NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Dycom Industries, Inc. (“Dycom” or the “Company”) is a leading provider of specialty contracting services throughout the United States. The Company provides program management, engineering, construction, maintenance and installation services for telecommunications providers, underground facility locating services for various utilities, including telecommunications providers, and other construction and maintenance services for electric and gas utilities.
The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries, all of which are wholly-owned, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements and should be read in conjunction with
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contained in this report and the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for
fiscal 2019
, filed with the SEC on
March 4, 2019
. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods presented have been included. This includes all normal and recurring adjustments and elimination of intercompany accounts and transactions. Operating results for the interim period are not necessarily indicative of the results expected for any subsequent interim or annual period.
Accounting Period.
The Company’s fiscal year ends on the last Saturday in January and consists of either 52 or 53 weeks of operations (with the additional week of operations occurring in the fourth fiscal quarter). Fiscal 2019 and fiscal 2020 each consist of 52 weeks of operations. The next 53 week fiscal period will occur in the fiscal year ending January 30, 2021.
Segment Information.
The Company operates in one reportable segment. Its services are provided by its operating segments on a decentralized basis. Each operating segment consists of a subsidiary (or in certain instances, the combination of two or more subsidiaries), the results of which are regularly reviewed by the Company’s Chief Executive Officer, the chief operating decision maker. All of the Company’s operating segments have been aggregated into
one
reportable segment based on their similar economic characteristics, nature of services and production processes, type of customers, and service distribution methods.
2. Significant Accounting Policies and Estimates
There have been no material changes to the Company’s significant accounting policies and critical accounting estimates described in the Company’s Annual Report on Form 10-K for
fiscal 2019
, except with respect to the Company’s accounting policy for leases as described further below.
Use of Estimates.
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. These estimates are based on the Company’s historical experience and management’s understanding of current facts and circumstances. At the time they are made, the Company believes that such estimates are fair when considered in conjunction with the Company’s consolidated financial position and results of operations taken as a whole. However, actual results could differ materially from those estimates.
Fair Value of Financial Instruments.
The Company’s financial instruments primarily consist of cash and equivalents, restricted cash, accounts receivable, income taxes receivable and payable, accounts payable, certain accrued expenses, and long-term debt. The carrying amounts of these items approximate fair value due to their short maturity, except for the fair value of the Company’s long-term debt, which is based on observable market-based inputs (Level 2). See Note 14,
Debt
, for further information regarding the fair value of such financial instruments. The Company’s cash and equivalents are based on quoted market prices in active markets for identical assets (Level 1) as of
April 27, 2019
and
January 26, 2019
. During
the three months ended
April 27, 2019
and
April 28, 2018
, the Company had no material nonrecurring fair value measurements of assets or liabilities subsequent to their initial recognition.
Leases.
The Company’s leases are accounted for as operating leases, with lease expense recognized on a straight-line basis over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. For leases with initial terms greater than 12 months, the Company records operating lease right-of-use assets and corresponding operating lease liabilities. Operating lease right-of-use assets represent the Company’s right to use the underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make
the related lease payments. These assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Leases with an initial term of 12 months or less are not recorded on the Company’s consolidated balance sheet.
3. Accounting Standards
Recently issued accounting pronouncements are disclosed in the Company’s Annual Report on Form 10-K for fiscal 2019. As of the date of this Quarterly Report on Form 10-Q, there have been no changes in the expected dates of adoption or estimated effects on the Company’s consolidated financial statements of recently issued accounting pronouncements from those disclosed in the Company’s Annual Report on Form 10-K for fiscal 2019. Further, there have been no additional accounting standards issued as of the date of this Quarterly Report on Form 10-Q that are applicable to the consolidated financial statements of the Company. Accounting standards adopted during
the three months ended
April 27, 2019
are disclosed in this Quarterly Report on Form 10‑Q.
Recently Adopted Accounting Standards
Leases
. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,
Leases (Topic 842)
(“ASU 2016-02”) which is intended to increase transparency and comparability of accounting for lease transactions. For all leases with terms greater than 12 months, the new guidance requires lessees to recognize right-of-use assets and corresponding lease liabilities on the balance sheet and to disclose qualitative and quantitative information about lease transactions. The new standard maintains a distinction between finance leases and operating leases. As a result, the effect of leases in the statement of operations and statement of cash flows is largely unchanged.
Effective January 27, 2019, the first day of fiscal 2020, the Company adopted the requirements of ASU 2016-02 using the transition provisions at the date of adoption instead of at the earliest comparative period presented in the financial statements. Accordingly, comparative financial statements for periods prior to the date of adoption were not adjusted. The Company elected the group of practical expedients that allowed it not to reassess the following: whether any expired or existing contracts represent leases, the classification of any expired or existing leases, and the initial direct costs for any expired or existing leases. The Company did not elect the practical expedient to use hindsight to determine the lease term. On adoption, the Company recognized approximately
$71.0 million
of operating lease right-of-use assets and corresponding lease liabilities on its condensed consolidated balance sheet for its operating leases with terms greater than 12 months. The adoption of ASU 2016-02 did not have a material impact on the Company’s consolidated statements of operations, comprehensive income, or cash flows.
4. Computation of Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per common share (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
April 27, 2019
|
|
April 28, 2018
|
Net income available to common stockholders (numerator)
|
$
|
14,279
|
|
|
$
|
17,231
|
|
|
|
|
|
Weighted-average number of common shares (denominator)
|
31,451,809
|
|
|
31,190,366
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.45
|
|
|
$
|
0.55
|
|
|
|
|
|
Weighted-average number of common shares
|
31,451,809
|
|
|
31,190,366
|
|
Potential shares of common stock arising from stock options, and unvested restricted share units
|
334,650
|
|
|
602,549
|
|
Potential shares of common stock issuable on conversion of 0.75% convertible senior notes due 2021
(1)
|
—
|
|
|
614,999
|
|
Total shares-diluted (denominator)
|
31,786,459
|
|
|
32,407,914
|
|
|
|
|
|
Diluted earnings per common share
|
$
|
0.45
|
|
|
$
|
0.53
|
|
|
|
|
|
Anti-dilutive weighted shares excluded from the calculation of earnings per common share:
|
Stock-based awards
|
266,371
|
|
|
80,847
|
|
0.75% convertible senior notes due 2021
|
5,005,734
|
|
|
4,390,735
|
|
Warrants
|
5,005,734
|
|
|
5,005,734
|
|
Total
|
10,277,839
|
|
|
9,477,316
|
|
(1)
Under the treasury stock method, the convertible senior notes will have a dilutive impact on earnings per common share if the Company’s average stock price for the period exceeds the
$96.89
per share conversion price for the convertible senior notes. The warrants associated with the Company’s convertible senior notes will have a dilutive impact on earnings per common share if the Company’s average stock price for the period exceeds the
$130.43
per share warrant strike price. During
the three months ended
April 28, 2018
, the Company’s average stock price of
$110.46
exceeded the conversion price for the convertible senior notes. As a result, shares presumed to be issuable under the convertible senior notes that were dilutive during the period are included in the calculation of diluted earnings per share for
the three months ended
April 28, 2018
. As the Company’s average stock price did not exceed the strike price for the warrants, the underlying common shares were anti-dilutive as reflected in the table above.
In connection with the offering of the convertible senior notes, the Company entered into convertible note hedge transactions with counterparties for the purpose of reducing the potential dilution to common stockholders from the conversion of the notes and offsetting any potential cash payments in excess of the principal amount of the notes. Prior to conversion, the convertible note hedge is not included for purposes of the calculation of earnings per common share as its effect would be anti-dilutive. Upon conversion, the convertible note hedge is expected to offset the dilutive effect of the convertible senior notes when the average stock price for the period is above
$96.89
per share. See Note 14,
Debt
, for additional information related to the Company’s convertible senior notes, warrant transactions, and hedge transactions.
5. Acquisitions
During March 2018, the Company acquired certain assets and assumed certain liabilities of a provider of telecommunications construction and maintenance services in the Midwest and Northeast United States for a cash purchase price of
$20.9 million
, less an adjustment for working capital received below a target amount of approximately
$0.5 million
expected to be received during fiscal 2020. This acquisition expands the Company’s geographic presence within its existing customer base.
The purchase price allocation of the business acquired in fiscal 2019 was completed within the 12-month measurement period from the date of acquisition. Adjustments to provisional amounts were recognized in the reporting period in which the adjustments were determined and were not material.
The following table summarizes the aggregate consideration paid for the fiscal 2019 acquisition (dollars in millions):
|
|
|
|
|
|
2019
|
Assets
|
|
Accounts receivable
|
$
|
5.6
|
|
Inventories and other current assets
|
0.2
|
|
Property and equipment
|
0.5
|
|
Goodwill
|
4.0
|
|
Intangible assets - customer relationships
|
12.3
|
|
Total assets
|
22.6
|
|
|
|
Liabilities
|
|
Accounts payable
|
2.2
|
|
Total liabilities
|
2.2
|
|
|
|
Net Assets Acquired
|
$
|
20.4
|
|
Results of the business acquired in fiscal 2019 are included in the condensed consolidated financial statements from the date of acquisition. Contract revenues and net income of this acquisition were not material during
the three months ended
April 27, 2019
or
April 28, 2018
.
6. Accounts Receivable, Contract Assets, and Contract Liabilities
The following provides further details on the balance sheet accounts of accounts receivable, net, contract assets, and contract liabilities.
Accounts Receivable
Accounts receivable, net classified as current consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
Trade accounts receivable
|
$
|
299,572
|
|
|
$
|
331,903
|
|
Unbilled accounts receivable
|
393,198
|
|
|
283,463
|
|
Retainage
|
10,124
|
|
|
10,831
|
|
Total
|
702,894
|
|
|
626,197
|
|
Less: allowance for doubtful accounts
|
(1,372
|
)
|
|
(939
|
)
|
Accounts receivable, net
|
$
|
701,522
|
|
|
$
|
625,258
|
|
The Company maintains an allowance for doubtful accounts for estimated losses on uncollected balances. Approximately
$16.8 million
of the allowance for doubtful accounts as of January 26, 2019 was classified as non-current. During the three months ended April 27, 2019, the Company recognized a
$10.3 million
recovery of previously reserved accounts receivable and contract assets based on collections from a customer. The allowance for doubtful accounts changed as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
April 27, 2019
|
|
April 28, 2018
|
Allowance for doubtful accounts at beginning of period
|
$
|
17,702
|
|
|
$
|
998
|
|
Provision for bad debt (recovery)
|
(10,311
|
)
|
|
(24
|
)
|
Amounts (charged) recovered against the allowance
|
(6,019
|
)
|
|
2
|
|
Allowance for doubtful accounts at end of period
|
$
|
1,372
|
|
|
$
|
976
|
|
Contract Assets and Contract Liabilities
Net contract assets consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
Contract assets
|
$
|
297,630
|
|
|
$
|
215,849
|
|
Contract liabilities
|
12,815
|
|
|
15,125
|
|
Contract assets, net
|
$
|
284,815
|
|
|
$
|
200,724
|
|
Net contract assets were
$284.8 million
and
$200.7 million
as of
April 27, 2019
and
January 26, 2019
, respectively. The increase primarily resulted from services performed under contracts consisting of multiple tasks, for which billings will be submitted upon completion of those tasks not yet completed. There were no other significant changes in contract assets during the period. During
the three months ended
April 27, 2019
, the Company performed services and recognized
$8.0 million
of contract revenues related to its contract liabilities that existed at
January 26, 2019
. See Note 7,
Other Current Assets and Other Assets
, for information on the Company’s long-term contract assets.
Customer Credit Concentration
Customers whose combined amounts of trade accounts receivable and contract assets, net exceeded 10% of total combined accounts receivable and contract assets, net as of
April 27, 2019
or
January 26, 2019
were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
|
Amount
|
|
% of Total
|
|
Amount
|
|
% of Total
|
Verizon Communications Inc.
|
$
|
390.3
|
|
|
39.6%
|
|
$
|
298.4
|
|
|
36.2%
|
CenturyLink, Inc.
|
$
|
152.7
|
|
|
15.5%
|
|
$
|
147.2
|
|
|
17.9%
|
Comcast Corporation
|
$
|
131.1
|
|
|
13.3%
|
|
$
|
127.2
|
|
|
15.4%
|
AT&T Inc.
|
$
|
114.3
|
|
|
11.6%
|
|
$
|
90.6
|
|
|
11.0%
|
The Company believes that none of the customers above were experiencing financial difficulties that would materially impact the collectability of the Company’s total accounts receivable and contract assets, net as of
April 27, 2019
or
January 26, 2019
.
7. Other Current Assets and Other Assets
Other current assets consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
Prepaid expenses
|
$
|
20,045
|
|
|
$
|
12,758
|
|
Deposits and other current assets
|
14,137
|
|
|
14,762
|
|
Insurance recoveries/receivables for accrued insurance claims
|
2,100
|
|
|
—
|
|
Restricted cash
|
1,556
|
|
|
1,556
|
|
Receivables on equipment sales
|
404
|
|
|
69
|
|
Total other current assets
|
$
|
38,242
|
|
|
$
|
29,145
|
|
Other assets (long-term) consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
Long-term contract assets
|
$
|
28,368
|
|
|
$
|
30,399
|
|
Deferred financing costs
|
8,534
|
|
|
9,036
|
|
Restricted cash
|
3,753
|
|
|
4,253
|
|
Insurance recoveries/receivables for accrued insurance claims
|
5,007
|
|
|
13,684
|
|
Long-term accounts receivable, net
|
—
|
|
|
24,815
|
|
Other non-current deposits and assets
|
7,122
|
|
|
7,251
|
|
Total other assets
|
$
|
52,784
|
|
|
$
|
89,438
|
|
Insurance recoveries/receivables represent the amount of accrued insurance claims that are covered by insurance as the amounts exceed the Company’s loss retention. During
the three months ended
April 27, 2019
, total insurance recoveries/receivables decreased approximately
$6.6 million
primarily due to the settlement of claims.
Long-term contract assets represent payments made to customers pursuant to long-term agreements and are recognized as a reduction of contract revenues over the period for which the related services are provided to the customers.
Long-term accounts receivable, net of allowance for doubtful accounts, represent trade receivables due from Windstream Holdings, Inc. as of
January 26, 2019
. During the quarter ended
April 27, 2019
the Company collected a substantial portion of these accounts receivable. Amounts remaining to be collected are included in current accounts receivable, net as of
April 27, 2019
. See Note 6,
Accounts Receivable, Contract Assets, and Contract Liabilities
, for information on the Company’s current accounts receivable, net and contract assets as of
April 27, 2019
.
8. Cash and Equivalents and Restricted Cash
Amounts of cash and equivalents and restricted cash reported in the condensed consolidated statement of cash flows consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
Cash and equivalents
|
$
|
33,579
|
|
|
$
|
128,342
|
|
Restricted cash included in:
|
|
|
|
Other current assets
|
1,556
|
|
|
1,556
|
|
Other assets (long-term)
|
3,753
|
|
|
4,253
|
|
Total cash and equivalents and restricted cash
|
$
|
38,888
|
|
|
$
|
134,151
|
|
9. Property and Equipment
Property and equipment consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Lives (Years)
|
|
April 27, 2019
|
|
January 26, 2019
|
Land
|
—
|
|
$
|
4,024
|
|
|
$
|
4,359
|
|
Buildings
|
10-35
|
|
12,725
|
|
|
13,555
|
|
Leasehold improvements
|
1-10
|
|
16,694
|
|
|
16,185
|
|
Vehicles
|
1-5
|
|
606,576
|
|
|
589,741
|
|
Computer hardware and software
|
1-7
|
|
145,124
|
|
|
140,327
|
|
Office furniture and equipment
|
1-10
|
|
13,189
|
|
|
12,804
|
|
Equipment and machinery
|
1-10
|
|
302,708
|
|
|
296,408
|
|
Total
|
|
|
1,101,040
|
|
|
1,073,379
|
|
Less: accumulated depreciation
|
|
|
(671,730
|
)
|
|
(648,628
|
)
|
Property and equipment, net
|
|
|
$
|
429,310
|
|
|
$
|
424,751
|
|
Depreciation expense was
$41.0 million
and
$37.7 million
for
the three months ended
April 27, 2019
and
April 28, 2018
, respectively.
10. Goodwill and Intangible Assets
Goodwill
There were no changes in the carrying amount of goodwill during
the three months ended
April 27, 2019
. The goodwill balance consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
April 27, 2019
|
Goodwill, gross
|
|
$
|
521,516
|
|
Accumulated impairment losses
|
|
(195,767
|
)
|
Total
|
|
$
|
325,749
|
|
The Company’s goodwill resides in multiple reporting units and primarily consists of expected synergies, together with the expansion of the Company’s geographic presence and strengthening of its customer base from acquisitions. Goodwill and other indefinite-lived intangible assets are assessed annually for impairment, or more frequently if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value. The profitability of individual reporting units may suffer periodically due to downturns in customer demand, increased costs of providing services, and the level of overall economic activity. The Company’s customers may reduce capital expenditures and defer or cancel pending projects due to changes in technology, a slowing or uncertain economy, merger or acquisition activity, a decision to allocate resources to other areas of their business, or other reasons. The profitability of reporting units may also suffer if actual costs of providing services exceed the costs anticipated when the Company enters into contracts. Additionally, adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of the Company’s reporting units. The cyclical nature of the Company’s business, the high level of competition existing within its industry, and the concentration of its revenues from a limited number of customers may also cause results to vary. These factors may affect individual reporting units disproportionately, relative to the Company as a whole. As a result, the performance of one or more of the reporting units could decline, resulting in an impairment of goodwill or intangible assets.
The Company performs its annual goodwill assessment as of the first day of the fourth fiscal quarter of each fiscal year. As a result of the Company’s fiscal 2019 period assessment, the Company determined that the fair values of each of the reporting units and the indefinite-lived intangible asset were in excess of their carrying values and no impairment had occurred. As of
April 27, 2019
, the Company continues to believe the goodwill
and the indefinite-lived intangible asset are
recoverable for all of its reporting units.
Intangible Assets
The Company’s intangible assets consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
|
Weighted Average Remaining Useful Lives (Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Intangible Assets, Net
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Intangible Assets, Net
|
Customer relationships
|
10.8
|
|
$
|
312,017
|
|
|
$
|
162,918
|
|
|
$
|
149,099
|
|
|
$
|
312,017
|
|
|
$
|
157,691
|
|
|
$
|
154,326
|
|
Trade names, finite
|
8.0
|
|
10,350
|
|
|
8,417
|
|
|
1,933
|
|
|
10,350
|
|
|
8,312
|
|
|
2,038
|
|
Trade name, indefinite
|
—
|
|
4,700
|
|
|
—
|
|
|
4,700
|
|
|
4,700
|
|
|
—
|
|
|
4,700
|
|
Non-compete agreements
|
1.3
|
|
200
|
|
|
149
|
|
|
51
|
|
|
200
|
|
|
139
|
|
|
61
|
|
|
|
|
$
|
327,267
|
|
|
$
|
171,484
|
|
|
$
|
155,783
|
|
|
$
|
327,267
|
|
|
$
|
166,142
|
|
|
$
|
161,125
|
|
Amortization of the Company’s customer relationship intangibles is recognized on an accelerated basis as a function of the expected economic benefit. Amortization for the Company’s other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life. Amortization expense for finite-lived intangible assets was
$5.3 million
and
$5.7 million
for
the three months ended
April 27, 2019
and
April 28, 2018
, respectively.
As of
April 27, 2019
, the Company believes that the carrying amounts of its intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment.
11. Accrued Insurance Claims
For claims within its insurance program, the Company retains the risk of loss, up to certain limits, for matters related to automobile liability, general liability (including damages associated with underground facility locating services), workers’ compensation, and employee group health. With regard to losses occurring in the twelve month policy period ending in January 2020, the Company retains the risk of loss up to
$1.0 million
on a per occurrence basis for automobile liability, general liability, and workers’ compensation. These retention amounts are applicable to all of the states in which the Company operates, except with respect to workers’ compensation insurance in
two
states in which the Company participates in state-sponsored insurance funds. Aggregate stop-loss coverage for automobile liability, general liability, and workers’ compensation claims is
$77.1 million
for the twelve month policy period ending in January 2020.
The Company is party to a stop-loss agreement for losses under its employee group health plan. For calendar year 2019, the Company retains the risk of loss, on an annual basis, up to the first
$400,000
of claims per participant, as well as an annual aggregate amount for all participants of
$425,000
. Amounts for total accrued insurance claims and insurance recoveries/receivables are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
Accrued insurance claims - current
|
$
|
44,035
|
|
|
$
|
39,961
|
|
Accrued insurance claims - non-current
|
59,793
|
|
|
68,315
|
|
Total accrued insurance claims
|
$
|
103,828
|
|
|
$
|
108,276
|
|
|
|
|
|
Insurance recoveries/receivables:
|
|
|
|
Current (included in Other current assets)
|
$
|
2,100
|
|
|
$
|
—
|
|
Non-current (included in Other assets)
|
5,007
|
|
|
13,684
|
|
Total insurance recoveries/receivables
|
$
|
7,107
|
|
|
$
|
13,684
|
|
Insurance recoveries/receivables represent the amount of accrued insurance claims that are covered by insurance as the amounts exceed the Company’s loss retention. During
the three months ended
April 27, 2019
, total insurance recoveries/receivables decreased approximately
$6.6 million
primarily due to the settlement of claims. Accrued insurance claims decreased by a corresponding amount.
12. Leases
The Company leases the majority of its office facilities as well as certain equipment, all of which are accounted for as operating leases. These leases have remaining terms ranging from less than
1 year
to approximately
6
years. Some leases include options to extend the lease for up to
5
years and others include options to terminate.
The following table summarizes the components of lease cost recognized in the condensed consolidated statements of operations for
the three months ended
April 27, 2019
(dollars in thousands):
|
|
|
|
|
|
For the Three Months Ended
|
|
April 27, 2019
|
Lease cost under long-term operating leases
|
$
|
8,331
|
|
Lease cost under short-term operating leases
|
8,406
|
|
Variable lease cost under short-term and long-term operating leases
(1)
|
1,210
|
|
Total lease cost
|
$
|
17,947
|
|
(1)
Variable lease expense primarily includes insurance, maintenance, and other operating expenses related to the Company’s leased office facilities.
The Company’s operating lease liabilities related to long-term operating leases were
$69.5 million
as of
April 27, 2019
. Supplemental balance sheet information related to these liabilities is as follows (dollars in thousands):
|
|
|
|
|
April 27, 2019
|
Weighted average remaining lease term
|
3.4 years
|
|
Weighted average discount rate
|
5.3
|
%
|
Supplemental cash flow information related to the Company’s long-term operating lease liabilities as of
April 27, 2019
is as follows (dollars in thousands):
|
|
|
|
|
|
For the Three Months Ended
|
|
April 27, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
$
|
8,189
|
|
Operating lease right-of-use assets obtained in exchange for operating lease liabilities:
|
$
|
5,513
|
|
As of
April 27, 2019
, maturities of the Company’s lease liabilities under its long-term operating leases for the next five fiscal years and thereafter are as follows (dollars in thousands):
|
|
|
|
|
|
Fiscal Year
|
|
Amount
|
Remainder of 2020
|
|
$
|
21,954
|
|
2021
|
|
23,394
|
|
2022
|
|
15,382
|
|
2023
|
|
7,678
|
|
2024
|
|
4,885
|
|
Thereafter
|
|
4,132
|
|
Total lease payments
|
|
77,425
|
|
Less: imputed interest
|
|
(7,904
|
)
|
Total
|
|
$
|
69,521
|
|
As of
April 27, 2019
, the Company had additional operating leases that have not yet commenced of
$2.2 million
. These leases will commence during the second quarter of fiscal 2020.
As of
January 26, 2019
, the future minimum obligation by fiscal year for the Company’s operating leases with original noncancelable terms in excess of one year was as follows (dollars in thousands):
|
|
|
|
|
|
Fiscal Year
|
|
Amount
|
2020
|
|
$
|
28,415
|
|
2021
|
|
20,166
|
|
2022
|
|
12,919
|
|
2023
|
|
6,686
|
|
2024
|
|
4,342
|
|
Thereafter
|
|
3,675
|
|
Total
|
|
$
|
76,203
|
|
See Note 2,
Significant Accounting Policies and Estimates
, for further information on the Company’s accounting policy for leases and Note 3,
Accounting Standards
, for further information on the Company’s adoption of ASU 2016-02.
13. Other Accrued Liabilities
Other accrued liabilities consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
Accrued payroll and related taxes
|
$
|
28,420
|
|
|
$
|
25,591
|
|
Accrued employee benefit and incentive plan costs
|
9,475
|
|
|
25,482
|
|
Accrued construction costs
|
51,439
|
|
|
36,449
|
|
Other current liabilities
|
20,056
|
|
|
16,552
|
|
Total other accrued liabilities
|
$
|
109,390
|
|
|
$
|
104,074
|
|
During
the three months ended
April 27, 2019
, accrued construction costs increased approximately
$15.0 million
primarily due to an
$8.2 million
charge for estimated warranty costs for work performed for a customer in prior periods.
14. Debt
The Company’s outstanding indebtedness consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
Credit Agreement - Revolving facility (matures October 2023)
|
$
|
—
|
|
|
$
|
—
|
|
Credit Agreement - Term loan facility (matures October 2023)
|
450,000
|
|
|
450,000
|
|
0.75% convertible senior notes, net (mature September 2021)
|
428,626
|
|
|
423,199
|
|
|
878,626
|
|
|
873,199
|
|
Less: current portion
|
(11,250
|
)
|
|
(5,625
|
)
|
Long-term debt
|
$
|
867,376
|
|
|
$
|
867,574
|
|
Senior Credit Agreement
On
October 19, 2018
, the Company and certain of its subsidiaries amended and restated its existing credit agreement, dated as of
December 3, 2012
, as amended on
April 24, 2015
and as subsequently amended and supplemented, with the various lenders party thereto (the “Credit Agreement”). The maturity date of the Credit Agreement was extended to
October 19, 2023
and, among other things, the maximum revolver commitment was increased to
$750.0 million
from
$450.0 million
and the term loan facility was increased to
$450.0 million
. The Credit Agreement includes a
$200.0 million
sublimit for the issuance of letters of credit.
Subject to certain conditions, the Credit Agreement provides the Company with the ability to enter into one or more incremental facilities either by increasing the revolving commitments under the Credit Agreement and/or in the form of term loans, up to the greater of (i)
$350.0 million
and (ii) an amount such that, after giving effect to such incremental facilities on a pro forma basis (assuming that the amount of the incremental commitments are fully drawn and funded), the consolidated
senior secured net leverage ratio does not exceed
2.25
to 1.00. The consolidated senior secured net leverage ratio is the ratio of the Company’s consolidated senior secured indebtedness reduced by unrestricted cash and equivalents in excess of
$50.0 million
to its trailing twelve-month consolidated earnings before interest, taxes, depreciation, and amortization, as defined by the Credit Agreement (“EBITDA”). Borrowings under the Credit Agreement are guaranteed by substantially all of the Company’s subsidiaries and secured by the equity interests of the substantial majority of the Company’s subsidiaries.
Under the Credit Agreement, borrowings bear interest at the rates described below based upon the Company’s consolidated net leverage ratio, which is the ratio of the Company’s consolidated total funded debt reduced by unrestricted cash and equivalents in excess of
$50.0 million
to its trailing twelve-month consolidated EBITDA, as defined by the Credit Agreement. In addition, the Company incurs certain fees for unused balances and letters of credit at the rates described below, also based upon the Company’s consolidated net leverage ratio.
|
|
|
Borrowings - Eurodollar Rate Loans
|
1.25% - 2.00% plus LIBOR
|
Borrowings - Base Rate Loans
|
0.25% - 1.00% plus administrative agent’s base rate
(1)
|
Unused Revolver Commitment
|
0.20% - 0.40%
|
Standby Letters of Credit
|
1.25% - 2.00%
|
Commercial Letters of Credit
|
0.625% - 1.00%
|
(1)
The administrative agent’s base rate is described in the Credit Agreement as the highest of (i) the Federal Funds Rate plus
0.50%
, (ii) the administrative agent’s prime rate, and (iii) the Eurodollar rate plus
1.00%
.
Standby letters of credit of approximately
$52.3 million
and
$48.6 million
, issued as part of the Company’s insurance program, were outstanding under the Credit Agreement as of
April 27, 2019
and
January 26, 2019
, respectively.
The weighted average interest rates and fees for balances under the Credit Agreement as of
April 27, 2019
and
January 26, 2019
were as follows:
|
|
|
|
|
|
Weighted Average Rate End of Period
|
|
April 27, 2019
|
|
January 26, 2019
|
Borrowings - Term loan facilities
|
4.24%
|
|
4.25%
|
Borrowings - Revolving facility
(1)
|
—%
|
|
—%
|
Standby Letters of Credit
|
1.75%
|
|
1.75%
|
Unused Revolver Commitment
|
0.35%
|
|
0.35%
|
(1)
There were
no
outstanding borrowings under the revolving facility as of
April 27, 2019
or
January 26, 2019
.
The Credit Agreement contains a financial covenant that requires the Company to maintain a consolidated net leverage ratio of not greater than
3.50
to
1.00
, as measured at the end of each fiscal quarter, and provides for certain increases to this ratio in connection with permitted acquisitions. The agreement also contains a financial covenant that requires the Company to maintain a consolidated interest coverage ratio, which is the ratio of the Company’s trailing twelve-month consolidated EBITDA to its consolidated interest expense, each as defined by the Credit Agreement, of not less than
3.00
to
1.00
, as measured at the end of each fiscal quarter. In addition, the Credit Agreement contains a minimum liquidity covenant. This covenant becomes effective beginning 91 days prior to the maturity date of the Company’s 0.75% convertible senior notes due September 2021 (the “Notes”) if the outstanding principal amount of the Notes is greater than
$250.0 million
. In such event, the Company would be required to maintain liquidity, as defined by the Credit Agreement, equal to
$150.0 million
in excess of the outstanding principal amount of the Notes. This covenant terminates at the earliest date of when the outstanding principal amount of the Notes is reduced to
$250.0 million
or less, the Notes are amended pursuant to terms that extend the maturity date to 91 or more days beyond the maturity date of the Credit Agreement, or the Notes are refinanced pursuant to terms that extend the maturity date to 91 or more days beyond the maturity date of the Credit Agreement. At
April 27, 2019
and
January 26, 2019
, the Company was in compliance with the financial covenants of the Credit Agreement and had borrowing availability under the revolving facility of
$325.4 million
and
$412.9 million
, respectively, as determined by the most restrictive covenant.
0.75%
Convertible Senior Notes Due 2021
On September 15, 2015, the Company issued
0.75%
convertible senior notes due
September 2021
in a private placement in the principal amount of
$485.0 million
. The Notes, governed by the terms of an indenture between the Company and a bank trustee are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company. The Notes bear interest at a rate of
0.75%
per year, payable in cash semiannually in March and September, and will mature on September 15, 2021, unless earlier purchased by the Company or converted. In the event the Company fails to perform certain obligations under the indenture, the Notes will accrue additional interest. Certain events are considered “events of default” under the Notes, which may result in the acceleration of the maturity of the Notes, as described in the indenture.
Each
$1,000
of principal of the Notes is convertible into
10.3211
shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately
$96.89
per share. The conversion rate is subject to adjustment in certain circumstances, including in connection with specified fundamental changes (as defined in the indenture). In addition, holders of the Notes have the right to require the Company to repurchase all or a portion of their notes on the occurrence of a fundamental change at a price of 100% of their principal amount plus accrued and unpaid interest.
Prior to June 15, 2021, the Notes are convertible by the Note holder under the following circumstances: (1) during any fiscal quarter commencing after October 24, 2015 (and only during such fiscal quarter) if the last reported sale price of the Company’s common stock for at least
20
trading days (whether or not consecutive) during the
30
consecutive trading days period ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to
130%
of the applicable conversion price on such trading day (
$125.96
assuming an applicable conversion price of
$96.89
); (2) during the five consecutive business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of such measurement period was less than
98%
of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after June 15, 2021 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their Notes at any time regardless of the foregoing circumstances. Upon conversion, the Notes will be settled, at the Company’s election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. The Company intends to settle the principal amount of the Notes with cash.
During
the three months ended
April 27, 2019
, the closing price of the Company’s common stock did not meet or exceed 130% of the applicable conversion price of the Notes for at least 20 of the last 30 consecutive trading dates of the quarter. Additionally, no other conditions allowing holders of the Notes to convert have been met as of
April 27, 2019
. As a result, the Notes were not convertible during
the three months ended
April 27, 2019
and are classified as long-term debt.
In accordance with ASC Topic 470,
Debt
, certain convertible debt instruments that may be settled in cash upon conversion are required to be accounted for as separate liability and equity components. The carrying amount of the liability component is calculated by measuring the fair value of a similar instrument that does not have an associated convertible feature using an indicative market interest rate (“Comparable Yield”) as of the date of issuance. The difference between the principal amount of the notes and the carrying amount represents a debt discount. The debt discount is amortized to interest expense using the Comparable Yield (
5.5%
with respect to the Notes) using the effective interest rate method over the term of the Notes. The Company incurred
$4.9 million
and
$4.7 million
of interest expense during
the three months ended
April 27, 2019
and
April 28, 2018
, respectively, for the non-cash amortization of the debt discount. The liability component of the Notes consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
Liability component
|
|
|
|
Principal amount of 0.75% convertible senior notes due September 2021
|
$
|
485,000
|
|
|
$
|
485,000
|
|
Less: Debt discount
|
(50,863
|
)
|
|
(55,795
|
)
|
Less: Debt issuance costs
|
(5,511
|
)
|
|
(6,006
|
)
|
Net carrying amount of Notes
|
$
|
428,626
|
|
|
$
|
423,199
|
|
The equity component of the Notes was recognized at issuance and represents the difference between the principal amount of the Notes and the fair value of the liability component of the Notes at issuance. The equity component approximated
$112.6 million
at the time of issuance and its fair value is not remeasured as long as it continues to meet the conditions for equity classification.
The following table summarizes the fair value of the Notes, net of the debt discount and debt issuance costs. The fair value of the Notes is based on the closing trading price per $100 of the Notes as of the last day of trading for the respective periods (Level 2), which was
$95.50
and
$96.31
as of
April 27, 2019
and
January 26, 2019
, respectively (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
April 27, 2019
|
|
January 26, 2019
|
Fair value of principal amount of Notes
|
$
|
463,175
|
|
|
$
|
467,104
|
|
Less: Debt discount and debt issuance costs
|
(56,374
|
)
|
|
(61,801
|
)
|
Fair value of Notes
|
$
|
406,801
|
|
|
$
|
405,303
|
|
Convertible Note Hedge and Warrant Transactions
In connection with the offering of the Notes, the Company entered into convertible note hedge transactions with counterparties to reduce the potential dilution to common stockholders from the conversion of the Notes and offsetting any potential cash payments in excess of the principal amount of the Notes. In the event that shares or cash are deliverable to holders of the Notes upon conversion at limits defined in the indenture governing the Notes, counterparties to the convertible note hedge will be required to deliver up to
5.006 million
shares of the Company’s common stock or pay cash to the Company in a similar amount as the value that the Company delivers to the holders of the Notes based on a conversion price of
$96.89
per share.
In addition, the Company entered into separately negotiated warrant transactions with the same counterparties as the convertible note hedge transactions whereby the Company sold warrants to purchase, subject to certain anti-dilution adjustments, up to
5.006 million
shares of the Company’s common stock at a price of
$130.43
per share. The warrants will not have a dilutive effect on the Company’s earnings per share unless the Company’s quarterly average share price exceeds the warrant strike price of
$130.43
per share. In this event, the Company expects to settle the warrant transactions on a net share basis whereby it will issue shares of its common stock.
Upon settlement of the conversion premium of the Notes, convertible note hedge, and warrants, the resulting dilutive impact of these transactions, if any, would be the number of shares necessary to settle the value of the warrant transactions above
$130.43
per share. The net amounts incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the consolidated balance sheets during fiscal 2016 and are not expected to be remeasured in subsequent reporting periods.
The Company recorded an initial deferred tax liability of
$43.4 million
in connection with the debt discount associated with the Notes and recorded an initial deferred tax asset of
$43.2 million
in connection with the convertible note hedge transactions. Both the deferred tax liability and deferred tax asset are included in non-current deferred tax liabilities in the condensed consolidated balance sheets.
See
Note 15,
Income Taxes
,
for additional information regarding the Company’s deferred tax liabilities and assets.
15. Income Taxes
The Company’s interim income tax provisions are based on the effective income tax rate expected to be applicable for the full fiscal year, adjusted for specific items that are required to be recognized in the period in which they occur. Deferred tax assets and liabilities are based on the enacted tax rate that will apply in future periods when such assets and liabilities are expected to be settled or realized.
The Company’s effective income tax rate of
30.3%
and
27.3%
for
the three months ended
April 27, 2019
and
April 28, 2018
, respectively, differs from the statutory rate for the tax jurisdictions where it operates primarily as the result of the impact of non-deductible and non-taxable items, tax credits recognized in relation to pre-tax results, and certain tax impacts from the vesting and exercise of share-based awards.
16. Other Income, Net
The components of other income, net, were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
April 27, 2019
|
|
April 28, 2018
|
Gain on sale of fixed assets
|
$
|
6,738
|
|
|
$
|
8,415
|
|
Discount fee expense
|
(1,298
|
)
|
|
(940
|
)
|
Miscellaneous income, net
|
258
|
|
|
236
|
|
Total other income, net
|
$
|
5,698
|
|
|
$
|
7,711
|
|
The Company participates in a vendor payment program sponsored by one of its customers. Eligible accounts receivable from this customer are included in the program and payment is received pursuant to a non-recourse sale to a bank partner. This program effectively reduces the time to collect these receivables as compared to that customer’s standard payment terms. The Company incurs a discount fee to the bank on the payments received that is reflected as discount fee expense in the table above and is included as an expense component in other income, net, in the condensed consolidated statements of operations.
17. Capital Stock
Repurchases of Common Stock.
On August 29, 2018, the Company announced that its Board of Directors had authorized a
$150.0 million
program to repurchase shares of the Company’s outstanding common stock through February 2020 in open market or private transactions. As of
April 27, 2019
,
$150.0 million
of the repurchase authorization remained available.
The Company did not repurchase any of its common stock during
the three months ended
April 27, 2019
and
April 28, 2018
.
18. Stock-Based Awards
The Company has certain stock-based compensation plans under which it grants stock-based awards, including common stock, stock options, time-based restricted share units (“RSUs”), and performance-based restricted share units (“Performance RSUs”) to attract, retain, and reward talented employees, officers, and directors, and to align their interests with those of its stockholders.
Compensation expense for stock-based awards is based on fair value at the measurement date. This expense fluctuates over time as a function of the duration of vesting periods of the stock-based awards and the Company’s performance, as measured by criteria set forth in performance-based awards. Stock-based compensation expense is included in general and administrative expenses in the condensed consolidated statements of operations and the amount of expense ultimately recognized depends on the quantity of awards that actually vest. Accordingly, stock-based compensation expense may vary from period to period.
The performance criteria for the Company’s performance-based equity awards utilize the Company’s operating earnings (adjusted for certain amounts) as a percentage of contract revenues for the applicable four-quarter period (a “Performance Year”) and its Performance Year operating cash flow level (adjusted for certain amounts). Additionally, certain awards include three-year performance measures that, if met, result in supplemental shares awarded. For Performance RSUs, the Company evaluates compensation expense quarterly and recognizes expense for performance-based awards only if it determines it is probable that performance criteria for the awards will be met.
Stock-based compensation expense and the related tax benefit recognized during
the three months ended
April 27, 2019
and
April 28, 2018
were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
April 27, 2019
|
|
April 28, 2018
|
Stock-based compensation
|
$
|
3,479
|
|
|
$
|
4,863
|
|
Income tax effect of stock-based compensation
|
$
|
869
|
|
|
$
|
1,069
|
|
In addition, the Company realized approximately
$0.6 million
of net tax deficiencies and
$0.1 million
of excess tax benefits during
the three months ended
April 27, 2019
and
April 28, 2018
, respectively, related to the vesting and exercise of share-based awards.
As of
April 27, 2019
, the Company had unrecognized compensation expense related to stock options, RSUs, and target Performance RSUs (based on the Company’s expected achievement of performance measures) of
$3.1 million
,
$11.8 million
, and
$21.6 million
, respectively. This expense will be recognized over a weighted-average number of years of
2.6
,
2.7
, and
2.1
, respectively, based on the average remaining service periods for the awards. As of
April 27, 2019
, the Company may recognize an additional
$24.5 million
in compensation expense in future periods if the maximum amount of Performance RSUs is earned based on certain performance measures being met.
Stock Options
The following table summarizes stock option award activity during
the three months ended
April 27, 2019
:
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Shares
|
|
Weighted Average Exercise Price
|
Outstanding as of January 26, 2019
|
583,291
|
|
|
$
|
34.24
|
|
Granted
|
39,276
|
|
|
$
|
45.94
|
|
Options exercised
|
(9,850
|
)
|
|
$
|
10.71
|
|
Canceled
|
—
|
|
|
$
|
—
|
|
Outstanding as of April 27, 2019
|
612,717
|
|
|
$
|
35.37
|
|
|
|
|
|
Exercisable options as of April 27, 2019
|
510,220
|
|
|
$
|
27.86
|
|
RSUs and Performance RSUs
The following table summarizes RSU and Performance RSU award activity during
the three months ended
April 27, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
RSUs
|
|
Performance RSUs
|
|
Share Units
|
|
Weighted Average Grant Date Fair Value
|
|
Share Units
|
|
Weighted Average Grant Date Fair Value
|
Outstanding as of January 26, 2019
|
126,470
|
|
|
$
|
87.92
|
|
|
377,354
|
|
|
$
|
96.51
|
|
Granted
|
89,863
|
|
|
$
|
46.18
|
|
|
475,629
|
|
|
$
|
45.94
|
|
Share units vested
|
(13,356
|
)
|
|
$
|
95.27
|
|
|
(43,900
|
)
|
|
$
|
93.49
|
|
Forfeited or canceled
|
(123
|
)
|
|
$
|
81.85
|
|
|
(29,002
|
)
|
|
$
|
103.15
|
|
Outstanding as of April 27, 2019
|
202,854
|
|
|
$
|
68.95
|
|
|
780,081
|
|
|
$
|
65.60
|
|
The total amount of granted Performance RSUs presented above consists of
333,567
target shares and
142,062
supplemental shares. The total amount of Performance RSUs outstanding as of
April 27, 2019
consists of
552,904
target shares and
227,177
supplemental shares. With respect to the Company’s Performance Year ended January 26, 2019, the Company canceled
12,331
target shares and
13,556
supplemental shares as a result of the performance period criteria being partially met.
19. Customer Concentration and Revenue Information
Geographic Location
The Company provides services throughout the United States. Contract revenues from services previously provided in Canada were not material during
the three months ended
April 28, 2018
.
Significant Customers
The Company’s customer base is highly concentrated, with its top
five
customers accounting for approximately
80.4%
and
78.8%
, respectively, of its total contract revenues during
the three months ended
April 27, 2019
and
April 28, 2018
, respectively. Customers whose contract revenues exceeded
10%
of total contract revenues during
the three months ended
April 27, 2019
or
April 28, 2018
, as well as total contract revenues from all other customers combined, were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
April 27, 2019
|
|
April 28, 2018
|
|
Amount
|
|
% of Total
|
|
Amount
|
|
% of Total
|
AT&T Inc.
|
$
|
209.3
|
|
|
25.1%
|
|
$
|
177.0
|
|
|
24.2%
|
Verizon Communications Inc.
|
179.8
|
|
|
21.6
|
|
122.1
|
|
|
16.7
|
Comcast Corporation
|
137.1
|
|
|
16.4
|
|
159.2
|
|
|
21.8
|
CenturyLink, Inc.
|
109.8
|
|
|
13.2
|
|
89.7
|
|
|
12.3
|
Total other customers combined
|
197.7
|
|
|
23.7
|
|
183.4
|
|
|
25.0
|
Total contract revenues
|
$
|
833.7
|
|
|
100.0%
|
|
$
|
731.4
|
|
|
100.0%
|
See Note 6,
Accounts Receivable, Contract Assets, and Contract Liabilities
, for information on the Company’s customer credit concentration and collectability of trade accounts receivable and contract assets.
Customer Type
Total contract revenues by customer type during
the three months ended
April 27, 2019
and
April 28, 2018
were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
April 27, 2019
|
|
April 28, 2018
|
|
Amount
|
|
% of Total
|
|
Amount
|
|
% of Total
|
Telecommunications
|
$
|
761.4
|
|
|
91.3%
|
|
$
|
667.2
|
|
|
91.2%
|
Underground facility locating
|
48.2
|
|
|
5.8
|
|
45.1
|
|
|
6.2
|
Electrical and gas utilities and other
|
24.1
|
|
|
2.9
|
|
19.1
|
|
|
2.6
|
Total contract revenues
|
$
|
833.7
|
|
|
100.0%
|
|
$
|
731.4
|
|
|
100.0%
|
Remaining Performance Obligations
Master service agreements and other contractual agreements with customers contain customer-specified service requirements, such as discrete pricing for individual tasks. In most cases, the Company’s customers are not contractually committed to procure specific volumes of services under these agreements.
Services are generally performed pursuant to these agreements in accordance with individual work orders. An individual work order generally is completed within one year. As a result, the Company’s remaining performance obligations under the work orders not yet completed is not meaningful in relation to the Company’s overall revenue at any given point in time. The Company applies the practical expedient in Accounting Standards Codification Topic 606,
Revenue from Contracts with Customers,
and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
20. Commitments and Contingencies
On October 25, 2018 and October 30, 2018, the Company, its Chief Executive Officer and its Chief Financial Officer were named as defendants in two substantively identical lawsuits alleging violations of the federal securities fraud laws. The lawsuits, which purport to be brought on behalf of a class of all purchasers of the Company’s securities between November 20, 2017 and August 10, 2018, were filed in the United States District Court for the Southern District of Florida. The cases were consolidated by the Court on January 11, 2019. The lawsuit alleges that the defendants made materially false and misleading statements or failed to disclose material facts regarding the Company’s financial condition and business operations, including those related to the Company’s dependency on, and uncertainties related to, the permitting necessary for its large projects. The plaintiffs seek unspecified damages. The Company believes the allegations in the lawsuit are without merit and intends to vigorously defend the lawsuit. Based on the early stage of this matter, it is not possible to estimate the amount or range of possible loss that may result from an adverse judgment or a settlement of this matter.
On December 17, 2018, a shareholder derivative action was filed in United States District Court for the Southern District of Florida against the Company, as nominal defendant, and the members of its Board of Directors, alleging that the directors breached fiduciary duties owed to the Company and violated the securities laws by causing the Company to issue false and misleading statements. The statements alleged to be false and misleading are the same statements that are alleged to be false and misleading in the securities lawsuit described above. On February 28, 2019, the Court stayed this lawsuit pending a further Order from the Court. Based on the early stage of this matter, it is not possible to estimate the amount or range of possible loss that may result from an adverse judgment or a settlement of this matter.
During the fourth quarter of fiscal 2016, one of the Company’s subsidiaries ceased operations. This subsidiary contributed to a multiemployer pension plan, the Pension, Hospitalization and Benefit Plan of the Electrical Industry - Pension Trust Fund (the “Plan”). In October 2016, the Plan demanded payment for a claimed withdrawal liability of approximately
$13.0 million
. In December 2016, the Company submitted a formal request to the Plan seeking review of the Plan’s withdrawal liability determination. The Company is disputing the claim of a withdrawal liability demanded by the Plan as it believes there is a statutory exemption available under the Employee Retirement Income Security Act (“ERISA”) for multiemployer pension plans that primarily cover employees in the building and construction industry. The Plan has taken the position that the work at issue does not qualify for the statutory exemption. The Company has submitted this dispute to arbitration, as required by ERISA, with a hearing expected during calendar year 2019. There can be no assurance that the Company will be successful in asserting the statutory exemption as a defense in the arbitration proceeding. As required by ERISA, in November 2016, the subsidiary began making payments of a withdrawal liability to the Plan in the amount of approximately
$0.1 million
per month. If the Company prevails in disputing the withdrawal liability, all such payments will be refunded to the subsidiary.
From time to time, the Company is party to
various claims and legal proceedings arising in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, it is the opinion of management, based on information available at this time, that the ultimate resolution of any such claims or legal proceedings will not, after considering applicable insurance coverage or other indemnities to which the Company may be entitled, have a material effect on the Company’s financial position, results of operations, or cash flow.
For claims within its insurance program, the Company retains the risk of loss, up to certain limits, for matters related to automobile liability, general liability (including damages associated with underground facility locating services), workers’ compensation, and employee group health. The Company has established reserves that it believes to be adequate based on current evaluations and experience with these types of claims. For these claims, the effect on the Company’s financial statements is generally limited to the amount needed to satisfy insurance deductibles or retentions.
Commitments
Performance and Payment Bonds and Guarantees.
The Company has obligations under performance and other surety contract bonds related to certain of its customer contracts. Performance bonds generally provide a customer with the right to obtain payment and/or performance from the issuer of the bond if the Company fails to perform its contractual obligations. As of
April 27, 2019
and
January 26, 2019
, the Company had
$142.8 million
and
$123.5 million
, respectively, of outstanding performance and other surety contract bonds. In addition to performance and other surety contract bonds, as part of its insurance program the Company also provides surety bonds that collateralize its obligations to its insurance carriers. As of
April 27, 2019
and
January 26, 2019
, the Company had
$23.4 million
and
$23.2 million
, respectively, of outstanding surety bonds related to its insurance obligations. Additionally, the Company periodically guarantees certain obligations of its subsidiaries, including obligations in connection with obtaining state contractor licenses and leasing real property and equipment.
Letters of Credit.
The Company has issued standby letters of credit under its Credit Agreement that collateralize its obligations to its insurance carriers. As of
April 27, 2019
and
January 26, 2019
, the Company had
$52.3 million
and
$48.6 million
, respectively, of outstanding standby letters of credit issued under the Credit Agreement.
Cautionary Note Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. These statements are intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act of 1995. These statements may relate to future events, financial performance, strategies, expectations, and the competitive environment. Words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “forecast,” “target,” “outlook,” “may,” “should,” “could,” and similar expressions, as well as statements written in the future tense, identify forward-looking statements.
You should not consider forward-looking statements as guarantees of future performance or results. When made, forward-looking statements are based on information known to management at such time and/or management’s good faith belief with respect to future events. Such statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors, assumptions, uncertainties, and risks that could cause such differences are discussed within Part II, Item 1A,
Risk Factors
, of this Quarterly Report on Form 10-Q, as well as Item 1,
Business
, Item 1A,
Risk Factors,
and Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations
, of our Annual Report on Form 10-K for fiscal 2019, filed with the U.S. Securities and Exchange Commission (“SEC”) on
March 4, 2019
and our other periodic filings with the SEC. Our forward-looking statements are expressly qualified in their entirety by this cautionary statement and are only made as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update them to reflect new information or events or circumstances arising after such date.