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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended July 28, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number 0-5423
DYCOM INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-1277135
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(State of incorporation) (I.R.S. Employer Identification No.)
4440 PGA Boulevard, Suite 500, Palm Beach Gardens, Florida 33410
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 627-7171
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $.33 1/3 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock, par value $.33 1/3 per share,
held by non-affiliates of the registrant, computed by reference to the closing
price of such stock on September 28, 2001 was $497,933,398.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of September 28, 2001
Common Stock, $.33 1/3 42,925,293
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PART I
ITEM 1. BUSINESS
OVERVIEW
Dycom is a leading provider of specialty contracting services, including
engineering, construction, installation, and maintenance services to
telecommunications providers throughout the United States. The Company's
comprehensive range of telecommunications infrastructure services include the
engineering, placement and maintenance of aerial, underground, and buried
fiber-optic, coaxial and copper cable systems owned by local and long distance
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. The Company also provides underground locating
services to various utilities and provides construction and maintenance services
to electrical utilities. For the fiscal year ended July 28, 2001, specialty
contracting services related to the telecommunications industry, underground
utility locating, and electrical construction and maintenance contributed
approximately 92.4%, 5.8%, and 1.8%, respectively, to the Company's total
contract revenues.
Through its 22 wholly-owned subsidiaries, Dycom has established relationships
with many leading local exchange carriers, long distance providers, cable
television multiple system operators and electric utilities. Such key customers
include BellSouth Corporation, Comcast Corporation, Qwest Communications, Inc.,
Charter Communications, Inc., Sprint Corporation, Williams Communications, Inc.,
AT&T Corporation, DIRECTV, Inc., Adelphia Communications Corporation, Verizon
Communications, Inc., Worldcom, Inc., SBC Communications, Inc., Cablevision
Systems Corporation, and Cox Communications, Inc. During fiscal 2001,
approximately 81% of the Company's total contract revenues came from multi-year
master service agreements and other long-term agreements with large
telecommunications providers and electric utilities.
RECENT ACQUISITIONS
During fiscal 2001, Dycom continued to make acquisitions to supplement its
existing businesses. The acquisitions made during the fiscal year ended July 28,
2001 included:
Cable Connectors, Inc. ("CAB") acquired in October 2000 for $3.2
million in cash and 13,286 shares of Dycom's common stock for an
aggregate purchase price of $3.8 million before various transaction
costs. Located in Greenwood, South Carolina, CAB's primary business is
the construction and maintenance of telecommunications systems under
master service agreements.
Schaumburg Enterprises, Inc. ("SEI") acquired in December 2000 for $3.1
million in cash and 15,518 shares of Dycom's common stock for an
aggregate purchase price of $3.8 million before various transaction
costs. Located in Coburg, Oregon, SEI's primary business is the
construction and maintenance of telecommunications systems under
master service agreements.
Point to Point Communications, Inc. ("PTP") acquired in December 2000
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. Located in Broussard, Louisiana, PTP's primary business is
providing telecommunication construction services throughout the United
States.
Stevens Communications, Inc. ("SCI") acquired in January 2001 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. Located in Lawrenceville, Georgia, SCI's primary business is the
construction and maintenance of telecommunication systems under
master service agreements.
Nichols Holding, Inc. ("NCI") acquired in April 2001 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.
Located in Vansant, Virginia, NCI's primary business is the
construction and maintenance of telecommunication systems under
master service agreements.
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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. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information regarding these acquisitions.
SPECIALTY CONTRACTING SERVICES
Telecommunications Services
Engineering. Dycom provides outside plant engineers and drafters to local
exchange carriers. The Company designs aerial, underground and buried fiber
optic and copper cable systems from the telephone central office to the
consumer's home or business. Engineering services provided to local exchange
carriers include the design of service area concept boxes, terminals, buried and
aerial drops, transmission and central office equipment design and the proper
administration of feeder and distribution cable pairs. For competitive access
providers, Dycom designs building entrance laterals, fiber rings and conduit
systems. The Company obtains rights of way and permits in support of engineering
activities, and provides construction management and inspection personnel in
conjunction with engineering services or on a stand alone basis. Also, for cable
television multiple system operators, Dycom performs make ready studies, strand
mapping, field walk out, computer-aided radio frequency design and drafting, and
fiber cable routing and design.
Construction, Installation, and Maintenance. The services provided by the
Company include the placing and splicing of cable, excavation of trenches in
which to place the cable, placement of related structures such as poles,
anchors, conduits, manholes, cabinets and closures, placement of drop lines from
the main distribution lines to the customer's home or business, and maintenance
and removal of these facilities. In addition, the Company installs and maintains
transmission and central office equipment. The Company has the capability to
directionally bore the placement of cables, a highly specialized and
increasingly necessary method of placing buried cable networks in congested
urban and suburban markets where trenching is impractical.
Premise Wiring. The Company provides premise wiring services to a variety of
large corporations and certain governmental agencies. These services, unlike the
engineering, construction, installation, and maintenance services provided to
telecommunications companies, are predominantly limited to the installation,
repair and maintenance of telecommunications infrastructure within improved
structures. Projects include the placement and removal of various types of cable
within buildings and individual offices. These services generally include the
development of communication networks within a company or government agency
related primarily to the establishment and maintenance of computer operations,
telephone systems, Internet access and communications monitoring systems
established for purposes of monitoring environmental controls or security
procedures.
Underground Utility Locating Services
The Company is a provider of underground utility locating services, primarily to
telecommunications providers. Under a variety of state laws, excavators are
required to locate underground utilities prior to excavating. Utilities located
include telephone, cable television, power and gas. These services are offered
throughout the United States. During fiscal year 2001, the Company provided
services to customers in 13 states.
Electrical Construction and Maintenance Services
The Company performs electrical construction and maintenance services for
electric companies. This construction is performed primarily as a stand alone
service, although at times it is performed in conjunction with services for
telecommunications providers. These services include installing and maintaining
electrical transmission and distribution lines, setting utility poles and
stringing electrical lines, principally above ground. The work performed may
involve high voltage splicing and, on occasion, the installation of underground
high voltage distribution systems. The Company also repairs and replaces lines
which are damaged or destroyed as a result of weather conditions.
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Revenues by Customer
For the fiscal years ended July 28, 2001, July 29, 2000 and July 31, 1999, the
percentages of the Company's total contract revenues earned were derived from
specialty contracting services related to the telecommunications industry,
underground utility locating, and electrical construction and maintenance as set
forth below:
YEAR ENDED
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JULY 28, 2001 JULY 29, 2000 JULY 31, 1999
Telecommunications 92% 92% 90%
Electrical utilities 2 3 4
Utility line locating 6 5 6
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Total 100% 100% 100%
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CUSTOMER RELATIONSHIPS
Dycom's current customers include local exchange carriers such as BellSouth
Corporation, Qwest Communications, Inc., Sprint Corporation, SBC Communications,
Inc., Alltel Corporation, and Verizon Communications. Dycom also currently
provides telecommunications engineering, construction, installation, and
maintenance services to a number of cable television multiple system operators
including Comcast Corporation, Charter Communications, Inc., AT&T Corporation,
Cablevision Systems Corporation, Mediacom Communications Corporation, Cox
Communications, Inc., Adelphia Communications Corporation, and Time Warner, Inc.
Dycom also provides its services to other telecommunication companies such as
Williams Communications, Inc. and Worldcom, Inc. Premise wiring services have
been provided to, among others, Lucent Technologies, Inc., Duke University,
International Business Machines Corporation, and various state and local
governments. The Company also provides construction and maintenance support to
Lee County Electrical Cooperative and Florida Power Corporation.
While the Company's customer base has broadened in recent years, the Company's
customer base remains highly concentrated, with its top five customers in fiscal
years 2001, 2000, and 1999 accounting in the aggregate for approximately 52%,
53%, and 60%, respectively, of the Company's total revenues. During fiscal 2001,
approximately 17.9% of the Company's total revenues were derived from BellSouth
Corporation, 15.9% from Comcast Corporation, and 6.9% from Qwest Communications,
Inc. The Company believes that a substantial portion of its total revenues and
operating income will continue to be derived from a concentrated group of
customers. The loss of any of such customers could have a material adverse
effect on the Company's business, financial condition, results of operations or
cash flow.
A significant amount of the Company's business is performed under master service
agreements. These agreements with telecommunications providers are generally
exclusive requirement contracts, with certain exceptions, including the
customer's option to perform the services with its own regularly employed
personnel. The agreements are typically three to five years in duration,
although the terms typically permit the customer to terminate the agreement upon
90 days prior written notice. Each agreement contemplates hundreds of individual
construction and maintenance projects valued generally at less than $10,000
each. Other jobs are bid by the Company on a nonrecurring basis.
Although historically master service agreements have been awarded through a
competitive bidding process, recent trends have been toward securing or
extending such contracts on negotiated terms.
Sales and marketing efforts of the Company are the responsibility of the
management of Dycom and its operating subsidiaries.
BACKLOG
The Company's backlog is comprised of the uncompleted portion of services to be
performed under job-specific contracts and the estimated value of future
services that the Company expects to provide under long-term requirements
contracts. The Company's backlog at July 28, 2001 and July 29, 2000 was $1.013
and $1.156 billion,
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respectively. As of July 28, 2001, the Company expected to complete
approximately 48.5% of this backlog within the next fiscal year. Due to the
nature of its contractual commitments, in many instances the Company's customers
are not committed to the specific volumes of services to be purchased under a
contract, but rather the Company is committed to perform these services if
requested by the customer. However, the customer is obligated to obtain these
services from the Company if they are not performed by the customer's employees.
Many of these contracts are multi-year agreements, and the Company includes in
its backlog the full amount of services projected to be performed over the term
of the contract based on its historical relationships with its customers and
experience in procurement of this nature. Historically, the Company has not
experienced a material variance between the amount of services it expects to
perform under a contract and the amount actually performed for a specified
period. There can be no assurance, however, as to the customer's requirements
during a particular period or that such estimates at any point in time are
accurate.
SAFETY AND RISK MANAGEMENT
The Company is committed to ensuring that its employees perform their work in
the safest possible manner. The Company regularly communicates with its
employees to promote safety and to instill safe work habits. Dycom's safety
director, a holding company employee, reviews all accidents and claims
throughout the operating subsidiaries, examines trends and implements changes in
procedures or communications to address any safety issues.
The primary claims arising in the Company's business are workers' compensation
and other personal injuries, various general liabilities, and vehicle liability
(personal injury and property damage). For losses occurring during fiscal year
ended July 2001, the Company retains the risk, on a per occurrence basis for
automobile liability to $250,000, for general liability to $250,000, and for
workers' compensation, in states where the Company elects to do so, to $500,000.
The Company had aggregate stop loss coverage, for fiscal year 2001 for the above
exposures at the stated retentions, of $17.8 million adjusted for certain
exposures, in addition to umbrella liability coverage to a policy limit of
$100.0 million. For losses occurring during the upcoming fiscal year ending July
2002, the Company retains the risk, on a per occurrence basis for automobile
liability to $500,000, for general liability to $250,000 and for workers'
compensation, in states where the Company elects to do so, to $500,000. For
fiscal year 2002, the Company will have aggregate stop loss coverage for the
above exposures at the stated retentions, of $20.0 million adjusted for certain
exposures, in addition to umbrella coverage to a policy limit of $75.0 million.
Within the umbrella coverage, the Company has retained the risk of loss between
$2.0 and $5.0 million with an aggregate stop loss for this layer of $10.0
million.
The Company carefully monitors claims and participates actively in claims
estimates and adjustments. The estimated costs of self-insured claims, which
include estimates for incurred but not reported claims, are accrued as
liabilities on the Company's balance sheet. Due to fluctuations in the Company's
loss experience in recent years, insurance accruals have varied from year to
year and have had an effect on operating margins. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 1 of
Notes to Consolidated Financial Statements.
COMPETITION
The telecommunications engineering, construction, installation, and maintenance
services industry, electrical contracting industry, and utility locating
industry in which the Company operates are highly competitive. The Company
competes with other independent contractors in most of the markets in which it
operates, several of which are large domestic companies, some of which may have
greater financial, technical, and marketing resources than the Company. In
addition, there are relatively few, if any, barriers to entry into the markets
in which the Company operates and, as a result, any organization that has
adequate financial resources and access to technical expertise may become a
competitor. A significant portion of the Company's revenues are currently
derived from master service agreements and price is often an important factor in
the award of such agreements. Accordingly, the Company could be outbid by its
competitors in an effort to procure such business. There can be no assurance
that the Company's competitors will not develop the expertise, experience and
resources to provide services that are equal or superior in both price and
quality to the Company's services, or that the Company will be able to maintain
or enhance its competitive position. The Company may also face competition from
the in-house service organizations of its existing or prospective customers,
including telecommunications
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providers, which employ personnel who perform some of the same types of services
as those provided by the Company. Although a significant portion of these
services is currently outsourced, there can be no assurance that existing or
prospective customers of the Company will continue to outsource
telecommunications engineering, construction, installation, and maintenance
services in the future.
The Company believes that the principal competitive factors in the market for
telecommunications engineering, construction and maintenance services,
electrical contracting services, and utility locating services include technical
expertise, reputation, price, quality of service, availability of skilled
technical personnel, geographic presence, breadth of service offerings,
adherence to industry standards, and financial stability. The Company believes
that it competes favorably with its competitors on the basis of these factors.
EMPLOYEES
As of July 28, 2001, the Company employed approximately 6,700 persons. The
number of employees of the Company and its subsidiaries varies according to the
work in progress. As a matter of course, the Company maintains a nucleus of
technical and managerial personnel from which it draws to supervise all
projects. Additional employees are added as needed to complete specific
projects.
MATERIALS
Generally, the Company's customers supply most or all of the materials required
for a particular contract; and the Company provides the personnel, tools, and
equipment to perform the installation services. However, with respect to a
portion of its contracts, the Company may supply part or all of the materials
required. In these instances, the Company is not dependent upon any one source
for the products which it customarily utilizes to complete the job. The Company
is not presently experiencing, nor does it anticipate experiencing, any
difficulties in procuring an adequate supply of materials.
ITEM 2. PROPERTIES
The Company leases its executive offices located in Palm Beach Gardens, Florida.
The Company's subsidiaries operate from owned or leased administrative offices,
district field offices, equipment yards, shop facilities, and temporary storage
locations. The Company owns facilities in Phoenix, Arizona; Durham, North
Carolina; Knoxville, Tennessee; Sturgis, Kentucky; Pinellas Park, Florida;
Broussard, Louisiana; and West Palm Beach, Florida. The Company also leases,
subject to long-term noncancelable leases, facilities in West Chester,
Pennsylvania; Kimberling City, Missouri; Lithonia, Georgia; Issaquah,
Washington; Greensboro, North Carolina; Rocky Mount, North Carolina;
Nicholasville, Kentucky; Coburg, Oregon; Gold Hill, Oregon; Pleasant Grove,
Utah; Daytona Beach, Florida; Jupiter, Florida; Greenwood, South Carolina;
Vansant, Virginia; and Lawrenceville, Georgia. The Company also leases and owns
other smaller properties as necessary to enable it to effectively perform its
obligations under master service agreements and other specific contracts. The
Company believes that its facilities are adequate for its current operations.
ITEM 3. LEGAL PROCEEDINGS
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, the Company and certain subsidiaries have
pending and unasserted claims. It is the opinion of the Company's management,
based on information available at this time, that these claims will not have a
material adverse impact on the Company's consolidated financial statements.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year covered by this report, no matters were
submitted to a vote of the Company's security holders whether through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "DY". The following table sets forth the range of the high and
low closing sales prices for each quarter within the last two fiscal years as
reported on the NYSE. The table has been adjusted to reflect a 3-for-2 stock
split effected in the form of a stock dividend and paid in February 2000.
Fiscal 2001 Fiscal 2000
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High Low High Low
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First Quarter $56 $36 3/4 $31 1/16 $20 11/16
Second Quarter 49 3/8 20 1/2 34 15/16 22 11/16
Third Quarter 23 10/27 10 1/2 56 1/4 28 11/16
Fourth Quarter 23 4/7 15 9/10 56 13/16 40 1/2
As of September 28, 2001, there were approximately 673 holders of record of the
Company's $.33 1/3 par value common stock. The common stock closed at a high of
$21.89 and a low of $10.90 during the period July 29, 2001 through September 28,
2001.
The Company currently intends to retain future earnings, and since 1982, no cash
dividends have been paid by the Company. The Board of Directors will determine
any future change in dividend policies based on financial conditions,
profitability, cash flow, capital requirements, and business outlook, as well as
other factors relevant at the time. The Company's credit agreement expressly
limits the payment of cash dividends to fifty percent (50%) of each fiscal
year's after-tax profits. The credit agreement's covenants regarding the
Company's debt-to-net worth, quick and current ratios also restrict the
Company's ability to pay dividends.
On October 2, 2000, the Company issued 13,286 shares of the Company's common
stock for the acquisition of CAB. On December 18, 2000, the Company issued
15,518 shares of the Company's common stock for the acquisition of SEI. On
December 18, 2000, the Company issued 312,312 shares of the Company's common
stock for the acquisition of PTP. On January 8, 2001, the Company issued 76,471
shares of the Company's common stock for the acquisition of SCI. On April 9,
2001, the Company issued 437,016 shares of the Company's common stock for the
acquisition of NCI.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data of the Company
for the years ended July 28, 2001, July 29, 2000 and July 31, 1999, 1998, and
1997. The Company acquired Communications Construction Group, Inc. ("CCG") in
July 1997, Cable Com Inc. ("CCI") and Installation Technicians, Inc. ("ITI") in
April 1998, and Niels Fugal Sons Company ("NFS") in March 2000. These
acquisitions were accounted for as pooling of interests and accordingly, the
consolidated financial statements for the periods presented include the accounts
of CCG, CCI, ITI and NFS. The table has been adjusted to reflect the 3-for-2
stock split effected in the form of a stock dividend and paid on January 4, 1999
and the 3-for-2 stock split effected in the form of a stock dividend and paid on
February 16, 2000. This data should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this report.
2001(6) 2000(5) 1999(4) 1998(1) 1997(1)
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In Thousands, Except Per Share Amounts
OPERATING DATA:
Total revenues $826,746 $806,270 $501,155 $389,475 $332,882
Income before income taxes 104,983 109,233 66,590 37,525 26,655
Net income 61,410 65,032 40,103 23,930 17,613
PER COMMON SHARE:
Basic net income $ 1.45 $ 1.56 $ 1.08 $ 0.69 $ 0.57
Diluted net income $ 1.44 $ 1.54 $ 1.06 $ 0.68 $ 0.56
PRO FORMA EARNINGS(2):
Income before
income taxes $ 37,525 $ 26,655
Pro forma provision for
income taxes 14,970 10,927
Pro forma net income 22,555 15,728
PRO FORMA PER
COMMON SHARE:
Basic pro forma
net income $ 0.65 $ 0.51
Diluted pro forma
net income $ 0.65 $ 0.50
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets $575,696 $514,000 $399,672 $178,580 $124,513
Long-term obligations(3) $ 21,867 $ 21,263 $ 19,291 $ 25,037 $ 24,487
Stockholders' equity $468,881 $377,978 $297,442 $104,764 $ 48,034
Cash dividends per share -- -- -- -- --
(1) The results of operations for fiscal 1998 and 1997 include a $0.4
million and $0.3 million reduction in the deferred tax valuation
allowance, respectively.
(2) The provision for income taxes has been adjusted to reflect a pro forma
tax provision for pooled companies which were previously "S
Corporations."
(3) For fiscal 1998, certain customer advances have been reclassified as
current liabilities in order to present comparable periods.
(4) Amounts include the results and balances of Locating, Inc. ("LOC"),
Ervin Cable Construction, Inc. ("ECC"), Apex Digital, Inc. ("APX"), and
Triple D Communications, Inc. ("DDD") from their respective acquisition
dates until July 31, 1999.
(5) Amounts include the results and balances of Lamberts' Cable Splicing
Company ("LCS"), C-2 Utility Contractors, Inc. ("C-2"), Artoff
Construction Co., Inc. ("ACC"), K.H. Smith Communications, Inc.
("KHS"), and Selzee Solutions, Inc. ("SSI") from their respective
acquisition dates until July 29, 2000.
(6) Amounts include the results and balances of CAB, SEI, PTP, SCI, and NCI
from their respective acquisition dates until July 28, 2001.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Dycom derives most of its contract revenues earned from specialty contracting
services, including engineering, construction, installation, and maintenance
services, to the telecommunications industry. 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. In addition, contract revenues earned are derived from underground
utility locating services and from maintenance and construction services
provided to the electric utility industry. The Company currently performs work
for local exchange carriers, cable television multiple system operators, long
distance carriers, and electric utilities throughout the United States. Other
revenues include interest income and net gain on sale of surplus equipment.
Dycom provides services to its customers pursuant to multi-year master service
agreements and long- and short-term contracts for particular projects. Under
master service agreements, Dycom agrees to provide, for a period of several
years, all specified service requirements to its customer within a given
geographical territory. Under the terms of such agreements, the customer can
typically terminate the agreement with 90 days prior written notice. The
customer, with certain exceptions, agrees to purchase such services from Dycom.
Materials to be used in these jobs are generally provided by the customer.
Master service agreements generally provide that Dycom will furnish a specified
unit of service for a specified unit price (e.g., fiber optic cable will be
installed underground for a specified rate of dollars per foot). The Company
recognizes revenue under master service agreements as the related work is
completed. Dycom is currently party to approximately 70 master service
agreements which were obtained by either bid or negotiation. Master service
agreements are typically bid initially and may be extended by negotiation. The
remainder of Dycom's services are provided pursuant to contracts for particular
jobs. Long-term contracts relating to specific projects have terms in excess of
one year from the contract date. Short-term contracts are generally from three
to four months in duration from the contract date, depending upon the size of
the project. Contract revenues from multi-year master service agreements and
other long-term agreements represented 81.2% and 74.7% of total contract
revenues in fiscal 2001 and 2000, respectively, of which contract revenues from
multi-year master service agreements represented 51.2% and 45.8% of total
contract revenues, respectively.
Cost of earned revenues includes all direct costs of providing services under
the Company's contracts, other than depreciation on fixed assets owned by the
Company or utilized by the Company under capital leases, which is included in
depreciation and amortization expense. Cost of earned revenues includes all
costs of construction personnel, subcontractor costs, all costs associated with
operation of equipment, excluding depreciation, materials not supplied by the
customer and insurance. Because the Company retains the risk for automobile and
general liability, worker's compensation, and employee group health claims;
subject to certain limits; a change in experience or actuarial assumptions that
did not affect the rate of claims payments could nonetheless materially affect
results of operations in a particular period. General and administrative costs
include all costs of the holding company and subsidiary management personnel and
administrative overhead. The Company's management personnel, including
subsidiary management, undertake all sales and marketing functions as part of
their management responsibilities and, accordingly, the Company does not incur
material selling expenses.
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RESULTS OF OPERATIONS
The following table sets forth, as a percentage of contract revenues earned,
certain items in the Company's statement of operations for the periods
indicated:
Year Ended
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July 28, 2001 July 29, 2000 July 31, 1999
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Revenues:
Contract revenues earned 100.0% 100.0% 100.0%
Expenses:
Cost of earned revenue, excluding depreciation 74.4 74.5 72.9
General and administrative 8.9 8.1 9.8
Depreciation and amortization 4.8 3.9 4.3
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Total expenses 88.1 86.5 87.0
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Interest income, net 0.5 0.4 0.1
Merger-related expenses -- (0.3) --
Other income, net 0.3 -- 0.2
----- ----- -----
Income before income taxes 12.7 13.6 13.3
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Provision for income taxes 5.3 5.5 5.3
----- ----- -----
Net income 7.4% 8.1% 8.0%
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YEAR ENDED JULY 28, 2001 COMPARED TO YEAR ENDED JULY 29, 2000
Revenues. Contract revenues increased $20.4 million, or 2.5%, to $826.7 million
in fiscal 2001 from $806.3 million in fiscal 2000. Of this increase, $20.0
million was attributable to specialty contracting services provided to
telecommunications companies and $9.5 million was attributed to underground
utility locating services provided to various utilities, offset by a decrease of
$9.1 million in construction, installation, and maintenance services provided to
electrical utilities. During fiscal 2001, the Company recognized $763.7 million
of contract revenues from telecommunications services as compared to $743.7
million in fiscal 2000. The increase in the Company's telecommunications service
revenues reflects an increased volume of projects and activity associated with
cable television services, and an increase in services performed in the design
and installation of broadband networks, telephone engineering services,
telephony splicing services, premise wiring services, and revenues from services
performed under master service agreements. The Company recognized contract
revenues of $15.2 million from the electric construction and maintenance
services group in fiscal 2001 as compared to $24.3 million in fiscal 2000, a
decrease of 37.6%. The Company recognized contract revenues of $47.9 million
from underground utility locating services in fiscal 2001 as compared to $38.3
million in fiscal 2000, an increase of 25.0%. The companies acquired in fiscal
2001 contributed $50.8 million of the increase in contract revenues.
Contract revenues from multi-year master service agreements and other long-term
agreements represented 81.2% of total contract revenues in fiscal 2001 as
compared to 74.7% in fiscal 2000, of which contract revenues from multi-year
master service agreements represented 51.2% of total contract revenues in fiscal
2001 as compared to 45.8% in fiscal 2000.
Cost of Earned Revenues. Cost of earned revenues increased $14.7 million to
$615.2 million in fiscal 2001 from $600.5 million in fiscal 2000, yet decreased
slightly as a percentage of contract revenues to 74.4% from 74.5%. Direct labor
and other direct costs increased as a percentage of contract revenues as a
result of increased projects for which the Company supplied labor, while
subcontractor costs and direct materials decreased as a percentage of contract
revenues.
General and Administrative Expenses. General and administrative expenses
increased $8.1 million to $73.6 million in fiscal 2001 from $65.5 million in
fiscal 2000, and increased as a percentage of contract revenues to 8.9% in
fiscal 2001 from 8.1% in fiscal 2000. The increase in general and administrative
expenses was primarily attributable to an $8.7 million increase in
administrative salaries, payroll taxes and employee benefits.
10
11
Depreciation and Amortization. Depreciation and amortization expense increased
$8.3 million to $40.1 million in fiscal 2001 from $31.8 million in fiscal 2000,
and increased as a percentage of contract revenues to 4.8% from 3.9%. The $8.3
million increase reflects the depreciation of additional capital expenditures
incurred in the ordinary course of business and amortization of goodwill related
to acquisitions made in 2001 and 2000, respectively.
Interest Income, net. Interest income, net increased $1.0 million to $4.5
million in fiscal 2001 from $3.5 million in fiscal 2000. The increase was due to
increased cash and equivalents, offset by decreases in short term interest
rates.
Income Taxes. The provision for income taxes was $43.6 million in fiscal 2001 as
compared to $44.2 million in fiscal 2000. The Company's effective tax rate was
41.5% in fiscal 2001 as compared to 40.5% in fiscal 2000. The effective tax rate
differs from the statutory tax rate due to state income taxes, the amortization
of intangible assets that do not provide a tax benefit, and other non-deductible
expenses for tax purposes. During fiscal 2000, the Company incurred $2.4 million
of merger-related expenses for which no tax benefit was recorded.
Net Income. Net income decreased to $61.4 million in fiscal 2001 from $65.0
million in fiscal 2000, a 5.5% decrease.
YEAR ENDED JULY 29, 2000 COMPARED TO YEAR ENDED JULY 31, 1999
Revenues. Contract revenues increased $305.1 million, or 60.9%, to $806.3
million in fiscal 2000 from $501.2 million in fiscal 1999. Of this increase,
$292.5 million was attributable to specialty contracting services provided to
telecommunications companies, $2.6 million was attributable to construction,
installation, and maintenance services provided to electrical utilities and
$10.0 million was attributable to underground utility locating services provided
to various utilities, reflecting an increased overall market demand for the
Company's services. During fiscal 2000, the Company recognized $743.7 million of
contract revenues from telecommunications services as compared to $451.2 million
in fiscal 1999. The increase in the Company's telecommunications service
revenues reflects an increased volume of projects and activity associated with
cable television services, and an increase in services performed in the design
and installation of broadband networks, telephone engineering services,
telephony splicing services, premise wiring services, and revenues from services
performed under master service agreements. The Company recognized contract
revenues of $24.3 million from the electric construction and maintenance
services group in fiscal 2000 as compared to $21.7 million in fiscal 1999, an
increase of 12.4%. The Company recognized contract revenues of $38.3 million
from underground utility locating services in fiscal 2000 as compared to $28.3
million in fiscal 1999, an increase of 35.3%. The companies acquired in fiscal
2000 contributed $29.3 million of the increase in contract revenues.
Contract revenues from multi-year master service agreements and other long-term
agreements represented 74.7% of total contract revenues in fiscal 2000 as
compared to 83.9% in fiscal 1999, of which contract revenues from multi-year
master service agreements represented 45.8% of total contract revenues in fiscal
2000 as compared to 49.7% in fiscal 1999.
Cost of Earned Revenues. Cost of earned revenues increased $235.0 million to
$600.5 million in fiscal 2000 from $365.5 million in fiscal 1999, and increased
as a percentage of contract revenues to 74.5% from 72.9%. Direct labor and
equipment costs declined slightly as a percentage of contract revenues as a
result of improved productivity and the utilization of more modern equipment.
Direct materials increased as a percentage of contract revenues as a result of
increased projects for which the Company supplied materials.
General and Administrative Expenses. General and administrative expenses
increased $16.6 million to $65.5 million in fiscal 2000 from $48.9 million in
fiscal 1999, but decreased as a percentage of contract revenues to 8.1% in
fiscal 2000 from 9.8% in fiscal 1999. The increase in general and administrative
expenses was primarily attributable to a $10.1 million increase in
administrative salaries, bonuses, employee benefits and payroll taxes.
Depreciation and Amortization. Depreciation and amortization expense increased
$10.2 million to $31.8 million in fiscal 2000 from $21.6 million in fiscal 1999,
but decreased as a percentage of contract revenues to 3.9% from 4.3%. The $10.2
million increase reflects the depreciation of additional capital expenditures
incurred in the ordinary course of business and amortization of goodwill related
to acquisitions made in 2000 and 1999, respectively.
11
12
Merger-Related Expenses. During the year ended July 29, 2000, the Company
incurred merger-related expenses of $2.4 million in connection with the NFS
merger. The expenses consisted primarily of legal, accounting, and other
professional fees related to the transaction.
Interest Income, net. Interest income, net increased $3.1 million to $3.5
million in fiscal 2000 from $0.4 million in fiscal 1999. The increase was due to
increased cash and equivalents and favorable interest rates.
Other Income, net. During the fourth quarter of fiscal 2000, the Company
determined its investment in Witten Technologies, Inc. ("Witten") was impaired.
Therefore, the Company recognized an impairment loss of approximately $1.8
million during the quarter reducing the carrying value of the Witten investment
to $750,000 as compared to a carrying value of $2.8 million at July 31, 1999.
Income Taxes. The provision for income taxes was $44.2 million in fiscal 2000 as
compared to $26.5 million in fiscal 1999. The Company's effective tax rate was
40.5% in fiscal 2000 as compared to 39.8% in fiscal 1999. The effective tax rate
differs from the statutory tax rate due to state income taxes, the amortization
of intangible assets that do not provide a tax benefit, and other non-deductible
expenses for tax purposes. During fiscal 2000, the Company incurred $2.4 million
of merger-related expenses for which no tax benefit was recorded.
Net Income. Net income increased to $65.0 million in fiscal 2000 from $40.1
million in fiscal 1999, a 62.2% increase.
LIQUIDITY AND CAPITAL RESOURCES
The Company's needs for capital are attributable primarily to its needs for
equipment to support its contractual commitments to customers and its needs for
working capital sufficient for general corporate purposes. Capital expenditures
have been financed by operating and capital leases, bank borrowings, and
internal cash flows. 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 fiscal 2001, net cash provided by operating activities was $133.2 million
compared to $76.0 million for fiscal 2000 and $38.6 million for fiscal 1999.
Working capital items generated $32.4 million of operating cash flow for fiscal
2001, principally through decreases in net accounts receivable and net unbilled
revenues offset by a decrease in accounts payable and other accrued liabilities.
For fiscal 2001, net cash used in financing activities was $3.1 million, which
was primarily attributed to principal payments on long-term notes net of
proceeds from the exercise of stock options.
For fiscal 2001, net cash used in investing activities was $105.3 million, as
compared to $69.2 million in 2000 and $84.1 million in 1999. The increase in
fiscal 2001 was due primarily to acquisitions occurring during fiscal 2001. Net
cash used for capital expenditures were for the normal replacement of equipment.
In August 1998, the Company purchased a 13.0% equity interest in Witten for $3.0
million. Witten is developing and is the owner of, various proprietary
technologies and materials relating to ground-penetrating radar and the use of
other electromagnetic frequencies. During the fourth quarter of fiscal 2000, the
Company recognized a $1.8 million impairment loss on its investment in Witten.
During fiscal 2001, 2000, and 1999, the Company used $79.8 million, $32.7
million, and $33.5 million of cash, respectively, and issued 854,603, 3,082,586,
and 1,198,635 shares of common stock respectively, in connection with
acquisitions of other businesses.
12
13
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 $14.0 million at July
28, 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 July 28, 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 July 28, 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 $8.8 million at July 28, 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 July 28, 2001, the Company
was in compliance with all covenants and conditions under the credit agreement.
In April 1999, the Company filed a registration statement for an offering of
3.75 million shares and 300,000 shares of common stock, to be sold by the
Company and certain selling stockbrokers, respectively. The closing of the
offering, at $32.33 per share, was consummated on May 19, 1999. On that date,
the Company received $115.3 million in proceeds from the offering, which was net
of an underwriting discount of $1.60 per share. The Company incurred legal fees
and other expenses for this transaction of approximately $510,000. In addition
to the shares sold above, the Company and the selling stockholders granted the
underwriters an option to purchase within 30 days after the offering an
additional 562,500 and 45,000 shares, respectively, to cover over-allotments.
On June 4, 1999, the Company repaid the outstanding balance of its revolving
credit facility of $33.7 million with proceeds of the May 1999 common stock
offering. The remaining proceeds have been used to fund the Company's growth
strategy, including acquisitions, working capital and capital expenditures, and
for other general corporate purposes. On June 11, 1999, the underwriters
exercised a portion of their option to purchase additional shares to cover
over-allotments. The underwriters purchased 55,554 shares from the Company and
4,443 shares from certain selling stockholders. The Company received
approximately $1.7 million as payment for the over-allotment.
13
14
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 amended 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 September 28, 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 Annual Report on Form 10-K, including the Notes to the Consolidated
Financial Statements and this Management's Discussion and Analysis of Financial
Condition and Results of Operations, contains forward looking statements. The
words "believe", "expect", "anticipate", "intends", "forecast", "project", and
similar expressions identify forward looking statements. Such statements may
include, but may not be limited to, the anticipated outcome of contingent
events, including litigation, projections of revenues, income or loss, capital
expenditures, plans for future operations, growth and 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("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 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 is in the process of
evaluating the impact of implementing SFAS No. 142 and expects to adopt this
statement during the first quarter of fiscal 2002. During the year ended July
28, 2001, goodwill amortization totaled $6.6 million.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition" which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101 was applicable beginning with the
Company's fourth quarter of fiscal 2001. SAB No. 101 did not have an impact on
the financial results of the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137 and No. 138
(collectively, SFAS No. 133), which establishes standards for the accounting and
reporting of derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 was applicable with the Company's first quarter of fiscal 2001.
SFAS No. 133 did not have an impact on the financial statements of the Company.
14
15
ITEM 7A. 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 holdings of derivative financial or commodity instruments at July 28,
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
July 28, 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 materially affect the Company's financial
position, results of operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and related notes and
independent auditor's report follow on subsequent pages of this report.
15
16
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 28, 2001 and JULY 29, 2000
2001 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $130,483,671 $105,701,950
Accounts receivable, net 122,259,817 144,291,699
Costs and estimated earnings in excess of billings 36,980,314 52,301,022
Deferred tax assets, net 7,176,551 6,039,264
Inventories 7,558,578 14,563,649
Other current assets 4,909,130 1,530,972
------------ ------------
Total current assets 309,368,061 324,428,556
------------ ------------
PROPERTY AND EQUIPMENT, net 109,563,716 101,092,862
------------ ------------
OTHER ASSETS:
Intangible assets, net 154,529,467 85,783,092
Other 2,234,310 2,695,084
------------ ------------
Total other assets 156,763,777 88,478,176
------------ ------------
TOTAL $575,695,554 513,999,594
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 29,295,334 $ 42,922,557
Notes payable 2,272,218 2,594,413
Billings in excess of costs and estimated earnings 558,161 6,405
Accrued self-insurance claims 5,795,734 4,232,243
Income taxes payable 1,182,832 5,916,000
Customer advances 7,226,824 11,762,547
Other accrued liabilities 38,616,546 47,324,948
------------ ------------
Total current liabilities 84,947,649 114,759,113
------------ ------------
NOTES PAYABLE 6,796,381 9,106,201
ACCRUED SELF-INSURED CLAIMS 6,475,549 5,554,417
DEFERRED TAX LIABILITIES, net 6,374,716 4,256,781
OTHER LIABILITIES 2,220,409 2,345,525
------------ ------------
Total liabilities 106,814,704 136,022,037
------------ ------------
COMMITMENTS AND CONTINGENCIES, Note 17
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00 per share:
1,000,000 shares authorized; no shares issued and outstanding
Common stock, par value $.33 1/3 per share:
150,000,000 shares authorized; 42,964,193 and
41,900,516 issued and outstanding, respectively 14,321,398 13,966,839
Additional paid-in capital 250,731,286 221,593,083
Retained earnings 203,828,166 142,417,635
------------ ------------
Total stockholders' equity 468,880,850 377,977,557
------------ ------------
TOTAL $575,695,554 $513,999,594
============ ============
See notes to consolidated financial statements.
16
17
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 28, 2001, JULY 29, 2000, AND JULY 31, 1999
2001 2000 1999
------------ -------------- ------------
REVENUES:
Contract revenues earned $826,745,782 $ 806,269,779 $501,155,028
------------ -------------- ------------
EXPENSES:
Cost of earned revenues,
excluding depreciation 615,238,565 600,489,384 365,480,042
General and administrative 73,576,207 65,477,887 48,914,930
Depreciation and amortization 40,116,865 31,759,084 21,605,686
------------ -------------- ------------
Total 728,931,637 697,726,355 436,000,658
------------ -------------- ------------
Interest income, net 4,496,324 3,447,711 387,450
Merger-related expenses -- (2,364,284) --
Other income, net 2,672,823 (393,370) 1,048,506
------------ -------------- ------------
INCOME BEFORE INCOME TAXES 104,983,292 109,233,481 66,590,326
------------ -------------- ------------
PROVISION FOR INCOME TAXES:
Current 41,909,164 45,128,241 25,537,916
Deferred 1,663,597 (927,000) 949,270
------------ -------------- ------------
Total 43,572,761 44,201,241 26,487,186
------------ -------------- ------------
NET INCOME $ 61,410,531 $ 65,032,240 $ 40,103,140
============ ============== ============
EARNINGS PER COMMON SHARE:
Basic $ 1.45 $ 1.56 $ 1.08
============ ============== ============
Diluted $ 1.44 $ 1.54 $ 1.06
============ ============== ============
SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Basic 42,445,242 41,580,557 37,246,805
============ ============== ============
Diluted 42,770,042 42,314,746 37,911,247
============ ============== ============
See notes to consolidated financial statements.
17
18
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JULY 28,
2001, JULY 29, 2000, AND JULY 31, 1999
Additional Other
paid-in Retained comprehensive
Shares Amount capital earnings income
---------- ------------ -------------- ------------ ---------- --
Balances at July 31, 1998 35,852,356 $ 11,950,785 $ 55,623,919 $ 37,282,255 $(92,683)
Stock options exercised 311,853 103,951 1,495,004
Stock offering proceeds 3,805,554 1,268,518 115,177,949
Income tax benefit from stock
options exercised 1,115,554
Stock issued for acquisitions 1,198,635 399,545 32,905,934
Fractional shares retired
in 3-for-2 stock split (203) (67) (4,733)
Unrealized gain on
marketable securities 113,407
Net income 40,103,140
---------- ------------ ------------- ------------ --------
Balances at July 31, 1999 41,168,195 13,722,732 206,313,627 77,385,395 20,724
Stock options exercised 376,156 125,385 3,710,780
Income tax benefit from stock
options exercised 1,065,402
Stock issued for acquisitions 356,376 118,792 10,512,853
Fractional shares retired
in 3-for-2 stock split (211) (70) (9,579)
Realized gain on
marketable securities (20,724)
Net income 65,032,240
---------- ------------ ------------- ------------ --------
Balances at July 29, 2000 41,900,516 13,966,839 221,593,083 142,417,635 --
Stock options exercised 209,074 69,691 2,383,626
Income tax benefit from stock
options exercised 3,819,860
Stock issued for acquisitions 854,603 284,868 22,934,717
Net income 61,410,531
---------- ------------ ------------- ------------ --------
Balances at July 28, 2001 42,964,193 $ 14,321,398 $ 250,731,286 $203,828,166 $ --
========== ============ ============= ============ ========
See notes to consolidated financial statements.
18
19
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 28, 2001, JULY 29, 2000, AND JULY 31, 1999
2001 2000 1999
------------- ------------- -------------
Increase (Decrease) in Cash and Equivalents
from:
OPERATING ACTIVITIES:
Net income $ 61,410,531 $ 65,032,240 $ 40,103,140
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 40,116,865 31,759,084 21,605,686
Provision for losses on accounts receivable 58,181 668,424 1,584,044
Loss on impairment of equity investment 300,000 1,750,000 --
Gain on disposal of assets (1,253,873) (695,530) (506,017)
Realized gain on
marketable securities -- (20,724) --
Deferred income taxes 1,663,597 (927,000) 949,270
Changes in assets and liabilities:
Accounts receivable, net 39,916,592 (34,238,074) (29,625,171)
Unbilled revenues, net 21,968,157 (19,203,586) (15,718,068)
Other current assets 7,977,733 (3,344,795) (8,051,931)
Other assets 410,374 4,393,673 (724,923)
Accounts payable (14,716,112) 20,889,592 6,611,701
Customer advances (4,535,723) (12,814,153) 15,180,193
Accrued self-insured claims
and other liabilities (19,051,346) 20,799,815 4,659,181
Accrued income taxes (1,030,177) 1,953,883 2,543,144
------------- ------------- -------------
Net cash inflow from operating activities 133,234,799 76,002,849 38,610,249
------------- ------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (38,410,950) (40,198,993) (50,851,187)
Proceeds from sale of assets 3,975,550 2,077,681 1,521,619
Acquisition expenditures,
net of cash acquired (70,890,386) (31,120,691) (31,818,880)
Equity investment -- -- (3,000,000)
------------- ------------- -------------
Net cash outflow from investing activities (105,325,786) (69,242,003) (84,148,448)
------------- ------------- -------------
FINANCING ACTIVITIES:
Borrowings on notes payable -- -- 30,828,101
Principal payments on notes payable
and bank lines-of-credit (5,580,609) (2,890,344) (41,316,033)
Exercise of stock options 2,453,317 3,836,165 1,598,955
Proceeds from stock offering -- -- 116,446,467
------------- ------------- -------------
Net cash (outflow) inflow
from financing activities (3,127,292) 945,821 107,557,490
------------- ------------- -------------
NET CASH INFLOW FROM ALL ACTIVITIES 24,781,721 7,706,667 62,019,291
CASH AND EQUIVALENTS AT
BEGINNING OF YEAR 105,701,950 97,995,283 35,975,992
------------- ------------- -------------
CASH AND EQUIVALENTS AT
END OF YEAR $ 130,483,671 $ 105,701,950 $ 97,995,283
============= ============= =============
See notes to consolidated financial statements.
19
20
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JULY 28,
2001, JULY 29, 2000, AND JULY 31, 1999
2001 2000 1999
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW AND NONCASH INVESTING
AND FINANCING ACTIVITIES:
Cash paid during the period for:
Interest $ 930,694 $ 749,803 $ 1,668,572
Income taxes $ 42,247,352 $ 43,312,760 $ 23,978,190
Property and equipment acquired and financed with:
Capital lease obligations $ -- $ -- $ 233,618
Notes payable $ 280,280 $ 1,075,108 $ --
Income tax benefit from stock options exercised $ 3,819,860 $ 1,065,402 $ 1,115,554
During the year ended July 28, 2001, the Company
acquired all of the capital stock of Cable Connectors,
Inc., Schaumburg Enterprises, Inc., Point to Point
Communications, Inc., Stevens Communications, Inc.,
and Nichols Holding, Inc. at a cost of $103.1 million
In conjunction with these acquisitions, assets acquired
and liabilities assumed were as follows:
Fair market value of assets acquired, including goodwill $120,104,596
Consideration paid (including $23.2 million
of common stock issued) 103,072,449
------------
Fair market value of liabilities assumed $ 17,032,147
============
During the year ended July 29, 2000, the Company
acquired all of the capital stock of Lamberts' Cable
Splicing Company, C-2 Utility Contractors, Inc., Artoff
Construction Co., Inc. and K.H. Smith Communications,
Inc. and the assets of Selzee Solutions, Inc. at a cost of
$43.2 million. In conjunction with these acquisitions,
assets acquired and liabilities assumed were as follows:
Fair market value of assets acquired, including goodwill $ 46,268,142
Consideration paid (including $10.6 million
of common stock issued) 43,231,649
------------
Fair market value of liabilities assumed $ 3,036,493
============
During the year ended July 31, 1999, the Company
acquired all of the capital stock of Locating, Inc., Ervin
Cable Construction, Inc., Apex Digital, Inc., and Triple D
Communications, Inc. at a cost of $67.4 million. In
conjunction with these acquisitions, assets acquired and
liabilities assumed were as follows:
Fair market value of assets acquired, including goodwill $ 78,310,347
Consideration paid (including $33.3 million
of common stock issued) 67,362,334
------------
Fair market value of liabilities assumed $ 10,948,013
============
See notes to consolidated financial statements.
20
21
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
Dycom Industries, Inc. ("Dycom" or the "Company") and its subsidiaries, all of
which are wholly owned. On March 8, 2000, Niels Fugal Sons Company ("NFS") was
acquired by the Company through an exchange of common stock. This acquisition
was accounted for as a pooling of interests. Accordingly, the Company's
consolidated financial statements include the results of NFS for all periods
presented. During fiscal 1999, the Company acquired Locating, Inc. ("LOC"),
Ervin Cable Construction, Inc. ("ECC"), Apex Digital, Inc. ("APX"), and Triple
D Communications, Inc. ("DDD"). During fiscal 2000, the Company acquired
Lamberts' Cable Splicing ("LCS"), C-2 Utility Contractors, Inc. ("C-2"), Artoff
Construction Co., Inc. ("ACC"), K.H. Smith Communications, Inc. ("KHS"), and
Selzee Solutions, Inc. ("SSI"). During fiscal 2001, the Company acquired Cable
Connectors, Inc. ("CAB"), Point to Point Communications, Inc. ("PTP"), Stevens
Communications, Inc. ("SCI"), and Nichols Holding, Inc. ("NCI"). Each of these
transactions was accounted for using the purchase method of accounting. The
Company's results include the results of the entities accounted for using the
purchase method of accounting from their respective acquisition dates until July
28, 2001. See Note 3.
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.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements.
Estimates are used in the Company's revenue recognition of work-in-process,
allowance for doubtful accounts, self-insured claims liability, depreciation and
amortization, and in the estimated lives of assets, including intangibles.
Reclassifications - Certain prior year amounts have been reclassified in order
to conform to the current year presentation.
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 percent-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.
21
22
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 values 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 - The excess of the purchase price over the fair market value
of the tangible net assets of acquired businesses (goodwill) is amortized on a
straight-line basis over 20 to 40 years. The appropriateness of the carrying
value of goodwill is reviewed periodically by the Company at the subsidiary
level. An impairment loss is recognized when the undiscounted projected future
cash flows is less than the carrying value of goodwill. No impairment loss has
been recognized in the periods presented. As of July 28, 2001 and July 29, 2000,
net intangible assets include $154.2 million and $85.4 million of net goodwill,
respectively.
Amortization expense was $6,619,534 for the fiscal year ended July 28, 2001,
$4,079,145 for the fiscal year ended July 29, 2000, and $1,166,499 for the
fiscal year ended July 31, 1999. The intangible assets are net of accumulated
amortization of $13,171,624 and $6,552,090 at July 28, 2001 and July 29, 2000,
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 $6,205,274 and $5,161,379 at July 28, 2001 and July 29, 2000,
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 Notes 2 and 14.
Stock Splits - On January 20, 2000, the Board of Directors declared a 3-for-2
split of the Company's common stock, effected in the form of a stock dividend
paid on February 16, 2000. All agreements concerning stock options provide for
the issuance of additional shares due to the declaration of the stock split. An
amount equal to the par value of the common shares issued plus cash paid in lieu
of fractional shares was transferred from capital in excess of par value to the
common stock account. All references to number of shares and to per share
information have been adjusted to reflect the stock split on a retroactive
basis.
22
23
Stock Option Plans - Under Statement of Financial Accounting Standards ("SFAS")
No. 123, companies are permitted to continue to apply Accounting Principle Board
("APB") Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company continues to apply
APB Opinion No. 25 to its stock based compensation awards to employees and
discloses in the annual financial statements the required pro forma effect on
net income and earnings per share. See Note 14.
Recently Issued Accounting Pronouncements - In 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 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 is in the process of
evaluating the impact of implementing SFAS No. 142 and expects to adopt this
statement during the first quarter of fiscal 2002. During the year ended July
28, 2001, goodwill amortization totaled $6.6 million.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition" which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101 was applicable beginning with the
Company's fourth quarter of fiscal 2001. SAB No. 101 did not have an impact on
the financial results of the Company.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137 and No. 138
(collectively, SFAS No. 133), which establishes standards for the accounting and
reporting of derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 was applicable with the Company's first quarter of fiscal 2001.
SFAS No. 133 did not have an impact on the financial results of the Company.
2. 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.
2001 2000 1999
------------- ------------- -------------
Net income available to common stockholders (numerator) $ 61,410,531 $ 65,032,240 $ 40,103,140
============= ============= =============
Weighted-average number of common shares (denominator) 42,445,242 41,580,557 37,246,805
============= ============= =============
Earnings per common share - basic $ 1.45 $ 1.56 $ 1.08
============= ============= =============
Weighted-average number of common shares 42,445,242 41,580,557 37,246,805
Potential common stock arising from stock options 324,800 734,189 664,442
------------- ------------- -------------
Total shares (denominator) 42,770,042 42,314,746 37,911,247
============= ============= =============
Earnings per common share - diluted $ 1.44 $ 1.54 $ 1.06
============= ============= =============
23
24
3. ACQUISITIONS
During fiscal 2001, 2000, and 1999, Dycom made the following acquisitions:
In February 1999, the Company acquired LOC for approximately $10.0 million in
cash and various transaction costs. Located in Issaquah, Washington, LOC's
primary line of business is the locating, marking, and mapping of underground
utility facilities for cable television multiple systems operators, telephone
companies, and electrical and gas utilities.
In March and April 1999, respectively, the Company acquired ECC for $21.8
million in cash and 387,099 shares of Dycom common stock for an aggregate
purchase price of $32.5 million before various transaction costs and APX for
774,192 shares of Dycom common stock with an aggregate value of $21.4 million.
ECC's primary business is the engineering, construction, and maintenance of
cable television systems. APX's primary line of business is providing
installation and maintenance services to direct broadcast satellite providers.
Both ECC and APX are located in Sturgis, Kentucky.
In August 1999, the Company acquired LCS for $10.0 million in cash and 73,309
shares of Dycom common stock for an aggregate purchase price of $12.4 million
before various transaction costs. Located in Rocky Mount, North Carolina, LCS's
primary business is the construction and maintenance of telecommunications
systems under master service agreements.
In January 2000, the Company acquired C-2 for $18.0 million in cash and 247,555
shares of Dycom common stock for an aggregate purchase price of $25.2 million
before various transaction costs and ACC for $2.2 million in cash and 30,081
shares of Dycom common stock for an aggregate purchase price of $3.0 million
before various transaction costs. Located in Eugene, Oregon, C-2's primary
business is the construction and maintenance of telecommunications systems under
master service agreements. Located in Gold Hill, Oregon, ACC's primary business
is the construction and maintenance of telecommunications systems.
In October 2000, the Company acquired CAB for $3.2 million in cash and 13,286
shares of Dycom common stock for an aggregate purchase price of $3.8 million
before various transaction costs. In December 2000, the Company acquired
Schaumburg Enterprises, Inc. ("SEI") for $3.1 million in cash and 15,518 shares
of Dycom common stock for an aggregate purchase price of $3.8 million before
various transaction costs. 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. All acquired goodwill associated with these acquisitions is being
amortized over a period of 20 years. The operating results of the companies
acquired are included in the accompanying consolidated condensed financial
statements from their respective date of purchase.
24
25
The following unaudited pro forma summary presents the consolidated results of
operations of the Company as if all acquisitions had occurred on August 1, 1999:
2001 2000
Total revenues $881,576,328 $910,174,619
Income before income taxes 117,261,334 123,672,040
Net income 68,716,701 73,605,772
Earnings per share:
Basic $ 1.59 $ 1.72
Diluted $ 1.58 $ 1.69
In March 2000, the Company consummated the acquisition of NFS. The Company
issued 2,726,210 shares of common stock in exchange for all the outstanding
capital stock of NFS. Located in Pleasant Grove, Utah, NFS's primary business is
providing telecommunication construction services throughout the Western United
States.
Dycom accounted for the acquisition as a pooling of interests and, accordingly,
the Company's historical financial statements include the results of NFS for all
periods presented. The Company incurred $2.4 million of merger-related expenses
in connection with the NFS merger during fiscal 2000. These expenses consisted
primarily of legal, accounting, and other professional fees related to the
transaction.
Prior to the acquisition, NFS used a fiscal year ending January 31 and as of
March 8, 2000 adopted Dycom's fiscal year. All periods presented reflect the
adoption of such fiscal year end as of the beginning of the period. The combined
and separate results of Dycom, prior to the combination of NFS, for the years
ended July 29, 2000 and July 31, 1999 are as follows:
Dycom NFS Combined
------------ ------------ ------------
Years ended
July 29, 2000
Total revenues $770,855,727 $ 35,414,052 $806,269,779
Net income $ 60,546,669 $ 4,485,571 $ 65,032,240
July 31, 1999
Total revenues $470,136,925 $ 31,018,103 $501,155,028
Net income $ 36,449,975 $ 3,653,165 $ 40,103,140
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.
25
26
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
2001 2000
Contract billings $112,522,872 $134,740,946
Retainage 10,887,430 11,835,425
Other receivables 1,735,260 1,835,560
------------ ------------
Total 125,145,562 148,411,931
Less allowance for doubtful accounts 2,885,745 4,120,232
------------ ------------
Accounts receivable, net $122,259,817 $144,291,699
============ ============
For the Twelve Months Ended
July 28, 2001 July 29, 2000
Allowance for doubtful accounts at beginning of year $ 4,120,232 $ 4,129,280
Allowance for doubtful account balances from acquisitions 600,000 --
Additions charged to bad debt expense 58,181 668,424
Amounts charged against the allowance, net of recoveries (1,892,668) (677,472)
------------ ------------
Allowance for doubtful accounts at end of year $ 2,885,745 $ 4,120,232
============ ============
As of July 28, 2001 and July 29, 2000, the Company expected to collect all of
its retainage balances within twelve months.
5. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS
The accompanying consolidated balance sheets include costs and estimated
earnings on contracts in progress, net of progress billings as follows:
2001 2000
Costs incurred on contracts in progress $ 29,765,794 $ 48,037,774
Estimated to date earnings 9,919,190 13,855,362
------------ ------------
Total costs and estimated earnings 39,684,984 61,893,136
Less billings to date 3,262,831 9,598,519
------------ ------------
$ 36,422,153 $ 52,294,617
============ ============
Included in the accompanying consolidated
balance sheets under the captions:
Costs and estimated earnings in excess of billings $ 36,980,314 $ 52,301,022
Billings in excess of costs and estimated earnings 558,161 6,405
------------ ------------
$ 36,422,153 $ 52,294,617
============ ============
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.
26
27
6. PROPERTY AND EQUIPMENT
The accompanying consolidated balance sheets include the following property and
equipment:
2001 2000
Land $ 3,361,750 $ 3,373,037
Buildings 6,480,120 6,330,683
Leasehold improvements 1,683,123 1,574,013
Vehicles 119,466,981 102,489,730
Equipment and machinery 80,609,844 70,501,903
Furniture and fixtures 13,682,891 10,401,809
------------ ------------
Total 225,284,709 194,671,175
Less accumulated depreciation 115,720,993 93,578,313
------------ ------------
Property and equipment, net $109,563,716 $101,092,862
============ ============
Maintenance and repairs of property and equipment amounted to $12,470,702,
$12,805,199, and $9,001,392, for the fiscal years ended July 28, 2001, July 29,
2000 and July 31, 1999, respectively.
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
2001 2000
Accrued payroll and related taxes $14,079,386 $12,866,102
Accrued employee benefit costs 9,480,643 11,271,668
Accrued construction costs 3,259,131 8,400,267
Other 11,797,386 14,786,911
----------- -----------
$38,616,546 $47,324,948
=========== ===========
8. NOTES PAYABLE
Notes payable are summarized by type of borrowing as follows:
2001 2000
Bank credit agreement:
Term loan $8,750,000 $10,750,000
Capital lease obligations 6,743 458
Equipment loans 311,856 950,156
---------- -----------
Total 9,068,599 11,700,614
Less current portion 2,272,218 2,594,413
---------- -----------
Notes payable - non-current $6,796,381 $ 9,106,201
========== ===========
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.
27
28
The Company had outstanding standby letters of credit of $14.0 million at July
28, 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 July 28, 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 July 28, 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 $8.8 million at July 28, 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 July 28, 2001, the Company
was in compliance with all 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. These obligations are payable in monthly
installments expiring at various dates through April 2005.
The estimated aggregate annual principal repayments for notes payable and
capital lease obligations in the next five years are $2,275,709 in 2002,
$2,028,800 in 2003, $4,759,344 in 2004, and $4,746 in 2005.
Interest costs incurred on notes payable, all of which are expensed, for the
years ended July 28, 2001, July 29, 2000, and July 31, 1999 were $835,087,
$1,035,824, and $1,969,634, respectively.
The interest rates on notes payable under the bank credit agreement are at
current rates and, therefore, the carrying amount approximates fair value.
9. INCOME TAXES
The components of the provision (benefit) for income taxes are:
2001 2000 1999
Current:
Federal $ 35,156,889 $ 37,956,624 $21,371,278
State 6,752,275 7,171,617 4,166,638
------------ ------------ -----------
41,909,164 45,128,241 25,537,916
------------ ------------ -----------
Deferred:
Federal 1,488,772 (844,165) 820,037
State 174,825 (82,835) 129,233
------------ ------------ -----------
1,663,597 (927,000) 949,270
------------ ------------ -----------
Total tax provision $ 43,572,761 $ 44,201,241 $26,487,186
============ ============ ===========
28
29
The deferred tax provision (benefit) is the change in the deferred tax assets
and liabilities representing the tax consequences of changes in the amount of
temporary differences and changes in tax rates during the year. The deferred tax
assets and liabilities are comprised of the following:
2001 2000
Deferred tax assets:
Self-insurance, warranty, and
other non-deductible reserves $ 8,254,350 $6,674,563
Allowance for doubtful accounts 983,373 1,466,182
Small tools 397,933 409,969
Other 988,873 893,517
----------- ----------
$10,624,529 $9,444,231
=========== ==========
Deferred tax liabilities:
Property and equipment $ 8,617,255 $6,955,783
Unamortized acquisition costs 244,486 244,486
Amortization of goodwill 960,953 461,479
----------- ----------
$ 9,822,694 $7,661,748
----------- ----------
Net deferred tax assets $ 801,835 $1,782,483
=========== ==========
The Company believes that it is more likely than not the deferred tax assets
will be realized through future taxable income.
The difference between the total tax provision and the amount computed by
applying the statutory federal income tax rates to pre-tax income is as follows:
2001 2000 1999
Statutory rate applied to
pre-tax income $ 36,744,152 $ 38,157,498 $ 23,246,835
State taxes, net of federal tax benefit 4,502,614 4,611,486 2,795,243
Amortization of intangible assets,
with no tax benefit 914,411 368,529 159,031
Tax effect of non-deductible
items 1,787,285 1,335,259 303,365
Non-taxable interest income (487,277) (523,324) (169,823)
Other items, net 111,576 251,793 152,535
------------ ------------ ------------
$ 43,572,761 $ 44,201,241 $ 26,487,186
============ ============ ============
29
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10. OTHER INCOME, NET
The components of Other income, net are as follows:
2001 2000 1999
Gain on sale of fixed assets $1,253,873 $ 695,530 $ 506,017
Miscellaneous income 1,418,950 (1,088,900) 542,489
---------- ----------- ----------
Total other income, net $2,672,823 $ (393,370) $1,048,506
========== =========== ==========
During the fourth quarter of fiscal 2000, the Company determined its investments
in Witten was impaired. Therefore, the Company recognized an impairment loss of
approximately $1.8 million during the quarter reducing the carrying value of the
Witten investment to $750,000 as compared to a carrying value of $2.8 million at
July 31, 1999.
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 September 28, 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.
12. STOCK OFFERING
In April 1999, the Company filed a registration statement for an offering of
3.75 million shares and 300,000 shares of common stock, to be sold by the
Company and certain selling stockholders, respectively. The closing of the
offering, at $32.33 per share, was consummated on May 19, 1999. The Company
received $115.3 million in proceeds from the offering, which was net of an
underwriting discount of $1.60 per share. The Company incurred legal fees and
other expenses for this transaction of approximately $510,000.
On June 11, 1999, the underwriters exercised a portion of their option to
purchase additional shares to cover over-allotments. The underwriters purchased
55,554 shares from the Company and 4,443 shares from certain selling
stockholders. The Company received approximately $1.7 million as payment for the
over-allotment.
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On June 4, 1999, the Company repaid the outstanding balance of its revolving
credit facility of $33.7 million with proceeds of the common stock offering. The
remaining proceeds have been used to fund the Company's growth strategy,
including acquisitions, working capital and capital expenditures, and for other
general corporate purposes.
13. EMPLOYEE BENEFIT PLANS
The Company and certain of its subsidiaries sponsor contribution plans that
provide retirement benefits to all employees that elect to participate. Under
the plans, participating employees may defer up to 15% of their base pre-tax
compensation. Generally, the Company's contribution to the plan is a 30% Company
match up to the first 5% of the employee's contributions. The Company's
contributions, were $851,903, $1,115,965, and $638,557 in fiscal years 2001,
2000, and 1999, respectively.
14. STOCK OPTION PLANS
The Company has reserved 2,025,000 shares of common stock under its 1991
Incentive Stock Option Plan (the "1991 Plan") which was approved by the
shareholders on November 25, 1991. The 1991 Plan provides for the granting of
options to key employees until it expires in 2001. Options are granted at the
closing price on the date of grant and are exercisable over a period of up to
five years. At July 28, 2001, July 29, 2000, and July 31, 1999, options
available for grant under the 1991 Plan were 48,852 shares, 38,238 shares, and
65,937 shares, respectively.
The Company has reserved 3,316,845 shares of common stock under its 1998
Incentive Stock Option Plan (the "1998 Plan") which was approved by the
shareholders on November 23, 1998. The 1998 Plan provides for the granting of
options to key employees until it expires in 2008. Options are granted at the
closing price on the date of the grant and are exercisable over a period of up
to ten years. At July 28, 2001, July 29, 2000, and July 31, 1999 options
available for grant under the 1998 Plan were 1,961,655 shares, 2,537,061 shares,
and 2,937,795 shares, respectively.
During fiscal 1999, the Company granted to key employees under the 1991 Plan
options to purchase an aggregate of 317,898 shares of common stock. The options
were granted at $14 1/8, the fair market value on the date of grant. During
fiscal 1999, the Company granted to key employees under the 1998 Plan options to
purchase an aggregate of 379,050 shares of common stock. The options were
granted at a range of exercise prices of between $18 and $32, the fair market
value on the date of grant. During fiscal 1999, the Company granted to a
non-employee Director under the Directors Plan options to purchase an aggregate
of 36,000 shares of common stock. The options were granted at a range of
exercise prices of between $24 7/16 and $28 15/16, the fair market value on the
date of grant. The options under the Directors Plan vest over a three year
period.
During fiscal 2000, the Company granted to key employees under the 1991 Plan
options to purchase an aggregate of 45,000 shares of common stock. The options
were granted at $26 1/16, the fair market value on the date of grant. During
fiscal 2000, the Company granted to key employees under the 1998 Plan options to
purchase an aggregate of 515,209 shares of common stock. The options were
granted at a range of exercise prices of between $26 1/8 and $49 15/16, the fair
market value on the date of grant.
During fiscal 2001, the Company granted to key employees under the 1998 Plan
options to purchase an aggregate of 616,684 shares of common stock. The options
were granted at a range of exercise prices of between $10 1/2 and $45 5/16, the
fair market value on the date of grant.
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The following table summarizes the stock option transactions under the 1991
Plan, 1998 Plan, and the Directors Plan for the three years ended July 31, 1999,
July 29, 2000, and July 28, 2001:
Number of Weighted Average
Shares Exercise Price
-------------------------------------
Options outstanding at
July 31, 1998 991,556 $ 6.99
Granted 732,948 $ 21.37
Terminated (84,153) $ 8.84
Exercised (311,853) $ 5.13
-------------------------------------
Options outstanding at
July 31, 1999 1,328,498 $ 15.24
Granted 560,209 $ 30.09
Terminated (133,392) $ 23.78
Exercised (376,156) $ 10.21
-------------------------------------
Options outstanding at
July 28, 2000 1,379,159 $ 21.82
Granted 616,684 $ 42.48
Terminated (35,643) $ 31.27
Exercised (209,074) $ 11.73
-------------------------------------
Options outstanding at
July 28, 2001 1,751,126 $ 30.10
Exercisable options at
July 31, 1999 127,992 $ 5.43
July 29, 2000 94,067 $ 18.99
July 28, 2001 343,119 $ 23.52
-------------------------------------
The range of exercise prices for options outstanding at July 28, 2001 was $6.00
to $49.94. The range of exercise prices for options is due to changes in the
price of the Company's stock over the period of the grants.
The following summarizes information about options outstanding at July 28, 2001:
Outstanding Options
----------------------------------------
Weighted Weighted
Average Average
Number of Contractual Exercise
Shares Life Price
----------------------------------------
Range of exercise prices
$ 6.00 to $21.00 413,680 2.3 $ 11.84
$21.00 to $35.00 695,326 7.5 $ 27.40
$35.00 to $49.94 642,120 9.0 $ 44.79
----------------------------------------
1,751,126 6.8 $ 30.10
----------------------------------------
Exercisable Options
----------------------------------------
Weighted
Exercisable Average
as of Exercise
July 28, 2001 Price
----------------------------------------
Range of exercise prices
$ 6.00 to $21.00 114,015 $ 11.70
$21.00 to $35.00 208,604 $ 27.61
$35.00 to $49.94 20,500 $ 47.62
----------------------------------------
343,119 $ 23.52
----------------------------------------
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These options will expire if not exercised at specific dates ranging from August
2001 to April 2009. The prices for the options exercisable at July 28, 2001
ranged from $6.00 to $49.94.
As discussed in Note 1, the Company has adopted the disclosure-only provisions
of SFAS No. 123. The fair value of the options granted in fiscal 2001, 2000, and
1999 have been estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions: expected stock volatility
of 58.34% in 2001, 57.62% in 2000, and 46.50% in 1999; risk-free interest rates
of 5.60% in 2001, 6.08% in 2000, and 6.05% in 1999; expected lives of 6 years
for 2001, 2000 and 1999, no dividend yield in all years due to the Company's
recent history of not paying cash dividends.
The Black-Scholes option valuation model was developed for estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. Because option valuation models require the use of subjective
assumptions and changes in these assumptions can materially impact the fair
value of the options and the Company's options do not have the characteristics
of traded options, the option valuation models do not necessarily provide a
reliable measure of the fair value of its options. The estimated fair value of
stock options granted during fiscal 2001, 2000, and 1999 was $25.62, $18.21, and
$11.41, per share, respectively.
The pro forma disclosures amortize to expense the estimated compensation costs
for its stock options granted subsequent to July 31, 1997 over the options
vesting period. The Company's fiscal 2001, 2000, and 1999 pro forma net earnings
and earnings per share are reflected below:
2001 2000 1999
NET INCOME:
Pro forma net income reflecting stock
option compensation costs $ 54,063,864 $ 60,673,806 $ 38,282,300
Pro forma earnings per share reflecting
stock option compensation costs:
Basic $ 1.27 $ 1.46 $ 1.03
Diluted $ 1.26 $ 1.43 $ 1.01
15. RELATED PARTY TRANSACTIONS
The Company leases administrative offices from entities related to officers of
certain of the Company's subsidiaries. The total expense under these
arrangements for the years ended July 28, 2001, July 29, 2000 and July 31, 1999
was $1,664,918, $1,432,175, and $344,778, respectively. The future minimum lease
commitments under these arrangements are $1,483,545 in 2002, $1,352,341 in 2003,
$577,573 in 2004, $67,100 in 2005, $7,950 in 2006 and $83,200 thereafter.
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16. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company's operating subsidiaries obtain contracts from both public and
private concerns. For the years ended July 28, 2001, July 29, 2000 and July 31,
1999, approximately 17.9%, 16.5%, and 21.5%, respectively, of the contract
revenues were from BellSouth Corporation ("BellSouth"); 15.9%, 9.2%, and 14.0%,
respectively, of the contract revenues were from Comcast Corporation
("Comcast"); and 6.9%, 6.4%, and 4.7%, respectively, of the contract revenues
were from Qwest Communications, Inc. ("Qwest").
Financial instruments which subject the Company to concentrations of credit risk
consist almost entirely of trade accounts receivable. BellSouth, Comcast, and
Qwest represent a significant portion of the Company's customer base. As of July
28, 2001, the total outstanding trade receivables from BellSouth, Comcast, and
Qwest were $11.9 million or 10.6%, $21.4 million or 19.0%, and $8.4 million or
7.5%, respectively, of the outstanding trade receivables. As of July 29, 2000,
the total outstanding trade receivables from BellSouth, Comcast, and Qwest were
$11.1 million or 8.1%, $16.2 million or 11.8%, and $10.2 million or 7.6%,
respectively, of the outstanding trade receivables.
17. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have operating leases covering office
facilities, vehicles, and equipment which have noncancelable terms in excess of
one year. During fiscal 2001, 2000, and 1999, the Company entered into numerous
operating leases for vehicles and equipment. Certain of these leases contain
renewal provisions and generally require the Company to pay insurance,
maintenance, and other operating expenses. Total expense incurred under
operating lease agreements, excluding the transactions with related parties (see
Note 15), for the years ended July 28, 2001, July 29, 2000 and July 31, 1999 was
$7,095,979, $12,218,085, and $6,903,491, respectively. The future minimum
obligations under these leases are $5,690,338 in 2002; $2,085,749 in 2003;
$905,110 in 2004; $445,275 in 2005; $281,111 in 2006; and $62,695 thereafter.
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.
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18. 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:
2001 2000 1999
Telecommunications $763,686,502 $743,619,986 $451,178,153
Electrical utilities 15,176,301 24,333,182 21,648,758
Utility line locating 47,882,979 38,316,611 28,328,117
------------ ------------ ------------
Total contract revenues $826,745,782 $806,269,779 $501,155,028
============ ============ ============
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19. QUARTERLY FINANCIAL DATA (UNAUDITED)
In the opinion of management, the following unaudited quarterly data for the
years ended July 28, 2001 and July 29, 2000 reflect all adjustments necessary
for a statement of operations. All such adjustments are of a normal recurring
nature other than as discussed below. The Company acquired NFS ("Pooled
Company") on March 8, 2000. The acquisition was accounted for as a pooling of
interests and accordingly, the unaudited quarterly financial statements for the
periods presented include the accounts of NFS. The quarterly data for NFS after
the consummation date of the merger, is included in the Dycom data. The earnings
per common share calculation for each quarter is based on the weighted average
shares of common stock outstanding plus the dilutive effect of stock options.
The sum of the quarters earnings per common share may not necessarily be equal
to the full year earnings per common share amounts.
In Whole Dollars, Except Per Share Amounts
---------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2000:
Revenues:
Dycom $160,904,275 $158,381,266 $212,260,383 $239,309,803
Pooled Company 16,582,837 18,831,215 -- --
------------ ------------ ------------ ------------
$177,487,112 $177,212,481 $212,260,383 $239,309,803
============ ============ ============ ============
Income Before Income Taxes:
Dycom $ 20,598,493 $ 19,917,065 $ 25,715,951 $ 35,579,852
Pooled Company 3,450,527 3,971,593 -- --
------------ ------------ ------------ ------------
$ 24,049,020 $ 23,888,658 $ 25,715,951 $ 35,579,852
============ ============ ============ ============
Net Income:
Dycom $ 12,463,231 $ 11,996,560 $ 14,496,453 $ 21,590,425
Pooled Company 2,085,332 2,400,239 -- --
------------ ------------ ------------ ------------
$ 14,548,563 $ 14,396,799 $ 14,496,453 $ 21,590,425
============ ============ ============ ============
Earnings per Common Share:
Basic $ 0.35 $ 0.35 $ 0.35 $ 0.52
Diluted $ 0.35 $ 0.34 $ 0.34 $ 0.51
2001:
Revenues: $234,690,421 $195,765,314 $201,610,942 $194,679,105
Income Before Income Taxes $ 36,014,727 $ 22,188,285 $ 22,746,897 $ 24,033,383
Net Income: $ 21,618,030 $ 13,091,089 $ 13,057,666 $ 13,643,746
Earnings per Common Share:
Basic $ 0.51 $ 0.31 $ 0.31 $ 0.32
Diluted $ 0.51 $ 0.31 $ 0.31 $ 0.32
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INDEPENDENT AUDITORS' REPORT
DYCOM INDUSTRIES, INC.:
We have audited the accompanying consolidated balance sheets of Dycom
Industries, Inc. and subsidiaries (the "Company") as of July 28, 2001 and July
29, 2000, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended July 28,
2001. 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 auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Dycom Industries, Inc. and
subsidiaries as of July 28, 2001 and July 29, 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
July 28, 2001, in conformity with accounting principles generally accepted in
the United States of America.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Certified Public Accountants
West Palm Beach, Florida
August 24, 2001
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There have been no changes in or disagreements with accountants on accounting
and financial disclosures within the meaning of Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and nominees of the Registrant is hereby
incorporated by reference from the company's definitive proxy statement to be
filed with the commission pursuant to Regulation 14A.
The following table sets forth certain information concerning the executive
officers of the Company, all of whom serve at the pleasure of the Board of
Directors.
EXECUTIVE OFFICER
NAME AGE OFFICE SINCE
Steven E. Nielsen 38 President and Chief Executive Officer 2/26/96
Richard L. Dunn 52 Senior Vice President and 1/28/00
Chief Financial Officer
Robert J. Delark 48 Senior Vice President and 1/27/00
Chief Administrative Officer
Dennis O'Brien 42 Vice President of Corporate Development 12/4/00
Marc R. Tiller 31 General Counsel and Corporate 11/23/98
Secretary
There are no family relationships among the Company's executive officers.
Steven E. Nielsen has been the Company's President and Chief Executive Officer
since March 1999. Prior to that, Mr. Nielsen was the President and Chief
Operating Officer of the Company from August 1996 to March 1999, and Vice
President from February 1996 to August 1996.
Richard L. Dunn is the Company's Senior Vice President and Chief Financial
Officer. Mr. Dunn has been employed with the Company since January 28, 2000. Mr.
Dunn was previously employed by Avborne, Inc., a privately held company in the
commercial aviation maintenance and repair industry, from April 1998 to January
2000 as Vice President, Finance and Chief Financial Officer. Mr. Dunn was
employed by Perry Ellis International from April 1994 to April 1998 as Vice
President, Finance and Chief Financial Officer. Prior to April 1994, Mr. Dunn
was the Treasurer of Tyco International Ltd.
Robert J. Delark is the Company's Senior Vice President and Chief Administrative
Officer. Mr. Delark has been employed with the Company since January 27, 2000.
Mr. Delark was previously employed by Henkels & McCoy, a privately held
telecommunications contractor, from 1982 to 2000 and served as the Chief
Financial Officer.
Dennis O'Brien is the Company's Vice President and Director of Corporate
Development. Mr. O'Brien has been employed with the Company since December 4,
2000. Mr. O'Brien was previously employed by Henkels & McCoy, a privately held
telecommunications contractor, from 1988 to 2000 and served as Senior Director
of Finance and Corporate Controller.
Marc R. Tiller is the Company's General Counsel and Corporate Secretary. Mr.
Tiller has been employed with the Company since August 10, 1998. Mr. Tiller
attended law school from June 1995 to May 1998 and served as a Claims
Representative for Florida Farm Bureau Insurance Company during the four prior
years.
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ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is hereby incorporated by
reference for the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the ownership of certain of the Registrant's beneficial
owners and management is hereby incorporated by reference for the Company's
definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning relationships and related transactions is hereby
incorporated by reference for the Company's definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
(a) The following documents are filed as a part of this report:
Page
1. Consolidated financial statements:
Consolidated balance sheets at July 28, 2001 and July 29, 2000 16
Consolidated statements of operations for the years ended July 28, 2001,
July 29, 2000 and July 31, 1999 17
Consolidated statements of stockholders' equity for the years
ended July 28, 2001, July 29, 2000 and July 31, 1999 18
Consolidated statements of cash flows for the years ended July 28, 2001,
July 29, 2000 and July 31, 1999 19
Notes to consolidated financial statements 21
Independent auditors' report 37
2. Financial statement schedules:
All schedules have been omitted because they are inapplicable, not
required, or the information is included in the above referenced
consolidated financial statements or the notes thereto.
3. Exhibits furnished pursuant to the requirements of Form 10-K:
See Exhibit Index on Page 41
(b) Reports on Form 8-K:
No reports on Form 8-K were filed on behalf of the Registrant during the
quarter ended July 28, 2001.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ Steven E. Nielsen October 9, 2001
------------------------------- ------------------
By: Steven E. Nielsen Date
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Position Date
---- -------- ----
/s/ Richard L. Dunn Senior Vice President October 9, 2001
------------------------- and Chief Financial Officer ---------------
/s/ Steven E. Nielsen Chairman of the October 9, 2001
------------------------- Board of Directors ---------------
/s/ Thomas G. Baxter Director October 9, 2001
------------------------- ---------------
/s/ Joseph M. Schell Director October 9, 2001
------------------------- ---------------
/s/ Tony G. Werner Director October 9, 2001
------------------------- ---------------
/s/ Ronald P. Younkin Director October 9, 2001
------------------------- ---------------
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EXHIBIT INDEX
Exhibit Number Title
3(i)(1) Articles of Incorporation of the Company are hereby
incorporated by reference from the Company's Form S-1
Registration Statement filed with the Commission on October
29, 1986 (Exhibit 3.01).
3(i)(2) Articles of Amendment to Articles of Incorporation of the
Company are hereby incorporated by reference from the
Company's Form S-1 Registration Statement filed with the
Commission on October 29, 1986 (Exhibit 3.01).
3(ii) Amended By-laws of the Company (Exhibit 3(ii), Current Report
on Form 8-K filed April 29, 1999, File No. 001-10613).
4.1 Description of Capital Stock contained in Exhibits 3(i) and
3(ii) above.
4.2 Shareholder Protection Rights Agreement, dated as of June 1,
1992, among Dycom Industries, Inc. and First Union National
Bank of North Carolina as Rights Agent (Exhibit to Form S-4
filed on June 24, 1992).
4.3 Shareholder Rights Agreement, dated April 4, 2001, between the
Company and the Rights Agent (which includes the Form of
Rights Certificate, as Exhibit A, the Summary of Rights to
Purchase Preferred Stock, as Exhibit B, and the Form of
Articles of Amendment to the Articles of Incorporation for
Series A Preferred Stock, as Exhibit C), which was filed as
Exhibit 1 to Form 8-A filed April 6, 2001 and is incorporated
herein by reference.
10.1 Amendment two to second amended and restated credit facility
agreement dated as of April 27, 1999, dated December 12, 2000
is hereby incorporated by reference from Form 10-Q filed March
13, 2001.
10.2* Amendment three to second amended and restated credit facility
agreement dated as of April 27, 1999, dated June 4, 2001.
10.3 Second Amended and Restated Guarantee Agreement, dated as of
April 27, 1999 (Exhibit 10(iii), Current Report on Form 8-K
filed April 29, 1999, File No. 001-10613).
10.4 1998 Incentive Stock a Option Plan (Exhibit A, Definitive
Proxy Statement filed September 30, 1999, File No.
0001-10613).
10.5 1991 Incentive Stock Option Plan (Exhibit A, Definitive proxy
Statement filed November 5, 1991, File No. 001-10613).
10.6* Employment agreement for Dennis O'Brien.
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11 Statement re computation of per share earnings. All
information required by Exhibit 11 is presented in Note 2 of
the Company's Consolidated Financial Statements in accordance
with the Provision of SFAS No. 128.
21* Subsidiaries of the Company.
23* Consent of Deloitte & Touche LLP.
42