Exhibit 99.1
DYCOM INDUSTRIES, INC.
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
Page 1
DYCOM INDUSTRIES, INC.
August 26, 2003
8:00 a.m. CDT
Moderator Ladies and gentlemen, thank you for standing by and
welcome to the Dycom Earnings conference call. At
this time all participant lines are in a listen-only
mode. Later there will be an opportunity for
questions and instructions will be given at that
time. As a reminder, the call is being recorded.
I would now like to turn the call over to Mr. Steve
Nielsen. Please go ahead, sir.
S. Nielsen Good morning, everyone. I'd like to thank you for
attending our Fourth Quarter Fiscal 2003 Earnings
conference call. With me we have in attendance
Richard Dunn, our Chief Financial Officer; Tim Estes,
our Chief Operating Officer; and Mike Miller, our
General Counsel.
Now I will turn the call over to Mike Miller. Mike.
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
Page 2
M. Miller Thanks, Steve. Statements made in the course of this
conference call that state the company's or
management's intentions, hopes, beliefs,
expectations, or predictions of the future are
forward-looking statements. It is important to note
that the company's actual results could differ
materially from those projected in such
forward-looking statements.
Additional information concerning factors that could
cause actual results to differ materially from those
in the forward-looking statements is contained from
time to time in the company's SEC filings, including
but not limited to, the company's report on Form 10-K
for the year ended July 27, 2002, the company's
quarterly report on Form 10-Q for the quarter ended
October 26, 2002, the company's quarterly report on
Form 10-Q for the quarter ended January 25, 2003, and
the company's quarterly report on Form 10-Q for the
quarter ended April 26, 2003.
Copies of these filings may be obtained by contacting
the company or are available on the SEC's Web site.
Additionally, during this call there will be
references to certain non-GAAP financial information.
This information has been reconciled to GAAP in the
company's press release of yesterday that has been
posted on the company's Web site. Steve.
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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S. Nielsen Thanks, Mike. Yesterday we issued a press release
announcing our fourth quarter fiscal 2003 results.
Please note that our fourth quarter fiscal 2002 GAAP
results included several charges resulting from
customer difficulties and bankruptcies. The
cumulative effect of these charges was an after-tax
charge of $59.9 million or $1.25 per common share
diluted. Excluding these charges net income for the
quarter ended July 27, 2002 would have been $3
million or $0.06 per common share diluted.
Consequently in order to ensure accurate comparisons
all references to the year ago quarter exclude these
charges. For the quarter ending July 26, 2003 total
contract revenues were $182.9 million versus $148.2
million in the year ago period, an increase of 23%.
Net income was $11.4 million versus $3 million, an
increase of 275%, while fully diluted earnings per
share was $0.24 versus $0.06, an increase of 300%.
Backlog at the end of the fourth quarter of 2003 was
$890.9 million versus $996.4 million at the end of
the third quarter, a sequential decrease of $106
million. Of this backlog, approximately $446.6
million is expected to be completed in the next 12
months. Our fourth quarter results demonstrated solid
organic growth, significant margin expansion, and a
noteworthy increase in operating cash flow.
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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Revenue increased sequentially by $43 million from
the prior quarter and revenue increased by over $34
million from the year ago quarter. This represents an
organic growth rate of 23%. Notably, our forecasted
first quarter revenue indicates continued
year-over-year organic growth, which when combined
with the organic growth of the fourth quarter will
represent our first back to back quarters of organic
growth since our quarter ending October of 2000.
Gross margin increased by 240 basis points
sequentially from the third quarter to 24.17%, while
sequentially G&A decreased 366 basis points to 9.06%,
and depreciation and amortization decreased 149 basis
points to 4.87%. Both the G&A and depreciation and
amortization percentages were favorably impacted as
relatively fixed costs were leveraged by dramatically
increased quarterly revenue. Liquidity remained ample
with over $129 million in net cash. Cash increased by
$11.8 million during the quarter, despite $3.6
million of capital expenditures net of disposals,
which were required to support our growth.
Days sales outstanding was 78 days, a sequential
decrease of ten days during the quarter. Cash flow
from operations totaled $13.8 million and both
working capital and our current ratio increased
sequentially from the prior
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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quarter. During the quarter we welcomed the effects
of what appears to be a less sluggish overall
economy, telephone company capital expenditures,
which though generally below year ago levels, appear
to be firming and accelerating spending by several
cable customers.
Revenue from Comcast increased sequentially in the
quarter by 23% to $69.7 million. Comcast was Dycom's
largest customer for the quarter at 38.1% of revenue.
Additionally, revenue from Adelphia and Charter both
increased sequentially. New contracts initiated for
Sprint during the third quarter performed at or above
expectation with spending firming throughout the
fourth quarter, while revenues from Bell South,
Qwest, and Alltel also increased sequentially.
Employee head count increased to 5,259 at the end of
the fourth quarter from 4,999 in the previous
quarter. Perhaps most interestingly, BellSouth, SBC
Communications, and Verizon continued their pursuit
of common technical requirements for a technology
known as fiber to the premises or FTTP by issuing an
actual RFP to telecom equipment vendors for potential
future procurements.
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Host: Steven Nielsen
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On August 21st the Federal Communications Commission
issued its long awaited triennial review. While this
ruling's almost 600 pages are still being analyzed in
a process expected to take weeks, it does appear to
provide significant incentives for residential
broadband fiber deployments by incumbent telephone
companies.
More specifically, fiber loops deployed in green
field applications such as new subdivisions will not
be subject to unbundled access by competitors.
Furthermore, where fiber loops replace existing
copper loops, telephone companies will only be
required to provide competitors with a low bandwidth
channel on the newly installed fiber loop.
Additional hybrid loops, which consist of a
combination of fiber and copper, will not be subject
to unbundled access if they utilize new packetized
switching technologies. All in all, a very
preliminary analysis indicates that these new FCC
rulings may significantly improve the environment for
capital expenditures by incumbent telephone
companies. This may lead to a possible upturn in
telephone company capital expenditures and fiber
deployments in calendar 2004.
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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While growing, we retain a tight handle on our cost
structure and have continued several initiatives to
help offset pressures on operating margins. First, we
will maintain a reduced level of capital
expenditures, excepting growth opportunities and
prudent upgrades to our fleet of capital equipment.
Our fleet of capital equipment is in good condition
and lowered levels of investment will have little or
no impact on operational expenses. Secondly, we will
continue reductions in general and administrative
expenses to better align our administrative cost with
individual subsidiary's anticipated levels of
activity. In fact, we may consolidate the subsidiary
corporate G&A at additional reporting units.
During the quarter we continued to book new work. For
Comcast we received a contract extension for Palo
Alto, California for system upgrade work. For
Adelphia an upgrade project for Pinedale, California,
along with the reinitiation of several projects in
New England, and for Bright House Networks, an
upgrade project outside of Orlando, Florida. Finally,
in our locating business we secured a new three-year
extension for Northwest Natural Gas.
As Dycom grew this quarter, we demonstrated our
continued stability and unparalleled ability to
profitably respond to growth opportunities. First
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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and foremost, we maintained strong customer
relationships throughout our markets. Substantial
organic growth this quarter was encouraging as
revenues with Comcast, Sprint, Qwest, and Alltel all
grew substantially and year-over-year. Net cash
remained ample and grew over $11 million in the
quarter and our already strong working capital
position strengthened.
While our pricing environment remains tight, we
remain focused on time tested cost controls and
productivity improvements as we continually evaluate
appropriate staffing and capital equipment levels. As
economic conditions appear to be improving, we firmly
believe that Dycom's superior financial health will
increasingly allow us to differentiate ourselves from
our competitors in the eyes of our customers,
employees, and suppliers.
Dycom's financial strength and strong customer
relationships have been key to our ability to
demonstrate significant organic growth for the first
time in three years. We continue to believe that as
profitable growth opportunities return to our
industry, we will be one of the first and the best
positioned to take advantage of them. We believe that
this advantage
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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relative to other industry participants becomes more
pronounced every day.
After weighing all of the factors we have discussed
today, we have updated our forecast as follows. For
the first quarter of fiscal 2004 we anticipate
earnings per share of $0.22 to $0.27 and revenues of
$165 to $185 million. This outlook anticipates a
continued stabilizing economy in the U.S., normalcy
in the weather, continued increased spending by
Comcast on its acquired systems, firming seasonal
demand from our telephone customers, and sustained
revenue from our new Sprint contracts.
Looking beyond the first quarter, we anticipate
earnings per share of $0.12 to $0.16 on revenues of
$135 to $150 million for the second quarter of fiscal
2004. This expectation is based upon the continued
impact of those factors cited for the first quarter,
along with a prudent caution regarding seasonal
winter weather patterns.
Finally, recent developments continue to indicate
that substantial competitive capacity may be less
able to respond to increased future
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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customer demand due to capital constraints. This
trend may continue even as customer demand
potentially increases.
At this point I will turn the call over to Dick Dunn,
our CFO. Dick.
R. Dunn Thanks, Steve. Before I begin my review, let me point
out that the prior year's GAAP results contained
several unusual items. In order to present a true
comparative picture of this year's results to last
year's results, the following items will be
eliminated from our GAAP results for the prior fiscal
year. First, for the quarter and 12 month period
ended July 27, 2002 we recorded an after-tax increase
in our allowance for doubtful accounts of $12.1
million and an after-tax impairment charge of $47.8
million related to the write down of goodwill and
other intangible assets.
These charges resulted from customer difficulties and
bankruptcies. The total effect of these items on
income was an after-tax charge of $59.9 million. On a
diluted EPS basis the total effects of these charges
for the quarter and the year were $1.25 and $1.33
respectively. My discussion will eliminate the impact
of these charges.
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
Page 11
Additionally, the results for the 12-month period
ended July 27, 2002 include an after-tax non-cash
impairment charge to goodwill of $86.9 million or
$1.93 per diluted share. This goodwill impairment is
the cumulative effect of adopting accounting standard
142 and as required thereby the first quarter of our
2002 fiscal year has been restated to reflect this
charge. Again, for purposes of my discussion of
financial results I will eliminate this charge.
With these items in mind, I'll begin my overview of
our quarterly financial performance beginning with
the income statement. Contract revenues for the
quarter were $182.9 million, up 23.4% from last
year's Q4 of $148.2 million. This increase is solely
related to organic revenue activity. Total revenues
for the year ended July 26th declined 0.9% to $618.2
million versus fiscal year 2002's revenue of $624.0
million. Revenues for the year on a same store basis
were down 12.4%.
For the quarter the top five customers accounted for
71.8% of total revenues versus 58.8% for the prior
year's fourth quarter. For the year ended July 26th
sales to the top five customers as a percent of the
total was 63.9% versus 59.4% for the prior year. The
top five customers and their respective percentages
of revenue for Q4 of 2003 and 2002 are as follows.
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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For the current fiscal year 2003: Comcast 38.1%,
Sprint 11.6%, BellSouth 10.9%, Adelphia 5.7%, and
Qwest 5.5%. For Q4 fiscal year 2002: Comcast at
18.5%, BellSouth 17.1%, Charter Communications 8.7%,
DirecTV 7.4%, and Adelphia 7.1%.
Net income for the fourth quarter was $11.4 million
versus $3 million in fiscal year 2002, representing
an increase of 274.7%. Net income for the year ended
July 26th decreased 27.9% to $17.1 million versus
last year's $23.8 million. Fully diluted earnings for
the quarter were $0.24, a 300% increase from last
year's $0.06 per share results. Diluted EPS for the
year ended July 26th decreased 32.1% to $0.36 per
share versus last year's $0.53 per share.
Operating margins for the fourth quarter increased
676 basis points, coming in at 10.25% versus last
year's 3.49%. This increase was due to a 179 basis
point decrease in cost of earned revenues, a 247
basis point decrease in general and administrative
costs, and a 250 basis point decrease in depreciation
and amortization. Operating margins for the year
declined 182 basis points, coming in at 4.23% versus
last year's 6.05%.
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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This decrease was due to a 136 basis point increase
in cost of earned revenues, a 36 basis point increase
in general and administrative costs, and a ten basis
point increase in depreciation and amortization. The
effective tax rates for the quarter and year-end
periods were 42.3% and 43.7% respectively versus
47.4% and 43.2% respectively for the prior year's
period. These differences were attributable to the
mix of income among ourselves and the impact that it
had on our state tax rate.
Net interest income for the quarter and year were
$310,000 and $1.3 million respectively versus
$509,000 and $2.6 million for the prior year. Our
interest income was generated through investments in
high quality municipal and corporate instruments. For
the quarter our cash flow from operating activities
was $13.8 million. The primary components to this
cash flow were net income of $11.4 million,
depreciation and amortization of $8.9 million, offset
by increases in working capital of approximately $6.5
million.
Investing and financing activities for the quarter
used $2.0 million. This use of cash consisted of
capital expenditures of $5.1 million; partially
offset by proceeds from the sale of assets of $1.5
million and proceeds from the exercise of employee
stock options of $1.6 million. Cash and
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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cash equivalents at the end of the quarter were
$129.9 million, up $11.8 million from the prior
quarter. During the quarter net receivables increased
from $105.3 million to $122.0 million, but DSO
declined 7.9 days to 60.7 versus 68.6 at the end of
the third quarter.
Net unbilled revenue balances increased in the
quarter from $29.9 million to $34.1 million resulting
in DSO of 17.0 days, a decrease of 2.5 days from Q3's
figure of 19.5 days. On a cumulative basis, the
combined DSO for our trade receivables and unbilled
revenues decreased from 88.1 days to 77.7 days, a
decrease of 10.4 days. At July 26th, the accrual for
our self-insured casualty program increased to 25.4
million from 21.6 million at the end of the third
quarter. Steve.
S. Nielsen Thanks, Dick. Now we'll open the call for questions.
Moderator Our first question is from the line of Steven Fox
with Merrill Lynch. Please go ahead.
S. Fox First of all, can you talk about the G&A? You said
you still have an opportunity there to reduce it. Can
you talk about how much you think
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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you can improve that in dollars? Then, secondly,
what's a reasonable gross margin target say over the
next eight quarters or so?
S. Nielsen In terms of the G&A, Steve, that's a dynamic
situation as the revenue moves between subsidiaries.
If it makes sense from a scale economy basis, then
we'll consolidate them. I wouldn't say that we have
an explicit target other than to always be more
efficient in that area. The offset to that, of
course, is we see growth. Then to some degree we have
a reduction based on the leverage on the relatively
fixed expense like we did this quarter.
By cutting G&A by I guess it was almost 300 basis
points, there is no amount of cutting that can do
that, but growth can take care of that when you see
some upturn in terms of where we'd like to be on
gross margins, Steve. We have performed for a long
period of time in a decent economy, in the 24% to 25%
gross margin range and that's the way we plan our
businesses when we have good opportunities.
S. Fox Then could you talk about, Steve, the backlog went
down, what was behind that. How do you anticipate
your business with Comcast playing out now that it
seems like you're over the big push over the next
couple of
DYCOM INDUSTRIES
Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
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quarters with AT&T Broadband? Is there a decline
coming in the Comcast business or do you think these
levels are sustainable say a year from now?
S. Nielsen In terms of the backlog, as you'll recall, last
quarter we booked a couple of significant contracts
with Sprint that has in one case a 33 month term and
in another case a series of five year contracts. It's
not unusual for backlog to bump up at that point and
then to settle a little bit. I think historically
we've seen that pattern. In terms of Comcast, clearly
we have lots of upgrade work to do. I think by
Comcast's own admission, they feel like they're doing
well and we're seeing that while there are less
projects available, there are still projects that
they are signing right now, and so we see some of
that work coming.
Then, I think, what is going to be crucial for where
our future trajectory with Comcast is is taking a
look at how they manage the combined entity
differently than AT&T did, and I think we're seeing
some opportunities in terms of vendor consolidation
and also access to portions of their O&M and other
cap ex spending that historically we haven't seen a
big piece of as we've been focused on upgrades. So, I
think, if you look at any of the cable operators and
look at their capital spending disclosures in their
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quarterly press releases, we're obviously targeting
those areas that are flat or growing as we look out
to next calendar year.
Moderator Our next question is from the line of Fritz Von Carp,
Sage Asset Management.
F. Von Carp If I'm looking at the revenue guidance, you guys are
traditionally pretty conservative with the guidance
you give and I just wanted to get a feel for the
slowing year-on-year comparisons implied on the top
line by the revenue guidance. To what extent is that
a product of you guys just being a little
conservative in your guidance and to what extent is
it a product of something substantive that you see
out in the world?
S. Nielsen I think we are always conservative on our second
quarter, because of the impact of the holidays and
potential weather impacts which clearly got to us
last year. I think in this particular case we're
taking that conservative approach and we're also
seeing an economy where we're seeing some fresh
opportunities, but there is not tremendous amounts of
visibility compared to say four or five years ago.
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F. Von Carp Back to the Comcast, help me understand what metric
when we talk to Comcast about their build out of the
AT&T systems, is it their fiber miles they are
expecting. I guess I have two questions. The fiber
miles that they put in the ground are expected to be
down they think 60% in calendar '04 versus calendar
'03. Number one would be how much of that, because
you're on the July year, how much of that 60% decline
would be in your '05 as opposed to the second half of
the calendar year versus the first half of the
calendar year. Also, is miles of fiber put in the
ground the right metric that would drive your
business?
S. Nielsen I don't necessarily think it's miles of fiber.
Clearly they have stated pretty explicitly that
they'd like to get a substantial portion of their
upgrade work done in '04 in the first half or
two-thirds of the year. So that would be primarily
from that perspective more of an '05 issue on our
calendar.
I think the offset to that is that there is an
increasing amount of focus from all the cable
operators as their upgrade activity slows to focus
more on the new build side of their business, which
is where they can gain basic subscriber growth and
where they are intent on providing timely deployments
so that they can combat satellite penetration. I
think that's
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August 26, 2003/8:00 a.m. CDT
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recurring business that happens every year. I think
that that's where we're spending time with several
operators focusing.
F. Von Carp One last question, if you don't mind, on fiber to the
premise. Clearly it's potentially a lot of work,
probably more than all the construction companies in
America could do if it all happened in the fastest
possible way. I don't know if you're able to answer
this now, but do you have any insight into the
lawsuits to change or to challenge the new rule that
essentially all the carriers have talked about. Do
you think that would have an impact on the capital
plans, if the new UNEP rules were tied up in court
for a year or two? Does that make a difference or not
make a difference?
S. Nielsen I think ever since the '96 act was passed, Fritz,
it's been litigated and I think the world looks
tremendously different today than it did in'96. So I
think that the general approach that's embodied in
the ruling changes the environment going forward. It
may move somewhat in fits and starts short-term, but
I think long-term it's pretty clear that from a
public policy standpoint it's important that the
Bells have incentive to invest in their residential
broadband networks.
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Moderator Steven Colbert, JMP Securities.
S. Colbert I was interested in the business pickup with
Adelphia, first of all. Can you give us some feel in
terms of how the upgrade there is working in terms of
the ability to fund projects going forward and how
you're handling the receivables issue with them?
S. Nielsen In terms of the funding, they have a debtor in
possession funding facility set up, Steve, so they
have more than adequate financing to prosecute their
upgrades. In terms of current accounts receivable, is
that your question?
S. Colbert Yes.
S. Nielsen Current accounts receivable, according to the
bankruptcy code they have to pay within contract
terms if they're operating under protection of
Chapter 11. So they're paying quite nicely.
S. Colbert Any change in the reserve that you had in the past
for the company's receivables?
S. Nielsen No. We have not changed the Adelphia valuation.
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S. Colbert I want to ask you also in view of the power blackout
on the East Coast, have you rethought at all any of
your focus on the utility side of your business?
S. Nielsen No, Steve. We really haven't. We're happy with the
space that we serve and so, no, we have not changed
our focus.
S. Colbert The last question if I could, can you share with us
your thoughts on your capital budgeting for fiscal
2004?
S. Nielsen We think that we can keep the fleet maintained and be
able to grow the business spending $15, $20 million a
year. It is not significant and also just based on
natural attrition we'll always have some disposal
proceeds to offset that cap ex. In this particular
quarter we offset about a third of our acquisition
costs with disposals. So we feel that the fleet is in
good shape and we'll have ample internally generated
cash to support cap ex.
S. Colbert What about D&A then for this year's role?
S. Nielsen I think the guidance shows that it's relatively flat.
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Moderator Alex Rygiel, Friedman Billings.
A. Rygiel Steve, it looks like with your backlog that you
expect over the next 12 months for it to be up about
15% year-over-year. Is that correct? Can you talk a
little bit about the comfort that you have with that
backlog versus maybe your comfort level with backlog
in previous periods?
S. Nielsen Alex, I don't have the figures in front of me. That
sounds intuitively correct. The backlog is up. I know
total backlog in the year ago quarter was $795
million. If overall backlog is up, I'm sure that the
run rate for the next 12 months is. I think that as
the economy gets better, backlog estimates get more
solid.
I think the other factor influencing backlog going
forward is mechanical in the way that we calculate
the value of our master contract backlog. To be
conservative, we're always taking a 12-month look
back establishing our average monthly revenue times
the remaining months on the contract. If we see a
pickup particularly with the telephone companies in
spending, so that the month rolling into the
calculation is bigger than the month rolling out, we
will see backlog growing.
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A. Rygiel Over the last couple of quarters you've mentioned
competitive capacity may be constrained. Can you
expand upon that a little bit right now?
S. Nielsen We're continuing to see that private vendors of our
services are still having some difficulties. Probably
every week there are several that are exiting the
business across the country. So, number one, there
are less businesses out there, but those businesses
that are there as private companies generally are
bank financed. The bank market, although a little bit
better, hasn't materially strengthened.
As anyone knows whose gone to the local bank, they're
always looking backwards as to how they get repaid,
not forward. I think that's where the cash that we
have on the balance sheet gives us both opportunities
to address growth opportunities, as we have with
Comcast and Sprint in particular. It also allows us
to address acquisition opportunities with less
competition for those opportunities.
A. Rygiel One last question. Can you provide the revenue by
business line?
S. Nielsen Yes. Dick has those right here.
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R. Dunn Alex, we had for this quarter telecom was 33.8%,
cable TV was 53.0%, utility locating was 9%, and
electrical and other was 4.2%.
S. Nielsen Those are all in percentages, Alex.
Moderator Alan Mitrani, Copper Beech.
A. Mitrani It seems like backlog typically comes down in the
fourth quarter versus the third quarter, at least it
has in the past over the last five years for most of
the years. Is that basically a seasonality issue?
S. Nielsen Sure. I think one of our peers talked about it on
their call that kind of the March/April period always
seems to be a peak time for new lettings, just the
way that customers like to look at their capital
budgets the first of the year to start the bid cycle.
So you have contracts that are generally renewed in
the spring more than you do other times of the year.
A. Mitrani Also, can you give us, Dick, you ran through some of
the customers. I appreciate that. It looks like
Comcast I guess was down as a percent of revenues,
but up on a dollar basis. It seems like you're
getting the growth
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from elsewhere. Can you run through, I realize
they're not top five, but maybe give us what DirecTV
and Charter were in the quarter?
R. Dunn DirecTV was 2.4%, 2.5% Charter.
S. Nielsen I think the one that also picked up, Alan, was
Alltel, which was number six at 3.5%.
A. Mitrani It doesn't look like with this, I mean Adelphia has
access to about $1.5 billion DIP financing and I
guess they were your largest customer a while ago.
Can you give us maybe your expectations or what
they're seeing in terms of spending? It seems like
they could be a significant customer in the next 12
to 24 months.
S. Nielsen We are seeing additional lettings with Adelphia. At
the peak, I think, we were at about $30 million in
the third quarter of 2002. I don't expect that we get
to that level, Alan. In part that was driven by
design decisions that the current management is
taking a little bit more conservative approach on. So
they're upgrading all their plans, but they may be
doing it a little more efficiently, but we are seeing
continued opportunities there to grow.
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August 26, 2003/8:00 a.m. CDT
Page 26
A. Mitrani Also, Dick, you talked about the Adelphia
receivables. So you still have $20 million reserved
that you wrote down to $20 million, right? There was
no change in that?
R. Dunn That's correct, Alan.
A. Mitrani Any change in the expectation in terms of when you're
going to collect?
R. Dunn No. Other than we're three months closer to whenever
it happens.
S. Nielsen The forecast from management at Adelphia as I
understand it is kind of coming out fourth quarter of
'04. While we have not expressed any interest in
selling the receivables at current trading levels,
those trading levels at least as represented to us
are higher today than they were three months ago. So
somebody in the marketplace thinks that they're
coming out sooner rather than later.
A. Mitrani Can you give us an update, though, on the healthcare
costs? It seemed like a clean quarter, higher shares,
lower other income and other issues. The accrued
healthcare costs at least on the balance sheet went
up. Can you talk about that a little bit?
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Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
Page 27
R. Dunn Basically, Alan, we were experiencing I think what
seems to be fairly universal. Healthcare costs seem
to be escalating at a very rapid rate.
S. Nielsen We have a deductible plan and what we saw in the
spring through this quarter was that just raw claims
increased. Our actual cost to administer the claim
had been level, but claims costs have been up. We are
addressing the relative contribution between the
company and employees like me as to what we need to
pay for those increased costs.
A. Mitrani Then, lastly, Steve, you talked about fiber to the
home. I realize there is lots of politics and legal
issues involved, but it seems like Telco spending has
bottomed to some degree. You're seeing a bit of an
up-tick in some of the RBOC spending. What could it
mean? In the past if had been about $1,000 they
wanted to be able to supply fiber to the home, half
of that being labor. Can you give us a sense as to
what kind of green fields you may see over the next
12 to 24 months regardless of the timing of the RFP
in terms of small green fields that maybe you've been
talking to the Bells about if there is opportunity
there.
S. Nielsen We've done green field subdivision placements of
fiber going back to, I think, when I was in the field
I did one of the first ones in the summer of
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Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
Page 28
1995. What I think will change with the ruling is
that they'll more broadly apply the criteria where
they'll deploy fiber. The other issue, Alan, that
it's hard to get our arms around, but we know
directionally what it indicates is there are
substantial portions of America that are only served
by copper.
So if you have a subdivision that is built two miles
from the central office, in order for them to do a
green field fiber deployment, they're going to have
to do some feeder fiber work and probably some
electronics DLC placements in order to serve those
subdivisions. All the logic is if the Bells start
with green field as they've indicated, inevitably
they're going to have to look at other areas, because
there are going to be routes along the way that make
sense to deploy particularly with this new ruling
clarifying what happens when they replace copper.
A. Mitrani You didn't speak at all about voice-over IP, but I
know you were doing a test for one of the Comcast
markets. Can you talk about the opportunity there in
the next 12, 24 months?
S. Nielsen I think all the cable operators have said that 2004
is the year where the trials get serious with
voice-over IP, and that particularly now with
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Host: Steven Nielsen
August 26, 2003/8:00 a.m. CDT
Page 29
Comcast critical mass at 40% of America that when
Comcast makes their mind up to add a service
incrementally they'll do a very good job doing it. So
I think we'll see in the second half of calendar '04
and into '05 increasing deployments by the cable
operators.
If there are no further questions, we appreciate
everybody's attendance on the call and we will speak
to you again the Tuesday before Thanksgiving for our
first quarter release. Thank you.
Moderator Ladies and gentlemen, that does conclude your
teleconference for today. Thank you for your
participation. You may now disconnect.