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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

     
(Mark One)    
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
     
    For the quarterly period ended January 25, 2003
     
    OR
     
[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
     
    For the transition period from                 to     

Commission file number 0-5423

DYCOM INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)
     
Florida
(State of incorporation) 		  59-1277135
(IRS Employer Identification No.)
 
4440 PGA Boulevard, Suite 500    
Palm Beach Gardens, Florida
   33410
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (561) 627-7171

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]                      No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X]                      No [   ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

         
Class   Outstanding as of March 3, 2003
 
Common Stock, par value $0.33 1/3 per share     47,871,525  

 

 

DYCOM INDUSTRIES, INC.

INDEX

               
          Page No.
         
PART I. FINANCIAL INFORMATION
        
 
Item 1. Financial Statements
        
   
Condensed Consolidated Balance Sheets—January 25, 2003 and July 27, 2002
     3  
   
Condensed Consolidated Statements of Operations for the Three Months Ended January 25, 2003 and January 26, 2002
     4  
   
Condensed Consolidated Statements of Operations for the Six Months Ended January 25, 2003 and January 26, 2002
     5  
   
Condensed Consolidated Statements of Cash Flows for the Six Months Ended January 25, 2003 and January 26, 2002
     6-7  
   
Notes to Condensed Consolidated Financial Statements
     8-17  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     18-27  
Item 3. Quantitative and Qualitative Disclosures about Market Risk
     27  
Item 4. Controls and Procedures
     27  
               
PART II. OTHER INFORMATION
        
Item 4. Submission of Matters to a Vote of Security Holders
     28  
Item 6. Exhibits and Reports on Form 8-K
     28  
SIGNATURES
     29  
CERTIFICATIONS
     30-33  

2

 

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

                   
      January 25,   July 27,
      2003   2002
     
 
ASSETS
                
CURRENT ASSETS:
                
Cash and equivalents
   $ 131,375,151     $ 116,052,139  
Accounts receivable, net
     99,891,183       86,443,183  
Costs and estimated earnings in excess of billings
     24,734,552       33,349,021  
Deferred tax assets, net
     9,099,537       8,680,848  
Inventories
     2,779,181       5,643,275  
Income tax receivable
     221,459       460,093  
Other current assets
     6,917,930       6,107,688  
 
    
     
 
Total current assets
     275,018,993       256,736,247  
 
    
     
 
PROPERTY AND EQUIPMENT, net
     90,851,063       110,451,873  
 
    
     
 
OTHER ASSETS:
                
Goodwill, net
     106,615,836       106,615,836  
Intangible assets, net
     865,161       1,126,555  
Accounts receivable, net
     21,531,559       21,587,727  
Deferred tax assets, net non-current
     14,564,869       13,042,372  
Other
     4,698,197       4,992,743  
 
    
     
 
Total other assets
     148,275,622       147,365,233  
 
    
     
 
TOTAL
   $ 514,145,678     $ 514,553,353  
 
    
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
CURRENT LIABILITIES:
                
Accounts payable
   $ 22,811,389     $ 26,611,259  
Notes payable
     39,517       78,672  
Billings in excess of costs and estimated earnings
     1,840,819       354,061  
Accrued self-insured claims
     9,512,763       8,462,759  
Customer advances
     5,065,423       5,013,028  
Other accrued liabilities
     26,585,035       30,031,673  
 
    
     
 
Total current liabilities
     65,854,946       70,551,452  
 
    
     
 
NOTES PAYABLE
     25,544       29,698  
ACCRUED SELF-INSURED CLAIMS
     12,054,945       10,813,956  
OTHER LIABILITIES
     1,688,921       1,861,383  
 
    
     
 
Total liabilities
     79,624,356       83,256,489  
 
    
     
 
COMMITMENTS AND CONTINGENCIES, Note 9
                
STOCKHOLDERS’ EQUITY:
                
Preferred stock, par value $1.00 per share:
                
 
1,000,000 shares authorized: no shares issued and outstanding
     —       —  
Common stock, par value $0.33 1/3 per share:
                
 
150,000,000 shares authorized: 47,870,002 and 47,846,403 issued and outstanding, respectively
     15,956,660       15,948,790  
Additional paid-in capital
     334,760,367       334,547,396  
Retained earnings
     83,804,295       80,800,678  
 
    
     
 
Total stockholders’ equity
     434,521,322       431,296,864  
 
    
     
 
TOTAL
   $ 514,145,678     $ 514,553,353  
 
    
     
 

See notes to condensed consolidated financial statements—unaudited.

3

 

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

                   
      For the Three Months Ended
     
      January 25,   January 26,
      2003   2002
     
 
REVENUES:
                
Contract revenues earned
   $ 137,153,597     $ 138,282,262  
 
    
     
 
EXPENSES:
                
Costs of earned revenues, excluding depreciation
     111,357,930       106,720,647  
General and administrative
     17,448,267       15,261,836  
Depreciation and amortization
     10,460,239       8,680,574  
 
    
     
 
Total
     139,266,436       130,663,057  
 
    
     
 
Interest income, net
     370,075       679,325  
Other income, net
     617,997       447,800  
 
    
     
 
(LOSS) INCOME BEFORE INCOME TAXES
     (1,124,767 )     8,746,330  
 
    
     
 
BENEFIT (PROVISION) FOR INCOME TAXES:
                
 
Current
     (808,450 )     (4,433,771 )
 
Deferred
     822,281       695,690  
 
    
     
 
Total
     13,831       (3,738,081 )
 
    
     
 
NET (LOSS) INCOME
   $ (1,110,936 )   $ 5,008,249  
 
    
     
 
(LOSS) EARNINGS PER COMMON SHARE:
                
Basic (loss) earnings per share
   $ (0.02 )   $ 0.12  
 
    
     
 
Diluted (loss) earnings per share
   $ (0.02 )   $ 0.12  
 
    
     
 
SHARES USED IN COMPUTING (LOSS) EARNINGS PER COMMON SHARE
                
 
Basic
     47,869,706       42,925,983  
 
    
     
 
 
Diluted
     47,869,706       43,061,255  
 
    
     
 

See notes to condensed consolidated financial statements—unaudited.

4

 

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

                   
      For the Six Months Ended
     
      January 25,   January 26,
      2003   2002
     
 
REVENUES:
                
Contract revenues earned
   $ 295,634,511     $ 306,096,908  
 
    
     
 
EXPENSES:
                
Costs of earned revenues, excluding depreciation
     234,938,122       236,944,628  
General and administrative
     35,723,686       31,342,924  
Depreciation and amortization
     21,290,050       17,721,833  
 
    
     
 
Total
     291,951,858       286,009,385  
 
    
     
 
Interest income, net
     645,055       1,605,617  
Other income, net
     1,703,269       794,835  
 
    
     
 
INCOME BEFORE INCOME TAXES
     6,030,977       22,487,975  
 
    
     
 
PROVISION FOR INCOME TAXES:
                
 
Current
     4,968,539       9,719,961  
 
Deferred
     (1,941,179 )     (265,648 )
 
    
     
 
Total
     3,027,360       9,454,313  
 
    
     
 
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
     3,003,617       13,033,662  
 
    
     
 
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF $12,116,700 INCOME TAX BENEFIT
     —       (86,929,342 )
 
    
     
 
NET INCOME (LOSS)
   $ 3,003,617     $ (73,895,680 )
 
    
     
 
EARNINGS (LOSS) PER COMMON SHARE:
                
Basic earnings per share before cumulative effect of change in accounting principle
   $ 0.06     $ 0.30  
Cumulative effect of change in accounting principle
     —       (2.02 )
 
    
     
 
Basic earnings (loss) per share
   $ 0.06     $ (1.72 )
 
    
     
 
Diluted earnings per share before cumulative effect of change in accounting principle
   $ 0.06     $ 0.30  
Cumulative effect of change in accounting principle
     —       (2.02 )
 
    
     
 
Diluted earnings (loss) per share
   $ 0.06     $ (1.72 )
 
    
     
 
SHARES USED IN COMPUTING EARNINGS (LOSS) PER COMMON SHARE
                
 
Basic
     47,866,387       42,936,476  
 
    
     
 
 
Diluted
     47,871,667       43,036,198  
 
    
     
 

See notes to condensed consolidated financial statements—unaudited.

5

 

DYCOM INDUSTRIES, INC.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

                   
      For the Six Months Ended
     
      January 25,   January 26,
      2003   2002
     
 
Increase (Decrease) in Cash and Equivalents from:
                
OPERATING ACTIVITIES:
                
Net Income (Loss)
   $ 3,003,617     $ (73,895,680 )
Adjustments to reconcile net cash provided by operating activities:
                
 
Cumulative effect of change in accounting principle, net
     —       86,929,342  
 
Depreciation and amortization
     21,290,050       17,721,833  
 
Provision for bad debts
     316,170       293,191  
 
Gain on disposal of assets
     (1,199,532 )     (409,511 )
 
Deferred income taxes
     (1,941,179 )     (265,648 )
Change in operating assets and liabilities, net of acquisitions and divestitures:
                
(Increase) decrease in operating assets:
                
 
Accounts receivable, net
     (13,708,002 )     32,146,103  
 
Unbilled revenues, net
     10,101,227       11,933,024  
 
Income tax receivable
     238,634       —  
 
Other current assets
     2,053,852       (169,070 )
 
Other assets
     294,546       (1,419,103 )
Increase (decrease) in operating liabilities:
                
 
Accounts payable
     (3,799,870 )     (10,792,401 )
 
Customer advances
     52,395       (2,224,551 )
 
Accrued self-insured claims and other liabilities
     (1,328,107 )     (8,465,494 )
 
Accrued income taxes
     —       (1,020,979 )
 
    
     
 
Net cash inflow from operating activities
     15,373,801       50,361,056  
 
    
     
 
INVESTING ACTIVITIES:
                
 
Capital expenditures
     (3,652,713 )     (6,818,403 )
 
Proceeds from sale of assets
     3,424,392       1,452,560  
 
    
     
 
Net cash outflow from investing activities
     (228,321 )     (5,365,843 )
 
    
     
 
FINANCING ACTIVITIES:
                
 
Principal payments on notes payable and bank lines-of-credit
     (43,309 )     (1,354,833 )
 
Exercise of stock options
     220,841       345,620  
 
Shares repurchased
     —       (1,150,407 )
 
    
     
 
Net cash inflow (outflow) from financing activities
     177,532       (2,159,620 )
 
    
     
 
NET CASH INFLOW FROM ALL ACTIVITIES
     15,323,012       42,835,593  
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
     116,052,139       130,483,671  
 
    
     
 
CASH AND EQUIVALENTS AT END OF PERIOD
   $ 131,375,151     $ 173,319,264  
 
    
     
 

See notes to condensed consolidated financial statements—unaudited.

6

 

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)

                   
      For the Six Months Ended
     
      January 25,   January 26,
      2003   2002
     
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
                
Cash paid during the period for:
                
 
Interest
   $ 9,826     $ 269,139  
 
Income taxes
   $ 5,376,012     $ 11,834,469  
Property and equipment acquired and financed with:
                
 
Notes payable
   $ —     $ 147,459  
Income tax benefit from stock options exercised
   $ —     $ 161,852  

See notes to condensed consolidated financial statements—unaudited.

7

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

The accompanying condensed consolidated balance sheets of Dycom Industries, Inc. (“Dycom” or the “Company”) as of January 25, 2003 and July 27, 2002, and the related condensed consolidated statements of operations for the three and six months ended January 25, 2003 and January 26, 2002 and the condensed consolidated statements of cash flows for the six months ended January 25, 2003 and January 26, 2002 reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three and six months ended January 25, 2003 are not necessarily indicative of the results that may be expected for the entire year.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION — The condensed consolidated financial statements are unaudited. These statements include Dycom Industries, Inc. and its subsidiaries, all of which are wholly owned.

In February 2002, the Company acquired Arguss Communications, Inc. (“Arguss”). This acquisition was accounted for using the purchase method of accounting; hence, the Company’s results include the results of this entity from its acquisition date.

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.

USE OF ESTIMATES — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements.

Estimates are used in the Company’s revenue recognition of work-in-process and in the determination of the allowance for doubtful accounts, self-insured claims liability, and asset lives used in computing depreciation and amortization, including intangibles.

RECLASSIFICATIONS — Certain prior year amounts have been reclassified in order to conform to the current year presentation.

REVENUE RECOGNITION — The majority of the Company’s contracts are unit based. Revenue on unit based contracts is recognized as the unit is completed. Revenue on non-unit based contracts is recognized under 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 unbilled revenues recognized under the percentage-of-completion method for non-unit based contracts. For those contracts in which billings exceed contract revenues recognized to date, such excesses are included in the caption “billings in excess of costs and estimated earnings.”

CASH AND EQUIVALENTS — Cash and equivalents include cash balances on deposit in banks, overnight repurchase agreements, certificates of deposit, commercial paper, and various other financial instruments having an original maturity of three months or less. For purposes of the consolidated statements of cash flows, the Company considers these amounts to be cash equivalents.

INVENTORIES — Inventories consist primarily of materials and supplies used in the Company’s business and are carried at the lower of cost (first-in, first out) or market (net realizable value). No obsolescence reserve has been recorded in the periods presented.

PROPERTY AND EQUIPMENT — Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives. Useful lives range from: 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 and major improvements 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 — In June 2001, FASB issued SFAS No. 142, “Goodwill and Other Intangibles Assets”, which supersedes APB Opinion No. 17, “Intangible Assets”. SFAS No. 142 establishes new standards for goodwill acquired in a business combination, eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. The Company adopted SFAS No. 142 in the first quarter of 2002. In accordance with SFAS No. 142, the Company will conduct on at least an annual basis a review of its reporting units to determine whether their carrying value exceeds their fair market value. Should this be the case, a detailed analysis of the reporting unit’s assets and liabilities is performed to determine whether the goodwill is impaired. The Company performed a review of its reporting units as of July 29, 2001 and identified the following reporting units in which an impairment loss was recognized: Apex Digital, Inc., Globe Communications, Inc., Locating, Inc., Point to Point Communications,

8

 

Inc., Tesinc, Inc., Nichols Construction, Inc., C-2 Utility Contractors, Inc. and Lamberts’ Cable Splicing Co. The valuations performed as part of the analysis employed a combination of present value techniques to measure fair value corroborated by comparisons to estimated market multiples. Third party specialists were engaged to assist in the valuations. As a result, the Company recorded a non-cash impairment charge of $99.0 million ($86.9 million after tax) as of the first quarter of fiscal 2002. The impairment charge was recorded as a cumulative effect of a change in accounting principles in our consolidated statement of operations for the fiscal 2002. The subsidiaries with respect to which the Company recorded the impairment charge referred to above contributed 24.7% of the Company’s contract revenues during fiscal 2002 and 11.8% during the six months ended January 25, 2003. During 2002 and continuing into 2003 the Company has reduced costs at these subsidiaries to better match the lower level of activity being experienced in the current economy. The reduction in costs has been achieved primarily through a reduction of personnel, overhead costs associated with the reduction in personnel, and the sale of excess equipment. There can be no assurance that such measures taken will prevent additional write-downs of goodwill from being recorded based on the results of our annual test for impairment as required by SFAS No. 142. Impairment losses subsequent to adoption are required to be reflected in operating income or loss in the consolidated statements of o