DYCOM INDUSTRIES INC - 10-Q Summary
Business Context and Reporting Period
Dycom Industries, Inc. is a specialty contractor providing engineering, placement, and maintenance services for telecommunications and electrical utility industries. This report covers the quarterly period ended April 27, 2002, and the nine-month period ended April 27, 2002 (Fiscal Year 2002).
Key Financial Metrics
| Metric | Three Months Ended Apr 27, 2002 |
Nine Months Ended Apr 27, 2002 |
|---|---|---|
| Contract Revenues | $169.8 million | $475.8 million |
| Net Income (Loss) | $7.7 million | $(66.2) million |
| Net Income (Excl. Accounting Change) | $7.7 million | $20.7 million |
| Diluted EPS | $0.17 | $(1.50) |
| Diluted EPS (Excl. Accounting Change) | $0.17 | $0.47 |
| Cash and Equivalents | $135.4 million | $135.4 million |
| Operating Cash Flow (9mo) | N/A | $70.5 million |
| Total Debt (Notes Payable) | $7.6 million | $7.6 million |
Note: The nine-month net loss includes a non-cash, after-tax charge of $86.9 million due to the adoption of SFAS No. 142 (Goodwill Impairment).
Material Changes vs. Prior Period
- Revenue Decline: Contract revenues decreased 15.8% ($31.8 million) for the quarter and 24.7% ($156.3 million) for the nine months compared to the prior year. This was primarily driven by lower demand from telecommunications customers, specifically cable companies and local exchange carriers.
- Adelphia Impact: In May 2002, several subsidiaries of Adelphia Communications Corporation notified Dycom to suspend work on substantially all projects. Adelphia represented 18.5% of revenues for the quarter and 13.4% for the nine months ended April 27, 2002. Dycom had approximately $33.6 million in unbilled work and receivables from Adelphia as of the period end.
- Acquisitions: The company acquired Arguss Communications, Inc. in February 2002 for approximately $85.0 million (stock consideration). This acquisition contributed $26.5 million to revenues for the quarter and nine months ended April 27, 2002.
- Goodwill Impairment: Upon adopting SFAS No. 142, the company recorded a $99.0 million pre-tax ($86.9 million after-tax) non-cash impairment charge related to goodwill in several reporting units.
- IRS Settlement: The company settled a federal employment tax audit, resulting in a $1.5 million reduction in payroll tax expense for the quarter and nine months.
Guidance, Outlook, and Risks
- Outlook: Management expects lower demand from key telecommunications customers to continue into the following quarter. The suspension of work by Adelphia is anticipated to impact results for the fourth quarter of fiscal 2002 and potentially into fiscal 2003.
- Liquidity: The company maintains strong liquidity with $135.4 million in cash. On June 3, 2002, Dycom entered into a new $200 million unsecured revolving credit agreement, replacing the prior facility. As of June 3, 2002, available borrowing capacity was $179.7 million.
- Legal Proceedings: Williams Communications LLC has filed suit against a Dycom subsidiary (NFS) regarding a fiber-optic installation project, seeking unspecified damages. Dycom has filed a counterclaim for over $7 million in unpaid amounts. Management believes the litigation will not materially affect financial position.
- Asset Disposition: Dycom is holding the manufacturing subsidiary of Arguss for sale, with disposition expected by the end of fiscal 2002.
Investor Verification Checklist
- Verify the extent of revenue exposure to Adelphia Communications and the status of the $33.6 million in receivables/unbilled work.
- Confirm the impact of the SFAS No. 142 goodwill impairment charge on future earnings and whether further impairments are likely.
- Review the terms of the new $200 million credit facility and compliance with financial covenants.
- Monitor the resolution of the Williams Communications LLC litigation and the counterclaim for $7 million.
- Assess the timeline and financial impact of the suspended work from Adelphia on Q4 2002 and FY 2003 results.