 and 30,000 additional shares of common stock, respectively, to cover over-allotments, if any, at the same price as the initial 2,700,000 shares to be purchased by the Underwriters. To the extent that the Underwriters exercise this option, each of the Underwriters will be committed, subject to certain conditions, to purchase such additional shares in approximately the same proportion as set forth in the table above. The Underwriters may purchase such shares only to cover over-allotments made in connection with the offering. The following table summarizes the compensation to be paid to the Underwriters by the Company and the selling stockholders.
TOTAL ------------------------------- PER WITHOUT WITH SHARE OVER-ALLOTMENT OVER-ALLOTMENT -------- -------------- -------------- Underwriting discounts and commissions paid by the Company................................................. Underwriting discounts and commissions paid by the selling stockholders............................................
Dycom estimates that the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $450,000. Joseph M. Schell, a director of Dycom, also serves as a consultant to NationsBanc Montgomery Securities LLC, but not as its representative on the board of directors. NationsBanc Montgomery Securities LLC does not have the right to designate or nominate a member of Dycom's board of directors. The Underwriting Agreement provides that Dycom and the selling stockholders will indemnify the Underwriters and their controlling persons against certain liabilities, including civil liabilities under the Securities Act, or will contribute to payments the Underwriters may be required to make in respect thereof. 40 44 The selling stockholders and the other directors and executive officers of Dycom have agreed that they will not, without the prior written consent of NationsBanc Montgomery Securities LLC (which consent may be withheld in its sole discretion), directly or indirectly, sell, offer, contract or grant any option to sell (including without limitation any short sale), pledge, transfer, establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Exchange Act ("Rule 16a-1(h)") or otherwise dispose of any shares of common stock owned either of record or beneficially by them, or publicly announce the intention to do any of the foregoing, for a period commencing on the date of this prospectus and continuing through the close of trading on the date 90 days after such date. NationsBanc Montgomery Securities LLC, may, in its sole discretion and at any time without notice, release all or any portion of the securities, subject to those lock-up agreements. In addition, Dycom has agreed that for a period of 90 days after the date of this prospectus it will not, without the prior written consent of NationsBanc Montgomery Securities LLC (which consent may be withheld in its sole discretion), directly or indirectly, sell, offer, contract or grant any option to sell, pledge, transfer or establish an open "put equivalent position" within the meaning of Rule 16a-1(h), or otherwise dispose of or transfer, or announce the offering of, or file any registration statement under the Securities Act in respect of, any shares of common stock, options or warrants to acquire shares of common stock or securities exchangeable or exercisable for or convertible into shares of common stock, subject to certain limited exceptions including granting of options and sales of shares under Dycom's existing option plans. Until the distribution of the common stock is completed, rules of the Securities and Exchange Commission may limit the ability of the Underwriters to bid for and purchase the common stock. As an exception to these rules, the Underwriters are permitted to engage in certain transactions that stabilize the price of the common stock. The Underwriters have advised Dycom that such transactions may be effected on the New York Stock Exchange or otherwise. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock. If the Underwriters create a short position in the common stock in connection with the offering, i.e., if they sell more shares of common stock than are set forth on the cover page of this prospectus, the Underwriters may reduce that short position by purchasing common stock in the open market. The Underwriters may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The Underwriters may also impose a penalty bid on certain selling group members. This means that if the Underwriters purchase shares of common stock in the open market to reduce the Underwriters' short position or to stabilize the price of the common stock, they may reclaim the amount of the selling concession from the selling group members who sold those shares as part of the offering. In general, purchase of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither Dycom nor any of the Underwriters makes any representations or predictions as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither Dycom nor any of the Underwriters makes any representations that the Underwriters will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. CERTAIN LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Akerman, Senterfitt & Eidson, Miami, Florida. Certain legal matters will be passed upon for us by Shearman & Sterling, New York, New York. Certain matters in connection with the common stock offered hereby will be passed upon for the underwriters by Piper & Marbury L.L.P., Baltimore, Maryland. 41 45 EXPERTS The financial statements of Dycom and its consolidated subsidiaries, except for CCG, as of July 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, included and incorporated by reference in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is included and incorporated by reference herein. The financial statements of CCG for the years ended May 31, 1997 and 1996 (consolidated with those of Dycom and not presented separately herein) have been audited by Nowalk & Associates, independent auditors, as stated in their report included and incorporated by reference herein. Such financial statements of Dycom and its consolidated subsidiaries are included and incorporated by reference in reliance upon the respective reports of such firms given upon their authority as experts in accounting and auditing. The financial statements of ECC for the year ended December 31, 1998 and of Apex for the year ended December 31, 1998 and for the 101 day period from September 22, 1997 (inception) to December 31, 1997 incorporated by reference in this prospectus have been audited by York, Neel & Co. -- Owensboro, LLP, independent auditors, as stated in their report, which is incorporated by reference herein. WHERE YOU CAN FIND MORE INFORMATION We file reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). You may read and copy any document we file at: - the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington, DC 20549; - the public reference facilities at the SEC's regional offices located at Seven World Trade Center, 13th Floor, New York, New York 10048 or 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can also obtain copies of any documents we file from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C., 20549 at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC's Website at http://www.sec.gov. Reports and other information concerning us can also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. We have filed with the SEC a Registration Statement on Form S-3 (together with any amendments or supplements thereto, the "Registration Statement") under the Securities Act covering the shares of common stock offered hereby. As permitted by the SEC, this prospectus, which constitutes a part of the Registration Statement, does not contain all the information included in the Registration Statement. Such additional information may be obtained from the locations described above. Statements contained in this prospectus as to the contents of any document are not necessarily complete. You should refer to the document for all the details. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The SEC allows us to incorporate by reference the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934: - our Annual Report on Form 10-K for the fiscal year ended July 31, 1998, 42 46 - our Quarterly Reports on Form 10-Q for the quarters ended October 31, 1998 and January 31, 1999, - our Proxy Statement dated October 15, 1998, and - our Current Reports on Form 8-K dated March 18, 1999, April 15, 1999 and April 29, 1999. You may request a copy of these filings, at no cost, by writing or telephoning our Corporate Secretary at the following address: Dycom Industries, Inc. 4440 PGA Boulevard Suite 500 Palm Beach Gardens, Florida 33410 Attention: Corporate Secretary (561) 627-7171 All documents subsequently filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to the termination of this offering are incorporated by reference and become a part of this prospectus from the date such document is filed. Any statement contained in this prospectus or in a document incorporated by reference are modified or superseded for purposes of this prospectus to the extent that a statement contained in any such document modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus. 43 47 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NUMBER ------ Reports of Independent Auditors............................. F-2 Consolidated Balance Sheets as of July 31, 1997 and 1998.... F-4 Consolidated Statements of Operations for the years ended July 31, 1996, 1997, and 1998............................. F-5 Consolidated Statements of Stockholders' Equity for the years ended July 31, 1996, 1997, and 1998................. F-6 Consolidated Statements of Cash Flows for the years ended July 31, 1996, 1997, and 1998............................. F-7 Notes to Consolidated Financial Statements.................. F-8 Unaudited Interim Condensed Consolidated Financial Statements: Condensed Consolidated Balance Sheets as of July 31, 1998 and January 31, 1999...................................... F-24 Condensed Consolidated Statements of Operations for the three months ended January 31, 1998 and 1999.............. F-25 Condensed Consolidated Statements of Cash Flows for the six months ended January 31, 1998 and 1999.................... F-27 Notes to Condensed Consolidated Financial Statements........ F-28
F-1 48 INDEPENDENT AUDITORS' REPORT Dycom Industries, Inc.: We have audited the consolidated balance sheets of Dycom Industries, Inc. and subsidiaries (the "Company") as of July 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended July 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger of Communications Construction Group, Inc., which has been accounted for as a pooling of interests as described in Note 3 to the consolidated financial statements. We did not audit the statements of operations, stockholders' equity, and cash flows of Communications Construction Group, Inc. for the years ended May 31, 1997 and 1996, which statements reflect total revenues of $67,717,326 and $50,121,009 for the years ended May 31, 1997 and 1996, respectively. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Communications Construction Group, Inc. for such periods, is based solely on the report of such other auditors. As described in Note 3 to the consolidated financial statements, subsequent to the issuance of the report of the other auditors, Communications Construction Group, Inc. changed its fiscal year to conform to the fiscal year of Dycom Industries, Inc. for the period ended July 31, 1997. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dycom Industries, Inc. and subsidiaries as of July 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Certified Public Accountants West Palm Beach, Florida August 31, 1998 (April 23, 1999 as to the effects of the stock split described in Note 19) F-2 49 INDEPENDENT AUDITORS' REPORT To the Board of Directors Communications Construction Group, Inc. We have audited the accompanying consolidated balance sheets of Communications Construction Group, Inc. (the "Company") as of May 31, 1997 and 1996, and the related consolidated statements of operations, cash flows and changes in stockholders' equity for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above (not presented separately herein) present fairly, in all material respects, the consolidated financial position of Communications Construction Group, Inc. as of May 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Nowalk & Associates Cranbury, New Jersey July 23, 1997 F-3 50 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JULY 31, 1997 AND 1998
1997 1998 ------------ ------------ ASSETS CURRENT ASSETS: Cash and equivalents........................................ $ 5,276,112 $ 35,927,307 Accounts receivable, net.................................... 49,526,678 62,142,808 Costs and estimated earnings in excess of billings.......... 11,398,621 14,382,620 Deferred tax assets, net.................................... 2,168,763 2,726,348 Other current assets........................................ 1,966,538 3,014,199 ------------ ------------ Total current assets.............................. 70,336,712 118,193,282 ------------ ------------ PROPERTY AND EQUIPMENT, net................................. 36,336,212 42,865,197 ------------ ------------ OTHER ASSETS: Intangible assets, net...................................... 4,684,358 4,529,270 Deferred tax assets......................................... 424,205 Other....................................................... 730,394 730,342 ------------ ------------ Total other assets................................ 5,838,957 5,259,612 ------------ ------------ TOTAL............................................. $112,511,881 $166,318,091 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................................ $ 14,724,340 $ 12,182,699 Notes payable............................................... 17,719,780 4,727,782 Billings in excess of costs and estimated earnings.......... 470,940 Accrued self-insurance claims............................... 2,011,622 2,440,303 Income taxes payable........................................ 1,228,648 2,812,144 Other accrued liabilities................................... 13,278,712 14,819,181 ------------ ------------ Total current liabilities......................... 49,434,042 36,982,109 NOTES PAYABLE............................................... 13,588,022 13,407,990 ACCRUED SELF-INSURED CLAIMS................................. 6,418,400 7,454,849 OTHER LIABILITIES........................................... 644,625 10,094,195 ------------ ------------ Total liabilities................................. 70,085,089 67,939,143 ------------ ------------ COMMITMENTS AND CONTINGENCIES, Note 17 STOCKHOLDERS' EQUITY: Preferred stock, par value $1.00 per share: 1,000,000 shares authorized; no shares issued and outstanding Common stock, par value $.33 1/3 per share: 50,000,000 shares authorized; 19,001,816 and 22,084,097 issued and outstanding, respectively................... 6,333,939 7,361,366 Additional paid-in capital.................................. 23,559,352 60,042,463 Retained earnings........................................... 12,533,501 30,975,119 ------------ ------------ Total stockholders' equity........................ 42,426,792 98,378,948 ------------ ------------ TOTAL............................................. $112,511,881 $166,318,091 ============ ============
See notes to consolidated financial statements. F-4 51 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JULY 31, 1996, 1997, AND 1998
1996 1997 1998 ------------ ------------ ------------ REVENUES: Contract revenues earned............................. $245,937,063 $311,238,108 $368,713,563 Other, net........................................... 1,357,932 1,181,332 2,649,229 ------------ ------------ ------------ Total...................................... 247,294,995 312,419,440 371,362,792 ------------ ------------ ------------ EXPENSES: Cost of earned revenues excluding depreciation....... 198,437,641 246,025,594 285,038,220 General and administrative........................... 24,368,552 30,808,780 36,746,614 Depreciation and amortization........................ 10,433,989 11,814,577 13,496,694 ------------ ------------ ------------ Total...................................... 233,240,182 288,648,951 335,281,528 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES........................... 14,054,813 23,770,489 36,081,264 ------------ ------------ ------------ PROVISION (BENEFIT) FOR INCOME TAXES: Current............................................ 5,712,682 8,153,092 13,179,024 Deferred........................................... (1,580,196) (196,241) (133,380) ------------ ------------ ------------ Total...................................... 4,132,486 7,956,851 13,045,644 ------------ ------------ ------------ NET INCOME........................................... $ 9,922,327 $ 15,813,638 $ 23,035,620 ============ ============ ============ EARNINGS PER COMMON SHARE: Basic.............................................. $ 0.53 $ 0.84 $ 1.09 ============ ============ ============ Diluted............................................ $ 0.52 $ 0.83 $ 1.07 ============ ============ ============ PRO FORMA NET INCOME AND EARNINGS PER COMMON SHARE DATA: Income before income taxes......................... $ 14,054,813 $ 23,770,489 $ 36,081,264 Pro forma provision for income taxes............... 4,859,762 9,841,081 14,419,904 ------------ ------------ ------------ PRO FORMA NET INCOME................................. $ 9,195,051 $ 13,929,408 $ 21,661,360 ============ ============ ============ PRO FORMA EARNINGS PER COMMON SHARE: Basic.............................................. $ 0.49 $ 0.74 $ 1.02 ============ ============ ============ Diluted............................................ $ 0.48 $ 0.73 $ 1.01 ============ ============ ============ SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE AND PRO FORMA EARNINGS PER COMMON SHARE: Basic.............................................. 18,624,564 18,863,987 21,172,025 ============ ============ ============ Diluted............................................ 18,989,729 19,123,034 21,482,634 ============ ============ ============
See notes to consolidated financial statements. F-5 52 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JULY 31, 1996, 1997, AND 1998
COMMON STOCK ADDITIONAL RETAINED ----------------------- PAID-IN EARNINGS SHARES AMOUNT CAPITAL (DEFICIT) ---------- ---------- ----------- ----------- Balance, at July 31, 1995, as restated for poolings.................................... 18,595,848 $6,198,616 $22,585,632 $(8,913,500) Stock options exercised....................... 86,253 28,751 170,376 Pooled companies distributions................ (2,207,368) Net income.................................... 9,922,327 ---------- ---------- ----------- ----------- Balances at July 31, 1996..................... 18,682,101 6,227,367 22,756,008 (1,198,541) Stock options exercised....................... 319,715 106,572 670,775 Income tax benefit from stock options exercised................................... 132,569 Pooled companies distributions................ (2,523,282) Adjustment for change in fiscal year of pooled company (CCG)............................... 441,686 Net income.................................... 15,813,638 ---------- ---------- ----------- ----------- Balances at July 31, 1997..................... 19,001,816 6,333,939 23,559,352 12,533,501 Stock options exercised....................... 114,714 38,238 319,199 Stock offering proceeds....................... 2,967,567 989,189 35,969,429 Income tax benefit from stock options exercised................................... 194,483 Pooled companies distributions................ (4,594,002) Net income.................................... 23,035,620 ---------- ---------- ----------- ----------- Balances at July 31, 1998..................... 22,084,097 $7,361,366 $60,042,463 $30,975,119 ========== ========== =========== ===========
See notes to consolidated financial statements. F-6 53 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JULY 31, 1996, 1997, AND 1998
1996 1997 1998 ------------ ----------- ----------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS FROM: OPERATING ACTIVITIES: Net Income............................................. $ 9,922,327 $15,813,638 $23,035,620 Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization................... 10,433,989 11,814,577 13,496,694 (Gain) on disposal of assets.................... (736,131) (601,645) (375,772) Deferred income taxes........................... (1,580,196) (196,241) (133,380) Changes in assets and liabilities: Accounts receivable, net........................ 4,180,056 (18,537,042) (12,616,130) Unbilled revenues, net.......................... (2,444,425) (2,873,149) (3,454,939) Other current assets............................ (103,336) (773,980) (1,047,609) Other assets.................................... (90,524) (135,882) Accounts payable................................ (2,856,845) 6,080,835 (2,541,641) Accrued self-insured claims and other liabilities.................................. 2,713,096 1,632,232 12,455,169 Accrued income taxes............................ 99,067 626,228 1,777,979 ------------ ----------- ----------- Net cash inflow from operating activities.............. 19,537,078 12,849,571 30,595,991 ------------ ----------- ----------- INVESTING ACTIVITIES: Capital expenditures.............................. (13,459,174) (16,086,823) (21,492,673) Proceeds from sale of assets...................... 2,847,275 2,289,348 1,997,854 ------------ ----------- ----------- Net cash outflow from investing activities............. (10,611,899) (13,797,475) (19,494,819) ------------ ----------- ----------- FINANCING ACTIVITIES: Borrowings on notes payable and bank lines-of-credit................................. 6,371,140 22,976,488 18,346,301 Principal payments on notes payable and bank lines-of-credit................................. (13,590,079) (17,907,051) (31,518,331) Exercise of stock options......................... 199,127 777,347 357,437 Pooled companies distributions.................... (2,207,368) (2,523,282) (4,594,002) Proceeds from stock offering...................... 36,958,618 ------------ ----------- ----------- Net cash inflow (outflow) from financing activities.... (9,227,180) 3,323,502 19,550,023 ------------ ----------- ----------- Net cash outflow related to change in fiscal year of pooled company....................................... (159,555) ------------ ----------- ----------- NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES.................................... (302,001) 2,216,043 30,651,195 CASH AND EQUIVALENTS AT BEGINNING OF YEAR........................................... 3,362,070 3,060,069 5,276,112 ------------ ----------- ----------- CASH AND EQUIVALENTS AT END OF YEAR........................................... $ 3,060,069 $ 5,276,112 $35,927,307 ============ =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NONCASH INVESTING AND FINANCING ACTIVITIES: Cash paid during the period for: Interest.......................................... $ 2,659,228 $ 2,535,600 $ 2,185,802 Income taxes...................................... $ 5,765,829 $ 8,303,108 $11,480,800 Property and equipment acquired and financed with: Capital lease obligations............................ $ 135,341 $ 601,024 Income tax benefit from stock options exercised........ $ 132,569 $ 194,483
See notes to consolidated financial statements. F-7 54 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. -- The consolidated financial statements include Dycom Industries, Inc. ("Dycom" or the "Company") and its subsidiaries, all of which are wholly owned. On July 29, 1997, Communications Construction Group, Inc. ("CCG") was acquired by the Company through an exchange of common stock. On April 6, 1998, Cable Com Inc. ("CCI") and Installation Technicians, Inc. ("ITI") were acquired by the Company through an exchange of common stock. These acquisitions were accounted for as poolings of interests. Accordingly, the Company's consolidated financial statements include the results of CCG, CCI and ITI for all periods presented. See Note 3. The Company's operations consist primarily of telecommunications, underground utility locating and electrical construction and maintenance services contracting. All material intercompany accounts and transactions have been eliminated. Pro Forma Adjustments -- Prior to the acquisition by Dycom, CCI and ITI elected under Subchapter S of the Internal Revenue Code to have the stockholders recognize their proportionate share of CCI's and ITI's taxable income on their personal tax return in lieu of paying corporate income tax. The pro forma net income and earnings per common share reflected on the Statements of Operations reflects a provision for current and deferred income taxes for all periods presented as if the corporations were included in Dycom's federal and state income tax returns. At April 6, 1998, the consummation date of the merger, CCI and ITI recorded deferred taxes on the temporary differences between the financial reporting basis and the tax basis of their assets and liabilities. The deferred tax (asset) liability recorded by CCI and ITI was $616,358 and $(11,035), respectively. 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 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. 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 consolidated statements of cash flows, the Company considers these amounts to be cash equivalents. 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- F-8 55 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7 years; equipment and machinery -- 2-10 years; and furniture and fixtures -- 3-10 years. Maintenance and repairs are expensed as incurred; expenditures that enhance the value of the property or extend its useful life are capitalized. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income. 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 $155,088 for each of the fiscal years ended July 31, 1996, 1997, and 1998. The intangible assets are net of accumulated amortization of $1,151,358 and $1,306,446 at July 31, 1997 and 1998, respectively. 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 consolidated financial statements as an accrued liability. The self-insured claims liability includes incurred but not reported losses of $4,429,000 and $5,120,000 at July 31, 1997 and 1998, 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, except for CCG, CCI and ITI, file a consolidated federal income tax return. CCG was included in the Company's consolidated federal income tax return effective July 29, 1997 and CCI and ITI will be included effective April 6, 1998. Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Per Share Data -- Earnings per common share-basic is computed using the weighted average common shares outstanding during the period. Earnings per common share-diluted is computed using the weighted average common shares outstanding during the period and the dilutive effect of common stock options, using the treasury stock method. See Notes 2 and 14. Stock Option Plans -- In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock Based Compensation" which was effective for the Company beginning August 1, 1996. SFAS No. 123 requires expanded disclosures of stock based compensation arrangements with employees and encourages, but does not require, compensation cost to be measured based on the fair value of the equity instrument awarded. Under SFAS No. 123, companies are permitted, however, to continue to apply Accounting Principle Board ("APB") Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock based compensation awards to employees and will disclose in the annual financial statements the required pro forma effect on net income and earnings per share. See Note 14. Recently Issued Accounting Pronouncements -- In June 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. F-9 56 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 annual financial statements and requires those enterprises to report selected information about operating segments in annual 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. In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about Pension and Other Postretirement Benefits" which revises certain disclosures about pension and other postretirement benefit plans. This statement does not change the measurement and recognition methods for pension or postretirement benefit costs reported in financial statements. This statement is effective for fiscal years beginning after December 15, 1997. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which establishes standards for the accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for financial statements for periods beginning after December 15, 1999. Management is currently evaluating the requirements and related disclosures of SFAS No. 130, 131, 132, and 133. 2. 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. F-10 57 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computation as required by SFAS No. 128.
1996 1997 1998 ---------- ----------- ----------- Net income available to common stockholders (numerator).................................... $9,922,327 $15,813,638 $23,035,620 ========== =========== =========== Weighted-average number of common shares (denominator).................................. 18,624,564 18,863,987 21,172,025 ========== =========== =========== Earnings per common share -- basic............... $ 0.53 $ 0.84 $ 1.09 ========== =========== =========== Weighted-average number of common shares......... 18,624,564 18,863,987 21,172,025 Potential common stock arising from stock options........................................ 365,165 259,047 310,609 ---------- ----------- ----------- Total shares (denominator)............. 18,989,729 19,123,034 21,482,634 ========== =========== =========== Earnings per common share -- diluted............. $ 0.52 $ 0.83 $ 1.07 ========== =========== =========== PRO FORMA EARNINGS PER SHARE DATA: Pro forma net income available to common stockholders (numerator)....................... $9,195,051 $13,929,408 $21,661,360 ========== =========== =========== Pro forma earnings per common share -- basic..... $ 0.49 $ 0.74 $ 1.02 ========== =========== =========== Pro forma earnings per common share -- diluted... $ 0.48 $ 0.73 $ 1.01 ========== =========== ===========
3. ACQUISITIONS On July 29, 1997, the Company consummated the CCG acquisition. The Company issued 3,079,863 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 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 consolidated statements of operations for fiscal years ended July 31, 1996, and 1997 combines the statements of operations of CCG for its fiscal years ended May 31, 1996, and 1997, respectively. The total revenue and net income of CCG for the two-month period ended July 31, 1997 were $13.1 million and $0.4 million, respectively, with the net income reflected as an adjustment to retained earnings as of July 31, 1997. On April 6, 1998, the Company acquired CCI and ITI and issued 1.8 million and 900,000 shares of common stock in exchange for all the outstanding capital stock of CCI and ITI, respectively. Dycom has accounted for the acquisitions as poolings of interests and, accordingly, the Company's historical financial statements include the results of CCI and ITI for all periods presented. Prior to the acquisitions, CCI and ITI used a fiscal calendar year consisting of a 52/53 week time period and, as a result of the merger, have adopted Dycom's fiscal year end of July 31. All periods presented reflect the adoption of such fiscal year end as of the beginning of the period. The combined and separate company results of Dycom, CCG, CCI and ITI for the fiscal years ended July 31, 1996, 1997, F-11 58 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and 1998 are presented below. The separate company results of CCI and ITI for the quarter including the consummation date of the mergers and the subsequent quarter, are included in the Dycom amounts.
1996 1997 1998 ------------ ------------ ------------ Total revenues: Dycom...................................... $145,135,380 $176,204,581 $331,881,840 CCG........................................ 50,124,861 67,718,900 CCI........................................ 33,038,911 45,191,801 26,833,806 ITI........................................ 18,995,843 23,304,158 12,647,146 ------------ ------------ ------------ Combined..................................... $247,294,995 $312,419,440 $371,362,792 ============ ============ ============ Net income: Dycom...................................... $ 6,390,144 $ 8,268,502 $ 19,194,623 CCG........................................ 1,273,714 2,950,306 CCI........................................ 898,496 2,598,254 2,711,694 ITI........................................ 1,359,973 1,996,576 1,129,303 ------------ ------------ ------------ Combined..................................... $ 9,922,327 $ 15,813,638 $ 23,035,620 ============ ============ ============
The acquisition costs for the CCG merger were $0.4 million and $0.6 million for the CCI and ITI mergers and were charged to the combined operations for the fiscal year ended July 31, 1997 and July 31, 1998, respectively. These costs include filing fees with regulatory agencies, legal, accounting and other professional costs. 4. ACCOUNTS RECEIVABLE Accounts receivable consist of the following:
1997 1998 ----------- ----------- Contract billings........................................... $45,589,232 $58,888,421 Retainage................................................... 3,652,358 4,133,590 Other receivables........................................... 1,314,181 1,331,775 ----------- ----------- Total............................................. 50,555,771 64,353,786 Less allowance for doubtful accounts........................ 1,029,093 2,210,978 ----------- ----------- Accounts receivable, net.................................... $49,526,678 $62,142,808 =========== ===========
F-12 59 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS The accompanying consolidated balance sheets include costs and estimated earnings on contracts in progress, net of progress billings as follows:
1997 1998 ----------- ----------- Costs incurred on contracts in progress..................... $17,715,762 $15,056,642 Estimated earnings thereon.................................. 3,319,456 3,387,933 ----------- ----------- 21,035,218 18,444,575 Less billings to date....................................... 10,107,537 4,061,955 ----------- ----------- $10,927,681 $14,382,620 =========== =========== Included in the accompanying consolidated balance sheets under the captions: Costs and estimated earnings in excess of billings..... $11,398,621 $14,382,620 Billings in excess of costs and estimated earnings..... (470,940) ----------- ----------- $10,927,681 $14,382,620 =========== ===========
6. PROPERTY AND EQUIPMENT The accompanying consolidated balance sheets include the following property and equipment:
1997 1998 ----------- ----------- Land........................................................ $ 1,942,247 $ 1,592,958 Buildings................................................... 2,346,993 2,497,103 Leasehold improvements...................................... 1,463,698 1,459,543 Vehicles.................................................... 41,522,848 52,287,135 Equipment and machinery..................................... 30,721,638 34,319,707 Furniture and fixtures...................................... 5,289,975 5,638,326 ----------- ----------- Total............................................. 83,287,399 97,794,772 Less accumulated depreciation............................... 46,951,187 54,929,575 ----------- ----------- Property and equipment, net................................. $36,336,212 $42,865,197 =========== ===========
Certain subsidiaries of the Company have entered into lease arrangements accounted for as capitalized leases. The carrying value of capital leases at July 31, 1997 and 1998 was $1,291,733 and $114,985, respectively, net of accumulated depreciation of $985,636 and $82,813, respectively. Capital leases are included as a component of vehicles and equipment and machinery. Maintenance and repairs of property and equipment amounted to $6,825,017, $6,843,444, and $7,728,971 for the fiscal years ended July 31, 1996, 1997, and 1998, respectively. F-13 60 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. OTHER ACCRUED LIABILITIES Other accrued liabilities consist of the following:
1997 1998 ----------- ----------- Accrued payroll and related taxes........................... $ 3,909,405 $ 3,637,611 Accrued employee benefit costs.............................. 3,683,975 4,971,718 Accrued construction costs.................................. 2,033,371 2,728,568 Accrued other liabilities................................... 3,651,961 3,481,284 ----------- ----------- Other accrued liabilities................................... $13,278,712 $14,819,181 =========== ===========
8. NOTES PAYABLE Notes payable are summarized by type of borrowing as follows:
1997 1998 ----------- ----------- Bank credit agreements: Revolving credit facilities............................... $15,053,484 Term loan................................................. 8,550,000 $14,250,000 Equipment term loans...................................... 4,559,937 3,339,218 Capital lease obligations................................... 1,086,967 60,931 Equipment loans............................................. 2,057,414 485,623 ----------- ----------- Total............................................. 31,307,802 18,135,772 Less current portion........................................ 17,719,780 4,727,782 ----------- ----------- Notes payable -- non-current................................ $13,588,022 $13,407,990 =========== ===========
On April 29, 1998, the Company signed an amendment to its current bank credit agreement, increasing the total facility to $85.0 million. The amended bank credit agreement provides for (i) a $30.0 million revolving working capital facility; (ii) a $15.0 million standby letter of credit facility; (iii) a $25.0 million revolving equipment acquisition and small business purchase facility; and (iv) a $15.0 million five-year term loan. The revolving working capital facility, the standby letter of credit facility and the revolving equipment facility are available for a two-year period. The revolving working capital facility bears interest, at the option of the Company, at the bank's prime interest rate minus 1.00% or LIBOR plus 1.50%. In October 1997, the Company borrowed $4.9 million under this facility to pay off a subsidiary's previously existing credit facility. On November 28, 1997, the Company repaid the outstanding balance of this facility with proceeds from the public offering of its common stock. As of July 31, 1998, there was no outstanding balance on this facility, resulting in an available borrowing capacity of $30.0 million. The outstanding principal under the term loan bears interest at the bank's prime interest rate minus 0.50% (8.00% at July 31, 1998). Principal and interest is payable in quarterly installments through April 2003. The outstanding principal under the term loan was increased to $15.0 million in accordance with the terms of the amended bank credit agreement. The amount outstanding on the term loan was $14.3 million at July 31, 1998. The outstanding loans under the revolving 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 1.75%. At July 31, 1998, the interest rates on the outstanding revolving equipment and small business purchase facility were at the LIBOR option ranging from 7.53% to 7.81%. The advances under the revolving equipment acquisition and small business purchase facility are converted to term loans with F-14 61 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) maturities not to exceed 48 months. The outstanding principal on the equipment term loans is payable in monthly installments through February 2001. In October 1997, the Company borrowed $1.0 million to buy out existing operating leases and $1.7 million to refinance equipment under a subsidiary's previously existing credit facility. During the fiscal year ended July 31, 1998, the Company repaid $1.3 million under this facility. The amount outstanding on the revolving equipment acquisition and small business purchase facility was $3.3 million at July 31, 1998 resulting in an available borrowing capacity of $21.7 million. The Company had outstanding standby letters of credit issued to the Company's insurance administrators as part of its self-insurance program of $11.6 million at July 31, 1998. The amended bank credit agreement contains restrictions which, among other things, require maintenance of certain financial ratios and covenants, restricts encumbrances of assets and creation of indebtedness, and 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 fiscal 1998. The amended credit facility is secured by the Company's assets and guaranteed by each of its subsidiaries. At July 31, 1998, the Company was in compliance with all of the financial covenants and conditions. At July 31, 1997, 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. In October 1997, the Company paid off the outstanding balance of $6.6 million and terminated the facility by borrowing $4.9 million against its revolving working capital facility and $1.7 million against the revolving equipment acquisition and small business purchase facility. The Company's recently acquired subsidiaries, CCI and ITI, had credit facilities entered into prior to the acquisition by Dycom. CCI had a $5.2 million revolving credit facility for funding working capital and a $2.0 million term note incurred to purchase equipment. The interest rate on the revolving credit facility was at the bank's prime interest rate and the interest rate on the term loan was at 8.75%. ITI had a $2.0 million revolving credit facility for funding working capital and a $0.5 million multiple advance term facility for equipment acquisitions. The interest rates on the revolving credit facility and the multiple advance term facility were at the bank's prime interest rate. The obligations were secured by substantially all of CCI's and ITI's assets. The facilities contained restrictions, which among other things, required the maintenance of certain financial ratios and covenants and restricted the payment of cash dividends. During the fourth quarter of fiscal 1998, the Company paid off the outstanding balances of $8.1 million under these facilities with existing cash balances and subsequently terminated such facilities. In addition to the borrowings under the amended bank credit agreement, certain subsidiaries have outstanding obligations under capital leases and other equipment financing arrangements. During fiscal 1998, the Company repaid $2.6 million of outstanding balances on capital lease obligations and other equipment term loans with existing cash balances. The remaining obligations are payable in monthly installments expiring at various dates through September 2000. The estimated aggregate annual principal repayments for notes payable and capital lease obligations in the next five years are $4,727,782 in 1999, $4,662,843 in 2000, $3,495,147 in 2001, $3,000,000 in 2002, and $2,250,000 in 2003. Interest costs incurred on notes payable, all of which is expensed, for the years ended July 31, 1996, 1997, and 1998 were $2,515,814, $2,619,191, and $2,045,571, respectively. Such amounts are included in general and administrative expenses in the accompanying consolidated statements of operations. F-15 62 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The interest rates on notes payable under the bank credit agreement are at current rates and, therefore, the carrying amount approximates fair value. 9. INCOME TAXES The components of the provision (benefit) for income taxes are:
1996 1997 1998 ---------- ---------- ----------- Current: Federal......................................... $4,265,617 $6,248,234 $10,565,688 State........................................... 1,447,065 1,904,858 2,613,336 ---------- ---------- ----------- 5,712,682 8,153,092 13,179,024 ---------- ---------- ----------- Deferred: Federal......................................... (522,169) 191,765 737,355 State........................................... (134,700) (395,550) Valuation allowance............................. (1,058,027) (253,306) (475,185) ---------- ---------- ----------- (1,580,196) (196,241) (133,380) ---------- ---------- ----------- Total tax provision..................... $4,132,486 $7,956,851 $13,045,644 ========== ========== ===========
The deferred tax provision (benefit) is the change in the deferred tax assets and liabilities representing the tax consequences of changes in the amount of temporary differences and changes in tax rates during the year. Prior to the acquisition by Dycom, CCI and ITI elected under Subchapter S of the Internal Revenue Code to have the stockholders recognize their proportionate share of CCI's and ITI's taxable income on their personal income tax returns in lieu of paying corporate income taxes. At April 6, 1998, the consummation date of the acquisition, CCI and ITI recorded a deferred tax liability (asset) of $616,358 and $(11,035), respectively, which was included in the third quarter results of operations. The deferred tax assets and liabilities at July 31 are comprised of the following:
1997 1998 ---------- ---------- Deferred tax assets: Self-insurance, warranty, and other non-deductible reserves............................................... $3,943,356 $5,164,116 Allowance for doubtful accounts........................... 346,993 879,306 Small tools............................................... 348,067 380,153 ---------- ---------- 4,638,416 6,423,575 Valuation allowance....................................... (475,185) ---------- ---------- $4,163,231 $6,423,575 ========== ========== Deferred tax liabilities: Property and equipment.................................... $1,357,721 $2,950,402 Unamortized acquisition costs............................. 212,542 248,612 Retainage................................................. 498,213 ---------- ---------- $1,570,263 $3,697,227 ========== ========== Net deferred tax assets..................................... $2,592,968 $2,726,348 ========== ==========
A valuation allowance is provided when it is more likely than not that some portion of the Company's deferred tax assets will not be realized. The valuation allowance recorded in the financial statements reduces deferred tax assets to an amount that represents management's best estimate of the amount of deferred tax assets that more likely than not will be realized. In fiscal 1997, the Company reduced the valuation allowance by $0.3 million. In fiscal 1998, the Company reversed the remaining $475,185 balance F-16 63 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of the valuation allowance. The Company believes that it is more likely than not that the deferred tax assets will be realized based on the available evidence supporting the reversing deductible temporary differences being offset by reversing taxable temporary differences and the existence of sufficient taxable income within the current carryback periods. The difference between the total tax provision and the amount computed by applying the statutory federal income tax rates to pre-tax income is as follows:
1996 1997 1998 ---------- ---------- ----------- Statutory rate applied to pre-tax income.......... $4,919,185 $8,319,671 $12,628,442 State taxes, net of federal tax benefit........... 955,063 1,257,206 1,779,712 Amortization of intangible assets, with no tax benefit......................................... 52,730 52,730 54,281 Tax effect of non-deductible items................ 139,101 374,564 389,999 Valuation allowance............................... (1,058,027) (253,306) (475,185) Income from S Corporations (CCI and ITI).......... (907,814) (1,719,027) (1,827,023) Deferred taxes of pooled companies................ 605,323 Other items, net.................................. 32,248 (74,987) (109,905) ---------- ---------- ----------- Total tax provision..................... $4,132,486 $7,956,851 $13,045,644 ========== ========== ===========
The Internal Revenue Service (the "IRS") has examined and closed the Company's consolidated federal income tax returns for all years through fiscal 1993. The Company has settled all assessments of additional taxes and believes that it has made adequate provision for income taxes that may become payable with respect to open tax years. The IRS has examined and closed the income tax returns for the years through fiscal 1994 for CCG. The IRS is currently auditing the 1995 and 1996 tax years of ITI. 10. REVENUES -- OTHER The components of other revenues are as follows:
1996 1997 1998 ---------- ---------- ---------- Interest income.................................... $ 271,398 $ 215,062 $1,597,987 Gain on sale of fixed assets....................... 736,131 601,645 375,772 Miscellaneous income............................... 350,403 364,625 675,470 ---------- ---------- ---------- Total other revenues..................... $1,357,932 $1,181,332 $2,649,229 ========== ========== ==========
11. CAPITAL STOCK On June 1, 1992, the Company approved a Shareholder Rights Plan. All shareholders of record on June 15, 1992 were issued a Right for each outstanding share of the Company's common stock. Each Right entitles the holder to purchase one-half share of common stock for an exercise price of $12 subject to adjustment. The Right is exercisable only when a triggering event occurs. The triggering events, among others, are a person or group's (1) acquisition of 20% or more of Dycom's common stock, (2) commencement of a tender offer which would result in the person or group owning 20% or more of Dycom's common stock, or (3) acquisition of at least 10% of Dycom's common stock and such acquisition is determined to have effects adverse to the Company. The Company can redeem the Rights at $0.01 per Right at any time prior to ten days after a triggering event occurs. Certain executive officers of the Company have change of control agreements with the Company, which provide substantial compensation upon the change of control of the Company. The payments pursuant to these agreements would be triggered by any person's acquisition of more than 50% of the F-17 64 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company's outstanding securities, the sale or transfer of substantially all of Dycom's assets to someone other than a wholly-owned subsidiary of the Company, or a change of control of the Board of Directors. 12. STOCK OFFERING The Company concluded the public offering of 4,050,000 shares of its common stock on November 4, 1997. The Company offered 2,360,067 shares and selling shareholders offered 1,689,933 shares at an offering price of $13.33 per share. The Company received $29,736,844 on November 10, 1997 which is net of an underwriting discount of $0.73 per share. Additionally, the underwriters exercised their option to purchase 607,500 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 on the July 31, 1998 balance sheet. On November 28, 1997, the Company repaid the outstanding balance of its revolving working capital 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. 13. EMPLOYEE BENEFIT PLAN The Company and certain of its subsidiaries sponsor defined contribution plans that provide retirement benefits to all employees that elect to participate. Under the plans, participating employees may defer up to 15% of their base pre-tax compensation. Generally, the Company's contributions to the plans are discretionary except for CCI which has a 25% company match up to the first 5% of the employee's contributions. The Company's contributions were $158,451, $287,179, and $398,529 in fiscal years 1996, 1997 and 1998, respectively. 14. STOCK OPTION PLANS The Company has reserved 1,350,000 shares of common stock under its 1991 Incentive Stock Option Plan (the "1991 Plan") which was approved by the shareholders on November 25, 1991. The 1991 Plan provides for the granting of options to key employees until it expires in 2001. Options are granted at the closing price on the date of grant and are exercisable over a period of up to five years. Since the 1991 Plan's adoption, certain of the options granted have lapsed as a result of employees terminating their employment with the Company. At July 31, 1996, 1997, and 1998, options available for grant under the 1991 Plan were 641,030 shares, 576,177 shares, and 199,782 shares, respectively. In fiscal 1998, the Company granted to key employees under the 1991 Plan, options to purchase an aggregate 388,470 shares of common stock. The options were granted at prices ranging from $12 3/16 to $17.75, prices representing the fair market value on the date of grant. On August 24, 1998, the Company granted to key employees under the 1991 Plan options to purchase an aggregate of 211,932 shares of common stock. The options were granted at $21 3/16, the fair market value on the date of grant. In addition to the stock option plan discussed above, the Company has agreements outside of the plan with the non-employee members of the Board of Directors (the "Directors Plan"). On January 10, 1994, the Company granted to the non-employee Directors, non-qualified options to purchase an aggregate of 90,000 shares of common stock. The options were granted at $2 9/16, the fair market value on the date of grant, with vesting over a three-year period. F-18 65 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the stock option transactions under the 1991 Plan and the Directors Plan for the three years ended July 31, 1996, 1997, and 1998:
WEIGHTED AVERAGE -------------------------- NUMBER OF SHARES EXERCISE PRICE --------- -------------- Options outstanding at July 31, 1995........................ 816,260 $ 2.86 Terminated................................................ (75,789) $ 4.95 Exercised................................................. (86,253) $ 2.31 Options outstanding at July 31, 1996........................ 654,218 $ 3.03 Granted................................................... 150,000 $ 9.00 Terminated................................................ (85,148) $ 3.05 Exercised................................................. (319,714) $ 2.68 Options outstanding at July 31, 1997........................ 399,356 $ 6.88 Granted................................................... 388,470 $13.73 Terminated................................................ (12,075) $ 9.52 Exercised................................................. (114,714) $ 3.11 Options outstanding at July 31, 1998........................ 661,037 $10.49 Exercisable options at July 31, 1996............................................. 286,226 $ 2.52 July 31, 1997............................................. 104,900 $ 3.47 July 31, 1998............................................. 130,787 $ 4.50
The range of exercise prices for options outstanding at July 31, 1998 was $1.83 to $17.75. The range of exercise prices for options is wide due primarily to the increasing price of the Company's stock over the period of the grants. The following summarizes information about options outstanding at July 31, 1998:
OUTSTANDING OPTIONS ---------------------------------- WEIGHTED WEIGHTED NUMBER AVERAGE AVERAGE OF CONTRACTUAL EXERCISE SHARES LIFE PRICE --------- ----------- -------- Range of exercise prices $1.83 to $5.33......................................... 150,219 1.4 $ 3.44 $8.00 to $13.33........................................ 400,268 3.8 $11.16 $13.33 to $17.75....................................... 110,550 4.7 $17.66 ------- --- ------ 661,037 3.4 $10.49 ======= === ======
EXERCISABLE OPTIONS ---------------------- EXERCISABLE WEIGHTED AS OF AVERAGE JULY 31, EXERCISE 1998 PRICE ----------- -------- Range of exercise prices $1.83 to $5.33............................................ 105,129 $ 3.41 $8.00 to $17.75........................................... 25,658 $ 9.00 ------- ------ 130,787 $ 4.50 ======= ======
These options will expire if not exercised at specific dates ranging from November 1998 to April 2003. The prices for the options exercisable at July 31, 1998 ranged from $1.83 to $9.00. F-19 66 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As discussed in Note 1, the Company has adopted the disclosure-only provisions of SFAS No. 123. The fair value of the options granted in fiscal 1997 and 1998 have been estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: expected stock volatility of 58.97% in 1997 and 55.36% in 1998; risk-free interest rates of 6.57% in 1997 and 5.50% in 1998; expected lives of 4 years for 1997 and 1998, and no dividend yield in both years, due to the Company's recent history of not paying cash dividends. The Black-Scholes option valuation model was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because option valuation models require the use of subjective assumptions and changes in these assumptions can materially impact the fair value of the options and the Company's options do not have the characteristics of traded options, the option valuation models do not necessarily provide a reliable measure of the fair value of its options. The estimated fair value of stock options granted during fiscal 1997 and 1998 was $4.65 and $6.75 per share, respectively. The pro forma disclosures amortize to expense the estimated compensation costs for its stock options granted subsequent to July 31, 1996 over the options vesting period. The Company's fiscal 1996, 1997 and 1998 pro forma net earnings and earnings per share are reflected below:
1996 1997 1998 ---------- ----------- ----------- Net Income: Pro forma net income reflecting stock option compensation costs............................. $9,922,327 $15,687,084 $21,858,609 Pro forma earnings per share reflecting stock option compensation costs: Basic....................................... $ 0.53 $ 0.83 $ 1.03 Diluted..................................... $ 0.52 $ 0.82 $ 1.02 Net Income: Reflecting pro forma tax expense related to S corporations Pro forma net income reflecting stock option compensation costs........................ $9,195,051 $13,802,854 $20,484,349 Pro forma earnings per share reflecting stock option compensation costs: Basic.................................. $ 0.49 $ 0.73 $ 0.97 Diluted................................ $ 0.48 $ 0.72 $ 0.95
15. RELATED PARTY TRANSACTIONS The Company's subsidiary, CCG, leases administrative offices from a partnership of which certain officers of the subsidiary are the general partners and the Company's newly acquired subsidiaries, CCI and ITI, lease administrative offices from a corporation of which certain officers of the subsidiaries are shareholders. ITI advanced the corporation $268,860 for leasehold improvements to its administrative office building. The amount advanced was fully reimbursed by July 31, 1998. The total expense under these arrangements for the years ended July 31, 1996, 1997, and 1998 was $184,200, $242,310, and $304,010, respectively. The future minimum lease commitments under these arrangements are $299,760 in 1999, $299,760 in 2000, $203,760 in 2001 and $80,900 in 2002. F-20 67 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK The operating subsidiaries obtain contracts from both public and private concerns. For the years ended July 31, 1996, 1997, and 1998, approximately 36%, 27%, and 22%, respectively, of the contract revenues were from BellSouth Telecommunications, Inc. ("BellSouth"), 16%, 18%, and 24%, respectively, of the contract revenues were from Comcast Cable Communications, Inc. ("Comcast"), and 6.4%, 6.3%, and 7.2%, respectively, of the contract revenues were from GTE Corporation ("GTE"). Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. BellSouth, Comcast, and GTE represent a significant portion of the Company's customer base. As of July 31, 1997, the total outstanding trade receivables from BellSouth, Comcast, and GTE were $5.7 million or 12%, $11.5 million or 23%, and $2.2 million or 4%, respectively, of the outstanding trade receivables. At July 31, 1998, the total outstanding trade receivables from BellSouth, Comcast, and GTE were $7.9 million or 13%, $16.9 million or 27%, and $2.3 million or 4%, respectively, of the Company's outstanding trade receivables. 17. COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries have operating leases covering office facilities, vehicles, and equipment which have noncancelable terms in excess of one year. During fiscal 1996, 1997, and 1998, the Company entered into numerous operating leases for vehicles and equipment. Certain of these leases contain renewal provisions and generally require the Company to pay insurance, maintenance, and other operating expenses. Total expense incurred under operating lease agreements, excluding the transactions with related parties (see Note 15), for the years ended July 31, 1996, 1997, and 1998, was $5,305,237, $6,732,699, and $6,754,934, respectively. The future minimum obligations under these leases are $4,599,287 in 1999; $2,046,435 in 2000; $954,796 in 2001; $526,526 in 2002, $323,338 in 2003 and $56,900 thereafter. 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 the Company may be offset by use taxes already paid by customers of the Company. 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. 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. 18. QUARTERLY FINANCIAL DATA (UNAUDITED) The Company has historically experienced variability in revenues, income before income taxes and net income on a quarterly basis. A significant amount of this variability is due to the fact that the Company's business is subject to seasonal fluctuations, with activity in its second and occasionally third fiscal quarters (the quarters ended January 31 and April 30 in a given fiscal year) being adversely affected by weather. In addition, budgetary spending patterns of significant customers, which often run on a calendar year basis, have resulted in greater volatility of second fiscal quarter results. F-21 68 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In the opinion of management, the following unaudited quarterly data for the years ended July 31, 1997 and 1998 reflect all adjustments necessary for the fair presentation of a statement of operations. All such adjustments are of a normal recurring nature other than as discussed below. The Company acquired CCI and ITI ("Pooled Companies") on April 6, 1998. The acquisitions were accounted for as poolings of interests and accordingly, the unaudited quarterly financial statements for the periods presented include the accounts of CCI and ITI. The quarterly data for CCI and ITI for the quarter including the consummation date of the mergers and the subsequent quarter are included in the Dycom data. The earnings per common share calculation for each quarter is based on the weighted average shares of common stock outstanding plus the dilutive effect of stock options. The sum of the quarters earnings per common share may not necessarily be equal to the full year earnings per common share amounts.
IN WHOLE DOLLARS, EXCEPT PER SHARE AMOUNTS ------------------------------------------------------ FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ------------ 1997 Revenues: Dycom.................................... $56,414,412 $57,275,311 $63,181,306 $ 67,052,452 Pooled Companies......................... 15,816,874 14,502,399 17,628,078 20,548,608 ----------- ----------- ----------- ------------ $72,231,286 $71,777,710 $80,809,384 $ 87,601,060 =========== =========== =========== ============ Income Before Income Taxes: Dycom.................................... $ 3,981,240 $ 3,575,407 $ 4,700,378 $ 6,784,493 Pooled Companies......................... 1,141,040 393,687 1,373,172 1,821,072 ----------- ----------- ----------- ------------ $ 5,122,280 $ 3,969,094 $ 6,073,550 $ 8,605,565 =========== =========== =========== ============ Net Income: Dycom.................................... $ 2,236,041 $ 2,314,166 $ 2,818,373 $ 3,850,228 Pooled Companies......................... 1,176,518 245,568 1,373,172 1,799,572 ----------- ----------- ----------- ------------ $ 3,412,559 $ 2,559,734 $ 4,191,545 $ 5,649,800 =========== =========== =========== ============ Earnings per Common Share: Basic.................................... $ 0.18 $ 0.14 $ 0.22 $ 0.30 Diluted.................................. $ 0.18 $ 0.13 $ 0.22 $ 0.29 Pro Forma Net Income: Dycom.................................... $ 2,236,041 $ 2,314,166 $ 2,818,373 $ 3,850,228 Pooled Companies......................... 647,285 185,447 810,610 1,067,258 ----------- ----------- ----------- ------------ $ 2,883,326 $ 2,499,613 $ 3,628,983 $ 4,917,486 =========== =========== =========== ============ Pro Forma Earnings per Common Share: Basic.................................... $ 0.15 $ 0.13 $ 0.19 $ 0.26 Diluted.................................. $ 0.15 $ 0.13 $ 0.19 $ 0.26
F-22 69 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IN WHOLE DOLLARS, EXCEPT PER SHARE AMOUNTS ------------------------------------------------------ FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ------------ 1998 Revenues: Dycom.................................... $70,793,691 $62,622,353 $96,872,826 $101,592,970 Pooled Companies......................... 20,638,774 18,842,178 -- -- ----------- ----------- ----------- ------------ $91,432,465 $81,464,531 $96,872,826 $101,592,970 =========== =========== =========== ============ Income Before Income Taxes: Dycom.................................... $ 6,165,432 $ 5,417,012 $ 8,807,157 $ 11,619,113 Pooled Companies......................... 2,222,087 1,850,463 -- -- ----------- ----------- ----------- ------------ $ 8,387,519 $ 7,267,475 $ 8,807,157 $ 11,619,113 =========== =========== =========== ============ Net Income: Dycom.................................... $ 3,515,950 $ 3,246,711 $ 5,343,005 $ 7,088,957 Pooled Companies......................... 2,222,087 1,618,910 -- -- ----------- ----------- ----------- ------------ $ 5,738,037 $ 4,865,621 $ 5,343,005 $ 7,088,957 =========== =========== =========== ============ Earnings per Common Share: Basic.................................... $ 0.30 $ 0.23 $ 0.24 $ 0.32 Diluted.................................. $ 0.30 $ 0.22 $ 0.24 $ 0.32 Pro Forma Net Income: Dycom.................................... $ 3,515,950 $ 3,246,711 $ 5,432,241 $ 7,088,957 Pooled Companies......................... 1,298,383 1,079,118 -- -- ----------- ----------- ----------- ------------ $ 4,814,333 $ 4,325,829 $ 5,432,241 $ 7,088,957 =========== =========== =========== ============ Pro Forma Earnings per Common Share: Basic.................................... $ 0.25 $ 0.20 $ 0.25 $ 0.32 Diluted.................................. $ 0.25 $ 0.20 $ 0.24 $ 0.32
The 1997 fourth quarter results of operations include a $0.3 million reduction in the deferred tax asset valuation allowance. The third and fourth quarter 1998 results of operations include a reduction in the deferred tax asset valuation allowance of $0.2 million and $0.2 million, respectively. 19. SUBSEQUENT EVENT On December 14, 1998, the Board of Directors declared a 3-for-2 split of the Company's common stock, effected in the form of a stock dividend paid on January 4, 1999 to stockholders of record on December 23, 1998. 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. F-23 70 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JULY 31, JANUARY 31, 1998 1999 ------------ ------------ ASSETS CURRENT ASSETS: Cash and equivalents........................................ $ 35,927,307 $ 33,985,787 Accounts receivable, net.................................... 62,142,808 50,242,669 Costs and estimated earnings in excess of billings.......... 14,382,620 19,377,664 Deferred tax assets, net.................................... 2,726,348 2,668,146 Other current assets........................................ 3,014,199 7,253,689 ------------ ------------ Total current assets.............................. 118,193,282 113,527,955 ------------ ------------ PROPERTY AND EQUIPMENT, net................................. 42,865,197 58,126,177 ------------ ------------ OTHER ASSETS: Intangible assets, net...................................... 4,529,270 4,507,489 Deferred tax assets......................................... 53,066 Other....................................................... 730,342 4,524,833 ------------ ------------ Total other assets................................ 5,259,612 9,085,388 ------------ ------------ TOTAL............................................. $166,318,091 $180,739,520 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................................ $ 12,182,699 $ 13,523,311 Notes payable............................................... 4,727,782 4,743,624 Accrued self-insured claims................................. 2,440,303 2,729,208 Income taxes payable........................................ 2,812,144 618,362 Other accrued liabilities................................... 14,819,181 13,764,652 ------------ ------------ Total current liabilities......................... 36,982,109 35,379,157 NOTES PAYABLE............................................... 13,407,990 11,181,614 ACCRUED SELF-INSURED CLAIMS................................. 7,454,849 8,403,196 OTHER LIABILITIES........................................... 10,094,195 11,043,894 ------------ ------------ Total liabilities................................. 67,939,143 66,007,861 ------------ ------------ COMMITMENTS AND CONTINGENCIES, Note 8 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: 50,000,000 shares authorized; 22,084,097 and 22,240,400 shares issued and outstanding, respectively............ 7,361,366 7,413,466 Additional paid-in capital.................................. 60,042,463 62,198,781 Retained earnings........................................... 30,975,119 45,119,412 ------------ ------------ Total stockholders' equity........................ 98,378,948 114,731,659 ------------ ------------ TOTAL............................................. $166,318,091 $180,739,520 ============ ============
See notes to condensed consolidated financial statements -- unaudited. F-24 71 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, --------------------------- 1998 1999 ------------ ------------ REVENUES: Contract revenues earned.................................... $80,680,559 $96,727,284 Other, net.................................................. 783,972 727,268 ----------- ----------- Total............................................. 81,464,531 97,454,552 ----------- ----------- Expenses: Costs of earned revenues excluding depreciation............. 63,636,371 73,468,675 General and administrative.................................. 7,360,048 8,676,838 Depreciation and amortization............................... 3,200,637 4,144,089 ----------- ----------- Total............................................. 74,197,056 86,289,602 ----------- ----------- INCOME BEFORE INCOME TAXES.................................. 7,267,475 11,164,950 ----------- ----------- PROVISION FOR INCOME TAXES: Current................................................... 2,041,386 4,201,198 Deferred.................................................. 360,468 313,602 ----------- ----------- Total............................................. 2,401,854 4,514,800 ----------- ----------- NET INCOME.................................................. $ 4,865,621 $ 6,650,150 =========== =========== EARNINGS PER COMMON SHARE: Basic..................................................... $ 0.23 $ 0.30 =========== =========== Diluted................................................... $ 0.22 $ 0.29 =========== =========== PRO FORMA NET INCOME AND EARNINGS PER COMMON SHARE DATA: Income before income taxes................................ $ 7,267,475 Pro forma provision for income taxes...................... 2,941,646 ----------- PRO FORMA NET INCOME........................................ $ 4,325,829 =========== PRO FORMA EARNINGS PER COMMON SHARE: Basic..................................................... $ 0.20 =========== Diluted................................................... $ 0.20 ===========
See notes to condensed consolidated financial statements -- unaudited. F-25 72 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED) (UNAUDITED)
FOR THE SIX MONTHS ENDED JANUARY 31, --------------------------- 1998 1999 ------------ ------------ REVENUES: Contract revenues earned.................................... $171,813,092 $205,340,440 Other, net.................................................. 1,083,904 1,416,362 ------------ ------------ Total............................................. 172,896,996 206,756,802 ------------ ------------ EXPENSES: Costs of earned revenues excluding depreciation............. 134,956,874 154,648,923 General and administrative.................................. 15,961,757 20,214,381 Depreciation and amortization............................... 6,323,371 8,116,827 ------------ ------------ Total............................................. 157,242,002 182,980,131 ------------ ------------ INCOME BEFORE INCOME TAXES.................................. 15,654,994 23,776,671 ------------ ------------ PROVISION FOR INCOME TAXES: Current................................................... 4,877,597 9,627,242 Deferred.................................................. 173,739 5,136 ------------ ------------ Total............................................. 5,051,336 9,632,378 ------------ ------------ NET INCOME.................................................. $ 10,603,658 $ 14,144,293 ============ ============ EARNINGS PER COMMON SHARE: Basic..................................................... $ 0.52 $ 0.64 ============ ============ Diluted................................................... $ 0.51 $ 0.63 ============ ============ PRO FORMA NET INCOME AND EARNINGS PER COMMON SHARE DATA: Income before income taxes................................ $ 15,654,994 Pro forma provision for income taxes...................... 6,514,832 ------------ PRO FORMA NET INCOME........................................ $ 9,140,162 ============ PRO FORMA EARNINGS PER COMMON SHARE: Basic.................................................. $ 0.45 ============ Diluted................................................ $ 0.44 ============
See notes to condensed consolidated financial statements -- unaudited. F-26 73 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JANUARY 31, ------------------------- 1998 1999 ----------- ----------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS FROM: OPERATING ACTIVITIES: Net income.................................................. $10,603,658 $14,144,293 Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization.......................... 6,323,371 8,116,827 Gain on disposal of assets............................. (177,643) (161,439) Deferred income taxes.................................. 173,739 5,136 Changes in assets and liabilities: Accounts receivable, net............................... 3,768,114 11,900,139 Unbilled revenues, net................................. (2,510,658) (4,995,044) Other current assets................................... (190,480) (4,239,490) Other assets........................................... 96,963 (794,491) Accounts payable....................................... (4,705,467) 1,340,612 Accrued self-insured claims and other liabilities...... (2,153,215) 1,132,422 Accrued income taxes................................... (846,507) (2,193,782) ----------- ----------- Net cash inflow from operating activities................... 10,381,875 24,255,183 ----------- ----------- INVESTING ACTIVITIES: Capital expenditures................................... (9,986,657) (22,810,098) Proceeds from sale of assets........................... 947,830 553,276 Assets of acquired business............................ (750,000) Investment in unconsolidated affiliate................. (3,000,000) ----------- ----------- Net cash outflow from investing activities.................. (9,038,827) (26,006,822) ----------- ----------- FINANCING ACTIVITIES: Borrowings on notes payable and bank lines-of-credit... 9,569,762 -- Principal payments on notes payable and bank lines-of-credit....................................... (21,139,918) (2,398,299) Exercise of stock options.............................. 173,955 2,208,418 Proceeds from stock offering........................... 36,958,618 -- Distributions to shareholders of pooled companies...... (3,897,000) -- ----------- ----------- Net cash inflow (outflow) from financing activities......... 21,665,417 (189,881) ----------- ----------- NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES............... 23,008,465 (1,941,520) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................. 5,276,112 35,927,307 ----------- ----------- CASH AND EQUIVALENTS AT END OF PERIOD....................... $28,284,577 $33,985,787 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NON-CASH INVESTING AND FINANCING ACTIVITIES: Cash paid during the period for: Interest............................................... $ 1,173,609 $ 657,932 Income taxes........................................... $ 5,726,979 $10,765,623 Property and equipment acquired and financed with: Capital lease obligation.................................. $ 187,765 Income tax benefit from stock options exercised............. $ 194,483 $ 1,115,554
See notes to condensed consolidated financial statements -- unaudited. F-27 74 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 July 31, 1998 and January 31, 1999, and the related condensed consolidated statements of operations for the three and six months ended January 31, 1998 and 1999, respectively, and the condensed consolidated statements of cash flows for the six months ended January 31, 1998 and 1999 reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three and six months ended January 31, 1999 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 April 6, 1998, the Company consummated the Cable Com Inc. ("CCI") and Installation Technicians, Inc. ("ITI") acquisitions and issued 1.8 million and 900,000 shares of common stock in exchange for all the outstanding capital stock of CCI and ITI, respectively. These acquisitions were accounted for as poolings of interests and accordingly, the Company's condensed consolidated financial statements include the results of CCI and ITI for all periods presented. Prior to the acquisitions, CCI and ITI used a fiscal year consisting of a 52/53 week time period and, as a result of the merger, have adopted Dycom's fiscal year end of July 31. All periods presented reflect the adoption of such fiscal year end as of the beginning of the period. The Company is a leading provider of engineering, construction and maintenance services to telecommunications providers and also performs underground utility locating services and electrical construction and maintenance contracting services. All material intercompany accounts and transactions have been eliminated. Pro Forma Adjustments -- Prior to the acquisition by Dycom, CCI and ITI elected under Subchapter S of the Internal Revenue Code to have the stockholders recognize their proportionate share of CCI's and ITI's taxable income on their personal tax returns in lieu of paying corporate income tax. The pro forma net income and earnings per common share on the condensed consolidated statements of operations reflect a provision for current and deferred income taxes for all periods presented as if the corporations were included in Dycom's federal and state income tax returns. At April 6, 1998, the consummation date of the acquisition, CCI and ITI recorded deferred taxes on the temporary differences between the financial reporting basis and the tax basis of their assets and liabilities. The deferred tax (asset) liability recorded by CCI and ITI was $616,358 and $(11,035), respectively. 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 short-term 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. 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. F-28 75 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) "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 would be 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. Property and Equipment -- Property and equipment is stated at cost. Depreciation and amortization is computed over the estimated useful life of the assets utilizing the straight-line method. The estimated useful service lives of the assets are: buildings -- 20-31 years; leasehold improvements -- the term of the respective lease or the estimated useful life of the improvements, whichever is shorter; vehicles -- 3-7 years; equipment and machinery -- 2-10 years; and furniture and fixtures -- 3-10 years. Maintenance and repairs are expensed as incurred; expenditures that enhance the value of the property or extend its useful life are capitalized. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income. 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. 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. Non-compete agreements obtained through the purchase of business assets are amortized on a straight-line basis over the term of the agreements. Amortization expense was $77,545 and $83,741 for the six month periods ended January 31, 1998 and 1999, respectively. The intangible assets are net of accumulated amortization of $1,306,446 at July 31, 1998 and $1,390,188 at January 31, 1999. 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 $5,120,000 and $7,330,000 at July 31, 1998 and January 31, 1999, 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, except for CCI and ITI, file a consolidated federal income tax return. CCI and ITI were included in the Company's consolidated federal income tax return effective April 6, 1998. 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. 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 F-29 76 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 annual 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 fiscal years beginning after December 15, 1997. In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about Pension and Other Postretirement Benefits", which revises certain disclosures about pension and other postretirement benefit plans. This statement does not change the measurement and recognition methods for pensions or postretirement benefit costs reported in financial statements. This statement is effective for fiscal years beginning after December 15, 1997. In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" which establishes standards for the accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. Management is currently evaluating the requirements and related disclosures of SFAS No. 130, 131, 132, and 133. 3. EARNINGS PER SHARE 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. On December 14, 1998, the Board of Directors declared a three-for-two split of the Company's common stock, effected in the form of a stock dividend paid on January 4, 1999 to shareholders of record on December 23, 1998. 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. F-30 77 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 JANUARY 31, ----------------------- 1998 1999 ---------- ---------- Net income available to common stockholders (numerator)..... $4,865,621 $6,650,150 ========== ========== Weighted-average number of common shares (denominator)...... 21,619,506 22,199,923 ========== ========== Earnings per common share -- basic.......................... $ 0.23 $ 0.30 ========== ========== Weighed-average number of common shares..................... 21,619,506 22,199,923 Potential common stock arising from stock options........... 286,590 412,169 ---------- ---------- Total shares (denominator)........................ 21,906,096 22,612,092 ========== ========== Earnings per common share -- diluted........................ $ 0.22 $ 0.29 ========== ========== PRO FORMA EARNINGS PER SHARE DATA: Pro forma net income available to common stockholders (numerator)............................................... $4,325,829 ========== Pro forma earnings per common share -- basic................ $ 0.20 ========== Pro forma earnings per common share -- diluted.............. $ 0.20 ==========
FOR THE SIX MONTHS ENDED JANUARY 31, ------------------------- 1998 1999 ----------- ----------- Net income available to common stockholders (numerator)..... $10,603,658 $14,144,293 =========== =========== Weighted-average number of common shares (denominator)...... 20,312,127 22,144,794 =========== =========== Earnings per common share -- basic.......................... $ 0.52 $ 0.64 =========== =========== Weighed-average number of common shares..................... 20,312,127 22,144,794 Potential common stock arising from stock options........... 280,908 381,024 ----------- ----------- Total shares (denominator)........................ 20,593,035 22,525,818 =========== =========== Earnings per common share -- diluted........................ $ 0.51 $ 0.63 =========== =========== PRO FORMA EARNINGS PER SHARE DATA: Pro forma net income available to common stockholders (numerator)............................................... $ 9,140,162 =========== Pro forma earnings per common share -- basic................ $ 0.45 =========== Pro forma earnings per common share -- diluted.............. $ 0.44 ===========
F-31 78 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. ACCOUNTS RECEIVABLE Accounts receivable consist of the following:
JULY 31, JANUARY 31, 1998 1999 ----------- ----------- Contract billings........................................... $58,888,421 $47,295,278 Retainage................................................... 4,133,590 4,839,257 Other receivables........................................... 1,331,775 908,834 ----------- ----------- Total............................................. 64,353,786 53,043,369 Less allowance for doubtful accounts........................ 2,210,978 2,800,700 ----------- ----------- Accounts receivable, net.................................... $62,142,808 $50,242,669 =========== ===========
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:
JULY 31, JANUARY 31, 1998 1999 ----------- ----------- Costs incurred on contracts in progress..................... $15,056,642 $19,793,680 Estimated earnings thereon.................................. 3,387,933 4,617,836 ----------- ----------- 18,444,575 24,411,516 Less billings to date....................................... 4,061,955 5,033,852 ----------- ----------- Costs and estimated earnings in excess of billings.......... $14,382,620 $19,377,664 =========== ===========
6. PROPERTY AND EQUIPMENT The accompanying condensed consolidated balance sheets include the following property and equipment:
JULY 31, JANUARY 31, 1998 1999 ----------- ------------ Land....................................................... $ 1,592,958 $ 2,077,830 Buildings.................................................. 2,497,103 3,559,155 Leasehold improvements..................................... 1,459,543 1,448,840 Vehicles................................................... 52,287,135 66,676,786 Equipment and machinery.................................... 34,319,707 39,568,769 Furniture and fixtures..................................... 5,638,326 6,218,428 ----------- ------------ Total............................................ 97,794,772 119,549,808 Less accumulated depreciation and amortization............. 54,929,575 61,423,631 ----------- ------------ Property and equipment, net................................ $42,865,197 $ 58,126,177 =========== ============
F-32 79 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. NOTES PAYABLE Notes payable are summarized by type of borrowings as follows:
JULY 31, JANUARY 31, 1998 1999 ----------- ----------- Bank Credit Agreement: Term loan................................................. $14,250,000 $12,750,000 Equipment term loans...................................... 3,339,218 2,595,486 Capital lease obligations................................... 60,931 202,043 Equipment loans............................................. 485,623 377,709 ----------- ----------- Total............................................. 18,135,772 15,925,238 Less current portion........................................ 4,727,782 4,743,624 ----------- ----------- Notes payable -- non-current................................ $13,407,990 $11,181,614 =========== ===========
On April 29, 1998, the Company signed an amendment to its bank credit agreement increasing the total facility to $85.0 million. The amended bank credit agreement provides for (i) a $30.0 million revolving working capital facility; (ii) a $15.0 million standby letter of credit facility; (iii) a $25.0 million revolving equipment acquisition and small business purchase facility; and (iv) a $15.0 million five-year term loan. The revolving working capital facility, the standby letter of credit facility and the revolving equipment facility are available for a two-year period. The revolving working capital facility bears interest, at the option of the Company, at the bank's prime interest rate minus 1.00% or LIBOR plus 1.50%. As of January 31, 1999, there was no outstanding balance on this facility resulting in an available borrowing capacity of $30.0 million. The Company had outstanding standby letters of credit issued to the Company's insurance administrators as part of its self-insurance program of $11.4 million at January 31, 1999. The outstanding loans under the revolving 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 1.75%. At January 31, 1999, the interest rate on the outstanding revolving equipment and small business purchase facility were at the LIBOR option of 7.00%. The advances under the revolving 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. The amount outstanding on the revolving equipment acquisition and small business purchase facility was $2.6 million at January 31, 1999, resulting in an available borrowing capacity of $22.4 million. The outstanding principal under the term loan bears interest at the bank's prime interest rate minus 0.50% (7.25% at January 31, 1999). Principal and interest is payable in quarterly installments through April 2003. The amount outstanding on the term loan was $12.8 million at January 31, 1999. 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 three and six month periods ended January 31, 1999. The amended bank credit facility is secured by the Company's assets and guaranteed by each of its subsidiaries. At January 31, 1999, the Company was in compliance with all financial covenants and conditions. F-33 80 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 January 2002. Interest costs incurred on notes payable, all of which were expensed for the three month period ended January 31, 1998 and 1999 were $461,656 and $316,530, respectively. Interest costs for the six month period ended January 31, 1998 and 1999 were $1,097,845 and $665,080, respectively. Such amounts are included in general and administrative expenses in the accompanying condensed consolidated statements of operations. 8. COMMITMENTS AND CONTINGENCIES In September 1995, the State of New York commenced a sales and use tax audit of Communications Construction Group, Inc. ("CCG"), a wholly-owned subsidiary, 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 the Company may be offset by use taxes already paid by the customers of the Company. 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. 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. 9. SUBSEQUENT EVENT On February 3, 1999, the Company acquired all of the outstanding common stock of Locating, Inc. for $10.0 million. Located in Issaquah, Washington, Locating, Inc.'s primary line of business is the locating, marking, and mapping of underground utility facilities for cable television, multiple system operators, telephone companies, and electrical and gas utilities. The Company intends to record this transaction as a purchase. F-34 81 INDEX TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Basis of Presentation....................................... P-2 Pro Forma Unaudited Condensed Consolidated Statement of Operations for the six months ended January 31, 1999...... P-3 Pro Forma Unaudited Condensed Consolidated Statement of Operations for the fiscal year ended July 31, 1998........ P-4 Pro Forma Unaudited Condensed Consolidated Balance Sheet at January 31, 1999.......................................... P-5 Notes to Pro Forma Unaudited Condensed Consolidated Financial Statements...................................... P-6
P-1 82 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION On March 31, 1999, pursuant to a stock purchase agreement, we purchased all of the issued and outstanding shares of common stock of Ervin Cable Construction, Inc. ("ECC") for $21,750,000 in cash and 258,066 shares of our common stock. On April 1, 1999, pursuant to a merger agreement we issued an aggregate of 516,128 shares of our common stock to the shareholders of Apex Digital TV, Inc. ("Apex") in exchange for all the issued and outstanding common stock of Apex. Prior to the acquisitions, the three stockholders of ECC held 80% of the outstanding shares of common stock of Apex. The accompanying pro forma unaudited condensed consolidated financial statements are based on the historical financial presentation of our consolidated financial statements, ECC, Apex and Locating, a Washington corporation we acquired for $10 million in February 1999. The pro forma unaudited condensed consolidated financial statements and related notes give effect to these acquisitions under the purchase method of accounting. The accompanying pro forma unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in this prospectus and the historical financial statements of ECC and Apex, which are incorporated in this prospectus by reference. The pro forma unaudited condensed consolidated balance sheet presents our financial position as if the acquisitions had been completed on January 31, 1999. The pro forma unaudited condensed consolidated statement of operations for the six month period ended January 31, 1999 and for the fiscal year ended July 31, 1998 assume that the acquisitions occurred as of the beginning of the periods presented. The pro forma unaudited condensed consolidated financial statements are presented for illustrative purposes only. They do not purport to be indicative of the financial position or results of operations of Dycom, that would have actually been presented, or which may be obtained in the future. The pro forma unaudited condensed consolidated financial statements do not include any likely cost savings or any synergies that are likely to occur from the acquisitions and there can be no assurances that any such cost savings or synergies will occur. The pro forma adjustments are described in the accompanying notes and are based upon available information and certain assumptions that we believe are reasonable. A preliminary allocation of the purchase price has been made to major categories of assets and liabilities in the accompanying pro forma unaudited condensed consolidated financial statements based on available information. The actual allocation of the purchase price and the resulting effect on income from operations may differ significantly from the pro forma amounts included herein. These pro forma adjustments represent our determination of purchase accounting adjustments and are based upon available information and certain assumptions that we believe to be reasonable. As such, the amounts reflected in the pro forma unaudited condensed consolidated financial statements are subject to change, and final amounts may differ significantly. P-2 83 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31, 1999
PRO FORMA DYCOM ECC APEX LOCATING ADJUSTMENTS PRO FORMA ------------ ----------- ----------- ---------- ----------- ------------ Revenues: Contract revenues earned.................. $205,340,440 $13,215,565 $13,358,208 $6,839,613 $ $238,753,826 Other, net................ 1,416,362 104,126 223,943 71,601 1,816,032 ------------ ----------- ----------- ---------- ----------- ------------ Total............ 206,756,802 13,319,691 13,582,151 6,911,214 240,569,858 ------------ ----------- ----------- ---------- ----------- ------------ Expenses: Costs of earned revenue excluding depreciation............ 154,648,923 9,881,697 8,687,630 5,912,326 179,130,576 General and administrative.......... 20,214,381 1,729,394 2,327,713 564,893 1,006,377(9) 25,842,758 Depreciation and amortization............ 8,116,827 520,207 133,224 142,066 1,170,358(4) 10,082,682 ------------ ----------- ----------- ---------- ----------- ------------ Total............ 182,980,131 12,131,298 11,148,567 6,619,285 2,176,735 215,056,016 ------------ ----------- ----------- ---------- ----------- ------------ Income before income taxes................... 23,776,671 1,188,393 2,433,584 291,929 (2,176,735) 25,513,842 Provision for income taxes................... 9,632,378 1,733,676(3) -- (673,498)(10) 10,692,556 ------------ ----------- ----------- ---------- ----------- ------------ Net income.............. $ 14,144,293 $ 1,188,393 $ 2,433,584 $ 291,929 $(3,236,913) $ 14,821,286 ============ =========== =========== ========== =========== ============ Earnings per common share: Basic................... $ 0.64 $ 0.65 ============ ============ Diluted................. $ 0.63 $ 0.64 ============ ============ Shares used in computing earnings per common share: Basic................... 22,144,794 774,194(8) 22,918,988 ============ =========== ============ Diluted................. 22,525,818 774,194(8) 23,300,012 ============ =========== ============
P-3 84 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED JULY 31, 1998
PRO FORMA DYCOM ECC APEX LOCATING ADJUSTMENTS PRO FORMA ------------ ----------- ----------- ----------- ----------- ------------ Revenues: Contract revenues earned............. $368,713,563 $31,015,498 $21,347,759 $15,334,387 $ $436,411,207 Other, net........................... 2,649,229 716,519 98,160 65,608 3,529,516 ------------ ----------- ----------- ----------- ----------- ------------ Total........................ 371,362,792 31,732,017 21,445,919 15,399,995 439,940,723 ------------ ----------- ----------- ----------- ----------- ------------ Expenses: Costs of earned revenue excluding depreciation....................... 285,038,220 23,825,295 14,532,370 11,415,364 334,811,249 General and administrative........... 36,746,614 2,956,042 3,072,553 3,217,210 1,880,044(9) 47,872,463 Depreciation and amortization........ 13,496,694 781,985 184,228 267,799 2,688,734(4) 17,419,440 ------------ ----------- ----------- ----------- ----------- ------------ Total........................ 335,281,528 27,563,322 17,789,151 14,900,373 4,568,778 400,103,152 ------------ ----------- ----------- ----------- ----------- ------------ Income before income taxes........... 36,081,264 4,168,695 3,656,768 499,622 (4,568,778) 39,837,571 Provision for income taxes........... 13,045,644 3,264,499(3) -- (1,431,100)(10) 14,879,043 ------------ ----------- ----------- ----------- ----------- ------------ Net income......................... $ 23,035,620 $ 4,168,695 $ 3,656,768 $ 499,622 $(6,402,177) $ 24,958,528 ============ =========== =========== =========== =========== ============ Earnings per common share: Basic.............................. $ 1.09 $ 1.14 ============ ============ Diluted............................ $ 1.07 $ 1.12 ============ ============ Shares used in computing earnings per common share: Basic.............................. 21,172,025 774,194(8) 21,946,219 ============ =========== ============ Diluted............................ 21,482,634 774,194(8) 22,256,828 ============ =========== ============
P-4 85 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET JANUARY 31, 1999
PRO FORMA DYCOM ECC APEX LOCATING ADJUSTMENTS PRO FORMA ------------ ----------- ---------- ---------- ------------ ------------ ASSETS Current Assets: Cash and equivalents............. $ 33,985,787 $ 523,178 $ 225,063 $1,075,586 $ $ 35,809,614 Accounts receivable, net......... 50,242,669 5,614,249 3,114,968 1,742,545 (14,377)(5) 326(7) 60,700,380 Cost and estimated earnings in excess of billings............. 19,377,664 1,428,127 20,805,791 Deferred income taxes, net....... 2,668,146 124,200(4) 2,792,346 Other current assets............. 7,253,689 320,505 253,306 158,836 24,828(5) (85,985)(7) 7,925,179 ------------ ----------- ---------- ---------- ------------ ------------ Total current assets..... 113,527,955 7,886,059 3,593,337 2,976,967 48,992 128,033,310 ------------ ----------- ---------- ---------- ------------ ------------ Property and equipment, net...... 58,126,177 4,138,923 1,119,035 484,760 1,239,433(4) (1,378,999)(6) 63,729,329 Other assets: Intangible assets, net........... 4,507,489 54,492,776(4) (51,382)(5) 58,948,883 Deferred tax assets, net......... 53,066 20,553(4) 73,619 Other............................ 4,524,833 143,865 499,413 (24,828)(5) 5,143,283 ------------ ----------- ---------- ---------- ------------ ------------ Total other assets....... 9,085,388 143,865 499,413 54,437,119 64,165,785 ------------ ----------- ---------- ---------- ------------ ------------ TOTAL.................... $180,739,520 $12,168,847 $4,712,372 $3,961,140 $ 54,346,545 $255,928,424 ============ =========== ========== ========== ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................. $ 13,523,311 $ 1,142,888 $ 420,785 $ 151,852 $ $ 15,238,836 Notes payable.................... 4,743,624 297,800 7,937,500(4) 12,978,924 Billings in excess of costs and estimated earnings............. 495,105 495,105 Accrued self-insured claims...... 2,729,208 2,729,208 Income taxes payable............. 618,362 618,362 Other accrued liabilities........ 13,764,652 652,819 863,017 1,390,993 681,457(2) 143,928(4) 906,269(5) 127,034(5) 3,702,584(6) (85,659)(7) 22,147,094 ------------ ----------- ---------- ---------- ------------ ------------ Total current liabilities............ 35,379,157 2,588,612 1,283,802 1,542,845 13,413,113 54,207,529 Notes payable.................... 11,181,614 70,968 431,643 31,750,000(4) (7,937,500)(4) 35,496,725 Accrued self-insured claims...... 8,403,196 8,403,196 Other liabilities................ 11,043,894 (127,034)(5) 10,916,860 Deferred tax liability, net...... 14,372(4) 14,372 ------------ ----------- ---------- ---------- ------------ ------------ Total liabilities........ 66,007,861 2,659,580 1,715,445 1,542,845 37,112,951 109,038,682 ------------ ----------- ---------- ---------- ------------ ------------ Stockholders' equity: Preferred stock.................. Common stock..................... 7,413,466 48,532 375 100 209,058(4) 7,671,531 Additional paid-in capital....... 62,198,781 2,217,000 14,700 3,000 29,665,318(4) 94,098,799 Retained (deficit) earnings...... 45,119,412 7,243,735 2,981,852 2,415,195 (12,640,782)(4) 45,119,412 ------------ ----------- ---------- ---------- ------------ ------------ Total stockholders' equity................. 114,731,659 9,509,267 2,996,927 2,418,295 17,233,594 146,889,742 ------------ ----------- ---------- ---------- ------------ ------------ TOTAL.................... $180,739,520 $12,168,847 $4,712,372 $3,961,140 $ 54,346,545 $255,928,424 ============ =========== ========== ========== ============ ============
P-5 86 NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) ACCOUNTING PERIODS Prior to the acquisitions, ECC and Apex had used a calendar year end and as a result of the merger have adopted our fiscal year end of July 31. All periods presented reflect the adoption of such fiscal year end as of the beginning of the period. Our consolidated balance sheet as of January 31, 1999 has been combined with ECC's and Apex's balance sheet as of the same date. Our consolidated statements of operations for the six months ended January 31, 1999 and for the fiscal year ended July 31, 1998 have been combined with ECC's and Apex's results of operations for the same periods. (2) MERGER COSTS Dycom, ECC and Apex estimate they will incur direct transaction costs of approximately $475,000 associated with the acquisitions, consisting of fees for filing with regulatory agencies, legal, accounting and other related costs. These costs, together with approximately $206,000 of estimated transaction costs related to the acquisition of Locating, have been accrued. These nonrecurring costs are included in goodwill. (3) PROVISION FOR INCOME TAXES Prior to the acquisitions, Locating, ECC and Apex elected under Subchapter S of the Internal Revenue Code to have the stockholders recognize their proportionate share of Locating's, ECC's and Apex's taxable income on their personal income tax returns in lieu of paying corporate income tax. The unaudited pro forma financial information reflects a provision for current and deferred income taxes for all periods presented as if the corporations were included in our federal and state income tax returns. The balance sheet reflects deferred taxes in accordance with the requirements of Financial Accounting Standards Board of Financial Accounting Standards No. 109, "Accounting for Income Taxes." (4) PURCHASE ACCOUNTING ADJUSTMENTS The estimated purchase price and preliminary adjustments to the historical book values of ECC, Apex, and Locating are as follows: ECC Estimated value of common stock issued...................... $10,719,416 Cash portion of purchase price.............................. 21,750,000 Estimated fair value of net assets acquired................. (5,279,385) ----------- Purchase price in excess of fair value of net assets acquired -- goodwill...................................... $27,190,031 =========== Fair value of net assets acquired: Increase in property, plant, and equipment to estimated fair market value...................................... $ 218,662 Book value of net assets acquired......................... 5,060,723 ----------- Total............................................. $ 5,279,385 ===========
P-6 87 NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) APEX Estimated fair value of common stock issued................. $21,438,667 Estimated fair value of net assets acquired................. (3,021,339) ----------- Purchase price in excess of fair value of net assets acquired -- goodwill...................................... $18,417,328 =========== Fair value of net assets acquired: Increase in property, plant, and equipment to estimated fair market value...................................... $ 802,773 Increase in deferred tax asset............................ 124,200 Increase in deferred tax liability........................ (14,372) Book value of net assets acquired......................... 2,108,738 ----------- Total............................................. $ 3,021,339 =========== LOCATING Cash portion of purchase price.............................. $10,000,000 Estimated fair value of net assets acquired................. (1,114,583) ----------- Purchase price in excess of fair value of net assets acquired -- goodwill...................................... $ 8,885,417 =========== Fair value of net assets acquired: Increase in property, plant, and equipment to estimated fair market value...................................... $ 217,998 Increase in deferred tax asset............................ 20,553 Increase in accrued taxes................................. (145,236) Book value of net assets acquired......................... 1,021,268 ----------- Total............................................. $ 1,114,583 ===========
The cash portion of the purchases was funded using borrowings of $31,750,000 from our credit facility. These borrowings are expected to be repaid out of the proceeds of this offering and have been reclassified to Current Liabilities -- Notes Payable. In accordance with the purchase method of accounting, the purchased equity balances of the companies acquired have been eliminated. Depreciation expense computed utilizing the straight line method has been adjusted as if the acquired property, plant, and equipment were recorded at fair market value on the first day of the period presented and the following estimated useful lives were adopted: buildings -- 30 years; leasehold improvements -- the term of the respective lease or the estimated useful life of the improvements, whichever is shorter; vehicles -- 2 to 7 years; equipment and machinery -- 1 to 10 years; and furniture and fixtures -- 1 to 10 years. Goodwill recognized as a result of the transactions above is being amortized over a period of twenty years. Pro forma amortization expense was $1,362,319 and $2,724,639 for the six months ended January 31, 1999 and the year ended July 31, 1998, respectively. (5) MODIFIED CASH TO ACCRUAL BASIS Prior to its acquisition, Locating maintained its financial statements on a modified cash basis; therefore, the following pro forma adjustments are necessary: Increase in allowance for doubtful accounts................. $ 14,377 Increase in accumulated amortization........................ 51,382 Increase in accrued liabilities............................. 906,269
P-7 88 NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Additionally, certain long-term assets and liabilities, expected to be realized within the next twelve months, have been reclassified as current. (6) STOCKHOLDER DISTRIBUTIONS The consolidated balance sheet as of January 31, 1999 reflects a pro forma adjustment of approximately $5,080,000 for stockholder distributions subsequent to the balance sheet date. Approximately $3,700,000 of these distributions will be made in April 1999 for payment of the 1998 tax liability associated with ECC's and Apex's taxable income recognized on the stockholders' personal income tax returns for periods prior to the acquisitions. Additionally, personal use property was distributed to the shareholders of ECC in the amount of $1,378,999 prior to the acquisition of ECC. (7) ELIMINATION OF INTERCOMPANY BALANCES Prior to the acquisitions, three stockholders of ECC held 80% of the outstanding shares of common stock of Apex. All intercompany balances and transactions between ECC and Apex have been eliminated. (8) PRO FORMA NET INCOME PER SHARE The unaudited pro forma and combined net income per common share, basic and diluted, are based upon the weighted average common shares and dilutive common stock options outstanding for each period presented, adjusted for the 258,066 and 516,128 shares of Dycom common stock issued to the ECC and Apex shareholders, respectively. (9) INTEREST EXPENSE Interest expense has been recognized as if the borrowings made to finance the cash portion of the acquisitions of ECC and Locating were incurred on the first day of the period presented. These borrowings bear interest at rates ranging from LIBOR + 1.5% to LIBOR + 1.75% (6.50% to 6.81%, as of the dates of acquisition). (10) PRO FORMA TAX PROVISION Reflects income tax effect of the pro-forma adjustments for interest expense, depreciation expense and goodwill amortization for the six-month period ended January 31, 1999 and for the fiscal year ended July 31, 1998. P-8 89 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2,700,000 Shares (DYCOM LOGO) ------------------------------ Prospectus , 1999 ------------------------------ NationsBanc Montgomery Securities LLC Morgan Stanley Dean Witter Morgan Keegan & Company, Inc. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 90 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Dycom will incur the following expenses in connection with the offerings. Dycom has agreed to pay certain offering expenses of the selling stockholders in an aggregate amount not to exceed $5,000. Registration Fees........................................... $ 37,333 Transfer Agent Fees......................................... 2,500 Printing and Engraving Costs................................ 110,000 Legal Fees.................................................. 125,000 Accounting Fees............................................. 60,000 New York Stock Exchange Listing............................. 22,150 NASD Review................................................. 13,930 Blue Sky.................................................... 2,500 Miscellaneous............................................... 76,587 -------- Total............................................. $450,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The By-Laws of Dycom provide that Dycom shall indemnify each director and officer of Dycom to the fullest extent permitted by law and limits the liability of directors to Dycom and its stockholders for monetary damages in certain circumstances. The registrant has insured its directors and officers against certain civil liabilities in connection with the registration, offering and sale of the securities. The provisions of the Florida Business Corporation Act that authorize indemnification do not eliminate the duty of care of a director and, in appropriate circumstances, equitable remedies such as injunctive or other forms of nonmonetary relief will remain available under Florida law. In addition, each director will continue to be subject to liability for (a) violations of the criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (b) deriving an improper personal benefit from a transaction, (c) voting for or assenting to an unlawful distribution, and (d) willful misconduct or a conscious disregard for the best interests of the Registrant in a proceeding by or in the right of the Registrant to procure a judgment in its favor or in a proceeding by or in the right of a shareholder. The statute does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. ITEM 16. EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 -- Form of Underwriting Agreement 4.1 -- Portions of Articles and By-Laws Defining Rights of Shareholders** 4.2 -- Shareholder Protection Rights Agreement dated as of June 1, 1992 between Dycom Industries, Inc. and First Union National Bank of North Carolina as Rights Agent*** 5.1 -- Opinion of Akerman, Senterfitt & Eidson regarding the Common Stock registered hereby 23.1 -- Consent of Akerman, Senterfitt & Eidson (included in opinion delivered under Exhibit No. 5.1) 23.3 -- Consent of Deloitte & Touche LLP 23.4 -- Consent of Nowalk & Associates 23.5 -- Consent of York, Neel & Co. -- Owensboro, LLP 24.1 -- Powers of Attorney*
- --------------- * Previously filed. ** Previously filed as an Exhibit to Dycom's Registration Statement on Form S-3 (File No. 333-36883) and incorporated herein by reference. *** Previously filed as an Exhibit to Dycom's Registration Statement on Form S-4, filed on June 24, 1992 and incorporated herein by reference. II-1 91 ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that 1. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. 2. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. Insofar as indemnification for liabilities arising under the Securities Act of 1933, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 4. The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. 5. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 92 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Palm Beach Gardens, State of Florida on the 28th day of April, 1999. DYCOM INDUSTRIES, INC. By: /s/ THOMAS R. PLEDGER ------------------------------------ Thomas R. Pledger Chairman of the Board of Directors and Executive Chairman Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ THOMAS R. PLEDGER Chairman of the Board of April 28, 1999 - -------------------------------------------------------- Directors and Executive Thomas R. Pledger Chairman /s/ STEVEN E. NIELSEN President, Chief Executive April 28, 1999 - -------------------------------------------------------- Officer and Director Steven E. Nielsen /s/ DOUGLAS J. BETLACH Vice President, Treasurer and April 28, 1999 - -------------------------------------------------------- Chief Financial Officer Douglas J. Betlach * Director April 28, 1999 - -------------------------------------------------------- Louis W. Adams, Jr. * Director April 28, 1999 - -------------------------------------------------------- Thomas G. Baxter * Director April 28, 1999 - -------------------------------------------------------- Walter L. Revell * Director April 28, 1999 - -------------------------------------------------------- Joseph M. Schell * Director April 28, 1999 - -------------------------------------------------------- Ronald P. Younkin *By: /s/ STEVEN E. NIELSEN ---------------------------------------------------- Steven E. Nielsen, as attorney-in-fact
II-3 93 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 -- Form of Underwriting Agreement 4.1 -- Portions of Articles and By-Laws Defining Rights of Shareholders** 4.2 -- Shareholder Protection Rights Agreement dated as of June 1, 1992 between Dycom Industries, Inc. and First Union National Bank of North Carolina as Rights Agent*** 5.1 -- Opinion of Akerman, Senterfitt & Eidson regarding the Common Stock registered hereby 23.1 -- Consent of Akerman, Senterfitt & Eidson (included in opinion delivered under Exhibit No. 5.1) 23.3 -- Consent of Deloitte & Touche LLP 23.4 -- Consent of Nowalk & Associates 23.5 -- Consent of York, Neel & Co. -- Owensboro, LLP 24.1 -- Powers of Attorney*
- --------------- * Previously filed. ** Previously filed as an Exhibit to Dycom's Registration Statement on Form S-3 (File No. 333-36883) and incorporated herein by reference. *** Previously filed as an Exhibit to Dycom's Registration Statement on Form S-4, filed on June 24, 1992 and incorporated herein by reference. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 2,700,000 SHARES DYCOM INDUSTRIES, INC. COMMON STOCK UNDERWRITING AGREEMENT DATED APRIL , 1999 2 TABLE OF CONTENTS
SECTION 1. REPRESENTATIONS AND WARRANTIES ............................................................. 2 A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................... 2 Compliance With Registration Requirements........................................................ 2 Offering Materials Furnished To Underwriters..................................................... 3 Distribution Of Offering Materials By The Company................................................ 3 The Underwriting Agreement....................................................................... 3 Authorization Of The Common Shares............................................................... 4 No Applicable Registration Or Other Similar Rights............................................... 4 No Material Adverse Change....................................................................... 4 Independent Accountants.......................................................................... 4 Preparation Of The Financial Statements.......................................................... 5 Incorporation And Good Standing Of The Company And Its Subsidiaries.............................. 5 Capitalization And Other Capital Stock Matters................................................... 6 Stock Exchange Listing........................................................................... 6 Non-Contravention Of Existing Instruments; No Further Authorizations Or Approvals Required.......................................................................... 6 No Material Actions Or Proceedings............................................................... 7 Intellectual Property Rights..................................................................... 7 All Necessary Permits, Etc....................................................................... 7 Title To Properties.............................................................................. 8 Tax Law Compliance............................................................................... 8 Company Not An Investment Company................................................................ 8 Insurance........................................................................................ 8 No Price Stabilization Or Manipulation........................................................... 9 Compliance With Environmental Laws............................................................... 9 ERISA Compliance................................................................................. 10 Exchange Act Compliance.......................................................................... 10 Acquisition of Locating, Ervin and Apex.......................................................... 10 B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS....................................... 11 The Underwriting Agreement....................................................................... 11 The Custody Agreement And Power Of Attorney...................................................... 11 Title To Common Shares To Be Sold; All Authorizations Obtained................................... 11 Delivery Of The Common Shares To Be Sold......................................................... 12 Non-Contravention; No Further Authorizations Or Approvals Required............................... 12 No Registration Or Other Similar Rights.......................................................... 12 No Further Consents, Etc......................................................................... 12 Disclosure Made By Such Selling Stockholder In The Prospectus.................................... 13 No Price Stabilization Or Manipulation........................................................... 13 SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES............................................ 13 The Firm Common Shares........................................................................... 13 The First Closing Date........................................................................... 13 The Optional Common Shares; The Second Closing Date.............................................. 14 Public Offering Of The Common Shares............................................................. 15
-i- 3 Payment For The Common Shares.................................................................... 15 Delivery Of The Common Shares.................................................................... 15 Delivery Of Prospectus To The Underwriters....................................................... 16 SECTION 3. ADDITIONAL COVENANTS........................................................................ 16 A. COVENANTS OF THE COMPANY......................................................................... 16 Underwriters' Review Of Proposed Amendments And Supplements...................................... 16 Securities Act Compliance........................................................................ 16 Amendments And Supplements To The Prospectus And Other Securities Act Matters..................................................................................... 17 Copies Of Any Amendments And Supplements To The Prospectus....................................... 17 Blue Sky Compliance.............................................................................. 17 Use Of Proceeds.................................................................................. 18 Transfer Agent................................................................................... 18 Periodic Reporting Obligations................................................................... 18 Agreement Not To Offer Or Sell Additional Securities............................................. 18 Future Reports To The Underwriters............................................................... 18 B. COVENANTS OF THE SELLING STOCKHOLDERS........................................................ 19 Agreement Not To Offer Or Sell Additional Securities............................................. 19 Delivery Of Forms W-8 And W-9.................................................................... 19 SECTION 4. PAYMENT OF EXPENSES......................................................................... 19 SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS........................................... 20 Accountants' Comfort Letter...................................................................... 21 Compliance With Registration Requirements; No Stop Order; No Objection From NASD........................................................................................ 21 No Material Adverse Change Or Ratings Agency Change.............................................. 21 Opinion Of Counsel For The Company............................................................... 22 Opinion Of Counsel For The Underwriters.......................................................... 22 Officers' Certificate............................................................................ 22 Bring-Down Comfort Letter........................................................................ 23 Opinion Of Counsel For The Selling Stockholders.................................................. 23 Selling Stockholders' Certificate................................................................ 23 Selling Stockholders' Documents.................................................................. 23 Lock-Up Agreement From Certain Stockholders Of The Company Other Than Selling Stockholders........................................................................ 23 Additional Documents............................................................................. 24 SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES..................................................... 24 SECTION 7. EFFECTIVENESS OF THIS AGREEMENT............................................................. 24 SECTION 8. INDEMNIFICATION............................................................................. 25 Indemnification Of The Underwriters.............................................................. 25 Indemnification Of The Company, Its Directors And Officers....................................... 26 Notifications And Other Indemnification Procedures............................................... 27 Settlements...................................................................................... 28 SECTION 9. CONTRIBUTION................................................................................ 28 SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS........................................... 30 SECTION 11. TERMINATION OF THIS AGREEMENT................................................................ 31
-ii- 4 SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.......................................... 31 SECTION 13. NOTICES...................................................................................... 31 SECTION 14. SUCCESSORS................................................................................... 33 SECTION 15. PARTIAL UNENFORCEABILITY..................................................................... 33 SECTION 16. GOVERNING LAW PROVISIONS..................................................................... 33 SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER COMMON SHARES....................................................................... 33 SECTION 18. GENERAL PROVISIONS........................................................................... 34
-iii- 5 UNDERWRITING AGREEMENT , 1999 NATIONSBANC MONTGOMERY SECURITIES LLC MORGAN STANLEY & CO. INCORPORATED MORGAN KEEGAN & COMPANY, INC. c/o NATIONSBANC MONTGOMERY SECURITIES LLC 600 Montgomery Street San Francisco, California 94111 Ladies and Gentlemen: INTRODUCTORY. Dycom Industries, Inc., a Florida corporation (the "Company"), proposes to issue and sell to the several underwriters named in Schedule A (the "Underwriters") an aggregate of 2,500,000 shares of its Common Stock, par value $.33 1/3 per share (the "Common Stock"); and the stockholders of the Company named in Schedule B (collectively, the "Selling Stockholders") severally propose to sell to the Underwriters an aggregate of 200,000 shares of Common Stock. The 2,500,000 shares of Common Stock to be sold by the Company and the 200,000 shares of Common Stock to be sold by the Selling Stockholders are called the "Firm Common Shares". In addition, the Company has granted to the Underwriters an option to purchase up to an additional 375,000 shares of Common Stock and the Selling Stockholders have granted to the Underwriters an option to purchase up to an additional 30,000 shares of Common Stock, as indicated on Schedule B hereto. The additional 375,000 shares to be sold by the Company and the additional 30,000 shares to be sold by the Selling Stockholders as indicated on Schedule B hereto pursuant to such option are collectively called the "Optional Common Shares". The Firm Common Shares and, if and to the extent such option is exercised, the Optional Common Shares are collectively called the "Common Shares". The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (File No. 333-76949), which contains a form of prospectus to be used in connection with the public offering and sale of the Common Shares. Such registration statement, as amended, including the financial statements, exhibits and schedules thereto, in the form in which it was declared effective by the Commission under the Securities Act of 1933 and the rules and regulations promulgated thereunder (collectively, the "Securities Act"), including all documents incorporated or deemed to be incorporated by reference therein and any information deemed to be a part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act or the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder (collectively, the "Exchange Act"), is called the "Registration Statement". Any registration statement filed by the Company 6 pursuant to Rule 462(b) under the Securities Act is called the "Rule 462(b) Registration Statement", and from and after the date and time of filing of the Rule 462(b) Registration Statement the term "Registration Statement" shall include the Rule 462(b) Registration Statement. Such prospectus, in the form first used by the Underwriters to confirm sales of the Common Shares, is called the "Prospectus"; provided, however, if the Company has, with the consent of NationsBanc Montgomery Securities LLC, elected to rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean the Company's prospectus subject to completion (each, a "preliminary prospectus") dated , 1999 (such preliminary prospectus is called the "Rule 434 preliminary prospectus"), together with the applicable term sheet (the "Term Sheet") prepared and filed by the Company with the Commission under Rules 434 and 424(b) under the Securities Act and all references in this Agreement to the date of the Prospectus shall mean the date of the Term Sheet. All references in this Agreement to the Registration Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any amendments or supplements to any of the foregoing, shall include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the Exchange Act which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. The Company and each of the Selling Stockholders hereby confirm their respective agreements with the Underwriters as follows: SECTION 1. REPRESENTATIONS AND WARRANTIES. A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents, warrants and covenants to each Underwriter as follows: (a) Compliance with Registration Requirements. The Registration Statement and any Rule 462(b) Registration Statement have been declared effective by the Commission under the Securities Act. The Company has complied to the Commission's satisfaction with all requests of the Commission for additional or supplemental information. To the best knowledge of the Company, no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the best knowledge of the Company, are contemplated or threatened by the Commission. -2- 7 Each preliminary prospectus and the Prospectus when filed complied in all material respects with the applicable requirements of the Securities Act and, if filed by electronic transmission pursuant to EDGAR (except as may be permitted by Regulation S-T under the Securities Act), was identical to the copy thereof delivered to the Underwriters for use in connection with the offer and sale of the Common Shares. Each of the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendment thereto, at the time it became effective and at all subsequent times, complied and will comply in all material respects with the Securities Act and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, as amended or supplemented, as of its date and at all subsequent times, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties set forth in the two immediately preceding sentences do not apply to statements in or omissions from the Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment thereto, or the Prospectus, or any amendments or supplements thereto, made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by the Underwriters expressly for use therein. There are no contracts or other documents required to be described in the Prospectus or to be filed as exhibits to the Registration Statement which have not been described or filed as required. (b) Offering Materials Furnished to Underwriters. The Company has delivered to the Underwriters three complete manually signed copies of the Registration Statement and of each consent and certificate of experts filed as a part thereof, and conformed copies of the Registration Statement (without exhibits) and preliminary prospectuses and the Prospectus, as amended or supplemented, in such quantities and at such places as the Underwriters have reasonably requested. (c) Distribution of Offering Materials By the Company. The Company has not distributed and will not distribute, prior to the later of the Second Closing Date (as defined below) and the completion of the Underwriters' distribution of the Common Shares, any offering material in connection with the offering and sale of the Common Shares other than a preliminary prospectus, the Prospectus or the Registration Statement. (d) The Underwriting Agreement. This Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, -3- 8 moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles. (e) Authorization of the Common Shares. The Common Shares to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement, will be validly issued, fully paid and nonassessable. (f) No Applicable Registration or Other Similar Rights. There are no persons with registration or other similar rights to have any equity or debt securities registered for sale under the Registration Statement or included in the offering contemplated by this Agreement, except for (i) such rights as have been exercised by the Selling Stockholders in connection with this offering and whose Common Shares have been included herein; (ii) those rights that have been duly waived; and (iii) such rights that have been disclosed in the Prospectus. (g) No Material Adverse Change. Except as otherwise disclosed in the Prospectus, subsequent to the respective dates as of which information is given in the Prospectus: (i) there has been no material adverse change, or any development that would reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations, whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiaries, considered as one entity (any such change is called a "Material Adverse Change"); (ii) the Company and its subsidiaries, considered as one entity, have not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business; and (iii) there has been no dividend or distribution of any kind declared, paid or made by the Company or, except for dividends paid to the Company or other subsidiaries, any of its subsidiaries on any class of capital stock or repurchase or redemption by the Company or any of its subsidiaries of any class of capital stock. (h) Independent Accountants. Deloitte & Touche LLP, who have expressed their opinion with respect to the financial statements (which term as used in this Agreement includes the related notes thereto) of the Company filed with the Commission as a part of the Registration Statement and included in the Prospectus, are independent public or certified public accountants as required by the Securities Act and the Exchange Act. Nowalk & Associates, who have expressed their opinion with respect to the financial statements (which term as used in this Agreement includes the related notes thereto) of Communications Construction Group, Inc. ("CCG") filed with the Commission, are independent public or certified public accountants as required by the Securities Act and the Exchange Act. York, Neel & Co. - Owensboro, LLP, who have expressed their opinion with respect to the financial -4- 9 statements (which term as used in this Agreement includes the related notes thereto) and supporting schedules of Ervin Cable Construction, Inc. ("Ervin") and Apex Digital TV, Inc. ("Apex") filed with the Commission, are independent public or certified public accountants as required by the Securities Act and the Exchange Act. (i) Preparation of the Financial Statements. The historical financial statements filed with the Commission as a part of the Registration Statement and included in the Prospectus present fairly the consolidated financial position of the Company and its subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified. The historical financial statements filed with the Commission and incorporated by reference in the Prospectus present fairly the consolidated financial position of CCG, Ervin and Apex and their respective subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified. The supporting schedules, if any, included in the Registration Statement present fairly the information required to be stated therein. Such financial statements and supporting schedules, if any, have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto. The historical financial data set forth in the Prospectus under the captions "Prospectus Summary -- Summary Historical and Unaudited Pro Forma Financial Data", "Summary Consolidated Financial Data" and "Capitalization" fairly present the information set forth therein on a basis consistent with that of the audited financial statements contained in the Registration Statement. The pro forma consolidated financial statements of the Company and its subsidiaries and the related notes thereto included under the caption "Prospectus Summary -- Summary Historical and Unaudited Pro Forma Financial Data", "Summary Consolidated Financial Data", "Capitalization" and elsewhere in the Prospectus and in the Registration Statement, or incorporated by reference therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly presented on the bases described therein, and, in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. No other financial statements or supporting schedules are required to be included in the Registration Statement. (j) Incorporation and Good Standing of the Company and its Subsidiaries. Each of the Company and its subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and, in the case of the Company, to enter into and perform its obligations under this Agreement. Each of the Company and each subsidiary is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in -5- 10 which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. All of the issued and outstanding capital stock of each subsidiary has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance or claim, except such as may arise pursuant to credit facilities described in the Prospectus. Except as otherwise described in the Prospectus, the Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 21 to the Company's Annual Report on Form 10-K for the year ended July 31, 1998 which is incorporated by reference in the Registration Statement. (k) Capitalization and Other Capital Stock Matters. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the column "Actual" under the caption "Capitalization" as of the date set forth therein (other than for subsequent issuances, if any, pursuant to employee benefit plans described in the Prospectus or upon exercise of outstanding options described in the Prospectus); and the description of the Common Shares in the Prospectus constitute a fair summary thereof. All of the issued and outstanding shares of Common Stock (including the shares of Common Stock owned by Selling Stockholders) have been duly authorized and validly issued, are fully paid and nonassessable and have been issued in compliance with federal and state securities laws. None of the outstanding shares of Common Stock were issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of its subsidiaries other than those accurately described in all material respects in the Prospectus. The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, set forth in the Prospectus accurately and fairly presents in all material respects the information required to be shown with respect to such plans, arrangements, options and rights. (l) Stock Exchange Listing. The Common Stock, including the Common Shares, is registered pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock Exchange ("NYSE"), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the NYSE, nor has the Company received any notification that the Commission or the NYSE is contemplating terminating such registration or listing. -6- 11 (m) Non-Contravention of Existing Instruments; No Further Authorizations or Approvals Required. Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or is in default (or, with the giving of notice or lapse of time, would be in default) ("Default") under any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound (including, without limitation, the Company's Amended and Restated Credit Facility Agreement, dated as of April 27, 1999, with a group of banks led by Dresdner Bank Lateinamerika AG), or to which any of the property or assets of the Company or any of its subsidiaries is subject (each, an "Existing Instrument"), except for such Defaults as would not, individually or in the aggregate, result in a Material Adverse Change. The Company's execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby and by the Prospectus (i) have been duly authorized by all necessary corporate action and will not result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary, (ii) will not conflict with or constitute a breach of, or Default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, or require the consent of any other party to, any Existing Instrument, except for such conflicts, breaches, Defaults, liens, charges or encumbrances as would not, individually or in the aggregate, result in a Material Adverse Change and (iii) will not result in any violation of any law, administrative regulation or administrative or court decree applicable to the Company or any subsidiary, except such as would not, individually or in the aggregate, result in a Material Adverse Change. No consent, approval, authorization or other order of, or registration or filing with, any court or other governmental or regulatory authority or agency, is required for the Company's execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby and by the Prospectus, except such as have been obtained or made by the Company and are in full force and effect under the Securities Act and such as may be required under applicable state securities or blue sky laws. (n) No Material Actions or Proceedings. There are no legal or governmental actions, suits or proceedings pending or, to the best of the Company's knowledge, threatened against or affecting the Company or any of its subsidiaries, which if determined adversely to the Company or its subsidiaries, would reasonably be expected to result in a Material Adverse Change or adversely affect the consummation of the transactions contemplated by this Agreement. No material labor dispute with the employees of the Company or any of its subsidiaries exists or, to the best of the Company's knowledge, is threatened or imminent. (o) Intellectual Property Rights. The Company and its subsidiaries own or have adequate rights to use all material trademarks, trade names, patent rights, copyrights, licenses, approvals, trade secrets and other similar rights (collectively, -7- 12 "Intellectual Property Rights") used in their respective businesses. Neither the Company nor any of its subsidiaries has received any notice of infringement or conflict with asserted Intellectual Property Rights of others, which infringement or conflict, if the subject of an unfavorable decision, would result in a Material Adverse Change. (p) All Necessary Permits, etc. The Company and each subsidiary possess such valid and current certificates, authorizations or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct their respective businesses, except such certificates, authorizations and permits the failure to obtain which will not, individually or in the aggregate, result in a Material Adverse Change and neither the Company nor any subsidiary has received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Change. (q) Title to Properties. The Company and each of its subsidiaries has good and marketable title to all the properties and assets reflected as owned in the financial statements referred to in Section 1(A)(i) above (or elsewhere in the Prospectus), in each case free and clear of any security interests, mortgages, liens, encumbrances, equities, claims and other defects, except such as do not materially and adversely affect the value of such property and do not materially interfere with the use made or proposed to be made of such property by the Company or such subsidiary or such as may arise pursuant to credit facilities described in the Prospectus. The real property, improvements, equipment and personal property held under lease by the Company or any subsidiary are held under valid and enforceable leases, with such exceptions as are not material and do not materially interfere with the use made or proposed to be made of such real property, improvements, equipment or personal property by the Company or such subsidiary. (r) Tax Law Compliance. Except as disclosed in the Prospectus, the Company and its subsidiaries have filed all necessary federal, state and foreign income and franchise tax returns and have paid all taxes required to be paid by any of them and, if due and payable, any related or similar assessment, fine or penalty levied against any of them to the extent shown to be due on such tax returns The Company has made adequate charges, accruals and reserves in the applicable financial statements referred to in Section 1(A)(i) above in respect of all federal, state and foreign income and franchise taxes for all periods as to which the tax liability of the Company or any of its subsidiaries has not been finally determined. (s) Company Not an "Investment Company". The Company is not, and after receipt of payment for the Common Shares will not be, an "investment company" within the meaning of Investment Company Act of 1940, as amended. -8- 13 (t) Insurance. Except as otherwise disclosed in the Prospectus, each of the Company and its subsidiaries are insured by recognized, financially sound and reputable institutions with policies in such amounts and with such deductibles and covering such risks as the Company deems to be adequate. The Company has no reason to believe that it or any subsidiary will not be able to (i) renew its existing insurance coverage as and when such policies expire, (ii) obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Change, or (iii) maintain its large deductible or self-insurance programs substantially as in effect currently. The accrued liability for unpaid claims and associated expenses reflected on the Company's balance sheet at January 31, 1999 pursuant to the Company's self-insurance program reflects, to the Company's knowledge, its best estimate of the full extent of the Company's losses for outstanding claims not otherwise covered by insurance, including any unasserted claims which management of the Company believes are probable of assertion. Neither the Company nor any subsidiary has been denied any excess loss which it has sought or for which it has applied. (u) No Price Stabilization or Manipulation. The Company has not taken and will not take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Common Shares. (v) Compliance with Environmental Laws. Except as would not, individually or in the aggregate, result in a Material Adverse Change (i) to the best of the Company's knowledge neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign law or regulation relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum and petroleum products (collectively, "Materials of Environmental Concern"), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern (collectively, "Environmental Laws"), which violation includes, but is not limited to, noncompliance with any permits or other governmental authorizations required for the operation of the business of the Company or its subsidiaries under applicable Environmental Laws, or noncompliance with the terms and conditions thereof, nor has the Company or any of its subsidiaries received any written communication, whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Company or any of its subsidiaries is in violation of any Environmental Law; (ii) there is no claim, action or cause of action filed with a court or governmental authority, no investigation with respect to which the Company has received written notice, and no written notice by any person -9- 14 or entity alleging potential liability for investigatory costs, cleanup costs, governmental responses costs, natural resources damages, property damages, personal injuries, attorneys' fees or penalties arising out of, based on or resulting from the presence, or release into the environment, of any Material of Environmental Concern at any location owned, leased or operated by the Company or any of its subsidiaries, now or in the past (collectively, "Environmental Claims"), pending or, to the best of the Company's knowledge, threatened against the Company or any of its subsidiaries or any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law; and (iii) to the best of the Company's knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that reasonably could result in a violation of any Environmental Law or form the basis of a potential Environmental Claim against the Company or any of its subsidiaries or against any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law. (w) ERISA Compliance. The Company and its subsidiaries and any "employee benefit plan" (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, "ERISA")) established or maintained by the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance in all material respects with ERISA, except where the failure to be in compliance would not result in a Material Adverse Change. "ERISA Affiliate" means, with respect to the Company or a subsidiary, any member of any group of organizations described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the "Code") of which the Company or such subsidiary is a member. No "reportable event" (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates, if such "employee benefit plan" were terminated, would have any "amount of unfunded benefit liabilities" (as defined under ERISA). Neither the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or reasonably expects to incur any liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code which would result in a Material Adverse Change. Each "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or failure to act, which would result in a Material Adverse Change. -10- 15 (x) Exchange Act Compliance. The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the applicable requirements of the Exchange Act, and, when read together with the other information in the Prospectus, at the time the Registration Statement and any amendments thereto become effective and at the First Closing Date and the Second Closing Date, as the case may be, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (y) Acquisitions of Locating, Ervin and Apex The agreements necessary to effect the acquisitions of Locating, Inc. ("Locating"), Ervin and Apex have been duly authorized, executed and delivered by each of the parties thereto and constitute the valid, legal and binding agreements of each such party, and the acquisitions of Locating, Ervin and Apex by the Company and the related transactions contemplated thereby have been consummated as described in the Prospectus. (z) Year 2000. All material disclosure regarding year 2000 compliance that is required to be described under the Securities Act and the regulations and pronouncements of the Commission has been included in the Prospectus. The Company does not reasonably expect to incur material operating expenses or costs to ensure that its information systems will be year 2000 compliant, other than as disclosed in the Prospectus. Any certificate signed by an officer of the Company and delivered to the Underwriters or to counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to each Underwriter as to the matters set forth therein. B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each Selling Stockholder represents, warrants and covenants to each Underwriter as follows: (a) The Underwriting Agreement. This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Stockholder and is a valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles. (b) The Custody Agreement and Power of Attorney. Each of the (i) Custody Agreement signed by such Selling Stockholder and the Company, as custodian (the "Custodian"), relating to the deposit of the Common Shares to be sold -11- 16 by such Selling Stockholder (the "Custodian Agreement") and (ii) Power of Attorney appointing certain individuals named therein as such Selling Stockholder's attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth therein relating to the transactions contemplated hereby and by the Prospectus (the "Power of Attorney"), of such Selling Stockholder has been duly authorized, executed and delivered by such Selling Stockholder and is a valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, except as rights to indemnification thereunder may be limited by applicable law and except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles. (c) Title to Common Shares to be Sold; All Authorizations Obtained. Such Selling Stockholder has, and on the First Closing Date and the Second Closing Date (as defined below) will have, good and valid title to all of the Common Shares which may be sold by such Selling Stockholder pursuant to this Agreement on such date and the legal right and power, and all authorizations and approvals required by law and under its trust agreement or other organizational documents, if any, to enter into this Agreement and its Custodian Agreement and Power of Attorney, to sell, transfer and deliver all of the Common Shares which may be sold by such Selling Stockholder pursuant to this Agreement and to comply with its other obligations hereunder and thereunder. (d) Delivery of the Common Shares to be Sold. Upon delivery of the Common Shares which are to be sold by such Selling Stockholder pursuant to this Agreement and payment of the purchase price therefor as herein contemplated, assuming each Underwriter has no notice of any adverse claim, the Underwriters will receive good and valid title to such Common Shares, free and clear of any security interest, mortgage, pledge, lien, encumbrance or other claim. (e) Non-Contravention; No Further Authorizations or Approvals Required. The execution and delivery by such Selling Stockholder of, and the performance by such Selling Stockholder of its obligations under, this Agreement, the Custodian Agreement and the Power of Attorney will not contravene or conflict with, result in a breach of, or constitute a Default under the trust agreement or other organizational documents, if any, of such Selling Stockholder or any other material agreement or instrument to which such Selling Stockholder is a party or by which it is bound or under which it is entitled to any right or benefit, any provision of applicable law or any material judgment, order, decree or regulation applicable to such Selling Stockholder of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over such Selling Stockholder. No consent, approval, authorization or other order of, or registration or filing with, any court or other governmental or regulatory authority or agency, is required for the execution, delivery and performance of this Agreement and consummation of the transactions -12- 17 contemplated hereby and by the Prospectus by such Selling Stockholder, except such as have been obtained or made by the Selling Stockholder and are in full force and effect under the Securities Act and such as may be required under applicable state securities or blue sky laws. (f) No Registration or Other Similar Rights. Such Selling Stockholder does not have any registration or other similar rights to have any equity or debt securities registered for sale by the Company under the Registration Statement or included in the offering contemplated by this Agreement, except for such rights as are described in the Prospectus under "Risk Factors - Shares Eligible for Future Sale" and except for such rights as have been exercised by the Selling Stockholders in connection with this offering and whose Common Shares have been included herein. (g) No Further Consents, etc. No consent, approval or waiver is required under any material instrument or agreement to which such Selling Stockholder is a party or by which it is bound or under which it is entitled to any right or benefit, in connection with the offering, sale or purchase by the Underwriters of any of the Common Shares which may be sold by such Selling Stockholder under this Agreement or the consummation by such Selling Stockholder of any of the other transactions contemplated hereby. (h) Disclosure Made by Such Selling Stockholder in the Prospectus. All information furnished by or on behalf of such Selling Stockholder in writing expressly for use in the Registration Statement and Prospectus is, and on the First Closing Date and the Second Closing Date will be, true, correct, and complete in all material respects, and does not, and on the First Closing Date and the Second Closing Date will not, contain any untrue statement of a material fact or omit to state any material fact necessary to make such information not misleading. Such Selling Stockholder confirms as accurate the number of shares of Common Stock set forth opposite such Selling Stockholder's name in the Prospectus under the caption "Principal and Selling Stockholders" (both prior to and after giving effect to the sale of the Common Shares). (i) No Price Stabilization or Manipulation. Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Common Shares. Any certificate signed by or on behalf of any Selling Stockholder and delivered to the Underwriters or to counsel for the Underwriters shall be deemed to be a representation and warranty by such Selling Stockholder to each Underwriter as to the matters covered thereby. SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES. -13- 18 (a) The Firm Common Shares. Upon the terms herein set forth, (i) the Company agrees to issue and sell to the several Underwriters an aggregate of 2,500,000 Firm Common Shares and (ii) the Selling Stockholders agree to sell to the several Underwriters an aggregate of 200,000 Firm Common Shares, each Selling Stockholder selling the number of Firm Common Shares set forth opposite such Selling Stockholder's name on Schedule B. On the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Underwriters agree, severally and not jointly, to purchase from the Company and the Selling Stockholders the respective number of Firm Common Shares set forth opposite their names on Schedule A. The purchase price per Firm Common Share to be paid by the several Underwriters to the Company and the Selling Stockholders shall be $ per share. (b) The First Closing Date. Delivery of certificates for the Firm Common Shares to be purchased by the Underwriters and payment therefor shall be made at the offices of NationsBanc Montgomery Securities LLC, 600 Montgomery Street, San Francisco, California 94111 (or such other place as may be agreed to by the Company and NationsBanc Montgomery Securities LLC, as the representative on behalf of the Underwriters (the "Representative")) at 6:00 a.m. San Francisco time, on , 1999, or such other time and date not later than 10:30 a.m. San Francisco time, on , 1999 as the Representative shall designate by notice to the Company (the time and date of such closing are called the "First Closing Date"). The Company and the Selling Stockholders hereby acknowledge that circumstances under which the Underwriters may provide notice to postpone the First Closing Date as originally scheduled include, but are in no way limited to, any determination by the Company, the Selling Stockholders or the Underwriters to recirculate to the public copies of an amended or supplemented Prospectus or a delay as contemplated by the provisions of Section 10. (c) The Optional Common Shares; the Second Closing Date. In addition, on the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Company and the Selling Stockholders, as indicated on Schedule B hereto, hereby grant an option to the several Underwriters to purchase, severally and not jointly, up to an aggregate of 375,000 Optional Common Shares from the Company and 30,000 Optional Common Shares from such Selling Stockholders at the purchase price per share to be paid by the Underwriters for the Firm Common Shares. The option granted hereunder is for use by the Underwriters solely in covering any over-allotments in connection with the sale and distribution of the Firm Common Shares. The option granted hereunder may be exercised at any time (but not more than once) upon notice by the Underwriters to the Company and such Selling Stockholders, which notice may be given at any time within 30 days from the date of this Agreement. Such notice shall set forth (i) the aggregate number of Optional Common Shares as to which the Underwriters are exercising the -14- 19 option, (ii) the names and denominations in which the certificates for the Optional Common Shares are to be registered and (iii) the time, date and place at which such certificates will be delivered (which time and date may be simultaneous with, but not earlier than, the First Closing Date; and in such case the term "First Closing Date" shall refer to the time and date of delivery of certificates for the Firm Common Shares and the Optional Common Shares). Such time and date of delivery, if subsequent to the First Closing Date, is called the "Second Closing Date" and shall be determined by the Underwriters and shall not be earlier than three nor later than five full business days after delivery of such notice of exercise. If any Optional Common Shares are to be purchased, (a) each Underwriter agrees, severally and not jointly, to purchase the number of Optional Common Shares (subject to such adjustments to eliminate fractional shares as the Underwriters may determine) that bears the same proportion to the total number of Optional Common Shares to be purchased as the number of Firm Common Shares set forth on Schedule A opposite the name of such Underwriter bears to the total number of Firm Common Shares and (b) the Company and such Selling Stockholders each agree, severally and not jointly, to sell the number of Optional Common Shares (subject to such adjustments to eliminate fractional shares as the Representative may determine) that bears the same proportion to the total number of Optional Common Shares to be sold as the number of Optional Common Shares to be sold by the Company as set forth in the paragraph "Introductory" of this Agreement (and, in the case of such Selling Stockholders, as the number of Optional Common Shares set forth on Schedule B opposite such Selling Stockholders' name) bears to the total number of Optional Common Shares. The Underwriters may cancel the option at any time prior to its expiration by giving written notice of such cancellation to the Company and such Selling Stockholders. (d) Public Offering of the Common Shares. The Underwriters hereby advise the Company and the Selling Stockholders that the Underwriters intend to offer for sale to the public, as described in the Prospectus, their respective portions of the Common Shares as soon after this Agreement has been executed and the Registration Statement has been declared effective as the Underwriters, in their sole judgment, have determined is advisable and practicable. (e) Payment for the Common Shares. Payment for the Common Shares to be sold by the Company shall be made at the First Closing Date (and, if applicable, at the Second Closing Date) by wire transfer of immediately available funds to the order of the Company. Payment for the Common Shares to be sold by the Selling Stockholders (and, if applicable, to the Selling Stockholder indicated on Schedule B hereto, at the Second Closing Date) shall be made at the First Closing Date (and, if applicable, at the Second Closing Date) by wire transfer of immediately available funds to the order of the Custodian. It is understood that the Underwriters have been authorized, for their own account and the accounts of the several Underwriters, to accept delivery of and receipt -15- 20 for, and make payment of the purchase price for, the Firm Common Shares and any Optional Common Shares the Underwriters have agreed to purchase. NationsBanc Montgomery Securities LLC individually and not as the Representative of the Underwriters, may (but shall not be obligated to) make payment for any Common Shares to be purchased by any Underwriter whose funds shall not have been received by the First Closing Date or the Second Closing Date, as the case may be, for the account of such Underwriter, but any such payment shall not relieve such Underwriter from any of its obligations under this Agreement. Each Selling Stockholder hereby agrees that (i) it will pay all stock transfer taxes, stamp duties and other similar taxes, if any, payable upon the sale or delivery of the Common Shares to be sold by such Selling Stockholder to the several Underwriters, or otherwise in connection with the performance of such Selling Stockholder's obligations hereunder and (ii) the Custodian is authorized to deduct for such payment any such amounts from the proceeds to such Selling Stockholder hereunder and to hold such amounts for the account of such Selling Stockholder with the Custodian under the Custodian Agreement. (f) Delivery of the Common Shares. The Company and the Selling Stockholders shall deliver, or cause to be delivered, to the Underwriters for the accounts of the several Underwriters certificates for the Firm Common Shares to be sold by them at the First Closing Date, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. The Company and the Selling Stockholder indicated on Schedule B hereto shall also deliver, or cause to be delivered, to the Underwriters for the accounts of the several Underwriters, certificates for the Optional Common Shares the Underwriters have agreed to purchase from it at the First Closing Date or the Second Closing Date, as the case may be, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. The certificates for the Common Shares shall be registered in such names and denominations as the Underwriters shall have requested at least two full business days prior to the First Closing Date (or the Second Closing Date, as the case may be) and shall be made available for inspection on the business day preceding the First Closing Date (or the Second Closing Date, as the case may be) at a location in New York City as the Underwriters may designate. Time shall be of the essence, and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Underwriters. (g) Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m. on the second business day following the date the Common Shares are released by the Underwriters for sale to the public, the Company shall deliver or cause to be delivered copies of the Prospectus in such quantities and at such places as the Underwriters shall reasonably request. SECTION 3. ADDITIONAL COVENANTS. -16- 21 A. COVENANTS OF THE COMPANY. The Company further covenants and agrees with each Underwriter as follows: (a) Underwriters' Review of Proposed Amendments and Supplements. During such period beginning on the date hereof and ending on the later of the First Closing Date or such date, as in the opinion of counsel for the Underwriters, the Prospectus is no longer required by law to be delivered in connection with sales by an Underwriter or dealer (the "Prospectus Delivery Period"), prior to amending or supplementing the Registration Statement (including any registration statement filed under Rule 462(b) under the Securities Act) or the Prospectus (including any amendment or supplement through incorporation by reference of any report filed under the Exchange Act, the Company shall furnish to the Underwriters for review a copy of each such proposed amendment or supplement, and the Company shall not file any such proposed amendment or supplement to which the Underwriters reasonably object. (b) Securities Act Compliance. After the date of this Agreement, the Company shall promptly advise the Underwriters in writing (i) of the receipt of any comments of, or requests for additional or supplemental information from, the Commission, (ii) of the time and date of any filing of any post-effective amendment to the Registration Statement or any amendment or supplement to any preliminary prospectus or the Prospectus, (iii) of the time and date that any post-effective amendment to the Registration Statement becomes effective and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of any proceedings to remove, suspend or terminate from listing or quotation the Common Stock from any securities exchange upon which it is listed for trading or included or designated for quotation, or of the threatening or initiation of any proceedings for any of such purposes. If the Commission shall enter any such stop order at any time, the Company will use its best efforts to obtain the lifting of such order at the earliest possible moment. Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b), 430A and 434, as applicable, under the Securities Act and will use its reasonable efforts to confirm that any filings made by the Company under such Rule 424(b) were received in a timely manner by the Commission. (c) Amendments and Supplements to the Prospectus and Other Securities Act Matters. If, during the Prospectus Delivery Period, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if in the opinion of counsel for the Underwriters it is otherwise necessary to amend or -17- 22 supplement the Prospectus to comply with law, the Company agrees to promptly prepare (subject to Section 3(A)(a) hereof), file with the Commission and furnish at its own expense to the Underwriters and to dealers, amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with law. (d) Copies of any Amendments and Supplements to the Prospectus. The Company agrees to furnish the Underwriters, without charge, during the Prospectus Delivery Period, as many copies of the Prospectus and any amendments and supplements thereto (including any documents incorporated or deemed incorporated by reference therein) as the Underwriters may reasonably request. (e) Blue Sky Compliance. The Company shall cooperate with the Underwriters and counsel for the Underwriters to qualify or register the Common Shares for sale under (or obtain exemptions from the application of) the Blue Sky or state securities laws of those jurisdictions designated by the Underwriters, shall comply with such laws and shall continue such qualifications, registrations and exemptions in effect so long as required for the distribution of the Common Shares. The Company shall not be required to qualify as a foreign corporation or to take any action that would subject it to general service of process in any such jurisdiction where it is not presently qualified or where it would be subject to taxation as a foreign corporation. The Company will advise the Underwriters promptly of the suspension of the qualification or registration of (or any such exemption relating to) the Common Shares for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use reasonable efforts to obtain the withdrawal thereof at the earliest possible moment. (f) Use of Proceeds. The Company shall apply the net proceeds from the sale of the Common Shares sold by it in the manner described under the caption "Use of Proceeds" in the Prospectus. (g) Transfer Agent. The Company shall engage and maintain, at its expense, a registrar and transfer agent for the Common Stock. (h) Periodic Reporting Obligations. During the Prospectus Delivery Period the Company shall file, on a timely basis, with the Commission and the New York Stock Exchange all reports and documents required to be filed under the Exchange Act. (i) Agreement Not To Offer or Sell Additional Securities. During the period of 90 days following the date of the Prospectus, the Company will not, without -18- 23 the prior written consent of NationsBanc Montgomery Securities LLC (which consent may be withheld at the sole discretion of NationsBanc Montgomery Securities LLC), directly or indirectly, sell, offer, contract or grant any option to sell, pledge, transfer or establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or announce the offering of, or file any registration statement under the Securities Act in respect of, any shares of Common Stock, options or warrants to acquire shares of the Common Stock or securities exchangeable or exercisable for or convertible into shares of Common Stock (other than as contemplated by this Agreement with respect to the Common Shares); provided, however, that the Company may issue shares of its Common Stock pursuant to acquisitions of companies in the telecommunications and utilities engineering, construction and maintenance services industry and may issue shares of its Common Stock or options to purchase its Common Stock, or Common Stock upon exercise of options, pursuant to any stock option, stock bonus or other stock plan or arrangement described in the Prospectus. (j) Future Reports to the Underwriters. During the period of one year hereafter the Company will furnish to NationsBanc Montgomery Securities LLC and, upon request, to each of the Underwriters at 600 Montgomery Street, San Francisco, CA 94111 Attention: Ansel Hall (i) as soon as practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders' equity and cash flows for the year then ended and the opinion thereon of the Company's independent public or certified public accountants; (ii) as soon as practicable after the filing thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report filed by the Company with the Commission, the NASD or any securities exchange; and (iii) as soon as available, copies of any report or communication of the Company mailed generally to holders of its capital stock. B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder further covenants and agrees with each Underwriter: (a) Agreement Not to Offer or Sell Additional Securities. Such Selling Stockholder will not, without the prior written consent of NationsBanc Montgomery Securities LLC (which consent may be withheld in its sole discretion), directly or indirectly, sell, offer, contract or grant any option to sell (including without limitation any short sale), pledge, transfer, establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock, or securities exchangeable or exercisable for or convertible into shares of Common Stock currently or hereafter owned either of record or beneficially (as defined in Rule 13d-3 under the Exchange Act) by the undersigned, or publicly announce the undersigned's intention to do any of the foregoing, for a period commencing on the date hereof and -19- 24 continuing through the close of trading on the date 90 days after the date of the Prospectus; provided that a Selling Stockholder may give or pledge shares of Common Stock if the donee or pledgee agrees in writing, prior to the making of such gift or pledge, to not sell, offer, dispose of or otherwise transfer any gifted or pledged shares during said 90-day period without the prior written consent of NationsBanc Montgomery Securities LLC (which consent may be withheld at the sole discretion of NationsBanc Montgomery Securities LLC). (b) Delivery of Forms W-8 and W-9. To deliver to the Underwriters prior to the First Closing Date a properly completed and executed United States Treasury Department Form W-8 (if the Selling Stockholder is a non-United States person) or Form W-9 (if the Selling Stockholder is a United States Person). NationsBanc Montgomery Securities LLC, on behalf of the several Underwriters, may, in its sole discretion, waive in writing the performance by the Company or any Selling Stockholder of any one or more of the foregoing covenants or extend the time for their performance. SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs, fees and expenses incurred in connection with the performance of its obligations hereunder and in connection with the transactions contemplated hereby, including without limitation (i) all expenses incident to the issuance and delivery of the Common Shares (including all printing and engraving costs), (ii) all fees and expenses of the registrar and transfer agent of the Common Stock, (iii) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of the Company's counsel, independent public or certified public accountants and other advisors, (v) all costs and expenses incurred in connection with the printing, filing, shipping and distribution of the Registration Statement (including financial statements, exhibits, schedules, consents and certificates of experts), each preliminary prospectus and the Prospectus, and all amendments and supplements thereto, and this Agreement, (vi) all filing fees, reasonable attorneys' fees and expenses incurred by the Company or the Underwriters in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Common Shares for offer and sale under the Blue Sky laws, and, if requested by the Underwriters, preparing and printing a "Blue Sky Survey" or memorandum, and any supplements thereto, advising the Underwriters of such qualifications, registrations and exemptions, (vii) the filing fees incident to, and the reasonable fees and expenses of counsel for the Underwriters in connection with, the NASD's review and approval of the Underwriters' participation in the offering and distribution of the Common Shares, (viii) the fees and expenses associated with listing the Common Shares on the New York Stock Exchange, Inc., and (ix) all other fees, costs and expenses referred to in Part II of the Registration Statement. Except as provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the Underwriters shall pay their own expenses, including the fees and disbursements of their counsel. -20- 25 The Selling Stockholders further agree with each Underwriter to pay (directly or by reimbursement) all fees and expenses incident to the performance of their obligations under this Agreement which are not otherwise specifically provided for herein, including but not limited to (i) fees and expenses of counsel and other advisors for such Selling Stockholders (ii) fees and expenses of the Custodian and (iii) expenses and taxes incident to the sale and delivery of the Common Shares to be sold by such Selling Stockholders to the Underwriters hereunder (which taxes, if any, may be deducted by the Custodian under the provisions of Section 2 of this Agreement). This Section 4 shall not affect or modify any separate, valid agreement relating to the allocation of payment of expenses between the Company, on the one hand, and the Selling Stockholders, on the other hand. SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of the several Underwriters to purchase and pay for the Common Shares as provided herein on the First Closing Date and, with respect to the Optional Common Shares, the Second Closing Date, shall be subject to the accuracy of the representations and warranties on the part of the Company and the Selling Stockholders set forth in Sections 1(A) and 1(B) hereof as of the date hereof and as of the First Closing Date as though then made and, with respect to the Optional Common Shares, as of the Second Closing Date as though then made, to the timely performance by the Company and the Selling Stockholders of their respective covenants and other obligations hereunder, and to each of the following additional conditions: (a) Accountants' Comfort Letter. On the date hereof, the Underwriters shall have received from each of Deloitte & Touche LLP, independent public or certified public accountants for the Company, and York, Neel & Co. - Owensboro, LLP, independent public or certified accountants for Ervin and Apex, a letter dated the date hereof addressed to the Underwriters, in form and substance satisfactory to the Underwriters, containing statements and information of the type ordinarily included in accountant's "comfort letters" to underwriters, delivered according to Statement of Auditing Standards No. 72 (or any successor bulletin), with respect to the audited and unaudited financial statements and certain financial information contained in the Registration Statement and the Prospectus (and the Underwriters shall have received an additional three conformed copies of such accountants' letter for each of the several Underwriters). (b) Compliance with Registration Requirements; No Stop Order; No Objection from NASD. For the period from and after effectiveness of this Agreement and prior to the First Closing Date and, with respect to the Optional Common Shares, the Second Closing Date: -21- 26 (i) the Company shall have filed the Prospectus with the Commission (including the information required by Rule 430A under the Securities Act) in the manner and within the time period required by Rule 424(b) under the Securities Act; or the Company shall have filed a post-effective amendment to the Registration Statement containing the information required by such Rule 430A, and such post-effective amendment shall have become effective; or, if the Company elected to rely upon Rule 434 under the Securities Act and obtained the Underwriters' consent thereto, the Company shall have filed a Term Sheet with the Commission in the manner and within the time period required by such Rule 424(b); (ii) no stop order suspending the effectiveness of the Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment to the Registration Statement, shall be in effect and no proceedings for such purpose shall have been instituted or threatened by the Commission; and (iii) the NASD shall have raised no objection to the fairness and reasonableness of the underwriting terms and arrangements. (c) No Material Adverse Change or Ratings Agency Change. For the period from and after the date of this Agreement and prior to the First Closing Date and, with respect to the Optional Common Shares, the Second Closing Date: (i) in the judgment of the Underwriters there shall not have occurred any Material Adverse Change; and (ii) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any securities of the Company or any of its subsidiaries by any "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Securities Act. (d) Opinion of Counsel for the Company. On each of the First Closing Date and the Second Closing Date the Underwriters shall have received the favorable opinion of Shearman & Sterling, New York counsel for the Company, and Akerman, Senterfitt & Eidson, Florida counsel for the Company, dated as of such Closing Date, the form of which is attached as Exhibit A (and the Underwriters shall have received an additional three conformed copies of such counsel's legal opinion for each of the several Underwriters). (e) Opinion of Counsel for the Underwriters. On each of the First Closing Date and the Second Closing Date the Underwriters shall have received the -22- 27 favorable opinion of Piper & Marbury L.L.P., counsel for the Underwriters, dated as of such Closing Date, with respect to certain matters (and the Underwriters shall have received an additional three conformed copies of such counsel's legal opinion for each of the several Underwriters). (f) Officers' Certificate. On each of the First Closing Date and the Second Closing Date, the Underwriters shall have received a written certificate executed by the Chairman of the Board, Chief Executive Officer or President of the Company and the Chief Financial Officer or Chief Accounting Officer of the Company, dated as of such Closing Date, to the effect set forth in subsections (b)(ii) and (c)(ii) of this Section 5, and further to the effect that: (i) for the period from and after the date of this Agreement and prior to such Closing Date, there has not occurred any Material Adverse Change; (ii) the representations and warranties of the Company set forth in Section 1(A) of this Agreement are true and correct with the same force and effect as though expressly made on and as of such Closing Date; and (iii) the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date. (g) Bring-down Comfort Letter. On each of the First Closing Date and the Second Closing Date the Underwriters shall have received from each of Deloitte & Touche LLP, independent public or certified public accountants for the Company, and York, Neel & Co. - Owensboro, LLP, independent public or certified public accountants for Ervin and Apex, a letter dated such date, in form and substance satisfactory to the Underwriters, to the effect that they reaffirm the statements made in the letter furnished by them pursuant to subsection (a) of this Section 5, except that the specified date referred to therein for the carrying out of procedures shall be no more than three business days prior to the First Closing Date or Second Closing Date, as the case may be (and the Underwriters shall have received an additional five conformed copies of such accountants' letter for each of the several Underwriters). (h) Opinion of Counsel for the Selling Stockholders. On each of the First Closing Date and the Second Closing Date the Underwriters shall have received the favorable opinion of Shearman & Sterling and Voelker & Voelker, counsel for the Selling Stockholders, as applicable, dated as of such Closing Date, the form of which is attached as Exhibit B (and the Underwriters shall have received an additional three conformed copies of such counsel's legal opinion for each of the several Underwriters). -23- 28 (i) Selling Stockholders' Certificate. On each of the First Closing Date and the Second Closing Date the Underwriters shall have received a written certificate executed by each Selling Stockholder, dated as of such Closing Date, to the effect that: (i) the representations, warranties and covenants of such Selling Stockholder set forth in Section 1(B) of this Agreement are true and correct with the same force and effect as though expressly made by such Selling Stockholder on and as of such Closing Date; and (ii) such Selling Stockholder has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date. (j) Selling Stockholders' Documents. On the date hereof, the Company and the Selling Stockholders shall have furnished for review by the Underwriters copies of the Powers of Attorney and Custodian Agreements executed by each of the Selling Stockholders other than those Selling Stockholders which are irrevocable trusts and such further information, certificates and documents as the Underwriters may reasonably request. (k) Lock-Up Agreement from Certain Stockholders of the Company Other Than Selling Stockholders. On the date hereof, the Company shall have furnished to the Underwriters an agreement in the form of Exhibit C hereto from each director and each officer of the Company that is not a Selling Stockholder, and such agreement shall be in full force and effect on each of the First Closing Date and the Second Closing Date. (l) Additional Documents. On or before each of the First Closing Date and the Second Closing Date, the Underwriters and counsel for the Underwriters shall have received such information, documents and opinions as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Common Shares as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained. If any condition specified in this Section 5 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Underwriters by notice to the Company and the Selling Stockholders at any time on or prior to the First Closing Date and, with respect to the Optional Common Shares, at any time prior to the Second Closing Date, which termination shall be without liability on the part of any party to any other party, except that Section 4, Section 6, Section 8 and Section 9 shall at all times be effective and shall survive such termination. -24- 29 SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is terminated by the Underwriters pursuant to Section 5, by the Company pursuant to Section 7, or Section 11 or Section 17, or if the sale to the Underwriters of the Common Shares on the First Closing Date is not consummated because of any refusal, inability or failure on the part of the Company or the Selling Stockholders to perform any agreement herein or to comply with any provision hereof, the Company agrees to reimburse the Underwriters (or such Underwriters as have terminated this Agreement with respect to themselves), severally, upon demand for all out-of-pocket expenses that shall have been reasonably incurred by the Underwriters in connection with the proposed purchase and the offering and sale of the Common Shares, including but not limited to fees and disbursements of counsel, printing expenses, travel expenses, postage, facsimile and telephone charges. SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall not become effective until the later of (i) the execution of this Agreement by the parties hereto and (ii) notification by the Commission to the Company and the Underwriters of the effectiveness of the Registration Statement under the Securities Act. Prior to such effectiveness, this Agreement may be terminated by any party by notice to each of the other parties hereto, and any such termination shall be without liability on the part of (a) the Company or the Selling Stockholders to any Underwriter, except that the Company and the Selling Stockholders shall be obligated to reimburse the expenses of the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter to the Company or the Selling Stockholders, or (c) of any party hereto to any other party except that the provisions of Section 8 and Section 9 shall at all times be effective and shall survive such termination. SECTION 8. INDEMNIFICATION. (a) Indemnification of the Underwriters. Each of the Company and, subject to the last sentence of this Section 8(a), each Selling Stockholder, severally and not jointly, agrees to indemnify and hold harmless each Underwriter, its officers and employees, and each person, if any, who controls any Underwriter within the meaning of the Securities Act and the Exchange Act against any loss, claim, damage, liability or expense, as incurred, to which such Underwriter or such controlling person may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based (i) upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or any amendment thereto, including any information deemed to be a part thereof -25- 30 pursuant to Rule 430A or Rule 434 under the Securities Act, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) upon any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and to reimburse each Underwriter and each such controlling person for any and all reasonable expenses (including the reasonable fees and disbursements of counsel chosen by NationsBanc Montgomery Securities LLC) as such expenses are reasonably incurred by such Underwriter or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the foregoing indemnity agreement shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Underwriters expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided, further, that with respect to any preliminary prospectus, the foregoing indemnity agreement shall not inure to the benefit of any Underwriter from whom the person asserting any loss, claim, damage, liability or expense purchased Common Shares, or any person controlling such Underwriter, if copies of the Prospectus were timely delivered to the Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Common Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or expense. In addition, with respect to each Selling Stockholder, this indemnity agreement shall apply only to any loss, claim, damage, liability or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished to the Company by such Selling Stockholder expressly for use in the Registration Statement or any amendment thereto, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). The Company acknowledges that the only information provided by each Selling Stockholder for use in the Registration Statement, any amendment thereto, any preliminary prospectus or the Prospectus includes the name and address of such Selling Stockholder and the number of Common Shares owned by such Selling Stockholder. The indemnity agreement set forth in this Section 8(a) shall be in addition to any liabilities that the Company and the Selling Stockholders may otherwise have. Each Selling Stockholder's aggregate liability under this Section 8 shall be limited to an amount -26- 31 equal to the net proceeds received by such Selling Stockholder from the sale of his or its Common Shares pursuant to this Agreement. (b) Indemnification of the Company, its Directors and Officers and Selling Stockholders. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement, the Selling Stockholders and each person, if any, who controls the Company or any Selling Stockholder within the meaning of the Securities Act or the Exchange Act, against any loss, claim, damage, liability or expense, as incurred, to which the Company, or any such director, officer, Selling Stockholder or controlling person may become subject, under the Securities Act, the Exchange Act, or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or arises out of or is based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any preliminary prospectus, the Prospectus (or any amendment or supplement thereto), in reliance upon and in conformity with written information furnished to the Company and the Selling Stockholders by the Underwriters expressly for use therein; and to reimburse the Company, or any such director, officer, Selling Stockholder or controlling person for any legal and other expense reasonably incurred by the Company, or any such director, officer, Selling Stockholder or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. Each of the Company and each Selling Stockholder, hereby acknowledges that the only information that the Underwriters have furnished to the Company and the Selling Stockholders expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) are the statements set forth in the table in the first paragraph and as the second and ninth paragraphs under the caption "Underwriting" in the Prospectus; and the Underwriters confirm that such statements are correct. The indemnity agreement set forth in this Section 8(b) shall be in addition to any liabilities that each Underwriter may otherwise have. (c) Notifications and Other Indemnification Procedures. Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof, but the omission so to -27- 32 notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 8 or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party's election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel solely relating to matters of local law), approved by the indemnifying party (NationsBanc Montgomery Securities LLC on behalf of the several Underwriters in the case of Section 8(b) and Section 9), representing the indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. (d) Settlements. The indemnifying party under this Section 8 shall not be liable for any settlement of any proceeding effected without its prior written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 8(c) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its -28- 33 written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. SECTION 9. CONTRIBUTION. If the indemnification provided for in Section 8 is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount paid or payable by such indemnified party, as incurred, as a result of any losses, claims, damages, liabilities or expenses referred to therein (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other hand, from the offering of the Common Shares pursuant to this Agreement or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other hand, in connection with the statements or omissions or inaccuracies in the representations and warranties herein which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other hand, in connection with the offering of the Common Shares pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Common Shares pursuant to this Agreement (before deducting expenses) received by the Company and the Selling Stockholders, and the total underwriting discount received by the Underwriters, in each case as set forth on the front cover page of the Prospectus (or, if Rule 434 under the Securities Act is used, the corresponding location on the Term Sheet) bear to the aggregate initial public offering price of the Common Shares as set forth on such cover. The relative fault of the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact or any such inaccurate or alleged inaccurate representation or warranty relates to information supplied by the Company or the Selling Stockholders, on the one hand, or the Underwriters, on the other hand, and the parties' relative intent, -29- 34 knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 8(c), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in Section 8(c) with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this Section 9; provided, however, that no additional notice shall be required with respect to any action for which notice has been given under Section 8(c) for purposes of indemnification. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 9. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the underwriting commissions received by such Underwriter in connection with the Common Shares underwritten by it and distributed to the public. Notwithstanding the provisions of this Section 9, each Selling Stockholder shall not be required to contribute any amount in excess of the net proceeds received by such Selling Stockholder from the sale of the Common Shares by such Selling Stockholder hereunder. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 9 are several, and not joint, in proportion to their respective underwriting commitments as set forth opposite their names in Schedule A. For purposes of this Section 9, each officer and employee of an Underwriter and each person, if any, who controls an Underwriter within the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company or any Selling Stockholder with the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as the Company or such Selling Stockholder, as the case may be. The provisions of this Section 9 shall not affect any agreement between the Company and the Selling Stockholders with respect to contribution. SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on the First Closing Date or the Second Closing Date, as the case may be, any one or more of the several Underwriters shall fail or refuse to purchase Common Shares that it or they -30- 35 have agreed to purchase hereunder on such date, and the aggregate number of Common Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase does not exceed 10% of the aggregate number of the Common Shares to be purchased on such date, the other Underwriters shall be obligated, severally, in the proportions that the number of Firm Common Shares set forth opposite their respective names on Schedule A bears to the aggregate number of Firm Common Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as may be specified by the Underwriters with the consent of the non-defaulting Underwriters, to purchase the Common Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date. If, on the First Closing Date or the Second Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Common Shares and the aggregate number of Common Shares with respect to which such default occurs exceeds 10% of the aggregate number of Common Shares to be purchased on such date, and arrangements satisfactory to the Underwriters and the Company for the purchase of such Common Shares are not made within 48 hours after such default, this Agreement shall terminate without liability of any party to any other party except that the provisions of Section 4, Section 8 and Section 9 shall at all times be effective and shall survive such termination. In any such case either the Underwriters or the Company shall have the right to postpone the First Closing Date or the Second Closing Date, as the case may be, but in no event for longer than seven days in order that the required changes, if any, to the Registration Statement and the Prospectus or any other documents or arrangements may be effected. As used in this Agreement, the term "Underwriter" shall be deemed to include any person substituted for a defaulting Underwriter under this Section 10. Any action taken under this Section 10 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing Date this Agreement may be terminated by the Underwriters by notice given to the Company and the Selling Stockholders if at any time (i) trading or quotation in any of the Company's securities shall have been suspended or limited by the Commission or by the New York Stock Exchange, or trading in securities generally on either the Nasdaq Stock Market or the New York Stock Exchange shall have been suspended or limited, or minimum or maximum prices shall have been generally established on any of such stock exchanges by the Commission or the NASD; (ii) a general banking moratorium shall have been declared by any of federal, Florida, New York or California authorities; (iii) there shall have occurred any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective substantial change in United States' or international political, financial or economic conditions, as in the judgment of the Underwriters is material and adverse and makes it impracticable to market the Common Shares in the manner and on the terms described in the Prospectus or to enforce contracts for the sale of securities; (iv) in the judgment of the -31- 36 Underwriters there shall have occurred any Material Adverse Change; or (v) the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as in the judgment of the Underwriters may interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured. Any termination pursuant to this Section 11 shall be without liability on the part of (a) the Company or the Selling Stockholders to any Underwriter, except that the Company and the Selling Stockholders shall be obligated to reimburse the expenses of the Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the Company or the Selling Stockholders, or (c) of any party hereto to any other party except that the provisions of Section 8 and Section 9 shall at all times be effective and shall survive such termination. SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The respective indemnities, agreements, representations, warranties and other statements of the Company, of its officers, of the Selling Stockholders and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of its or their partners, officers or directors or any controlling person, or the Selling Stockholders, as the case may be, and will survive delivery of and payment for the Common Shares sold hereunder and any termination of this Agreement. SECTION 13. NOTICES. All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows: If to the Underwriters: NationsBanc Montgomery Securities LLC 600 Montgomery Street San Francisco, California 94111 Facsimile: 415-249-5558 Attention: Richard A. Smith with a copy to: NationsBanc Montgomery Securities LLC 600 Montgomery Street San Francisco, California 94111 Facsimile: (415) 249-5553 Attention: Jeff Lapic, Esq. If to the Company: Dycom Industries, Inc. -32- 37 4440 PGA Boulevard, Suite 600 Palm Beach Gardens, Florida 33410 Facsimile: (561) 627-7709 Attention: Thomas R. Pledger, Executive Chairman and Chairman of the Board with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Facsimile: (212) 848-7179 Attention: Richard B. Vilsoet, Esquire If to the Selling Stockholders: To such Selling Stockholder at the address specified on Schedule B hereof. with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Facsimile: (212) 848-7179 Attention: Richard B. Vilsoet, Esquire Any party hereto may change the address for receipt of communications by giving written notice to the others. SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and be binding upon the parties hereto, including any substitute Underwriters pursuant to Section 10 hereof, and to the benefit of the employees, officers and directors and controlling persons referred to in Section 8 and Section 9, and in each case their respective successors, and personal representatives, and no other person will have any right or obligation hereunder. The term "successors" shall not include any purchaser of the Common Shares as such from any of the Underwriters merely by reason of such purchase. SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable. -33- 38 SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE. SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER COMMON SHARES. If one or more of the Selling Stockholders shall fail to sell and deliver to the Underwriters the Common Shares to be sold and delivered by such Selling Stockholders at the First Closing Date pursuant to this Agreement, then the Underwriters may at their option, by written notice from the Underwriters to the Company and the Selling Stockholders, either (i) terminate this Agreement without any liability on the part of any Underwriter or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the Selling Stockholders, or (ii) purchase the shares which the Company and other Selling Stockholders have agreed to sell and deliver in accordance with the terms hereof. If one or more of the Selling Stockholders shall fail to sell and deliver to the Underwriters the Common Shares to be sold and delivered by such Selling Stockholders pursuant to this Agreement at the First Closing Date, then the Underwriters shall have the right, by written notice from the Underwriters to the Company and the Selling Stockholders, to postpone the First Closing Date or the Second Closing Date, as the case may be, but in no event for longer than seven days in order that the required changes, if any, to the Registration Statement and the Prospectus or any other documents or arrangements may be effected. SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement may not be amended or modified unless in writing by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit. The Table of Contents and the Section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement. Each of the parties hereto acknowledges that it is a sophisticated business person who was adequately represented by counsel during negotiations regarding the provisions hereof, including, without limitation, the indemnification provisions of Section 8 and the contribution provisions of Section 9, and is fully informed regarding said provisions. -34- 39 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company and the Custodian the enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms. Very truly yours, DYCOM INDUSTRIES, INC. By:__________________________ Thomas R. Pledger Executive Chairman and Chairman of the Board SELLING STOCKHOLDERS By:__________________________ Name: Title: By:__________________________ Name: Title: By:__________________________ Name: Title: By:__________________________ Name: Title: -35- 40 By:__________________________ Name: Title: By:__________________________ Name: Title: The Other Selling Stockholders named in Schedule B By:__________________________ Thomas R. Pledger (Attorney-in-fact) -36- 41 The foregoing Underwriting Agreement is hereby confirmed and accepted by the Representatives in San Francisco, California as of the date first above written. NATIONSBANC MONTGOMERY SECURITIES LLC MORGAN STANLEY & CO. INCORPORATED MORGAN KEEGAN & COMPANY, INC. Acting as Representatives of the several Underwriters named in the attached Schedule A. By: NATIONSBANC MONTGOMERY SECURITIES LLC By:___________________________ Richard A. Smith Authorized Signatory -37- 42 SCHEDULE A
NUMBER OF FIRM COMMON SHARES TO UNDERWRITERS BE PURCHASED ------------ ------------ NationsBanc Montgomery Securities LLC .................... Morgan Stanley & Co. Incorporated......................... Morgan Keegan & Company, Inc. ............................ Total.............................................
43 SCHEDULE B
NUMBER OF MAXIMUM NUMBER OF SELLING STOCKHOLDER (ADDRESS*) FIRM COMMON SHARES OPTIONAL COMMON SHARES - ----------------------------- TO BE SOLD TO BE SOLD ---------- ---------- ---------- ----------- Total:............................................
* UNLESS OTHERWISE INDICATED, EACH SUCH STOCKHOLDER HAS THE SAME ADDRESS AS THE COMPANY. 44 EXHIBIT A Opinion of counsel for the Company to be delivered pursuant to Section 5(d) of the Underwriting Agreement. References to the Prospectus in this Exhibit A include any supplements thereto at the Closing Date. (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Florida. (ii) The Company has the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Underwriting Agreement. (iii) The Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. (iv) Each significant subsidiary (as defined in Rule 405 under the Securities Act) is a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and, to the best knowledge of such counsel, is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. (v) The authorized, issued and outstanding capital stock of the Company (including the Common Stock) conform to the descriptions thereof set forth in the Prospectus. All of the outstanding shares of Common Stock (including the shares of Common Stock owned by Selling Stockholders) have been duly authorized and validly issued, are fully paid and nonassessable and, to the best of such counsel's knowledge, have been issued in compliance with the registration and qualification requirements of federal and state securities laws. The form of certificate used to evidence the Common Stock is in due and proper form and complies with all applicable requirements of the charter and by-laws of the Company and the Florida General Corporation Act. 45 (vi) No stockholder of the Company or any other person has any preemptive right, right of first refusal or other similar right to subscribe for or purchase securities of the Company arising (i) by operation of the charter or by-laws of the Company or the Florida General Corporation Act or (ii) to the best knowledge of such counsel, otherwise. (vii) The Underwriting Agreement has been duly authorized, executed and delivered by the Company. (viii) The Common Shares to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale pursuant to the Underwriting Agreement and, when issued and delivered by the Company pursuant to the Underwriting Agreement against payment of the consideration set forth therein, will be validly issued, fully paid and nonassessable. (ix) Each of the Registration Statement and the Rule 462(b) Registration Statement, if any, has been declared effective by the Commission under the Securities Act. To the best knowledge of such counsel, no stop order suspending the effectiveness of either of the Registration Statement or the Rule 462(b) Registration Statement, if any, has been issued under the Securities Act and no proceedings for such purpose have been instituted or are pending or are contemplated or threatened by the Commission. Any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the Securities Act has been made in the manner and within the time period required by such Rule 424(b). (x) The Registration Statement, including any Rule 462(b) Registration Statement, the Prospectus, and each amendment or supplement to the Registration Statement and the Prospectus, as of their respective effective or issue dates (other than the financial statements and supporting schedules and financial and statistical data included therein or in exhibits to or excluded from the Registration Statement, as to which no opinion need be rendered) comply as to form in all material respects with the applicable requirements of the Securities Act. (xi) The Common Shares have been approved for listing on the New York Stock Exchange. (xii) The statements in the Prospectus under the caption "Description of Capital Stock", insofar as such statements constitute summaries of the Company's charter or by-law provisions and the Company's Shareholders Rights Plan described therein, have been reviewed by such counsel and fairly present and summarize, in all material respects, the matters referred to therein. (xiii) To the best knowledge of such counsel, there are no legal or governmental actions, suits or proceedings, pending or threatened which are required to be disclosed in the Registration Statement, other than those legal or governmental -2- 46 actions, suits or proceedings which are described in the Registration Statement as arising in the ordinary course of business or those otherwise disclosed in the Registration Statement. (xiv) No consent, approval, authorization or other order of, or registration or filing with, any Florida State, New York State or U.S. Federal governmental authority or agency, is required for the Company's execution, delivery and performance of the Underwriting Agreement and consummation of the transactions contemplated thereby and by the Prospectus, except as required under the Securities Act, applicable state securities or blue sky laws and from the NASD. (xv) The execution and delivery of the Underwriting Agreement by the Company and the performance by the Company of its obligations thereunder (other than performance by the Company of its obligations under the indemnification section of the Underwriting Agreement, as to which no opinion need be rendered), assuming due authorization, execution and delivery by each other party thereto, (i) will not result in any violation of the provisions of the charter or by-laws of the Company; and (ii) will not constitute a breach of, or Default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the Amended and Restated Credit Facility Agreement with a group of banks led by Dresdner Bank Lateinamerika AG. (xvi) The Company is not, and after receipt of payment for the Common Shares will not be, an "investment company" within the meaning of the Investment Company Act. (xvii) To the best knowledge of such counsel, neither the Company nor any subsidiary is in violation of its charter or by-laws or any Florida law applicable to the Company. (xviii) Each document filed pursuant to the Exchange Act (other than the financial statements and supporting schedules included therein, as to which no opinion need be rendered) and incorporated or deemed to be incorporated by reference in the Prospectus complied when so filed as to form in all material respects with the Exchange Act. In addition, such counsel shall state that they have participated in conferences with officers and other representatives of the Company, representatives of the independent public or certified public accountants for the Company and with representatives of the Underwriters during which the contents of the Registration Statement and the Prospectus, and any supplements or amendments thereto, and related matters were discussed and, although such counsel has not undertaken to investigate or verify independently and is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus (other than as indicated above), -3- 47 including all documents incorporated or deemed to be incorporated by reference therein, and any supplements or amendments thereto, on the basis of the foregoing, no facts have come to their attention which would lead them to believe that either the Registration Statement or any amendments thereto, at the time the Registration Statement or such amendments became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, as of its date or at the First Closing Date or the Second Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief or opinion as to the financial statements and related notes, the financial statement schedules or other financial or statistical data included in the Registration Statement or the Prospectus or any amendments or supplements thereto). In rendering such opinion, such counsel may (A) assume, as to matters involving the application of laws of any jurisdiction other than the General Corporation Law of the State of Delaware, the New York Business Corporation Law or the federal law of the United States, the correctness of the matters stated in the opinion (which shall be dated the First Closing Date or the Second Closing Date, as the case may be, shall be satisfactory in form and substance to the Underwriters, shall expressly state that the Underwriters may rely on such opinion as if it were addressed to them and shall be furnished to the Underwriters) of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters, and (B) rely as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. -4- 48 EXHIBIT B The opinion of such counsel pursuant to Section 5(h) shall be rendered to the Underwriters at the request of the Company and shall so state therein. References to the Prospectus in this Exhibit B include any supplements thereto at the Closing Date. (i) The Underwriting Agreement has been duly authorized, executed and delivered by or on behalf of, such Selling Stockholder. (ii) The execution and delivery by such Selling Stockholder of, and the performance by such Selling Stockholder of its obligations under, the Underwriting Agreement and its Power of Attorney and Custody Agreement will not contravene or conflict with, result in a breach of, or constitute a default under, the charter or by-laws, partnership agreement, trust agreement or other organizational documents, as the case may be, of such Selling Stockholder, or, to the best of such counsel's knowledge, violate or contravene any provision of New York or Federal law or regulation, or, to the best of our knowledge, violate, result in a breach of or constitute a default under the terms of any other agreement or instrument to which such Selling Stockholder is a party or by which it is bound, or any judgment, order or decree applicable to such Selling Stockholder of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over such Selling Stockholder. (iii) To the best of such counsel's knowledge, such Selling Stockholder is the record owner of all of the Common Shares which may be sold by such Selling Stockholder under the Underwriting Agreement and has the legal right and power, and all authorizations and approvals required by the trust agreement or other organizational documents, as the case may be, to enter into the Underwriting Agreement and its Power of Attorney and Custody Agreement, to sell, transfer and deliver all of the Common Shares which may sold by such Selling Stockholder under the Underwriting Agreement and to comply with its other obligations under the Underwriting Agreement, its Power of Attorney and Custody Agreement. (iv) Each Power of Attorney and Custody Agreement of such Selling Stockholder has been duly authorized, executed and delivered by such Selling Stockholder and is a valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, except as rights to indemnification thereunder may be limited by applicable law and except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. (v) Assuming that (1) Cede & Co. is not a securities intermediary; (2) the Underwriters are Depository Trust Company ("DTC") participants; as such, each Underwriter maintains a customer account with DTC in the name of such Underwriter and this customer account is the subject of an agreement between DTC and such Underwriter which provides, among other things, that: (a) financial assets (Section 8- 49 102(a)(9) UCC) (including any financial assets consisting of, or of security entitlements (Section 8-102(a)(17) UCC) in, the shares of Common Stock of the Selling Stockholders) may be credited to this customer account; (b) DTC undertakes to treat the Underwriter as entitled to exercise the rights that comprise the financial assets so directed from time to time to the customer account; (c) the agreement between DTC and each Underwriter is governed by New York law (such that DTC's "securities intermediary's jurisdiction" (Section 8-110(e) UCC) is New York); (3) upon Cede & Co.'s or __________'s as custodian for DTC acquiring possession of the security certificates evidencing the shares of Common Stock of the Selling Stockholders, DTC actually indicated by book entry that financial assets comprised of such shares of Common Stock have been credited to the Underwriter's customer account; and (4) neither DTC nor any of the Underwriters have notice of any adverse claim (Section 8-105, Section 8-102(a)(1) UCC) to the shares of Common Stock of the Selling Stockholders or any security entitlement therein, then (a) DTC has acquired the Common Stock of the Selling Stockholders free of any adverse claim. (b) Upon credit by DTC to the customers' account of the financial assets comprised of the Common Stock of the Selling Stockholders, each Underwriter will acquire a security entitlement from DTC with respect to the Common Stock of the Selling Stockholders and an action (however framed) based on an adverse claim to such financial assets may not be asserted against such Underwriter. (vi) To the best of such counsel's knowledge, no consent, approval, authorization or other order of, or registration or filing with, any governmental authority or agency, is required for the consummation by such Selling Stockholder of the transactions contemplated in the Underwriting Agreement, except as required under the Securities Act, applicable state securities or blue sky laws. In rendering such opinion, such counsel may (A) assume as to matters involving the application of laws of any jurisdiction other than the General Corporation Law of the State of Delaware, the New York Business Corporation Law or the federal law of the United States, the correctness of the matters stated in the opinion (which shall be dated the First Closing Date or the Second Closing Date, as the case may be, shall be satisfactory in form and substance to the Underwriters, shall expressly state that the Underwriters may rely on such opinion as if it were addressed to them and shall be furnished to the Underwriters) of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters, and (B) rely as to matters of fact, to the extent they deem proper, on certificates of the Selling Stockholders and public officials. - 2 - 50 EXHIBIT C [Date] NationsBanc Montgomery Securities LLC Morgan Stanley & Co. Incorporated Morgan Keegan & Company, Inc. c/o NationsBanc Montgomery Securities LLC 600 Montgomery Street San Francisco, California 94111 RE: Dycom Industries, Inc. (the "Company") Ladies & Gentlemen: The undersigned is an owner of record or beneficially of certain shares of Common Stock of the Company ("Common Stock") or securities convertible into or exchangeable or exercisable for Common Stock. The Company proposes to carry out a public offering of Common Stock (the "Offering") for which you will act as the underwriters. The undersigned recognizes that the Offering will be of benefit to the undersigned and will benefit the Company by, among other things, raising additional capital for its operations. The undersigned acknowledges that you are relying on the representations and agreements of the undersigned contained in this letter in carrying out the Offering and in entering into underwriting arrangements with the Company with respect to the Offering. In consideration of the foregoing, the undersigned hereby agrees that the undersigned will not, without the prior written consent of NationsBanc Montgomery Securities LLC (which consent may be withheld in its sole discretion), directly or indirectly, sell, offer, contract or grant any option to sell (including without limitation any short sale), pledge, transfer, establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock, or securities exchangeable or exercisable for or convertible into shares of Common Stock currently or hereafter owned either of record or beneficially (as defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the undersigned, or publicly announce the undersigned's intention to do any of the foregoing, for a period commencing on the date hereof and continuing through the close of trading on the date 90 days after the date of the Prospectus; provided that the undersigned may give or pledge shares of Common Stock if the donee or pledgee agrees in writing, prior to the making of such gift or pledge, not to sell, offer, dispose of or otherwise transfer any gifted or pledged shares during said 90-day period without the prior written consent of 51 NationsBanc Montgomery Securities (which consent may be withheld at the sole discretion of NationsBanc Montgomery Securities). The undersigned also agrees and consents to the entry of stop transfer instructions with the Company's transfer agent and registrar against the transfer of shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock held by the undersigned except in compliance with the foregoing restrictions. With respect to the Offering only, the undersigned waives any registration rights relating to registration under the Securities Act of any Common Stock owned either of record or beneficially by the undersigned, including any rights to receive notice of the Offering. This agreement is irrevocable and will be binding on the undersigned and the respective successors, heirs, personal representatives, and assigns of the undersigned. __________________________________ Printed Name of Holder By:_______________________________ Signature __________________________________ Printed Name of Person Signing (and indicate capacity of person signing if signing as custodian, trustee, or on behalf of an entity) -2- EX-5.1 3 OPINION RE COMMON STOCK 1 EXHIBIT 5.1 [AKERMAN, SENTERFITT & EIDSON, P.A. LETTERHEAD] April 28, 1999 Dycom Industries, Inc. First Union Center 4440 PGA Boulevard, Suite 500 Palm Beach Gardens, FL 33410 Re: Registration Statement on Form S-3 (Registration No. 333-76949 Ladies and Gentlemen: We have acted as special Florida counsel to Dycom Industries, Inc., a Florida corporation (the "Company"), with respect to the referenced registration statement on Form S-3 (the "Registration Statement"), which has been filed with the Securities and Exchange Commission for the purpose of registering 3,105,000 shares (the "Shares") of the common stock of the Company, $.33 1/3 par value (the "Common Stock"), 2,500,000 of which will be offered by the Company and 200,000 of which will be offered by certain selling shareholders and 375,000 and 30,000, respectively, of which may be purchased from the Company and the selling shareholders pursuant to the underwriters' over allotment option. Based on our review of the Articles of Incorporation of the Company, the Bylaws of the Company, the minutes of the meetings of the Board of Directors of the Company and such other documents and records as we have deemed necessary and appropriate, we are of the opinion that the Shares will, when sold, be validly issued, fully paid and non-assessable. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the caption "Certain Legal Matters" in the prospectus which forms a part of the Registration Statement. Very truly yours, AKERMAN, SENTERFITT & EIDSON, P.A. EX-23.3 4 CONSENT OF DELOITTE AND TOUCHE LLP 1 Exhibit 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 1 to Registration Statement No. 333-76949 of Dycom Industries, Inc. on Form S-3 of our report dated August 31, 1998, included in the Annual Report on Form 10K of Dycom Industries, Inc. for the year ended July 31, 1998, and to the use of our report dated August 31, 1998 (April 23, 1999 as to the effects of the stock split described in Note 19) appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the headings "Summary Consolidated Financial Data" and "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP - ------------------------- Deloitte & Touche LLP West Palm Beach, Florida April 28, 1999 EX-23.4 5 CONSENT OF NOWALK AND ASSOCIATES 1 Exhibit 23.4 INDEPENDENT AUDITORS' CONSENT We consent to the use in (and incorporation by reference in) this Amendment No. 1 to Registration Statement No. 333-76949 of Dycom Industries, Inc. on Form S-3 of our report dated July 23, 1997 (relating to the financial statements of Communications Construction Group, Inc. not presented separately herein) appearing in the Prospectus (and incorporated by reference from the Annual Report on Form 10-K), which is part of this Amendment No. 1 to Registration Statement No. 333-76949. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Nowalk & Associates Nowalk & Associates Cranbury, New Jersey April 28, 1999 EX-23.5 6 CONSENT OF YORK NEEL AND CO 1 EXHIBIT 23.5 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in this Amendment No. 1 to Registration Statement No. 333-76949 of Dycom Industries, Inc. on Form S-3 of our reports dated March 8, 1999 and March 10, 1999 of Ervin Cable Construction, Inc. and Apex Digital TV, Inc., respectively, for the year ended December 31, 1998 appearing in the Form 8-K of Dycom Industries, Inc. dated April 15, 1999. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ York, Neel & Co.-Owensboro, LLP York, Neel & Co.-Owensboro, LLP Owensboro, Kentucky April 28, 1999 -----END PRIVACY-ENHANCED MESSAGE-----