UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 27, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to________
Commission file number 0-5423
DYCOM INDUSTRIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Florida 59-1277135
- ------------------------------------------- ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
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
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of December 10, 2001
Common Stock, par value $0.33 1/3 42,926,137
DYCOM INDUSTRIES, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets- 3
October 27, 2001 and July 28, 2001
Condensed Consolidated Statements of 4
Operations for the Three Months Ended
October 27, 2001 and October 28, 2000
Condensed Consolidated Statements of 5-6
Cash Flows for the Three Months Ended
October 27, 2001 and October 28, 2000
Notes to Condensed Consolidated 7-14
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-17
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 27, July 28,
2001 2001
------------- -------------
CURRENT ASSETS:
Cash and equivalents $ 147,924,014 $ 130,483,671
Accounts receivable, net 106,694,568 122,259,817
Costs and estimated earnings in excess of billings 40,245,808 36,980,314
Deferred tax assets, net 7,098,216 7,176,551
Inventories 6,513,712 7,558,578
Other current assets 6,096,224 4,909,130
------------- -------------
Total current assets 314,572,542 309,368,061
------------- -------------
PROPERTY AND EQUIPMENT, net 102,348,369 109,563,716
------------- -------------
OTHER ASSETS:
Goodwill, net 154,613,447 154,242,670
Intangible assets, net 263,049 286,797
Other 2,085,252 2,234,310
------------- -------------
Total other assets 156,961,748 156,763,777
------------- -------------
TOTAL $ 573,882,659 $ 575,695,554
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 25,286,283 $ 29,295,334
Notes payable 2,215,771 2,272,218
Billings in excess of costs and estimated earnings 456,451 558,161
Accrued self-insured claims 5,763,327 5,795,734
Income taxes payable 3,707,999 1,182,832
Customer advances 5,965,077 7,226,824
Other accrued liabilities 32,320,994 38,616,546
------------- -------------
Total current liabilities 75,715,902 84,947,649
------------- -------------
NOTES PAYABLE 5,781,540 6,796,381
ACCRUED SELF-INSURED CLAIMS 7,305,868 6,475,549
DEFERRED TAX LIABILITIES, net 6,852,397 6,374,716
OTHER LIABILITIES 2,136,613 2,220,409
------------- -------------
Total liabilities 97,792,320 106,814,704
------------- -------------
COMMITMENTS AND CONTINGENCIES, Note 10
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00 per share:
1,000,000 shares authorized: no shares issued and outstanding -- --
Common stock, par value $.33 1/3 per share:
150,000,000 shares authorized: 43,006,993 and 42,964,193
issued and outstanding, respectively 14,335,665 14,321,398
Additional paid-in capital 251,051,502 250,731,286
Retained earnings 211,853,579 203,828,166
Treasury stock, at cost: 81,700 shares (1,150,407) --
------------- -------------
Total stockholders' equity 476,090,339 468,880,850
------------- -------------
TOTAL $ 573,882,659 $ 575,695,554
============= =============
See notes to condensed consolidated financial statements--unaudited
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
-------------------------------
October 27, October 28,
2001 2000
------------ ------------
Revenues:
Contract revenues earned $167,814,646 $234,690,421
------------ ------------
Expenses:
Costs of earned revenues, excluding depreciation 130,223,981 172,987,011
General and administrative 16,081,088 18,134,737
Depreciation and amortization 9,041,259 9,133,325
------------ ------------
Total 155,346,328 200,255,073
------------ ------------
Interest income, net 926,292 1,302,886
Other income, net 347,035 276,493
------------ ------------
INCOME BEFORE INCOME TAXES 13,741,645 36,014,727
------------ ------------
PROVISION FOR INCOME TAXES:
Current 5,286,190 14,222,094
Deferred 430,042 174,603
------------ ------------
Total 5,716,232 14,396,697
------------ ------------
NET INCOME $ 8,025,413 $ 21,618,030
============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.19 $ 0.51
============ ============
Diluted $ 0.19 $ 0.51
============ ============
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE:
Basic 42,946,969 41,988,910
============ ============
Diluted 43,014,474 42,649,136
============ ============
See notes to condensed consolidated financial statements--unaudited.
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
-----------------------------------
October 27, October 28,
2001 2000
------------- -------------
Increase (Decrease) in Cash and Equivalents from:
OPERATING ACTIVITIES:
Net income $ 8,025,413 $ 21,618,030
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization 9,041,259 9,133,325
Gain on disposal of assets (205,797) (124,006)
Deferred income taxes 430,042 174,603
Change in assets and liabilities:
Accounts receivable, net 15,565,249 (67,616)
Unbilled revenues, net (3,367,204) 906,561
Other current assets (142,228) (360,850)
Other assets 149,058 (519,549)
Accounts payable (4,009,051) (7,139,277)
Customer advances (1,261,747) 1,716,553
Accrued self-insured claims and other liabilities (5,455,463) (12,197,521)
Accrued income taxes 2,525,167 7,767,773
------------- -------------
Net cash inflow from operating activities 21,294,698 20,908,026
------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (2,467,021) (15,338,700)
Proceeds from sale of assets 613,740 312,271
Acquisition expenditures, net of cash acquired 0 (2,514,621)
------------- -------------
Net cash outflow from investing activities (1,853,281) (17,541,050)
------------- -------------
FINANCING ACTIVITIES:
Principal payments on notes payable and bank lines-of-credit (1,185,151) (1,569,690)
Exercise of stock options 334,484 2,028,881
Acquisition of treasury stock (1,150,407) 0
------------- -------------
Net cash (outflow)/inflow from financing activities (2,001,074) 459,191
------------- -------------
NET CASH INFLOW FROM ALL ACTIVITIES 17,440,343 3,826,167
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 130,483,671 105,701,950
------------- -------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 147,924,014 $ 109,528,117
============= =============
See notes to condensed consolidated financial statements--unaudited.
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Three Months Ended
-----------------------------
October 27, October 28,
2001 2000
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest $ 134,742 $ 261,914
Income taxes $2,640,061 $6,628,924
Property and equipment acquired and financed with:
Notes payable $ 113,863 $ 280,280
During the three months ended October 28, 2000, the company acquired all of the
capital stock of Cable Connectors, Inc. at a cost of $3.3 million. In conjunction
with this acquisition, assets acquired and liabilities assumed were as follows:
Fair market value of assets acquired, including goodwill $4,118,069
Consideration paid (including $0.6 million of common stock issued) 3,273,054
----------
Fair market value of liabilities assumed $ 845,015
==========
See notes to condensed consolidated financial statements--unaudited.
1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Unaudited
The accompanying condensed consolidated balance sheets of Dycom Industries, Inc.
("Dycom" or the "Company") as of October 27, 2001 and July 28, 2001, and the
related condensed consolidated statements of operations and cash flows for the
three months ended October 27, 2001 and October 28, 2000 reflect all normal
recurring adjustments which are, in the opinion of management, necessary for a
fair presentation of such statements. The results of operations for the three
months ended October 27, 2001 are not necessarily indicative of the results
which may be expected for the entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The condensed consolidated financial statements
are unaudited. These statements include Dycom Industries, Inc. and its
subsidiaries, all of which are wholly owned.
During fiscal 2001, the Company acquired Point to Point Communications, Inc.
("PTP"), Stevens Communications, Inc. ("SCI"), and Nichols Holding, Inc.
("NCI"). These transactions were accounted for using the purchase method of
accounting. The Company's results include the results of PTP, SCI and NCI from
their respective acquisition dates until October 27, 2001.
The Company's operations consist primarily of providing specialty contracting
services to the telecommunications and electrical utility industries. All
material intercompany accounts and transactions have been eliminated.
CHANGE IN FISCAL YEAR -- On September 29, 1999, the Company changed to a fiscal
year with 52 or 53 week periods ending on the last Saturday of July. This
Quarterly Report presents financial information for the first quarter of fiscal
2002, beginning July 29, 2001 and ending October 27, 2001.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates and such differences may be material to the
financial statements.
Estimates are used in the Company's revenue recognition of work-in-process,
allowance for doubtful accounts, self-insured claims liability, depreciation and
amortization, and in the estimated lives of assets, including intangibles.
REVENUE -- Income on short-term contracts is recognized as the related work is
completed. Work-in-process on unit contracts is based on work performed but not
billed. Income on long-term contracts is recognized on the
percentage-of-completion method based primarily on the ratio of contract costs
incurred to date to total estimated contract costs. At the time a loss on a
contract becomes known, the entire amount of the estimated ultimate loss is
accrued.
"Costs and estimated earnings in excess of billings" primarily relates to
revenues for completed but unbilled units under unit based contracts, as well as
revenues recognized under the percentage-of-completion method for long term
contracts. For those contracts in which billings exceed contract revenues
recognized to date, such excesses are included in the caption "billings in
excess of costs and estimated earnings."
CASH AND EQUIVALENTS -- Cash and equivalents include cash balances on deposit in
banks, overnight repurchase agreements, certificates of deposit, commercial
paper, and various other financial instruments having an original maturity of
three months or less. For purposes of the consolidated statements of cash flows,
the Company considers these amounts to be cash equivalents.
INVENTORIES - Inventories consist primarily of materials and supplies used to
complete certain of the Company's business. The Company values these inventories
using the first-in, first-out method. The Company periodically reviews the
appropriateness of the carrying value of its inventories. The Company records a
reserve for obsolescence if inventories are not expected to be used in the
Company's normal course of business. No reserve has been recorded in the periods
presented.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost. Depreciation
and amortization are computed over the estimated useful life of the assets
utilizing the straight-line method. The estimated useful service lives of the
assets are: buildings--20-31 years; leasehold improvements--the term of the
respective lease or the estimated useful life of the improvements, whichever is
shorter; vehicles--3-7 years; equipment and machinery--2-10 years; and furniture
and fixtures--3-10 years. Maintenance and repairs are expensed as incurred;
expenditures that enhance the value of the property or extend its useful life
are capitalized. When assets are sold or retired, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain or
loss is included in income.
INTANGIBLE ASSETS -- As of July 29, 2001, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets." Under SFAS No. 142, goodwill is no longer amortized but reviewed for
impairment on an annual basis, or more frequently if indicators of an impairment
in value arise. The Company is required to complete the initial step
of a transitional impairment test within six months of adoption of SFAS No. 142
and to complete the final step of the transitional impairment test by the end of
the fiscal year. Any impairment loss resulting from the transitional impairment
test will be recorded as a cumulative effect of a change in accounting principle
for the first quarter of fiscal year 2002. Subsequent impairment losses will be
reflected in operating income or loss in the consolidated statements of
operation.
The following unaudited pro forma summary presents the Company's net income and
per share information as if the Company had been accounting for its goodwill
under SFAS No. 142 for all periods presented:
Three Months Ended
---------------------------------
October 27, October 28,
2001 2000
----------- ------------
Reported net income $ 8,025,413 $ 21,618,030
Add back goodwill amortization, net of tax 0 807,000
----------- ------------
Adjusted net income $ 8,025,413 $ 22,425,030
=========== ============
Reported basic earnings per share $ 0.19 $ 0.51
Add back goodwill amortization, net of tax 0.00 0.02
----------- ------------
Adjusted basic earnings per share $ 0.19 $ 0.53
=========== ============
Reported diluted earnings per share $ 0.19 $ 0.51
Add back goodwill amortization, net of tax 0.00 0.02
----------- ------------
Adjusted diluted earnings per share $ 0.19 $ 0.53
=========== ============
Information regarding the Company's other intangible assets is as follows:
As of October 27, 2001 As of July 28, 2001
--------------------------- ---------------------------
Carrying Accumulated Weighted Carrying Accumulated
Amount Amortization Average Life Amount Amortization
--------------------------- ------------ ---------------------------
Licenses $ 51,030 $ 17,991 5.0 $ 51,030 $ 15,508
Covenants not to Compete 561,960 331,950 9.5 567,950 316,675
------------------------ ---- ------------------------
Total $612,990 $349,941 7.5 $618,980 $332,183
======================== ==== ========================
Amortization expense was $18,082 and $1,143,201 for the three months ended
October 27, 2001 and October 28, 2000, respectively. Estimated amortization
expense for each of the five succeeding fiscal years is as follows:
Fiscal year ending July : Amount:
2002 $ 72,329
2003 $ 72,329
2004 $ 59,937
2005 $ 55,727
2006 $ 20,809
Goodwill is net of accumulated amortization of approximately $12.8 million at
October 27, 2001 and July 28, 2001, respectively.
SELF-INSURED CLAIMS LIABILITY -- The Company retains the risk, up to certain
limits, for automobile and general liability, workers' compensation, and
employee group health claims. A liability for unpaid claims and the associated
claim expenses, including incurred but not reported losses, is actuarially
determined and reflected in the consolidated financial statements as an accrued
liability. The self-insured claims liability includes incurred but not reported
losses of $7,880,051 and $6,205,274 at October 27, 2001 and July 28, 2001,
respectively. The determination of such claims and expenses and the
appropriateness of the related liability is periodically reviewed and updated.
CUSTOMER ADVANCES -- Under the terms of certain contracts, the Company receives
advances from customers that may be offset against future billings by the
Company. The Company has recorded these advances as liabilities and has not
recognized any revenue for these advances.
INCOME TAXES -- The Company and its subsidiaries file a consolidated federal
income tax return. Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
PER SHARE DATA -- Earnings per common share-basic is computed using the weighted
average common shares outstanding during the period. Earnings per common
share-diluted is computed using the weighted average common shares outstanding
during the period and the dilutive effect of common stock options, using the
treasury stock method. See Note 3.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- In August 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
Company is in the process of determining the impact, if any, on the financial
results of the Company.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No.
141 establishes new standards for accounting and reporting requirements for
business combinations and will require that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is prohibited. The adoption of SFAS No. 141 did not
have an impact on the Company's financial condition or results of operations.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which supersedes Accounting Principles Board ("APB") Opinion No. 17,
"Intangible Assets," SFAS No. 142 establishes new standards for goodwill
acquired in a business combination and eliminates amortization of goodwill and
instead sets forth methods to periodically evaluate goodwill for impairment.
The Company adopted SFAS No. 142 in this quarter, eliminating the amortization
of goodwill. The Company will test goodwill for impairment during fiscal 2002
and, if necessary, adjust the carrying value of goodwill.
9
3. COMPUTATION OF PER SHARE EARNINGS
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computation as required by SFAS No. 128.
For the Three Months Ended
----------------------------------
October 27, October 28,
2001 2000
------------ ------------
Net income available to common stockholders (numerator) $ 8,025,413 $ 21,618,030
============ ============
Weighted-average number of common shares (denominator) 42,946,969 41,988,910
============ ============
Earnings per common share-basic $ 0.19 $ 0.51
============ ============
Weighted-average number of common shares 42,946,969 41,988,910
Potential common stock arising from stock options 67,505 660,226
------------ ------------
Total shares (denominator) 43,014,474 42,649,136
============ ============
Earnings per common share-diluted $ 0.19 $ 0.51
============ ============
4. ACQUISITIONS
In December 2000, the Company acquired PTP for $52.2 million in cash and 312,312
shares of Dycom common stock for an aggregate purchase price of $65.3 million
before various transaction costs.
In January 2001, the Company acquired SCI for $9.9 million in cash and 76,471
shares of Dycom common stock for an aggregate purchase price of $12.5 million
before various transaction costs.
In April 2001, the Company acquired NCI for $11.5 million in cash and 437,016
shares of Dycom common stock for an aggregate purchase price of $17.7 million
before various transaction costs.
The Company has recorded these acquisitions using the purchase method of
accounting. Under SFAS No. 142, all acquired goodwill associated with these
acquisitions is no longer being amortized, but rather reviewed annually for
impairment. The operating results of the companies acquired are included in the
accompanying consolidated condensed financial statements from their respective
date of purchase.
The following unaudited pro forma summary presents the consolidated results of
operations of the Company as if all acquisitions had occurred on July 30, 2000:
For the Three Months Ended
---------------------------------------
October 27, October 28,
2001 2000
------------ ------------
Total revenues $167,814,646 $263,046,447
Income before income taxes 13,741,645 41,001,222
Net income 8,025,413 24,327,208
Earnings per share:
Basic $ 0.19 $ 0.57
Diluted $ 0.19 $ 0.56
In connection with each of the acquisitions referred to above, the Company
entered into employment contracts with certain executive officers of each of the
acquired companies varying in length from three to six years.
5. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
October 27, July 28,
2001 2001
------------ ------------
Contract billings $ 97,651,521 $112,522,872
Retainage 10,389,566 10,887,430
Other receivables 1,447,608 1,735,260
------------ ------------
Total 109,488,695 125,145,562
Less allowance for doubtful accounts 2,794,127 2,885,745
------------ ------------
Accounts receivable, net $106,694,568 $122,259,817
============ ============
For the periods indicated, the allowance for doubtful accounts changed as
follows:
For the Three Months Ended
--------------------------------------
October 27, October 28,
2001 2000
----------- -----------
Allowance for doubtful accounts at 7/28/2001 and 7/29/2000, respectively $ 2,885,745 $ 4,120,232
Additions charged to bad debt expense 47,693 278,312
Amounts charged against the allowance, net of recoveries (139,311) (9,855)
----------- -----------
Allowance for doubtful accounts $ 2,794,127 $ 4,388,689
=========== ===========
As of October 27, 2001 and July 28, 2001, the Company expected to collect all of
its retainage balances within twelve months.
6. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS
The accompanying consolidated balance sheets include costs and estimated
earnings on contracts in progress, net of progress billings as follows:
October 27, July 28,
2001 2001
----------- -----------
Costs incurred on contracts in progress $33,852,493 $29,765,794
Estimated to date earnings 11,097,947 9,919,190
----------- -----------
Total costs and estimated earnings 44,950,440 39,684,984
Less billings to date 5,161,083 3,262,831
----------- -----------
$39,789,357 $36,422,153
=========== ===========
Included in the accompanying consolidated
balance sheets under the captions:
Costs and estimated earnings in excess of billings $40,245,808 $36,980,314
Billings in excess of costs and estimated earnings 456,451 558,161
----------- -----------
$39,789,357 $36,422,153
=========== ===========
As stated in Note 1, the Company performs services under short-term, unit based
and long-term, percentage-of-completion contracts. The amounts presented above
aggregate the effects of these two types of contracts.
7. PROPERTY AND EQUIPMENT
The accompanying consolidated balance sheets include the following property and
equipment:
October 27, July 28,
2001 2001
------------ ------------
Land $ 3,361,750 $ 3,361,750
Buildings 6,498,975 6,480,120
Leasehold improvements 1,727,025 1,683,123
Vehicles 119,798,724 119,466,981
Equipment and machinery 79,952,834 80,609,844
Furniture and fixtures 14,089,728 13,682,891
------------ ------------
Total 225,429,036 225,284,709
Less accumulated depreciation 123,080,667 115,720,993
------------ ------------
Property and equipment, net $102,348,369 $109,563,716
============ ============
Maintenance and repairs of property and equipment amounted to $2,438,283 and
$4,093,283 for the three months ended October 27, 2001 and October 28, 2000,
respectively.
8. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
For the Three Months Ended
--------------------------------
October 27, July 28,
2001 2001
----------- -----------
Accrued payroll and related taxes $13,309,998 $14,079,386
Accrued employee benefit costs 4,551,239 9,480,643
Accrued construction costs 4,291,541 3,259,131
Other 10,168,216 11,797,386
----------- -----------
Accrued Liabilities $32,320,994 $38,616,546
=========== ===========
9. NOTES PAYABLE
Notes payable are summarized by type of borrowings as follows:
October 27, July 28,
2001 2001
------------ ------------
Bank Credit Agreement:
Term loan $ 7,750,000 $ 8,750,000
Capital lease obligations 4,721 6,743
Equipment loans 242,590 311,856
------------ ------------
Total 7,997,311 9,068,599
Less current portion 2,215,771 2,272,218
------------ ------------
Notes payable - non-current $ 5,781,540 $ 6,796,381
============ ============
On April 27, 1999, the Company signed an amendment to its bank credit agreement
increasing the total facility to $175.3 million and
extending the facility's maturity to April 2002. The agreement was amended on
December 12, 2000 to reduce the interest rates, eliminate the collateral
requirement, and streamline certain administrative covenants. The agreement was
further amended on June 13, 2001 to authorize the Company's stock repurchase.
The bank credit agreement provides for (i) a $17.5 million standby letter of
credit facility, (ii) a $50.0 million revolving working capital facility, (iii)
a $12.8 million five-year term loan, and (iv) a $95.0 million equipment
acquisition and small business purchase facility. The Company is required to pay
an annual non-utilization fee equal to 0.15% of the unused portion of the
revolving working capital and the equipment acquisition and small business
purchase facilities. In addition, the Company pays annual agent and facility
commitment fees of $15,000 and $135,000, respectively.
The Company had outstanding standby letters of credit of $17.0 million at
October 27, 2001, all of which are letters of credit issued to the Company's
insurance administrators as part of its self-insurance program.
The revolving working capital facility bears interest, at the option of the
Company, at the bank's prime interest rate minus 1.25% or LIBOR plus 1.125%. As
of October 27, 2001, there was no outstanding balance on this facility resulting
in an available borrowing capacity of $50.0 million.
The outstanding loans under the equipment acquisition and small business
purchase facility bear interest, at the option of the Company, at the bank's
prime interest rate minus 0.875% or LIBOR plus 1.375%. The advances under the
equipment acquisition and small business purchase facility are converted to term
loans with maturities not to exceed 48 months. The outstanding principal on the
equipment term loans is payable in monthly installments through May 2003. There
were no amounts outstanding on the equipment acquisition and small business
purchase facility at October 27, 2001, resulting in available borrowing capacity
of $71.1 million. The available borrowing capacity on this nonrevolving facility
has been reduced due to prior borrowings which have been repaid in full.
The term loan bears interest, at the option of the Company, at the bank's prime
interest rate minus 0.625% or LIBOR plus 1.625%. Principal and interest is
payable in semiannual installments through April 2004. The amount outstanding on
the term loan was $7.8 million at October 27, 2001 and bore interest at the rate
of 6.06%.
The bank credit agreement requires the Company to maintain certain financial
covenants and conditions, as well as restricts the encumbrances of assets and
the creation of indebtedness, and limits the payment of cash dividends. No cash
dividends were paid during the periods presented. At October 27, 2001, the
Company was in compliance with all financial covenants and conditions under the
credit agreement.
In addition to the borrowings under the amended bank credit agreement, certain
subsidiaries have outstanding obligations under capital leases and other
equipment financing arrangements. The obligations are payable in monthly
installments expiring at various dates through April 2005.
Interest costs incurred on notes payable, all of which were expensed, during the
three months ended October 27, 2001 and October 28, 2000 were $125,314 and
$262,158, respectively.
The interest rates on notes payable under the bank credit agreement are at
current rates and, therefore, the carrying amount approximates fair value.
10. COMMITMENTS AND CONTINGENCIES
The federal employment tax returns for one of the Company's subsidiaries are
currently being audited by the Internal Revenue Service ("IRS"). As a result of
the audit, the Company received an examination report from the IRS in October
1999 proposing a $6.1 million tax deficiency. At issue, according to the
examination report, is the taxpayer's payment of certain employee allowances for
the years 1995 through 1997 without reporting such payment as wages on its
employees' W-2 forms. The Company intends to vigorously defend its position in
this matter and believes it has a number of legal defenses available to it,
which could reduce the proposed tax deficiency, although there can be no
assurance in this regard. The Company believes that the ultimate disposition of
this matter will not have a material adverse effect on its consolidated
financial statements.
In the normal course of business, certain subsidiaries of the Company have
pending and unasserted claims. It is the opinion of the Company's management,
based on the information available at this time, that these claims will not have
a material adverse impact on the Company's consolidated financial statements.
In the normal course of business, the Company enters into employment agreements
with certain members of the Company's executive management. It is the opinion of
the Company's management based on the information available at this time, that
these agreements will not have a material adverse impact on the Company's
consolidated financial statements.
11. CAPITAL STOCK
On April 4, 2001, the Board of Directors of the Company adopted a shareholders'
rights plan (the "Rights Plan") pursuant to which a dividend consisting of one
preferred stock purchase right (a "Right") was distributed for each outstanding
share of the Company's
common stock. The dividend was payable to the shareholders of record on April
14, 2001. Each Right entitles the holder to purchase from the Company one
ten-thousandth of a share of Series A preferred stock at a price of $95.00,
subject to adjustment. The rights become exercisable only if a person or group
acquires beneficial ownership of 15% or more of the Company's outstanding common
stock or commences a tender or exchange offer which would result in a person or
group beneficially owning 15% or more of the Company's outstanding common stock.
When exercisable, the Rights would entitle the holders (other than the acquirer)
to purchase, at the Right's then-current exercise price, units of the Company's
Series A preferred stock having a market value equal to twice the then-current
exercise price. A complete description of the Rights Plan is set forth in the
Current Report on Form 8-K of the Company filed on April 4, 2001.
The Board of Directors, pursuant to the terms of the previously existing
shareholders' rights plan, declared the rights issued thereunder to be null and
void on April 14, 2001. The existing plan was scheduled to expire on June 1,
2002.
In June 2001, the Board of Directors approved a resolution authorizing
management to repurchase up to $25.0 million of the Company's issued and
outstanding stock over an eighteen month period. Funds used for the share
repurchase will be generated from free cash flow. Through December 10, 2001,
approximately 82,000 shares having an aggregate cost of approximately $1.2
million had been repurchased under this program to be placed in treasury.
On November 19, 2000, the Company granted key employees under the 1998 Plan
options to purchase 116,500 shares of common stock. The options were granted at
$14.34, the fair market value on the date of grant. The Company has reserved
240,000 shares of common stock under the 2001 Directors Stock Option Plan
(the "2001 Directors Plan") which was approved by the shareholders on November
20,2001. On November 20, 2001, the Company granted certain non-employee
Directors under the 2001 Directors Plan options to purchase an aggregate of
16,000 shares of common stock. The options were granted at $15.00, the fair
market value on the date of grant.
12. SEGMENT INFORMATION
The Company operates in one reportable segment as a specialty contractor. The
Company provides engineering, placement and maintenance of aerial, underground,
and buried fiber-optic, coaxial and copper cable systems owned by local and long
distance communications carriers, and cable television multiple system
operators. Additionally, the Company provides similar services related to the
installation of integrated voice, data, and video local and wide area networks
within office buildings and similar structures and also provides underground
locating services to various utilities and provides construction and maintenance
services to electrical utilities. Each of these services is provided by various
of the Company's subsidiaries which provide management with monthly financial
statements. All of the Company's subsidiaries have been aggregated into one
reporting segment due to their similar customer bases, products and production
methods, and distribution methods. The following table presents information
regarding annual contract revenues by type of customer:
For the Three Months Ended
----------------------------------
October 27, October 28,
2001 2000
------------ ------------
Telecommunications $150,670,124 $220,600,525
Electrical utilities 2,976,947 4,188,718
Utility line locating 14,167,575 9,901,178
------------ ------------
Total contract revenues $167,814,646 $234,690,421
============ ============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated financial condition and results of operations. The discussion
should be read in conjunction with the condensed consolidated financial
statements and notes thereto.
Results Of Operations
The following table sets forth, as a percentage of contract revenues earned,
certain items in the Company's condensed consolidated statements of operations
for the periods indicated:
For the Three Months Ended
----------------------------------
October 27, October 28,
2001 2000
----------- -----------
Revenues:
Contract revenues earned 100.0% 100.0%
Expenses:
Cost of earned revenues, excluding depreciation 77.6 73.7
General and administrative 9.6 7.7
Depreciation and amortization 5.4 3.9
------ ------
Total expenses 92.6 85.3
------ ------
Interest income, net 0.6 0.6
Other income, net 0.2 0.1
------ ------
Income before income taxes 8.2 15.4
------ ------
Provision for income taxes 3.4 6.1
------ ------
Net income 4.8% 9.3%
====== ======
REVENUES. Contract revenues decreased $66.9 million, or 28.5%, to $167.8 million
in the quarter ending October 27, 2001 from $234.7 million in the quarter ended
October 28, 2000. Of this decrease, $69.9 million was attributable to specialty
contracting services provided to telecommunications companies, $1.2 million was
attributable to construction and maintenance services provided to electrical
utilities, offset by an increase of $4.2 million in underground utility locating
services provided to various utilities.
During the quarter ended October 27, 2001, the Company recognized $150.7 million
of contract revenues from telecommunications services as compared to $220.6
million for the quarter ended October 28, 2000. The decrease in the Company's
telecommunications service revenues reflects a decreased volume of projects and
activities associated with cable television services, fiber services, and master
services agreements. The Company recognized contract revenues of $3.0 million
from electric construction and maintenance services in the quarter ended October
27, 2001 as compared to $4.2 million in the quarter ended October 28, 2000. The
Company recognized contract revenues of $14.1 million from underground utility
locating services in the quarter ended October 27, 2001 as compared to $9.9
million in the quarter ended October 28, 2000. Acquisitions subsequent to
October 28, 2000 contributed $13.8 million of contract revenues during the
quarter ended October 27, 2001, primarily in contract revenues from
telecommunications services.
Contract revenues from multi-year master service agreements and other long-term
agreements represented 83.3% of total contract revenues in the quarter ended
October 27, 2001 as compared to 72.1% in the quarter ended October 28, 2000, of
which contract revenues from multi-year master service agreements represented
48.8% of total contract revenues in the quarter ended October 27, 2001 as
compared to 42.1% in the quarter ended October 28, 2000.
COSTS OF EARNED REVENUES. Costs of earned revenues decreased $42.8 million to
$130.2 million in the quarter ended October 27, 2001 from $173.0 million in the
quarter ended October 28, 2000, and increased as a percentage of contract
revenues to 77.6% from
73.7%. Subcontractor costs, direct labor and direct materials declined by 4.9%
as a percentage of contract revenues while other direct costs increased by 8.8%.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $2.0 million to $16.1 million in the quarter ended October 27, 2001
from $18.1 million in the quarter ended October 28, 2000. The decrease in
general and administrative expenses for the quarter ended October 27, 2001 as
compared to the quarter ended October 28, 2000, was primarily attributable to
decreases in bonuses, employee benefits, and payroll taxes of $2.4 million.
General and administrative expenses increased as a percentage of contract
revenues to 9.6% from 7.7% in the quarter ended October 27, 2001 as compared to
the quarter ended October 28, 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased $0.1
million to $9.0 million in the quarter ending October 27, 2001 as compared to
$9.1 million in the quarter ended October 28, 2000, but increased as a
percentage of contract revenues to 5.4% from 3.9%. This decrease was a result of
the elimination of amortization of goodwill of $1.1 million in accordance with
SFAS No. 142, "Goodwill and Other Intangible Assets" offset by an increase in
depreciation expense of $1.0 million.
INTEREST INCOME, NET. Interest income, net decreased $0.4 million to $0.9
million in the quarter ended October 27, 2001 from $1.3 million in the quarter
ended October 28, 2000. The decrease was due primarily to declining interest
rates partially offset by increases in cash and equivalents.
INCOME TAXES. The provision for income taxes was $5.7 million in the three
months ended October 27, 2001 as compared to $14.4 million in the same period
last year. The Company's effective tax rate was 41.6% in the three months ended
October 27, 2001 as compared to 40.0% in the same period last year. The
effective tax rate differs from the statutory rate due to state income taxes and
non-deductible expenses for tax purposes.
Liquidity and Capital Resources
The Company's needs for capital are attributable primarily to its needs for
equipment to support its contractual commitments to customers and its needs for
working capital sufficient for general corporate purposes. Capital expenditures
have been primarily financed by internal cash flow supplemented with operating
and capital leases and bank borrowings. The Company's sources of cash have
historically been from operating activities, equity offerings, bank borrowings,
and from proceeds arising from the sale of idle and surplus equipment and real
property.
To the extent that the Company seeks to grow by acquisitions that involve
consideration other than Company stock, the Company's capital requirements may
increase, although the Company is not currently subject to any commitments or
obligations with respect to any acquisitions.
For the three months ended October 27, 2001, net cash provided by operating
activities was $21.3 million compared to $20.9 million for the three months
ended October 28, 2000. Net income and non-cash charges are the primary sources
of operating cash flow. Working capital items generated $3.0 million of
operating cash flow for the three-month period ended October 27, 2001
principally through a decrease in accounts receivable offset by a decrease in
accrued liabilities.
In the three months ended October 27, 2001, net cash used in investing
activities was $1.9 million as compared to $17.5 million for the same period
last year. For the three months ended October 27, 2001, capital expenditures of
$2.5 million were for the normal replacement of equipment, offset by $0.6
million in proceeds from sale of idle assets.
In the three months ended October 27, 2001, net cash used in financing
activities was $2.0 million, which was primarily attributable to principal
payments on long-term notes and the acquisition of treasury stock.
On April 27, 1999, the Company signed an amendment to its bank credit agreement
increasing the total facility to $175.3 million and extending the facility's
maturity to April 2002. The agreement was amended on December 12, 2000 to reduce
the interest rates, eliminate the collateral requirement, and streamline certain
administrative covenants. The agreement was further amended on June 13, 2001 to
authorize the Company's stock repurchase. The bank credit agreement provides for
(i) a $17.5 million standby letter of credit facility, (ii) a $50.0 million
revolving working capital facility, (iii) a $12.8 million five-year term loan,
and (iv) a $95.0 million equipment acquisition and small business purchase
facility. The Company is required to pay an annual non-utilization fee equal to
0.15% of the unused portion of the revolving working capital and the equipment
acquisition and small business purchase facilities. In addition, the Company
pays annual agent and facility commitment fees of $15,000 and $135,000,
respectively.
The Company had outstanding standby letters of credit of $17.0 million at
October 27, 2001, all of which are letters of credit issued to the Company's
insurance administrators as part of its self-insurance program.
The revolving working capital facility bears interest, at the option of the
Company, at the bank's prime interest rate minus 1.25% or LIBOR plus 1.125%. As
of October 27, 2001, there was no outstanding balance on this facility resulting
in an available borrowing
capacity of $50.0 million.
The outstanding loans under the equipment acquisition and small business
purchase facility bear interest, at the option of the Company, at the bank's
prime interest rate minus 0.875% or LIBOR plus 1.375%. The advances under the
equipment acquisition and small business purchase facility are converted to term
loans with maturities not to exceed 48 months. The outstanding principal on the
equipment term loans is payable in monthly installments through May 2003. There
were no amounts outstanding on the equipment acquisition and small business
purchase facility at October 27, 2001, resulting in available borrowing capacity
of $71.1 million. The available borrowing capacity on this nonrevolving facility
has been reduced due to prior borrowings, which have been repaid in full.
The term loan bears interest, at the option of the Company, at the bank's prime
interest rate minus 0.625% or LIBOR plus 1.625%. Principal and interest is
payable in semiannual installments through April 2004. The amount outstanding on
the term loan was $7.8 million at October 27, 2001 and bore interest at the rate
of 6.06%.
The bank credit agreement requires the Company to maintain certain financial
covenants and conditions, as well as restricts the encumbrances of assets and
the creation of indebtedness, and limits the payment of cash dividends. No cash
dividends were paid during the periods presented. At October 27, 2001, the
Company was in compliance with all covenants and conditions under the credit
agreement.
The Company believes its capital resources, together with existing cash
balances, to be sufficient to meet its financial obligations, including the
scheduled debt payments under the bank credit agreement and operating lease
commitments, and to support the Company's normal replacement of equipment at its
current level of business for at least the next twelve months. The Company's
future operating results and cash flows may be affected by a number of factors
including the Company's success in bidding on future contracts and the Company's
continued ability to effectively manage controllable costs.
On June 4, 2001, the Company announced that the Board of Directors had
authorized a program to repurchase up to $25 million worth of the Company's
common stock over an eighteen month period. Any such repurchases will be made in
the open market or in privately negotiated transactions from time to time,
subject to market conditions, applicable legal requirements and other factors.
This plan does not obligate the Company to acquire any particular amount of its
common stock, and the plan may be suspended at any time at the Company's
discretion. As of December 10, 2001, the Company had repurchased approximately
82,000 shares of the Company's stock having an aggregate cost of approximately
$1.2 million.
Special Note Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the Notes to Condensed Financial
Statements and this Management's Discussion and Analysis of Financial Condition
and Results of Operations, contains forward looking statements. The words
"believe," "expect," "anticipate," "intend," "forecast," "project," and similar
expressions identify forward looking statements. Such statements may include,
but may not be limited to, the anticipated outcome of contingent events,
including litigation, projections of revenues, income or loss, capital
expenditures, plans for future operations, growth and acquisitions, financial
needs or plans and the availability of financing, and plans relating to services
of the Company, as well as assumptions relating to the foregoing. Such forward
looking statements are within the meaning of that term in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company considered the provision of Financial Reporting Release No. 48,
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." The Company
had no significant holdings of derivative financial or commodity instruments at
October 27, 2001. A review of the Company's other financial instruments and risk
exposures at that date revealed that the Company had exposure to interest rate
risk. At October 27, 2001, the Company performed sensitivity analyses to assess
the potential effect of this risk and concluded that reasonably possible
near-term changes in interest rates should not material affect the Company's
financial position, results or operations or cash flows.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibits furnished pursuant to the requirements of Form 10-Q:
Number Description
- ------ -----------
(11) Statement re computation of per share earnings; All information
required by Exhibit 11 is presented within Note 3 of the Company's
condensed consolidated financial statements in accordance with the
provisions of SFAS No. 128.
(b) Reports on Form 8-K
No reports of 8-K were filed on behalf of the Registrant during the quarter
ended October 27, 2001.
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 thereunto duly authorized.
DYCOM INDUSTRIES, INC.
Registrant
Date: December 10, 2001 /s/ Steven E. Nielsen
-----------------------------------------
Steven E. Nielsen
President and Chief Executive Officer
Date: December 10, 2001 /s/ Richard L. Dunn
-----------------------------------------
Richard L. Dunn
Senior Vice President, Chief Financial
Officer and Principal Accounting Officer