1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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 April 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________to________ Commission file number 0-5423 DYCOM INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Florida 59-1277135 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4440 PGA Boulevard, Suite 600 Palm Beach Gardens, Florida 33410 (Address of principal executive office) (Zip Code) (561) 627-7171 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of June 6, 1997 _____ __________________________________ Common Stock, par value $0.33 1/3 8,805,078
2 DYCOM INDUSTRIES, INC. INDEX <TABLE> <CAPTION> Page No. ________ <S> <C> PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets- April 30, 1997 and July 31, 1996 3 Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 1997 and 1996 4 Condensed Consolidated Statements of Operations for the Nine Months Ended April 30, 1997 and 1996 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended April 30, 1997 and 1996 6-7 Notes to Condensed Consolidated Financial Statements 8-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-16 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18 EXHIBIT INDEX 19 </TABLE>
3 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) <TABLE> <CAPTION> April 30, July 31, 1997 1996 <S> <C> <C> ASSETS CURRENT ASSETS: Cash and equivalents $ 4,426,490 $ 3,835,479 Accounts receivable, net 20,818,895 13,306,064 Costs and estimated earnings in excess of billings 11,615,597 7,137,212 Deferred tax assets, net 1,604,270 1,261,065 Other current assets 1,551,280 1,248,405 Total current assets 40,016,532 26,788,225 PROPERTY AND EQUIPMENT, net 20,872,998 19,574,410 OTHER ASSETS: Intangible assets, net 4,723,130 4,839,447 Deferred tax assets 742,407 598,887 Other 193,668 272,916 Total other assets 5,659,205 5,711,250 TOTAL $ 66,548,735 $ 52,073,885 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 7,573,207 $ 3,541,789 Notes payable 7,054,914 2,758,795 Billings in excess of costs and estimated earnings 38,714 Accrued self-insured claims 2,750,723 3,064,229 Income taxes payable 748,600 227,619 Other accrued liabilities 7,800,101 8,151,589 Total current liabilities 25,927,545 17,782,735 NOTES PAYABLE 8,986,446 9,452,630 ACCRUED SELF-INSURED CLAIMS 7,412,529 7,062,150 Total liabilities 42,326,520 34,297,515 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $.33 1/3 per share: 50,000,000 shares authorized; 8,771,501 and 8,601,492 shares issued and outstanding, respectively 2,923,833 2,867,164 Additional paid-in capital 25,146,315 24,473,269 Retained deficit (3,847,933) (9,564,063) Total stockholders' equity 24,222,215 17,776,370 TOTAL $ 66,548,735 $ 52,073,885 See notes to condensed consolidated financial statements--unaudited. </TABLE>
4 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) <TABLE> <CAPTION> For the Three Months Ended April 30, April 30, 1997 1996 <S> <C> <C> REVENUES: Contract revenues earned $ 47,929,157 $ 34,529,891 Other, net 256,827 860,754 Total 48,185,984 35,390,645 Expenses: Costs of earned revenues excluding depreciation 38,102,026 27,426,818 General and administrative 4,534,378 3,638,872 Depreciation and amortization 1,529,605 1,359,242 Total 44,166,009 32,424,932 INCOME BEFORE INCOME TAXES 4,019,975 2,965,713 PROVISION (BENEFIT) FOR INCOME TAXES: Current 1,847,785 1,500,211 Deferred (240,843) (238,648) Total 1,606,942 1,261,563 NET INCOME $ 2,413,033 $ 1,704,150 EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary $0.27 $0.20 Fully diluted $0.27 $0.20 SHARES USED IN COMPUTING EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary 8,892,171 8,564,660 Fully diluted 8,892,312 8,564,660 See notes to condensed consolidated financial statements--unaudited. </TABLE>
5 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) <TABLE> <CAPTION> For the Nine Months Ended April 30, April 30, 1997 1996 <S> <C> <C> REVENUES: Contract revenues earned $ 128,069,236 $ 104,544,413 Other, net 496,047 1,283,278 Total 128,565,283 105,827,691 Expenses: Costs of earned revenues excluding depreciation 103,099,014 84,331,152 General and administrative 11,637,961 11,073,271 Depreciation and amortization 4,473,683 4,138,546 Total 119,210,658 99,542,969 INCOME BEFORE INCOME TAXES 9,354,625 6,284,722 PROVISION (BENEFIT) FOR INCOME TAXES: Current 4,125,221 3,171,692 Deferred (486,726) (543,990) Total 3,638,495 2,627,702 NET INCOME $ 5,716,130 $ 3,657,020 EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary $0.64 $0.43 Fully diluted $0.64 $0.43 SHARES USED IN COMPUTING EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary 8,888,496 8,554,808 Fully diluted 8,888,680 8,554,808 See notes to condensed consolidated financial statements--unaudited. </TABLE>
6 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> For the Nine Months Ended April 30, April 30, 1997 1996 <S> <C> <C> Increase (Decrease) in Cash and Equivalents from: OPERATING ACTIVITIES: Net income $ 5,716,130 $ 3,657,020 Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization 4,473,683 4,138,546 Gain on disposal of assets (333,190) (945,910) Deferred income taxes (486,726) (543,990) Changes in assets and liabilities: Accounts receivable, net (7,512,831) 4,757,864 Unbilled revenues, net (4,517,099) (1,952,257) Other current assets (302,875) 106,164 Other assets 79,248 54,130 Accounts payable 4,031,418 (2,273,060) Accrued self-insured claims and other liabilities (314,614) 1,531,484 Accrued income taxes 653,550 475,481 Net cash inflow from operating activities 1,486,694 9,005,472 INVESTING ACTIVITIES: Capital expenditures (5,871,687) (5,097,060) Proceeds from sale of assets 1,149,947 2,070,328 Net cash outflow from investing activities (4,721,740) (3,026,732) FINANCING ACTIVITIES: Borrowing on bank lines-of-credit 16,259,396 Principal payments on notes payable and bank lines-of-credit (13,030,485) (5,566,638) Exercise of stock options 597,146 117,707 Net cash outflow from financing activities 3,826,057 (5,448,931) NET CASH INFLOW FROM ALL ACTIVITIES 591,011 529,809 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 3,835,479 4,306,675 CASH AND EQUIVALENTS AT END OF PERIOD $ 4,426,490 $ 4,836,484 See notes to condensed consolidated financial statements--unaudited. </TABLE>
7 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) <TABLE> <CAPTION> For the Nine Months Ended April 30, April 30, 1997 1996 <S> <C> <C> SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NON-CASH INVESTING AND FINANCING ACTIVITIES: Cash paid during the period for: Interest $ 821,543 $ 1,200,196 Income taxes 3,528,134 2,753,674 Property and equipment acquired and financed with: Capital lease obligations $ 601,024 Income tax benefit related to incentive stock options exercised $ 132,569 See notes to condensed consolidated financial statements--unaudited. </TABLE>
8 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Unaudited 1. The accompanying condensed consolidated balance sheets of Dycom Industries, Inc. and subsidiaries ("Dycom" or the "Company") as of April 30, 1997 and July 31, 1996, the related condensed consolidated statements of operations for the three and nine months ended April 30, 1997 and 1996 and the condensed consolidated statements of cash flows for the nine months ended April 30, 1997 and 1996 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 nine months ended April 30, 1997 are not necessarily indicative of the results which may be expected for the entire year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION-- The condensed consolidated financial statements include Dycom Industries, Inc. and its subsidiaries, all of which are wholly- owned. The Company's operations consist primarily of telecommunication and electric utility services contracting. All material intercompany accounts and transactions have been eliminated. 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 reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used for the revenue recognition of work-in-process, allowance for doubtful accounts, self-insured claims liability, deferred tax asset valuation allowance, depreciation and amortization, and the estimated lives of assets, including intangible assets. REVENUE-- 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. As some of these contracts extend over one or more years, revisions in cost and profit estimates during the course of the work are reflected in the accounting period as the facts that require the revision become known. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is accrued. Income on short-term unit contracts is recognized as the related work is completed. Work-in-process on unit contracts is based on management's estimate of work performed but not billed. "Costs and estimated earnings in excess of billings" represent the excess of contract revenues recognized under the percentage-of-completion method of accounting for long-term contracts and work-in-process on unit contracts over billings to date. 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 in excess of the daily requirements which are invested in overnight repurchase agreements, certificates of deposits, and various other financial instruments having a
9 maturity of three months or less. For purposes of the condensed consolidated statements of cash flows, the Company considers these amounts to be cash equivalents. The carrying amount reported in the condensed consolidated balance sheets for cash and equivalents approximates its fair value. PROPERTY AND EQUIPMENT-- Property and equipment is stated at cost, reduced in certain cases by valuation reserves. Depreciation and amortization is computed over the estimated useful life of the assets utilizing the straight- line method. The estimated useful lives of the assets are: buildings--20-31 years; leasehold improvements--the term of the respective lease or the estimated useful life of the improvement, whichever is shorter; vehicles--3-7 years; equipment and machinery--3-10 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 the straight-line method over 40 years. The appropriateness of the carrying value of goodwill is reviewed at the subsidiary level when operating losses are incurred and there are other changes in the business environment that may affect the recoverability of goodwill through future operations. If operating losses have been incurred, and there is a liklihood that such losses will continue, the Company will determine if impairment exists by comparing the carrying value of goodwill to the estimated future cash flows from operations and adjust the carrying value of the intangible asset as appropriate. Amortization expense, which is comprised primarily of goodwill, was $116,317 for the nine month periods ended April 30, 1997 and 1996. The intangible assets are net of accumulated amortization of $1,112,587 at April 30, 1997 and $996,270 at July 31, 1996. LONG-LIVED ASSETS-- In March 1995, the FASB issued SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121 requires that the long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company adopted the provisions of SFAS No. 121 effective August 1, 1996 and determined that no impairment loss need be recognized. SELF-INSURED CLAIMS LIABILITY-- The Company is primarily self-insured, 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 condensed consolidated financial statements as an accrued liability. The self-insured claims liability includes incurred but not reported losses of $5,100,000 and $4,458,000 at April 30, 1997 and July 31, 1996, respectively. The determination of such claims and expenses and the appropriateness of the related liability is continually reviewed and updated.
10 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. A valuation allowance is provided when it is more likely than not that some portion of the Company's deferred tax assets will not be realized. Management has evaluated the available evidence about the Company's future taxable income and other possible sources of realization of deferred tax assets. The valuation allowance recorded in the financial statements reduces deferred tax assets to an amount that represents management's best estimate of the amount of such deferred tax assets that more likely than not will be realized. Accordingly, at April 30, 1997 and July 31, 1996, deferred tax assets are net of a valuation allowance of $513,912 and $728,491, respectively. PER SHARE DATA-- Earnings per common and common equivalent share are computed using the weighted average shares of common stock outstanding plus the common stock equivalents arising from the effect of dilutive stock options, using the treasury stock method. CHANGE IN ACCOUNTING PRINCIPLE-- In October, 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation," which was effective for the Company beginning August 1, 1996. SFAS No. 123 requires expanded disclosures of stock based compensation arrangements with employees and encourages, but does not require, compensation cost to be measured based on the fair value of the equity instrument awarded. Under SFAS No. 123, companies are permitted, however, to continue to apply Accounting Principles Board ("APB") Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock based compensation awards to employees and will disclose in the annual financial statements the required pro forma effect on net income and earnings per share. RECENT ACCOUNTING PRONOUNCEMENTS-- In February, 1997, the FASB issued SFAS No. 128 "Earnings per Share" which changes the method of calculating earnings per share and is effective for fiscal years ending after December 15, 1997. SFAS No. 128 requires the presentation of "basic" earnings per share and "diluted" earnings per share on the face of the income statement. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average shares of outstanding common stock. The calculation of diluted earnings per share is similar to basic earnings per share except the denominator includes dilutive common stock equivalents such as stock options and warrants. The Company will adopt SFAS No. 128 in fiscal 1998 as early adoption is not permitted. The disclosure of earnings per share under SFAS No. 128 is not expected to be materially different than the current disclosure of earnings per share.
11 3. ACCOUNTS RECEIVABLE Accounts receivable, net consist of the following: <TABLE> <CAPTION> April 30, July 31, 1997 1996 <S> <C> <C> Contract billings $ 19,833,140 $ 12,305,652 Retainage 1,718,683 1,138,619 Other receivables 363,974 368,677 Total 21,915,797 13,812,948 Less allowance for doubtful accounts 1,096,902 506,884 Accounts receivable, net $ 20,818,895 $ 13,306,064 </TABLE> 4. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS The accompanying condensed consolidated balance sheets include costs and estimated earnings on contracts in progress, net of progress billings as follows: <TABLE> <CAPTION> April 30, July 31, 1997 1996 <S> <C> <C> Costs incurred on contracts in progress $ 29,749,015 $ 24,272,835 Estimated earnings thereon 1,656,020 334,905 31,405,035 24,607,740 Less billings to date 19,789,438 17,509,242 $ 11,615,597 $ 7,098,498 Included in the accompanying condensed consolidated balance sheets under the captions: Costs and estimated earnings in excess of billings $ 11,615,597 $ 7,137,212 Billings in excess of costs and estimated earnings (38,714) $ 11,615,597 $ 7,098,498 </TABLE>
12 5. PROPERTY AND EQUIPMENT The accompanying condensed consolidated balance sheets include the following property and equipment: <TABLE> <CAPTION> April 30, July 31, 1997 1996 <S> <C> <C> Land $ 1,958,777 $ 1,711,464 Buildings 2,339,541 2,236,322 Leasehold improvements 809,095 743,101 Vehicles 22,868,696 22,153,365 Equipment and machinery 20,877,357 20,033,610 Furniture and fixtures 4,148,209 3,541,638 Total 53,001,675 50,419,500 Less accumulated depreciation and amortization 32,128,677 30,845,090 Property and equipment, net $ 20,872,998 $ 19,574,410 </TABLE> Certain subsidiaries of the Company entered into lease arrangements accounted for as capitalized leases. The carrying value of capital leases at April 30, 1997 and July 31, 1996 was $874,965 and $372,170, respectively, net of accumulated depreciation of $221,642 and $123,413, respectively. Capital leases are included as a component of equipment and machinery. 6. NOTES PAYABLE Notes and loans payable are summarized by type of borrowings as follows: <TABLE> <CAPTION> April 30, July 31, 1997 1996 <S> <C> <C> Bank Credit Agreement: Revolving credit facility $ 4,200,000 $ 9,000,000 Term-loan 9,000,000 2,162,812 Equipment term-loans 2,052,396 704,167 Capital lease obligations 788,964 344,446 Total 16,041,360 12,211,425 Less current portion 7,054,914 2,758,795 Notes payable--non-current $ 8,986,446 $ 9,452,630 </TABLE> On April 28, 1997 the Company signed a new $35.0 million credit agreement with a group of banks. The proceeds of the new credit agreement were used to refinance the previously existing credit facility and provide funding for working capital and equipment requirements. As of April 30, 1997, the Company's credit facility consists of a $10.0 million revolving working capital credit facility of which $5.8 million was available, a $9.0 million term loan, a $6.0 million revolving equipment acquisition facility of which $3.9 million was available, and a $10.0 million standby letter of credit facility of which $0.8 million was available. The bank credit agreement contains restrictions which, among other things, require maintenance of certain financial ratios and covenants, restrict encumbrances of assets and creation of indebtedness, and limit the payment of cash dividends.
13 Cash dividends are limited to 50% of each fiscal year's after-tax profits. No cash dividends have been paid during the nine month period ending April 30, 1997. The credit facility is secured by the Company's assets. At April 30, 1997, the Company was in compliance with all financial covenants and conditions. The revolving working capital credit facility is available for a one-year period and bears interest, at the option of the Company, at the bank's prime interest rate minus 1% or LIBOR plus 1.50%. At April 30, 1997, the interest rate was at LIBOR plus 1.50% or 7.56%. The proceeds of the revolving credit facility were used for working capital requirements. The term loan facility has a five-year maturity and bears interest at the bank's prime interest rate minus 0.50% (8.00% at April 30, 1997). Principal and interest is payable in quarterly installments through April, 2002. The proceeds of the term loan were used to refinance the indebtedness under the previous revolving credit facility. The revolving equipment acquisition facility is available for a one-year period and bears interest, at the option of the Company, at the bank's prime interest rate minus 0.75% or LIBOR plus 1.75%. Advances against this 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 January, 2001. During the quarter ended April 30, 1997, the Company borrowed $1.2 million to refinance the indebtedness under the previous equipment acquisition term-loans and an additional $0.8 million for current equipment requirements. At April 30, 1997, the interest rate was at LIBOR plus 1.75% or 7.81%. The standby letter of credit facility is available for a one-year period. At April 30, 1997, the Company had $9.2 million in outstanding standby letters of credit issued as security to the Company's insurance administrators as part of its self-insurance program. Interest costs incurred on notes payable and capital lease obligations, all of which were expensed, for the nine month periods ended April 30, 1997 and 1996 were $771,886 and $1,141,292, respectively. Such amounts are included in general and administrative expenses in the accompanying condensed consolidated statements of operations. In addition to the borrowings under the bank credit agreement, certain subsidiaries have outstanding obligations under capital leases. The obligations are payable in monthly installments expiring at various dates through December, 2001. 7. COMMITMENTS AND CONTINGENCIES In the normal course of business, certain subsidiaries of the Company have pending and unasserted claims. Although the ultimate resolution and liability of these claims cannot be determined, management believes the final disposition of these claims will not have a material adverse impact on the Company's consolidated financial condition or results of operations.
14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated financial condition and results of operations. The discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto. Results of Operations The Company reported earnings per common and common equivalent share of $0.27 and $0.20 for the quarters ended April 30, 1997 and 1996, respectively. Earnings per common and common equivalent share for the nine month periods ended April 30, 1997 and 1996 was $0.64 and $0.43, respectively. Earnings per common share assuming full dilution for the three and nine month periods ended April 30, 1997 was $0.27 and $0.64, respectively. This compares to earnings per common and common equivalent share assuming full dilution of $0.20 and $0.43 for the three and nine month period ended April 30, 1996. Contract revenues for the quarter ended April 30, 1997 increased 38.8% to $47.9 million as compared to $34.5 million for the same quarter last year. The increase in contract revenues is attributable to increased volume experienced in all service groups. The telecommunication services group contract revenues increased 37.3% to $39.0 million, the utility line locating services group contract revenues increased 6.7% to $3.7 million and the electrical services group contract revenues increased 97.9% to $5.2 million for the current quarter compared to the same quarter last year. For the nine month period ended April 30, 1997, contract revenues increased 22.5% to $128.1 million as compared to $104.5 million for the corresponding period last year. The contract revenue growth reflects higher volume in all service groups. Contract revenues increased 20.6% to $104.9 million in the telecommunication services group, 13.6% to $10.6 million in the utility line locating services group, and 51.8% to $12.6 million in the electrical services group. The contract revenue mix between telecommunication services, utility line locating services and electrical services for the quarter ended April 30, 1997 was 81%,8%, and 11%, respectively, and 82%, 10% and 8%, respectively, for the quarter ended April 30, 1996. The contract revenue mix reflects a significant increase in the electrical services group due to increased volume in bid jobs. For the nine month period ended April 30, 1997, the contract revenue mix between the telecommunication services group, the utility line locating services group and the electrical services group was 82%, 8% and 10%, respectively, compared to 83%, 9%, and 8%, respectively, for the corresponding period last year. Multi-year comprehensive service contracts continue to be the primary source of revenue for the telecommunication services group. For the three and nine month periods ended April 30, 1997, multi-year comprehensive service contracts represented 86% of telecommunication services group contract revenues, as compared to 89% and 90% for the comparable periods last year. The decline is offset by higher volume associated with premise wiring, inside network installations for office buildings, and other telephony contracting services. The Company's backlog of uncompleted work at April 30, 1997 was $247 million as compared to $231 million at April 30, 1996. During the three month period ending April 30, 1997 various contracts were awarded in the telecommunication
15 services, utility line locating services and the electrical services group. The significant contract awards in the telecommunication services group included a multi-year telephone splicing and a multi-year broadband network installation contract totaling $11.2 million, a multi-year engineering design contract and an extension of an engineering design contract totaling $12.6 million, and several bid contracts totaling $1.5 million. The Company's costs and operating expenses may be affected by a number of factors including contract volumes, character of services rendered, work locations, competition, and changes in productivity. Costs of earned revenues, excluding depreciation, were 79% of contract revenues for both the quarters ended April 30, 1997 and 1996, respectively, and 81% for both the nine month periods ended April 30, 1997 and 1996. As a percentage of contract revenues, the Company's prime costs of direct labor, materials, subcontractors, and equipment costs were 59% for both the three and nine month periods ended April 30, 1997, respectively. This compares to 60% and 61% for the corresponding periods last year. The Company's continued efforts to control costs resulted in stable operating margins. General and administrative expenses increased $0.9 million to $4.5 million for the quarter ended April 30, 1997 as compared to $3.6 million for the corresponding period last year. This is primarily attributable a $0.4 million increase in the provision for doubtful accounts, a $0.3 million increase in payroll and payroll taxes, and a $0.4 million increase in other general and administrative expenses offset by a reduction in general insurance costs of $0.2 million. For the nine month period ended April 30, 1997 general and administrative expenses increased $0.5 million to $11.6 million as compared to $11.1 million for the same period last year. This increase is attributable to a $0.5 million increase in the provision for doubtful accounts, a $0.4 million increase in payroll and payroll taxes, offset by a $0.4 million reduction in interest costs. The Company's 39% effective income tax rate for the nine month period ended April 30, 1997 differs from the statutory rate due to state income taxes, the amortization of intangible assets with no tax benefit, other non-deductible expenses for tax purposes and the reduction of $0.2 million in the Company's deferred tax asset valuation allowance. Liquidity and Capital Resources Cash and equivalents increased $0.6 million to $4.4 million during the nine month period ending April 30, 1997. During this period, the Company generated $1.5 million of positive cash flow from operating activities reflecting strong earnings of $5.7 million. The cash flow from operating activities was reduced by higher levels of accounts receivable and unbilled revenue and partially offset by higher accounts payable. The cash flow from operating activities is less than the reported net income due to an increase in working capital required to support the growth in contract revenues. The Company's investing activities absorbed $5.9 million in capital expenditures during the nine month period ended April 30, 1997. These capital expenditures represent the normal replacement of equipment and the start up of a new contract in the telecommunication services group. In addition, the Company acquired and financed $0.6 million of equipment with capital leases and financed $1.6 million of equipment under various noncancelable operating leases. Proceeds from the sale of surplus equipment was $1.1 million for the nine months ended April 30, 1997.
16 On April 28, 1997 the Company signed a new $35.0 million credit agreement arranged by a group of banks. The new credit agreement provides a $10.0 million revolving working capital facility, a $10.0 million standby letter of credit facility, a $9.0 million five-year term loan, and a $6.0 million revolving equipment acquisition facility. The objective of establishing the new credit agreement was to refinance the indebtedness under the previous credit facility and to provide additional borrowing capacity to support the future growth of the Company. The new credit agreement requires the Company to maintain certain financial covenants and conditions such as debt-to-equity ratios, current and quick ratios, and net profit levels. In addition, the new credit agreement limits the payment of cash dividends to 50% of each fiscal year's after-tax profits. At April 30, 1997, the Company was in compliance with all covenants and conditions. The revolving working capital facility is available for a one-year period and bears interest, at the option of the Company, at the bank's prime interest rate minus 1% or LIBOR plus 1.50%. During the quarter ended April 30, 1997, the Company borrowed $4.2 million against the revolving working capital facility to meet current working capital requirements leaving an available borrowing capacity of $5.8 million. At April 30, 1997, the interest rate on the outstanding balance was at LIBOR plus 1.50% or 7.56%. The term loan facility has a five-year maturity and bears interest at the bank's prime interest rate minus 0.50% (8.00% at April 30, 1997). The term loan principal and interest is payable in quarterly installments through April, 2002. At April 30, 1997, the $9.0 million outstanding principal was used to refinance the indebtedness under the previous revolving credit facility. The revolving equipment acquisition facility is available for a one-year period and bears interest, at the option of the Company, at the bank's prime interest rate minus 0.75% or LIBOR plus 1.75%. Advances against this facility are converted into term-loans with maturities not to exceed 48 months. The outstanding principal on the equipment acquisition term-loans is payable in monthly installments through January, 2001. During the quarter ended April 30, 1997, the Company borrowed $1.2 million to refinance the indebtedness under the previous equipment acquisition term-loans and an additional $0.8 million for current equipment requirements. The Company has available borrowing capacity of $3.9 million under this facility. At April 30, 1997, the interest rate on the outstanding equipment acquisition term- loans was at LIBOR plus 1.75% or 7.81%. The standby letter of credit facility is available for a one-year period. At April 30, 1997, the Company had $9.2 million in outstanding standby letters of credit issued as security to the Company's insurance administrators as part of its self-insurance program leaving $0.8 million of available borrowing capacity. No cash dividends have been paid during the quarter ended April 30, 1997. The Board will determine future dividend policies based on financial condition, profitability, cash flow, capital requirements, and business outlook, as well as other factors relevant at the time. 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 ability to effectively manage controllable costs. The Company foresees its capital resources, including the funds available under the new credit facility, together with existing cash balances, to be sufficient to meet its financial obligations, support the normal replacement of equipment and to finance internal growth.
17 PART II. OTHER INFORMATION __________________________ Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibits furnished pursuant to the requirements of Form 10-Q: See Exhibit Index on Page 18 (b) Reports On Form 8-K No reports on Form 8-K were filed on behalf of the Registrant during the quarter ended April 30, 1997.
18 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DYCOM INDUSTRIES, INC. Registrant <TABLE> <S> <C> Date: June 9, 1997 /s/ Thomas R. Pledger _________________ ____________________________ Thomas R. Pledger Chairman and Chief Executive Officer Date: June 9, 1997 /s/ Steven Nielsen _________________ ____________________________ Steven Nielsen President and Chief Operating Officer Date: June 9, 1997 /s/ Douglas J. Betlach _________________ ____________________________ Douglas J. Betlach Vice President and Chief Financial Officer </TABLE>
19 EXHIBIT INDEX <TABLE> <CAPTION> Number Description ______ ___________ <C> <C> (11) Statement re computation of per share earnings (27) Financial Data Schedule (99) Credit Facility Agreement dated as of April 28, 1997 between Dycom Industries, Inc. and Dresdner Bank Lateinamerika Aktiengesellschaft; Bank Leumi Trust Company of New York; and Republic National Bank of Miami, N.A. Security Agreement dated as of April 28, 1997 between Dycom Industries, Inc. and Dresdner Bank Lateinamerika Aktiengesellschaft; Bank Leumi Trust Company of New York; and Republic National Bank of Miami, N.A. Similar agreements were executed by each subsidiary of Dycom Industries, Inc. Guaranty Agreement dated as of April 28, 1997 between Ansco & Associates, Inc. and Dresdner Bank Lateinamerika Aktiengesellschaft; Bank Leumi Trust Company of New York; and Republic National Bank of Miami, N.A. Similar agreements were executed by each subsidiary of Dycom Industries, Inc. </TABLE>