SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: April 15, 1999 Date of earliest event reported:
March 31, 1999
Dycom Industries, Inc.
(Exact name of Registrant as specified in its charter)
Florida 0-5423 59-1277135
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
4440 PGA Boulevard, Suite 500, Palm Beach Gardens, Florida 33410
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 627-7171
Exhibit Index on Page 3
1
Item 2. Acquisition and Disposition of Assets.
On March 31, 1999, Dycom Industries, Inc., a Florida
corporation (the "Company"), acquired Ervin Cable Construction, Inc., a Kentucky
corporation ("Ervin"), and Apex Digital TV, Inc., a Kentucky corporation
("Apex"). The acquisition of Ervin was consummated pursuant to a Stock Purchase
Agreement, dated March 12, 1999 (the "Stock Purchase Agreement"), between the
Company and the stockholders of Ervin and the acquisition of Apex was
consummated pursuant to an Agreement and Plan of Merger, dated March 12, 1999
(the "Merger Agreement"), among the Company, Apex, Dycom Acquisition Corporation
III, a Kentucky corporation, and the stockholders of Apex. Copies of the Stock
Purchase Agreement and the Merger Agreement are included herewith as Exhibits
2(i) and 2(ii), respectively.
Pursuant to the Stock Purchase Agreement, the Company
purchased all of the issued and outstanding shares of common stock, no par value
per share, of Ervin. The stockholders of Ervin received an aggregate of 258,066
shares of common stock, par value $0.331/3 per share, of the Company ("Common
Stock") and $21,750,000 in cash. For each share of common stock, no par value
per share, of Ervin, the stockholders received 860.22 shares of Common Stock and
$72,500 in cash. The Company funded the cash portion of the consideration with
borrowings under its credit facility.
Pursuant to the Merger Agreement and the Articles of Merger
(as defined below), dated April 1, 1999, at the Effective Time (as defined in
the Merger Agreement) Dycom Acquisition Corporation III, a wholly-owned
subsidiary of the Company, was merged with and into Apex with Apex as the
surviving corporation (the "Merger"). As a result of the Merger, the separate
corporate existence of Merger Sub ceased and the shareholders of Apex became
shareholders of the Company. The Articles of Merger for Apex (the "Articles of
Merger") are included herewith as Exhibit 99(i) and are incorporated herein by
reference. Pursuant to the Merger Agreement, the Company issued an aggregate of
516,128 shares of Common Stock to the stockholders of Apex. The stockholders of
Apex received 1,376.34 shares of Common Stock for each share of Apex common
stock, no par value per share, issued and outstanding immediately prior to the
Effective Time.
In connection with the acquisitions, the Company entered into
a Registration Rights Agreement, dated March 31, 1999 (the "Registration Rights
Agreement"), with the stockholders of Ervin and Apex. The Registration Rights
Agreement grants such stockholders certain rights to have their shares of Common
Stock issued in connection with the acquisitions registered under the Securities
Act of 1933, as amended.
The foregoing description of the Stock Purchase Agreement, the
Merger Agreement, the Registration Rights Agreement and the Articles of Merger
does not purport to be complete and is qualified in its entirety by reference to
such documents, attached hereto as
2
Exhibits 2(i), 2(ii), 4(i) and 99(i) respectively, and incorporated by reference
herein. The terms of the acquisitions are set forth in the Stock Purchase
Agreement and the Merger Agreement and were established through arm's length
negotiations between the parties to such agreements.
Prior to the acquisitions, the three stockholders of Ervin
held 80% of the outstanding shares of common stock of Apex. Ervin, a Sturgis,
Kentucky based firm, builds and installs new cable TV systems and provides
repair and expansion services to existing cable TV systems in several states.
Apex, a Sturgis, Kentucky based firm, installs direct broadcast satellite
systems and provides cable sales and repair services in several states. Ervin
and Apex will conduct business as wholly-owned subsidiaries of the Company. The
Company intends to use the assets acquired pursuant to the acquisitions in the
business in which the assets were used prior to the acquisitions, subject to
such changes as the Company may deem appropriate in the future.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
See Exhibit 7(a).
(b) Pro forma financial information.
See Exhibit 7(b).
(c) Exhibits.
2(i) Stock Purchase Agreement, dated as of March 12,
1999, between Dycom Industries, Inc. and Gary E.
Ervin, Timothy W. Ervin and Robert W. Ervin.
2(ii) Agreement and Plan of Merger, dated as of March
12, 1999, among Apex Digital TV, Inc., Dycom
Acquisition Corporation III, Dycom Industries, Inc.
and Gary E. Ervin, Timothy W. Ervin, Robert W.
Ervin, Keith E. Walker, Robert J. Chastain, Charles
T. McElroy and Penny J. Ward.
4(i) Registration Rights Agreement, dated as of March
31, 1999, among Dycom Industries, Inc., Gary E.
Ervin, Timothy W. Ervin, Robert W. Ervin, Keith
E. Walker, Robert J. Chastain, Charles T. McElroy
and Penny J. Ward.
23(i) Consent of York, Neel & Co. - Owensboro, LLP.
99(i) Articles of Merger, dated April 1, 1999, for Apex
Digital TV, Inc.
3
99(ii) Press release issued March 31, 1999.
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DYCOM INDUSTRIES, INC.
Date: April 15, 1999 By: /s/ Steven Nielsen
-----------------------------------------
Name: Steven Nielsen
Title: President and
Chief Executive Officer
By: /s/ Douglas J. Betlach
-----------------------------------------
Name: Douglas J. Betlach
Title: Vice President, Chief Financial
Officer and Treasurer
5
Exhibit 7(a)
ERVIN CABLE CONSTRUCTION, INC.
---------------
REPORT ON AUDIT OF FINANCIAL STATEMENTS
for the year ended December 31, 1998
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Financial Statements:
Balance Sheet 2
Income Statement 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6
Supplemental Information:
Schedule of General and Operating Expenses 11
[Letterhead of York, Neel & Co.,-Owensboro, LLP]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Ervin Cable Construction, Inc.
Sturgis, Kentucky
We have audited the accompanying balance sheet of Ervin Cable Construction, Inc.
(a Subchapter S Corporation) as of December 31, 1998, and the related statements
of income, changes in stockholders' equity and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred above present fairly, in all
material respects, the financial position of Ervin Cable Construction, Inc. as
of December 31, 1998, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying schedule on page 12 is presented
for the purpose of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ York, Neel & Co.-Owensboro, LLP
March 8, 1999
ERVIN CABLE CONSTRUCTION, INC.
BALANCE SHEET
December 31, 1998
ASSETS
Current assets:
Cash and cash equivalents $ 1,830,236
Trade receivables, net of allowance for doubtful
accounts of $226,786 7,212,280
Accounts receivable, employees 89,457
Due from related parties 114,771
Other receivables 290,868
Costs and estimated earnings in excess of
billings on uncompleted projects 1,416,664
Prepaid expenses 27,465
-----------
Total current assets 10,981,741
-----------
Property and equipment:
Buildings and leasehold improvements 163,282
Machinery and equipment 1,997,313
Vehicles and airplanes 3,741,060
Furniture and fixtures 400,831
-----------
6,302,486
Less accumulated depreciation 2,082,132
-----------
Total property and equipment 4,220,354
-----------
Total assets $15,202,095
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 2,889,452
Current portion of long-term debt 30,933
Accounts payable 1,415,437
Accrued salaries and payroll taxes 188,190
Accrued profit sharing and 401(k) contribution 68,924
Billings in excess of costs and estimated
earnings on uncompleted projects 571,191
Due to related party 178,504
Accrued insurance payable 90,389
Accrued health insurance 91,100
Other accrued liabilities 76,116
-----------
Total current liabilities 5,600,236
-----------
Long-term debt, net of current portion 42,755
Commitments and contingencies -
-----------
Stockholders' equity:
Common stock, no par value:
Authorized shares, 1,000
Issued and outstanding shares, 300 48,532
Paid-in capital 2,217,000
Retained earnings 7,293,572
-----------
Total stockholders' equity 9,559,104
-----------
Total liabilities and stockholders' equity $15,202,095
===========
The accompanying notes are an integral part
of these financial statements.
2
ERVIN CABLE CONSTRUCTION, INC.
INCOME STATEMENT
for the year ended December 31, 1998
Construction and installation revenues earned $30,670,747
Other revenues earned 87,468
-----------
Total revenues earned 30,758,215
Cost of revenues earned 23,677,031
-----------
Gross profit 7,081,184
-----------
General and operating expenses 2,887,113
-----------
Income from operations 4,194,071
-----------
Other income (expense):
Interest expense (221,762)
Interest income 313,068
Loss on disposal of assets (25,158)
Other income 1,133
-----------
67,281
-----------
Net income $ 4,261,352
===========
The accompanying notes are an integral
part of these financial statements.
3
ERVIN CABLE CONSTRUCTION, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the year ended December 31, 1998
Common Paid-in Retained
Stock Capital Earnings Total
-------- ----------- ----------- -----------
Balance,
December 31, 1997 $ 48,532 $ 2,217,000 $ 6,262,647 $ 8,528,179
Net income -- -- 4,261,352 4,261,352
Dividends paid -- -- (3,230,427) (3,230,427)
-------- ----------- ----------- -----------
Balance,
December 31, 1998 $ 48,532 $ 2,217,000 $ 7,293,572 $ 9,559,104
======== =========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
4
ERVIN CABLE CONSTRUCTION, INC.
STATEMENT OF CASH FLOWS
for the year ended December 31, 1998
Cash flows from operating activities:
Net income $ 4,261,352
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 889,013
Loss on disposal of assets 25,158
Allowance for doubtful accounts 226,786
Changes in operating assets and liabilities:
Increase in trade receivables (859,919)
Increase in accounts receivable, employees (22,312)
Increase in other receivables (290,868)
Increase in costs and estimated earnings in
excess of billings on uncompleted projects (763,447)
Decrease in due from related parties 829,414
Decrease in other assets 3,210
Increase in accounts payable 385,844
Increase in accrued liabilities 105,301
Increase in billings in excess of costs
and estimated earnings on uncompleted projects 451,683
Increase in due to related party 178,504
------------
Net cash provided by operating activities 5,419,719
------------
Cash flows from investing activities:
Purchases of property and equipment (3,023,736)
Proceeds from disposal of equipment 151,303
Loan advances to related parties (3,957,183)
Repayments of loan advances to related parties 6,081,383
------------
Net cash used by investing activities (748,233)
------------
Cash flows from financing activities:
Advances on short-term debt 21,907,382
Principal payments on long-term debt (28,753)
Principal payments on short-term debt (22,096,337)
Loan advances from related parties 15,552,433
Repayments of loan advances from related parties (16,152,916)
Dividends paid (3,230,427)
------------
Net cash used by financing activities (4,048,618)
------------
Net increase in cash and cash equivalents 622,868
Cash and cash equivalents, beginning of year 1,207,368
------------
Cash and cash equivalents, end of year $ 1,830,236
============
Supplemental Disclosures
Cash payments of interest in 1998 were $207,427.
During 1998 the Company traded assets with a net book value of $93,712 for
similar assets.
During 1998 the Company acquired equipment in the amount of $102,440 with direct
financing from the vendor.
The accompanying notes are an integral part
of these financial statements.
5
ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The more significant accounting policies of the Company are as follows:
a. Company's Activities and Operating Cycle
The Company installs new cable TV systems and provides repair and
expansion to existing cable TV systems. Installations of new systems
are performed primarily under per foot, fixed-price contracts.
The length of the Company's projects vary but are typically about one
year. Therefore, assets and liabilities are classified as current and
noncurrent because the project-related items in the balance sheet have
realization and liquidation periods within one year.
b. Revenue and Cost Recognition
Revenues from fixed-price and modified fixed-price projects are
recognized on the percentage-of-completion method. This method is used
because management considers completed installation to be the best
available measure of progress. Agreements generally provide for fixed
prices per foot of above ground and underground plant installation.
Percentage of completion and revenue earned are determined based on
actual completed cable installation and the related per foot price for
such installation.
Construction costs include all direct material and labor costs and
those indirect costs related to performance. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted projects are made in the period in
which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from
penalty provisions, and final settlements may result in revisions to
costs and income and are recognized in the period in which the
revisions are determined. An amount equal to costs attributable to
claims is included in revenues when realization is probable and the
amount can be reliably estimated.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted projects," represents revenues recognized in excess of
amounts billed. The liability, "Billings in excess of costs and
estimated earnings on uncompleted projects," represents billings in
excess of revenues recognized.
c. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or
less when purchased to be cash equivalents.
The Company holds a certificate of deposit at December 31, 1998, in the
amount of $5,484, to be held for security against payment of any
Company checks cashed by employees or subcontractors at a bank in an
area where the Company has a project.
d. Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on
the basis of the estimated useful lives of each depreciable asset and
computed primarily on the declining balance method. When assets are
Continued
6
ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued
d. Property and Equipment
retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or
loss is reflected in income for the period. The cost of maintenance and
repairs is charged to expense as incurred; significant renewals and
betterments are capitalized. Reductions are made for retirements
resulting from renewals or betterments. Depreciation expense was
$889,013 for the year ended December 31, 1998.
e. Income Taxes
Income taxes have not been provided because the Company has elected,
with the consent of its shareholders, to be treated as a small business
corporation for income tax purposes as provided in Section 1362(a) of
the Internal Revenue Code. As such, the Company's income or loss and
credits are passed to the shareholders and combined with their other
personal income and deductions to determine taxable income on their
individual tax returns. Therefore, stockholder distributions are
typically made subsequent to year end to satisfy income tax liabilities
for the preceding year.
f. Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the estimate of the extent of progress towards
completion of projects. Management utilizes its latest information in
computing its estimates. Future revisions may be necessary due to
changes in price or unanticipated circumstances. Because of these
factors, it is reasonably possible that estimated amounts may change
materially in the near term.
2. Trade Receivables
At December 31, 1998, the Company's trade receivables consist of the
following:
Billed:
Completed phases $ 1,199,788
Phases in progress 5,943,300
Retainage 295,978
-----------
7,439,066
Less allowance for doubtful accounts 226,786
-----------
$ 7,212,280
===========
Continued
7
ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
3. Costs and Estimated Earnings on Uncompleted Projects
Costs and estimated earnings on uncompleted projects at December 31, 1998
consists of the following:
Costs and estimated earnings on uncompleted
projects $19,872,787
Less billings to date 19,027,314
-----------
$ 845,473
===========
Included in the accompanying balance sheet
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted projects $ 1,416,664
Billings in excess of costs and estimated
earnings on uncompleted projects (571,191)
-----------
$ 845,473
===========
4. Short-Term Debt
Short-term debt at December 31, 1998 consists of the following:
Revolving line of credit, payable on demand,
maximum principal advance of $8,000,000,
interest payable quarterly at a variable rate
(currently 8.75%); guaranteed by the
Company's stockholders; the line is secured
by all of the Company's property and
equipment with a net book value of $4,220,354
and inventory, accounts and notes receivable,
general intangibles and assignment of life
insurance proceeds. $2,889,452
Redi-credit line at financial institution for
overdraft protection in the amount of $50,000. -
-----------
$ 2,889,452
===========
5. Long-Term Debt
Long-term debt at December 31, 1998 consists of the following:
8% note payable for equipment due in monthly
installments of $3,211 through February 1, 2001;
secured by equipment with a net book value of
approximately $80,500. $ 73,688
===========
Future maturities of long-term debt at December 31, 1998 are as follows:
1999 $ 30,933
2000 36,426
2001 6,329
-----------
73,688
Less amounts due within one year 30,933
-----------
$ 42,755
===========
Continued
8
ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
6. Accounts Payable
Accounts payable include amounts due to subcontractors, totaling $835,646,
which have been retained pending completion and customer acceptance of
jobs. All retainages are expected to be paid within one year.
7. Related Party Transactions
During the course of operations, the Company loans money to and borrows
money from affiliated entities. Interest thereon is paid based on rates
charged on the Company's established credit lines. The Board of Directors
has authorized borrowing and lending limits with certain of the entities.
In January 1996, the Company loaned $2,855,700 to GTR, Inc., an S
Corporation owned 100% by the stockholders of Ervin Cable, to be utilized
in the purchase of a cable T.V. system. The balance was paid in full as of
December 31, 1998. Ervin Cable Construction had held a second mortgage lien
on GTR, Inc. in connection with this loan. Interest income related to this
note was $73,917 for the year ended December 31, 1998.
During 1997, the Company advanced operating funds to Country Corner Oil,
Inc., a corporation owned 50% by the stockholders of Ervin Cable. The
balance was paid in full as of December 31, 1998. Interest income related
to this note was $16,425 for the year ended December 31, 1998.
During 1997 and 1998 the Company borrowed funds from Ervin Cable T.V.
Partnership, a partnership owned by the Company stockholders. The balance
was paid in full as of December 31, 1998. Interest expense related to this
loan was $56,830 for the year ended December 31, 1998. The arrangement with
Ervin Cable TV was evidenced by a demand promissory note.
During 1997, the Company began construction of a fiber optic cable network
in Texas for Communication Systems Development, Inc. (CSD) a company
controlled by the stockholders of Ervin. As of December 31, 1997 $1,583,298
had been completed and $806,508 was owing from CSD. During 1998, ECC
completed the network and billed CSD $1,866,038 in additional costs, which
were paid during 1998.
During 1998, ECC participated in CSD's construction of a fiber optic
network by supplying material, subcontractors and labor in the amount of
$6,131,390. ECC recorded $32,186 in revenue for its coordination and
administrative services related to this project.
The Company has issued a variable rate (currently 8.5%) unsecured revolving
line of credit up to $10,000,000 to CSD evidenced by a demand promissory
note. There were no outstanding advances on the line as of December 31,
1998. Interest income earned on this revolving line was approximately
$175,000 for the year ended December 31, 1998.
8. Concentration of Credit Risk
Substantially all of the Company's revenues are derived from installation
of cable systems in Kentucky, Alabama, Illinois, Iowa, Indiana, Tennessee,
Missouri, South Carolina, and Georgia.
Management believes that its contract acceptance and billing and collection
policies are adequate to minimize potential credit risk.
Continued
9
ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
8. Concentration of Credit Risk, Continued
The Company held a cash deposit balance as of December 31, 1998 in a local
financial institution in the amount of $1,799,694. This balance is in
excess of the federally insured limit of $100,000.
9. Leasing Arrangements
The Company leases warehouse and storage buildings under short-term leases.
The Company had a five-year lease agreement which expired May 31, 1998,
with Riverchase Trade Center for office space and a month-to-month lease
for warehouse space. The lease for office space continued month-to-month
until March 1999, when a new 2 year lease, effective April 1, 1999, was
signed for $3,000 per month. Riverchase Trade Center is a partnership 2/3
owned by the stockholders of Ervin Cable Construction, Inc.
The Company began leasing office space in 1998 from Apex Digital TV, Inc.,
under a month-to-month arrangement. Apex Digital is a corporation that is
80% owned by the stockholders of Ervin Cable Construction, Inc.
The following is a schedule of future minimum rental payments required
under leases with initial terms in excess of one year as of December 31,
1998:
Year Ending
December 31, Amount
1999 $ 61,800
2000 5,000
---- --------
$ 66,800
========
Rental expense under operating leases amounted to $246,194 in 1998. Lease
payments to Riverchase Trade Center totaled $33,600 in 1998. Lease payments
to Apex Digital totaled $35,982 in 1998.
10. Profit Sharing Plan
The Company maintains a profit sharing plan for employees who have attained
the age of twenty-one years and completed one year of service. The Company
may make discretionary contributions to the Plan. For the year ended
December 31, 1998, the Board of Directors elected to contribute 3% of
eligible employees' compensation, approximately $69,000, to the Plan.
Effective January 1, 1997, the Plan was amended to allow for employee
401(k) contributions. The Company shall match 25% of each participant's
elective deferral contributions up to 4% of the participant's compensation.
Matching contributions during 1998 totaled $18,842.
11. Self-Insurance
The Company maintains a self-insured health insurance program for its
employees' health care costs. The Company is responsible for claims up to
$25,000 per year per employee ($5,000 through July 31, 1998), and an
aggregate amount of approximately $302,000 for 1998 based on the plan in
place as of December 31, 1998. A stop-loss insurance policy covers claims
in excess of the amounts stated above.
Continued
10
ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
12. Commitments and Contingencies
The Company has pledged all of its property and equipment with a net book
value of $4,220,354 and inventory, accounts and notes receivable, general
intangibles and assignment of life insurance proceeds on a line of credit
for Apex Digital TV, Inc., a related company. There was no outstanding
amount on this line at December 31, 1998.
The Company has pledged all its accounts receivable, equipment,
intangibles, and work-in-process on a line of credit for Communications
Systems Development, Inc., (CSD) a related party. The outstanding amount on
this line was $3,000,000 at December 31, 1998. The Company, its
shareholders and their spouses guarantee an additional line of credit for
CSD. The outstanding amount on this line was $2,000,005 at December 31,
1998.
The Company has guaranteed payments to a major supplier of CSD and a major
supplier of Apex. At December 31, 1998 outstanding payables to these
vendors totaled approximately $331,600.
The Company is involved in legal actions arising in the ordinary course of
business. In the opinion of management, the Company has adequate legal
defenses or insurance coverage with respect to each of these actions and
does not believe that they will materially affect the Company's results of
operations or financial position.
13. Subsequent Events
The shareholders signed a stock purchase agreement on March 12, 1999 with
Dycom Industries, Inc. for sale of the 300 shares of issued and outstanding
stock. The stock purchase agreement is expected to close by the end of
March 1999. In exchange for their shares, the shareholders will receive
cash and newly issued shares of stock in Dycom Industries, Inc.
14. Accounting for Contractors
The American Institute of Certified Public Accountants issued Statement of
Position 98-5 effective for years beginning after December 15, 1998. This
statement requires precontract costs to be expensed as incurred. Management
has elected not to implement this statement early; therefore, the affect on
the financial statements has not been determined.
11
ERVIN CABLE CONSTRUCTION, INC.
SCHEDULE OF GENERAL AND OPERATING EXPENSES
for the year ended December 31, 1998
Advertising $ 91,183
Airplane expense 65,063
Bad debts 261,063
Depreciation 153,834
Dues and subscriptions 3,941
Profit sharing contribution and plan expenses 91,247
Insurance 302,370
Legal and accounting 35,904
Licenses 106,969
Office expense 297,036
Rent 246,194
Salaries - Officers 87,366
Salaries - office 577,289
Taxes 120,422
Telephone 298,132
Training 13,449
Travel 44,179
Utilities 43,905
Other expenses 47,567
----------
Total general and operating
expenses $2,887,113
==========
12
APEX DIGITAL TV, INC.
---------------
REPORT ON AUDIT OF FINANCIAL STATEMENTS
for the year ended December 31, 1998 and
for the 101 day period from
September 22, 1997 (inception) to December 31, 1997
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Financial Statements:
Balance Sheet 2
Income Statement 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6
[Letterhead of York, Neel & Co.,-Owensboro, LLP]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Apex Digital TV, Inc.
Sturgis, Kentucky
We have audited the accompanying balance sheet of Apex Digital TV, Inc.(a
Subchapter S Corporation) as of December 31, 1998 and 1997, and the related
statements of income, changes in stockholders' equity and cash flows for the
year ended December 31, 1998 and the 101 day period from September 22, 1997
(inception) to December 31, 1997. 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 present fairly, in
all material respects, the financial position of Apex Digital TV, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the periods then ended in conformity with generally accepted accounting
principles.
/s/ York, Neel & Co.-Owensboro, LLP
March 10, 1999
APEX DIGITAL TV, INC.
BALANCE SHEET
December 31, 1998 and 1997
ASSETS
1998 1997
Current assets:
Cash and cash equivalents $1,291,078 $ 102,680
Accounts receivable, net of allowance for
doubtful accounts of $300,000 in 1998 1,991,935 2,937,474
Inventory 237,665 200,827
Other current assets 58,608 81,890
---------- ----------
Total current assets 3,579,286 3,322,871
---------- ----------
Property and equipment:
Building and improvements 340,794 262,862
Equipment and furnishings 285,188 156,089
Vehicles 634,229 588,094
Construction in progress 111,094 -
---------- ----------
1,371,305 1,007,045
Less accumulated depreciation (282,683) (34,676)
---------- ----------
Total property and equipment 1,088,622 972,369
---------- ----------
Other assets:
Loan costs, net - 16,097
---------- ----------
Total assets $4,667,908 $4,311,337
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 433,591 $ 346,411
Current maturities of long-term debt - 682,566
Accounts payable 556,582 1,166,067
Accrued insurance 1,837 93,901
Accrued salaries 723,534 423,794
Accrued payroll taxes and withholdings 159,294 178,398
Due to related parties 78,062 26,215
Other current liabilities 53,625 6,161
---------- ----------
Total current liabilities 2,006,525 2,923,513
---------- ----------
Commitments and contingencies - -
---------- ----------
Stockholders' equity:
Common stock, no par value:
Authorized shares, 1,000
Issued and outstanding shares,
375 in 1998 and 300 in 1997 375 300
Paid-in capital 14,700 14,700
Retained earnings 2,646,308 1,372,824
---------- ----------
Total stockholders' equity 2,661,383 1,387,824
---------- ----------
Total liabilities and stockholders'
equity $4,667,908 $4,311,337
========== ==========
The accompanying notes are an integral part of these financial statements.
2
APEX DIGITAL TV, INC.
INCOME STATEMENT
for the year ended December 31, 1998 and
for the 101 day period from
September 22, 1997 (inception) to December 31, 1997
1998 1997
----------- ----------
Revenue:
Installation revenue $23,701,030 $5,791,854
Service revenue 2,846,883 445,752
Commission revenue 328,899 -
Other revenue 189,740 -
----------- ----------
Total revenue 27,066,552 6,237,606
Cost of revenue earned 18,029,163 4,142,516
----------- ----------
Gross profit 9,037,389 2,095,090
General and administrative expenses 4,617,490 695,534
----------- ----------
Net income from operations 4,419,899 1,399,556
----------- ----------
Other income (expense):
Gain on sale of assets 259 -
Interest income 115,295 8,123
Interest expense (137,373) (33,392)
Amortization of loan costs (16,097) (1,463)
----------- ----------
(37,916) (26,732)
Net income $ 4,381,983 $1,372,824
=========== ==========
The accompanying notes are an integral part of these financial statements.
3
APEX DIGITAL TV, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the year ended December 31, 1998 and
for the 101 day period from
September 22, 1997 (inception) to December 31, 1997
Common Paid-in Retained
Shares Stock Capital Earnings Total
Balance, September 22, 1997 - $ - $ - $ - $ -
Issuance of common stock 300 300 14,700 - 15,000
Net income - - - 1,372,824 1,372,824
------ ------- ---------- ----------- -----------
Balance, December 31, 1997 300 300 14,700 1,372,824 1,387,824
Issuance of common stock 75 75 - - 75
Dividends - - - (3,108,499) (3,108,499)
Net income - - - 4,381,983 4,381,983
------ ------- ---------- ----------- -----------
Balance, December 31, 1998 375 $ 375 $ 14,700 $ 2,646,308 $ 2,661,383
====== ======= ========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
APEX DIGITAL TV, INC.
STATEMENT OF CASH FLOWS
for the year ended December 31, 1998 and
for the 101 day period from
September 22, 1997 (inception) to December 31, 1997
1998 1997
----------- -----------
Cash flows from operating activities:
Net income $ 4,381,983 $ 1,372,824
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 248,971 34,676
Amortization 16,097 1,463
Allowance for doubtful accounts 300,000 -
Gain on sale of assets (259) -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 645,539 (2,937,474)
Increase in inventory (36,838) (200,827)
(Increase) decrease in other current assets 23,282 (81,890)
Increase (decrease) in accounts payable (609,485) 1,166,067
Increase in due to related party 51,847 26,215
Increase in current liabilities 236,036 702,254
----------- -----------
Net cash provided by operating
activities 5,257,173 83,308
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (368,965) (1,007,045)
Proceeds from sale of property and
equipment 4,000 -
----------- -----------
Net cash used by investing
activities (364,965) (1,007,045)
----------- -----------
Cash flows from financing activities:
Advances on short-term and long-term debt 110,000 1,355,000
Principal payments on debt (705,386) (326,023)
Advances to related party (12,725,000) -
Repayments from related party 12,725,000 -
Payment of dividends (3,108,499) -
Loan costs - (17,560)
Issuance of common stock 75 300
Proceeds from paid-in capital - 14,700
----------- -----------
Net cash provided (used) by
financing activities (3,703,810) 1,026,417
----------- -----------
Net increase in cash and cash equivalents 1,188,398 102,680
Cash and cash equivalents, beginning
of period 102,680 -
----------- -----------
Cash and cash equivalents, end of period $ 1,291,078 $ 102,680
=========== ===========
Supplemental Disclosure
Cash payments of interest in 1998 and 1997 were
$137,373 and $33,392, respectively.
The accompanying notes are an integral part of these financial statements.
5
APEX DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The more significant accounting policies of the Company are as follows:
The Company was incorporated in Kentucky on September 22, 1997, and began
operations shortly thereafter.
a. Company's Activities and Operating Cycle
The Company installs PRIMESTAR Satellite TV television systems and
provides repair and maintenance to existing PRIMESTAR systems in specified
areas. Installations of new systems are performed primarily under fixed
fee arrangements. Repair and maintenance services are provided to
PRIMESTAR subscribers for a fee based on the number of monthly subscribers
in the Company's assigned area. The Company also markets the programming
services and equipment within its assigned area. Additionally, the Company
provides other related services directly to subscribers.
b. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or
less when purchased to be cash equivalents.
c. Inventory
The Company maintains an inventory of supplies and material commonly used
on installation and service calls. Inventory is recorded at the lower of
cost or market, using the first-in, first-out basis of accounting.
d. Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on the
basis of the estimated useful lives of each depreciable asset and computed
primarily on the declining balance method. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in
income for the period. The cost of maintenance and repairs is charged to
expense as incurred; significant renewals and betterments are capitalized.
Reductions are made for retirements resulting from renewals or
betterments.
e. Income Taxes
Income taxes have not been provided because the Company has elected, with
the consent of its shareholders, to be treated as a small business
corporation for income tax purposes as provided in Section 1362(a) of the
Internal Revenue Code. As such, the Company's income or loss and credits
are passed to the shareholders and combined with their other personal
income and deductions to determine taxable income on their individual tax
returns. Therefore, stockholder distributions subsequent to year end are
typically required to satisfy stockholder income tax liabilities.
Continued
6
APEX DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued
f. Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Loan Costs
The Company incurred loan costs of $17,560 during 1997 which were being
amortized over the life of the loan. Unamortized costs were written off when
the loan was repaid during 1998.
3. Short-Term Debt
Short-term debt at December 31, 1998 and 1997 consists of the following:
9% note payable due on demand or if no demand 1998 1997
---------- ----------
is made, in monthly installments of $4,458
through October 2007; guaranteed by certain
Company stockholders; collateralized by
building and land with a net book
value of approximately $331,500. $ 323,591 $ 346,411
Variable rate (currently 8.0%) $1,500,000
revolving line of credit; interest payable
monthly, unpaid principal and interest due
September 14, 1999. The line is secured by all
the Company's cash, intangibles, inventory and
property and equipment with a net book value of
$1,088,622. The line is also secured by all
property and equipment, notes and accounts
receivable, inventory; general intangibles and
assignment of life insurance proceeds of Ervin
Cable Construction,
Inc., a related company. - -
Variable rate (currently 8.5%) straight line of
credit payable to bank on May 13, 1999,
including accrued interest; guaranteed by
certain Company stockholders, collateralized
by building and land with a net book
value of approximately $331,500. 110,000 -
The Company has a line of credit for $25,000
with a depository bank. This line represents
overdraft coverage for funds on deposit. - -
10% unsecured revolving lines of credit up to
$500,000 each with three stockholders. - -
---------- ----------
$ 433,591 $ 346,411
========== ==========
Continued
7
APEX DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
4. Accounts Payable
Accounts payable include amounts due to subcontractors, totaling
approximately $47,000, which have been retained pending completion and
customer acceptance of jobs. All retainages are expected to be paid within
one year.
5. Related Party Transactions
During the period of operation the Company has advanced funds and borrowed
funds on a short-term basis from the Company's shareholders and other
entities controlled by the Company's shareholders. Interest was paid or
received on outstanding balances during the period. Interest income totaled
$101,312 and $8,113 and interest expense totaled $85,409 and $10,849 for the
year ended 1998 and the period ended 1997, respectively.
The Company began leasing unused office space in its corporate office to an
affiliated company in 1998. Leasing income derived from this totaled $35,982
in 1998.
6. Concentration of Credit Risk
During the year ended December 31, 1998 and the period ended December 31,
1997, the majority of the Company's installation and service revenues and
accounts receivable were from one customer. The Company's revenues are
derived from installation and service of PRIMESTAR systems in Kentucky,
Florida, Ohio, Mississippi, Alabama, Illinois, Iowa, Indiana, Tennessee,
Missouri, North Carolina, Virginia, Georgia and Louisiana.
The Company held a cash deposit balance as of December 31, 1998 in a local
financial institution in the amount of $619,612. This balance is in excess of
the $100,000 federally insured limit.
7. Leasing Arrangements
During 1998 and 1997, the Company leased office and storage facilities under
various month-to-month and short-term leases.
The Company also leases office, warehouse and storage facilities under two
and three year lease agreements expiring in 1999 and 2000. Certain of the
leases contain renewal options for periods equivalent to the initial lease
terms.
The following is a schedule of future minimum rental payments required under
leases with initial terms in excess of one year as of December 31, 1998:
Year Ending
December 31, Amount
1999 $ 45,365
2000 11,655
--------
$ 57,020
========
Rental expense under operating leases amounted to approximately $312,700 and
$66,300 in 1998 and 1997, respectively.
Continued
8
APEX DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
8. Profit Sharing Plan
The Company maintains a profit sharing plan with related companies for
employees who have attained the age of twenty-one years and completed one
year of service. The Company may make discretionary contributions to the
Plan. The Plan allows employee 401(k) contributions. The Company matches
25% of each participant's elective deferral contributions up to 4% of the
participant's compensation. The Company contributed $6,920 and $50 in
contributions during 1998 and 1997, respectively.
9. Self-Insurance
The Company participates in a self-insured health insurance program with
related companies for its employees' health care costs. The Company is
responsible for claims up to $25,000 per year per employee ($5,000 per
year through July 31, 1998), and an aggregate amount of approximately
$302,000 per year. A stop-loss insurance policy covers claims in excess of
the amounts stated above. At December 31, 1998 and 1997, $55,852 and
$25,515, respectively, was due to a related company for payment of
premiums and claims on behalf of Apex.
10. Commitments and Contingencies
On September 29, 1997, the Company executed a nonexclusive agreement to
perform installment and service work with respect to direct broadcast
satellite systems in designated areas. The agreement is for a three year
period and may be terminated by either party with no less than 180 days
written notice.
The Company has also entered into a nonexclusive sales agent agreement
with its customer to market and sell the customer's programming services
and equipment to potential subscribers in specified zip code areas. The
agreement is for three years beginning October 30, 1997, and may be
terminated by either party with no less than 180 days written notice.
The Company has pledged all of its cash, accounts receivable, intangibles,
inventory, and equipment and vehicles on a line of credit for
Communications Systems Development, Inc., a related company. The
outstanding balance on this line was $3,000,000 at December 31, 1998.
On November 14, 1998, the Company entered into a revolving line of credit
agreement with Communication Systems Development, Inc. (CSD) whereby Apex
will advance funds to CSD up to $4,000,000. Advances are payable on demand
and bear interest commensurate with Apex's bank loan. Outstanding advances
at December 31, 1998 were $0.
The Company has been named as a defendant in a wrongful death suit pending
in Circuit Court of Johnson County, Missouri. The suit relates to a
traffic accident on February 16, 1998, involving one of its employees
operating his personal vehicle while performing duties on behalf of the
Company. Another defendant was the driver of a vehicle which struck the
decedent's vehicle in the rear propelling it into the employee's lane of
traffic. The plaintiff is seeking unspecified damages from all three
defendants. The Company has liability coverage in the amount of 1 million
dollars. The State of Missouri operates as a joint and several liability
state. At this point in the proceedings, the outcome of this litigation is
uncertain. Therefore, no liability has been recorded as a result of this
claim, as the amount of the loss in excess of insurance coverage, if any,
can not be reasonably estimated.
Continued
9
APEX DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
10. Commitments and Contingencies, Continued
The Company is involved in other legal actions arising in the ordinary
course of business. In the opinion of management, the Company has adequate
legal defenses or insurance coverage with respect to each of these actions
and does not believe that they will materially affect the Company's
results of operations or financial position.
11. Subsequent Events
The Company and its stockholders signed an agreement and plan of merger
with Dycom Acquisition Corporation III, a wholly owned subsidiary of Dycom
Industries, Inc. on March 12, 1999. Upon the effective date of the
agreement, currently expected to be March 30, 1999, and simultaneously
with the consummation of a related party agreement and plan of merger (The
Ervin Stock Purchase Agreement), Dycom Acquisition Corporation III will
merge with and into Apex Digital TV, Inc. and Apex's shareholders will
receive shares of Dycom Industries, Inc.
12. Accounting for Contractors
The American Institute of Certified Public Accountants issued Statement of
Position 98-5 effective for years beginning after December 15, 1998. This
statement requires precontract costs to be expensed as incurred.
Management has elected not to implement this statement early; therefore,
the effect on the financial statements has not been determined.
10
Exhibit 7(b)
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS INCLUDING
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On March 31, 1999, pursuant to a stock purchase agreement Dycom Industries, Inc.
("Dycom" or the "Company") purchased all of the issued and outstanding shares of
common stock of Ervin Cable Construction, Inc. ("Ervin") for $21,750,000 in cash
and 258,066 shares of Dycom common stock. On April 1, 1999, pursuant to a merger
agreement Dycom issued an aggregate of 516,128 shares of Dycom 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 three
stockholders of Ervin held 80% of the outstanding shares of common stock of
Apex.
The accompanying unaudited pro forma condensed consolidated financial statements
are based on the historical financial presentation of the consolidated financial
statements of Dycom and its subsidiaries, Ervin, Apex and Locating, Inc., a
Washington corporation acquired by Dycom for $10 million in February 1999. Due
to the size of Locating, Inc., historical financial statements are not required
to be presented. The unaudited pro forma condensed consolidated financial
statements and related notes give effect to these acquisitions under the
purchase method of accounting.
The unaudited pro forma condensed consolidated balance sheet presents the
financial position of the Company as if the acquisitions had been completed on
January 31, 1999. The unaudited pro forma 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 periods presented. The unaudited pro forma 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
the Company, that would have actually been presented, or which may be obtained
in the future. The unaudited pro forma 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 the Company believes are reasonable.
A preliminary allocation of the purchase price has been made to major categories
of assets and liabilities in the accompanying unaudited pro forma 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 the Company's preliminary determination of
purchase accounting adjustments and are based upon available information and
certain assumptions that the Company believes to be reasonable. As such, the
amounts reflected in the unaudited pro forma condensed consolidated financial
statements are subject to change, and final amounts may differ significantly.
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended January 31, 1999
Pro Forma Pro Forma
Dycom Ervin Apex Other Adjustments Combined
----------- ----------- ---------- ---------- ------------ -----------
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
=========== ========== ===========
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended July 31, 1998
Pro Forma Pro Forma
Dycom Ervin Apex Other Adjustments Combined
----------- ----------- ---------- ---------- ------------ -----------
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
=========== =========== ===========
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
January 31, 1999
Pro Forma Pro Forma
Dycom Ervin Apex Other Adjustments Combined
----------- ----------- ---------- ---------- ------------ -----------
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
Costs 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 shareholders' 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
=========== =========== ========== ========== ========== ===========
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Periods
Prior to the acquisitions, Ervin and Apex had used a calendar year end
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 Dycom consolidated
balance sheet as of January 31, 1999 has been combined with Ervin's
and Apex's balance sheet as of the same date. The Dycom 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
Ervin's and Apex's results of operations for the same periods.
2. Merger Costs
Dycom, Ervin and Apex estimate they will incur direct transaction
costs of approximately $475,000 associated with the acquisition,
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, Inc., have been accrued. These nonrecurring
costs are included in goodwill.
3. Provision for Income Taxes
Prior to the acquisition, Ervin and Apex elected under Subchapter S of
the Internal Revenue Code to have the stockholders recognize their
proportionate share of Ervin'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 Dycom's 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 Ervin, Apex, and the other acquired company
are as follows:
Ervin
-----
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
===========
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. Purchase Accounting Adjustments (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
===========
Other
-----
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 Dycom's credit facility. The amount of these
borrowings expected to be repaid within the next twelve months is
$7,937,500 and 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--2-7 years; equipment and machinery--1-10 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.
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. Modified Cash to Accrual Basis
Prior to its acquisition, Locating, Inc. 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
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 Ervin'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 Ervin in the
amount of $1,378,999 prior to the acquisition of Ervin.
7. Elimination of Intercompany Balances
Prior to the acquisitions, three stockholders of Ervin held 80% of the
outstanding shares of common stock of Apex. All intercompany balances
and transactions between Ervin 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 Ervin 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 Ervin and Locating,
Inc. 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. 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.