NOTES TO THE 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 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”) pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments considered necessary for a fair presentation of such statements have been included. This includes all normal and recurring adjustments and elimination of intercompany accounts and transactions.
Accounting Period.
In September 2017, the Company’s Board of Directors approved a change in the Company’s fiscal year end from the last Saturday in July to the last Saturday in January. The change in fiscal year end better aligned the Company’s fiscal year with the planning cycles of its customers. For quarterly comparisons, there were no changes to the months in each fiscal quarter. Beginning with fiscal 2019, each 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 2017 each consisted of 52 weeks of operations and fiscal 2016 consisted of 53 weeks of operations. The next 53 week fiscal period will occur in the fiscal year ending January 30, 2021.
The Company refers to the period beginning January 28, 2018 and ending January 26, 2019 as “fiscal 2019”, the period beginning July 30, 2017 and ending January 27, 2018 as the “2018 transition period”, the period beginning July 31, 2016 and ending July 29, 2017 as “fiscal 2017”, and the period beginning July 26, 2015 and ending July 30, 2016 as “fiscal 2016”.
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), whose results 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
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 consolidated financial statements and accompanying notes. For the Company, key estimates include: the recognition of revenue under the cost-to-cost method of progress, accrued insurance claims, the allowance for doubtful accounts, accruals for contingencies, stock-based compensation expense for performance-based stock awards, the fair value of reporting units for the goodwill impairment analysis, the assessment of impairment of intangibles and other long-lived assets, the purchase price allocations of businesses acquired, and income taxes. 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.
Revenue Recognition.
The Company performs a majority of its services under master service agreements and other contracts that contain customer-specified service requirements. These agreements include discrete pricing for individual tasks including, for example, the placement of underground or aerial fiber, directional boring, and fiber splicing, each based on a specific unit of measure. A contractual agreement exists when each party involved approves and commits to the agreement, the rights of the parties and payment terms are identified, the agreement has commercial substance, and collectability of consideration is probable. The Company’s services are performed for the sole benefit of its customers, whereby the assets being created or maintained are controlled by the customer and the services the Company performs do not have alternative benefits for the Company. Revenue is recognized over time as services are performed and customers simultaneously receive and consume the benefits provided by the Company. Output measures such as units delivered are utilized to assess progress against specific contractual performance obligations for the majority of the Company’s services. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the services to be provided. For the
Company, the output method using units delivered best represents the measure of progress against the performance obligations incorporated within the contractual agreements. This method captures the amount of units delivered pursuant to contracts and is used only when the Company’s performance does not produce significant amounts of work in process prior to complete satisfaction of the performance obligation. For a portion of contract items, units to be completed consist of multiple tasks. For these items, the transaction price is allocated to each task based on relative standalone measurements, such as selling prices for similar tasks, or in the alternative, the cost to perform the tasks. Revenue is recognized as the tasks are completed as a measurement of progress in the satisfaction of the corresponding performance obligation, and represented less than
10.0%
of contract revenues during fiscal 2019.
For certain contracts, representing less than
5.0%
of contract revenues during
fiscal 2019
,
the 2018 transition period
,
fiscal 2017
, and
fiscal 2016
, the Company uses the cost-to-cost measure of progress. These contracts are generally projects that are completed over a period of less than twelve months and for which payment is received in a lump sum at the end of the project. Under the cost-to-cost measure of progress, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs. Contract costs include direct labor, direct materials, and subcontractor costs, as well as an allocation of indirect costs. Contract revenues are recorded as costs are incurred. For contracts using the cost-to-cost measure of progress, the Company accrues the entire amount of a contract loss, if any, at the time the loss is determined to be probable and can be reasonably estimated.
There were no material amounts of unapproved change orders or claims recognized during
fiscal 2019
,
the 2018 transition period
,
fiscal 2017
, or
fiscal 2016
.
Accounts Receivable, Net.
The Company grants credit to its customers, generally without collateral, under normal payment terms (typically 30 to 90 days after invoicing). Generally, invoicing occurs within 45 days after the related services are performed. Accounts receivable represents an unconditional right to consideration arising from the Company’s performance under contracts with customers. Accounts receivable include billed accounts receivable, unbilled accounts receivable, and retainage. The carrying value of such receivables, net of the allowance for doubtful accounts, represents their estimated realizable value. Unbilled accounts receivable represent amounts the Company has an unconditional right to receive payment for although invoicing is subject to the completion of certain process or other requirements. Such requirements may include the passage of time, completion of other items within a statement of work, or other contractual billing requirements. Certain of the Company’s contracts contain retainage provisions whereby a portion of the revenue earned is withheld from payment as a form of security until contractual provisions are satisfied. The collectability of retainage is included in the Company’s overall assessment of the collectability of accounts receivable. The Company expects to collect the outstanding balance of current accounts receivable, net (including trade accounts receivable, unbilled accounts receivable, and retainage) within the next twelve months. Accounts receivable of
$24.8 million
from Windstream are classified as non-current in other assets and are net of the related allowance for doubtful accounts. On February 25, 2019, Windstream filed of a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. The Company estimates its allowance for doubtful accounts by evaluating specific accounts receivable balances based on historical collection trends, the age of outstanding receivables, and the credit worthiness of the Company’s customers.
For one customer, the Company has participated in a customer-sponsored vendor payment program since fiscal 2016. All 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 of the customer. 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 an expense component in other income, net, in the consolidated statements of operations. The operations of this program have not changed since the Company began participating.
Contract Assets.
Contract assets include unbilled amounts typically resulting from arrangements whereby complete satisfaction of a performance obligation and the right to payment are conditioned on completing additional tasks or services.
Contract Liabilities.
Contract liabilities consist of amounts invoiced to customers in excess of revenue recognized. The Company’s contract assets and liabilities are reported in a net position on a contract by contract basis at the end of each reporting period. As of
January 26, 2019
and
January 27, 2018
, the contract liabilities balance is classified as current based on the timing of when the Company expects to complete the tasks required for the recognition of revenue.
Cash and Equivalents.
Cash and equivalents primarily include balances on deposit in banks. The Company maintains its cash and equivalents at financial institutions it believes to be of high credit quality. To date, the Company has not experienced any loss or lack of access to cash in its operating accounts.
Inventories.
Inventories consist of materials and supplies used in the ordinary course of business and are carried at the lower of cost (using the first-in, first-out method) or net realizable value. Inventories also include certain job specific materials that are valued using the specific identification method. For contracts where the Company is required to supply part or all of the materials on behalf of a customer, the loss of a customer or declines in contract volumes could result in an impairment of the value of materials purchased.
Property and Equipment.
Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives (see Note 9,
Property and Equipment
, for the range of useful lives). Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the asset or the remaining lease term. Maintenance and repairs are expensed as incurred and major improvements are capitalized. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in other income. Capitalized software is accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350-40,
Internal Use Software.
Capitalized software consists primarily of costs to purchase and develop internal-use software and is amortized over its useful life as a component of depreciation expense. Property and equipment includes internally developed capitalized computer software at net book value of
$28.5 million
and
$28.8 million
as of
January 26, 2019
and
January 27, 2018
, respectively.
Goodwill and Intangible Assets.
The Company accounts for goodwi
ll
and other intangibles in accordance with ASC Topic 350,
Intangibles - Goodwill and Other
(“ASC Topic 350”). 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 Company performs its annual impairment review of goodwill at the reporting unit level. Each of the Company’s operating segments with goodwill represents a reporting unit for the purpose of assessing impairment. If the Company determines the fair value of the reporting unit’s goodwill or other indefinite-lived intangible assets is less than their carrying value as a result of an annual or interim test, an impairment loss is recognized and reflected in operating income or loss in the consolidated statements of operations during the period incurred.
The Company has historically completed its annual goodwill impairment assessment as of the first day of the fourth fiscal quarter of each year. As a result of the change in the Company’s fiscal year end, the annual goodwill impairment assessment date was changed to the first day of the fiscal quarter ending on the last Saturday in January, as this became the first day of the Company’s fourth fiscal quarter. The change in the annual goodwill impairment assessment date is deemed a change in accounting principle, which the Company believes to be preferable as the change was made to better align the annual goodwill impairment test with the change in the Company’s annual planning and budgeting process related to the new fiscal year end. This change in accounting principle did not delay, accelerate or avoid a goodwill impairment charge and had no effect on the consolidated financial statements, including any cumulative effect on retained earnings.
In accordance with ASC Topic 360,
Impairment or Disposal of Long-Lived Assets
, the Company reviews finite-lived intangible assets for impairment whenever an event occurs or circumstances change that indicate that the carrying amount of such assets may not be fully recoverable. Recoverability is determined based on an estimate of undiscounted future cash flows resulting from the use of an asset and its eventual disposition. Should an asset not be recoverable, an impairment loss is measured by comparing the fair value of the asset to its carrying value. If the Company determines the fair value of an asset is less than the carrying value, an impairment loss is recognized in operating income or loss in the consolidated statements of operations during the period incurred.
The Company uses judgment in assessing whether goodwill and intangible assets are impaired. Estimates of fair value are based on the Company’s projection of revenues, operating costs, and cash flows taking into consideration historical and anticipated future results, general economic and market conditions, as well as the impact of planned business or operational strategies. The Company determines the fair value of its reporting units using a weighing of fair values derived in equal proportions from the income approach and market approach valuation methodologies. The income approach uses the discounted cash flow method and the market approach uses the guideline company method. Changes in the Company’s judgments and projections could result in significantly different estimates of fair value, potentially resulting in impairments of goodwill and other intangible assets. The inputs used for fair value measurements of the reporting units and other related indefinite-lived intangible assets are the lowest level (Level 3) inputs. See Note 10,
Goodwill and Intangible Assets
, for additional information regarding the Company’s annual assessment of goodwill and other indefinite-lived intangible assets.
Business Combinations.
The Company accounts for business combinations under the acquisition method of accounting. The purchase price of each business acquired is allocated to the tangible and intangible assets acquired and the liabilities assumed based on information regarding their respective fair values on the date of acquisition. Any excess of the purchase price over the fair value of the separately identifiable assets acquired and the liabilities assumed is allocated to goodwill. Management determines the fair values used in purchase price allocations for intangible assets based on historical data,
estimated discounted future cash flows, expected royalty rates for trademarks and trade names, as well as certain other information. The valuation of assets acquired and liabilities assumed requires a number of judgments and is subject to revision as additional information about the fair value of assets and liabilities becomes available. Additional information, which existed as of the acquisition date but unknown to the Company at that time, may become known during the remainder of the measurement period. This measurement period may not exceed
twelve months
from the acquisition date. The Company will recognize any adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are determined. Additionally, in the same period in which adjustments are recognized, the Company will record the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, calculated as if the accounting adjustment had been completed at the acquisition date. Acquisition costs are expensed as incurred. The results of operations of businesses acquired are included in the consolidated financial statements from their dates of acquisition.
Long-Lived Tangible Assets.
The Company reviews long-lived tangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of an asset group and its eventual disposition. Measurement of an impairment loss is based on the fair value of the asset compared to its carrying value. Long-lived tangible assets to be disposed of are reported at the lower of their carrying amount or fair value less costs to sell.
Accrued Insurance Claims.
For claims within the Company’s insurance program, it 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 its experience with these types of claims. A liability for unpaid claims and the associated claim expenses, including incurred but not reported losses, is determined with the assistance of an actuary and reflected in the consolidated financial statements as accrued insurance claims. The effect on the Company’s financial statements is generally limited to the amount needed to satisfy its insurance deductibles or retentions.
The Company estimates the liability for claims based on facts, circumstances, and historical experience. Even though they will not be paid until sometime in the future, recorded loss reserves are not discounted. Factors affecting the determination of the expected cost for existing and incurred but not reported claims include, but are not limited to, the magnitude and quantity of future claims, the payment pattern of claims which have been incurred, changes in the medical condition of claimants, and other factors such as inflation, tort reform or other legislative changes, unfavorable jury decisions and court interpretations.
Per Share Data.
Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the period, excluding unvested restricted share units. Diluted earnings per common share includes the weighted average number of common shares outstanding during the period and dilutive potential common shares arising from the Company’s stock-based awards (including unvested restricted share units), convertible senior notes, and warrants if their inclusion is dilutive under the treasury stock method. Common stock equivalents related to stock-based awards, convertible senior notes, and warrants are excluded from diluted earnings per common share calculations if their effect would be anti-dilutive.
The Company adopted FASB Accounting Standards Update (“ASU”) No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”) on a prospective basis effective July 30, 2017, the first day of the 2018 transition period. Under the amended guidance, excess tax benefits and tax deficiencies arising from the vesting and exercise of share-based awards are no longer included in the hypothetical proceeds used to repurchase shares when computing diluted earnings per common share under the treasury stock method. See Note 4,
Computation of Earnings Per Share,
for additional information related to ASU 2016-09’s impact on per share data.
Stock-Based Compensation.
The Company has stock-based compensation plans under which it grants stock-based awards, including 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 stockholder and employee interests. The resulting compensation expense is recognized on a straight-line basis over the vesting period, net of actual forfeitures, and is included in general and administrative expenses in the consolidated statements of operations. This expense fluctuates over time as a result of the vesting periods of the stock-based awards and, for the Company’s Performance RSUs, the expected achievement of performance measures.
Compensation expense for stock-based awards is based on fair value at the measurement date. The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model. This valuation is affected by the Company’s stock price as well as other inputs, including the expected common stock price volatility over the expected life of the options, the expected term of the stock option, risk-free interest rates, and expected dividends, if any. Stock options vest
ratably over a
four
-year period and are exercisable over a period of up to
ten
years. The fair value of RSUs and Performance RSUs is estimated on the date of grant and is equal to the closing market price per share of the Company’s common stock on that date. RSUs generally vest ratably over a
four
-year period. Performance RSUs vest ratably over a
three
-year period, if certain performance measures are achieved. Each RSU and Performance RSU is settled in one share of the Company’s common stock upon vesting.
For Performance RSUs, the Company evaluates compensation expense quarterly and recognizes expense only if it determines it is probable that the performance measures for the awards will be met. The performance measures for target awards are based on the Company’s operating earnings (adjusted for certain amounts) as a percentage of contract revenues and its operating cash flow level (adjusted for certain amounts) for the applicable four-quarter performance period. Additionally, certain awards include three-year performance measures that are more difficult to achieve than those required to earn target awards and, if met, result in supplemental shares awarded. The performance measures for supplemental awards are based on three-year cumulative operating earnings (adjusted for certain amounts) as a percentage of contract revenues and three-year cumulative operating cash flow level (adjusted for certain amounts). In a period the Company determines it is no longer probable that it will achieve certain performance measures for the awards, it reverses the stock-based compensation expense that it had previously recognized and associated with the portion of Performance RSUs that are no longer expected to vest. The amount of the expense ultimately recognized depends on the number of awards that actually vest. Accordingly, stock-based compensation expense may vary from period to period. For additional information on the Company’s stock-based compensation plans, stock options, RSUs, and Performance RSUs, see Note 18,
Stock-Based Awards
.
Income Taxes.
The Company accounts for income taxes under the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company’s effective income tax rate 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, certain tax impacts from the vesting and exercise of share-based awards, and certain tax impacts from the Tax Cuts and Jobs Act of 2017 (“Tax Reform”). Tax Reform had a substantial impact on the Company’s consolidated financial statements for the 2018 transition period. See Note 14,
Income Taxes
, for further information.
Measurement of the Company’s tax position is based on the applicable statutes, federal and state case law, and its interpretations of tax regulations. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income during the period that includes the enactment date. The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, the Company considers all relevant factors, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company determines that it would be able to realize deferred income tax assets in excess of their net recorded amount, the Company would adjust the valuation allowance, which would reduce the provision for income taxes.
In accordance with ASC Topic 740,
Income Taxes
(“ASC Topic 740”), the Company recognizes tax benefits in the amount that it deems more likely than not will be realized upon ultimate settlement of any tax uncertainty. Tax positions that fail to qualify for recognition are recognized during the period in which the more-likely-than-not standard has been reached, when the tax positions are resolved with the respective taxing authority or when the statute of limitations for tax examination has expired. The Company recognizes applicable interest related to tax amounts in interest expense and penalties within general and administrative expenses.
The Company believes its provision for income taxes is adequate; however, any assessment would affect the Company’s results of operations and cash flows. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian income tax examinations for fiscal years ended 2014 and prior.
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 13,
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
January 26, 2019
and
January 27, 2018
. During
fiscal 2019
,
the 2018 transition period
, fiscal 2017, and fiscal 2016, the Company had no material nonrecurring fair value measurements of assets or liabilities subsequent to their initial recognition.
Taxes Collected from Customers.
ASC Topic 606,
Taxes Collected from Customers and Remitted to Governmental Authorities
, addresses the income statement presentation of any taxes collected from customers and remitted to a government
authority and provides that the presentation of taxes on either a gross basis or a net basis is an accounting policy decision that should be disclosed. The Company’s policy is to present contract revenues net of sales taxes.
3. Accounting Standards
Recently Adopted Accounting Standards
Revenue Recognition
. In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. ASU 2014-09 replaces numerous requirements in GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Under the new standard, the two permitted transition methods are the full retrospective method and the modified retrospective method. The full retrospective method requires the standard to be applied to each prior reporting period presented and the cumulative effect of applying the standard to be recognized at the earliest period shown. The modified retrospective method requires the cumulative effect of applying the standard to be recognized at the date of initial application. Effective January 28, 2018, the Company adopted the requirements of ASU 2014-09 using the modified retrospective method. As a practical expedient, the Company adopted the new standard only for existing contracts as of January 28, 2018, the date of adoption. Any contracts that had expired prior to January 28, 2018 were not evaluated against the new standard. The Company believes its application of the new standard to only those contracts existing as of January 28, 2018 did not have a material impact on adoption.
In accordance with the guidance under ASU 2014-09, the Company reclassified
$311.7 million
of unbilled receivables from contract assets (historically referred to as Costs and Estimated Earnings in Excess of Billings) to accounts receivable, net as of January 28, 2018, the date of the Company’s adoption. As a result of the reclassification, accounts receivable, net and contract assets were
$630.4 million
and
$57.8 million
, respectively, as of January 28, 2018. The reclassification was a non-cash activity between contract assets and accounts receivable, net and did not impact net cash provided by operating activities in the consolidated statement of cash flows. The impact of adoption on the Company’s consolidated balance sheet as of
January 26, 2019
was as follows, including both current and non-current balances (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
As reported
|
|
Balances Without Adoption of ASU 2014-09
|
|
Effect of Change
|
Assets
|
|
|
|
|
|
Accounts receivable, net
|
$
|
625,258
|
|
|
$
|
341,795
|
|
|
$
|
283,463
|
|
Contract assets
|
215,849
|
|
|
499,312
|
|
|
(283,463
|
)
|
The adoption of ASU 2014-09 resulted in balance sheet classification changes for amounts that have not been invoiced to customers but for which the Company has satisfied the performance obligation and has an unconditional right to receive payment. Prior to the adoption of ASU 2014-09, amounts not yet invoiced to customers were included in the Company’s contract assets (historically referred to as Costs and Estimated Earnings in Excess of Billings). These amounts represent unbilled accounts receivable for which the Company has an unconditional right to receive payment although invoicing is subject to the completion of certain process or other requirements. Such requirements may include the passage of time, completion of other items within a statement of work, or other contractual billing requirements.
The standard did not impact the opening retained earnings of the Company’s consolidated balance sheet or the Company’s consolidated statement of operations as timing and amount of revenue recognized under the new standard was unchanged as compared to the Company’s historical revenue recognition practices.
Restricted Cash.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(“ASU 2016-18”). ASU 2016-18 is intended to reduce diversity in practice regarding the classification and presentation of changes in restricted cash within the statement of cash flows. The amendments in this update require that amounts generally described as restricted cash and restricted cash equivalents be included with the beginning-of-period and end-of-period total amounts of cash and cash equivalents in the statement of cash flows. The Company adopted ASU 2016-18 effective January 28, 2018, the first day of fiscal 2019, and applied this change of presentation retrospectively to the Company’s consolidated statement of cash flows. As a result of the retrospective adoption, the beginning-of-period and end-of-period total amounts of cash and cash equivalents have been restated to include restricted cash of
$6.2 million
,
$5.4 million
,
$5.0 million
,
and
$4.5 million
as of January 27, 2018, July 29, 2017, July 30, 2016, and July 25, 2015, respectively. Restricted cash primarily relates to funding provisions of the Company’s insurance program.
Statement of Cash Flows.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”)
.
ASU 2016-15 is intended to reduce diversity in practice regarding the classification of certain transactions within the statement of cash flows and addresses eight specific topics including, among other things, the classification of cash flows related to debt prepayment and debt extinguishment costs. Under the amended guidance, cash payments for debt prepayment and debt extinguishment costs are classified as financing activities, whereas historically, the Company has classified such cash flows as operating activities. The Company adopted ASU 2016-15 effective January 28, 2018, the first day of fiscal 2019 on a retrospective basis as required. As a result of the retrospective adoption, payments of certain debt extinguishment costs of
$14.2 million
have been reclassified from operating activities to financing activities in the Company’s consolidated statement of cash flows for the fiscal year ended July 30, 2016.
The Company also adopted the following Accounting Standards Updates during
fiscal 2019
, neither of which had a material effect on the Company’s consolidated financial statements:
|
|
|
|
|
ASU
|
|
Adoption Date
|
2016-16
|
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
|
|
January 28, 2018
|
2017-01
|
Business Combinations (Topic 805): Clarifying the Definition of a Business
|
|
January 28, 2018
|
Accounting Standards Not Yet Adopted
Leases
. In February 2016, the FASB issued 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 twelve months, the new guidance will require 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. ASU 2016-02 will be effective for the Company for the fiscal year ended January 25, 2020 and interim reporting periods within that year. The Company will adopt the guidance 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 will not be adjusted. The Company has evaluated the impact of applying the practical expedients and expects to elect the group of practical expedients that allow it to not 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 will not elect the use of hindsight practical expedient.
The Company has substantially completed its evaluation of the effect of ASU 2016-02 on its systems, business processes, controls, disclosures, and consolidated financial statements, and has implemented a lease accounting and administration software in connection with the new standard. On adoption, the Company currently expects to recognize right-of-use assets and corresponding lease liabilities ranging from
$70.0 million
to
$75.0 million
on its consolidated balance sheet for its operating leases with terms greater than twelve months. The Company does not expect a material impact to its consolidated statements of operations, comprehensive income, or cash flows. These expectations may change as the Company’s assessment is finalized.
Goodwill.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment testing. An entity will no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 will be effective for the Company for the fiscal year ended January 30, 2021 and interim reporting periods within that year. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company expects the adoption of this guidance will not have a material effect on the Company’s consolidated financial statements.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
January 26, 2019
|
|
January 27, 2018
|
|
July 29, 2017
|
|
July 30, 2016
|
Net income available to common stockholders (numerator)
|
$
|
62,907
|
|
|
$
|
68,835
|
|
|
$
|
157,217
|
|
|
$
|
128,740
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares (denominator)
|
31,250,376
|
|
|
31,059,140
|
|
|
31,351,367
|
|
|
32,315,636
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
2.01
|
|
|
$
|
2.22
|
|
|
$
|
5.01
|
|
|
$
|
3.98
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares
|
31,250,376
|
|
|
31,059,140
|
|
|
31,351,367
|
|
|
32,315,636
|
|
Potential shares of common stock arising from stock options, and unvested restricted share units
(1)
|
555,993
|
|
|
778,411
|
|
|
633,364
|
|
|
800,119
|
|
Potential shares of common stock issuable on conversion of 0.75% convertible senior notes due 2021
(2)
|
183,799
|
|
|
217,394
|
|
|
—
|
|
|
—
|
|
Total shares-diluted (denominator)
|
31,990,168
|
|
|
32,054,945
|
|
|
31,984,731
|
|
|
33,115,755
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
$
|
1.97
|
|
|
$
|
2.15
|
|
|
$
|
4.92
|
|
|
$
|
3.89
|
|
|
|
|
|
|
|
|
|
Anti-dilutive weighted shares excluded from the calculation of earnings per common share:
|
Stock-based awards
|
130,779
|
|
|
93,117
|
|
|
73,830
|
|
|
65,514
|
|
0.75% convertible senior notes due 2021
|
4,821,935
|
|
|
4,788,340
|
|
|
5,005,734
|
|
|
5,005,734
|
|
Warrants
|
5,005,734
|
|
|
5,005,734
|
|
|
5,005,734
|
|
|
5,005,734
|
|
Total
|
9,958,448
|
|
|
9,887,191
|
|
|
10,085,298
|
|
|
10,076,982
|
|
(1)
The Company adopted ASU 2016-09 on a prospective basis effective July 30, 2017, the first day of the 2018 transition period. Under the amended guidance, excess tax benefits and tax deficiencies arising from the vesting and exercise of share-based awards are no longer included in the hypothetical proceeds used to repurchase shares when computing diluted earnings per common share under the treasury stock method. As a result, d
iluted shares used in computing diluted earnings per common share for the 2018 transition period increased by approximately
177,575
shares.
(2)
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 first quarter of fiscal 2019, the second quarter of fiscal 2019, and the second quarter of
the 2018 transition period
, the Company’s average stock price of
$110.46
,
$99.27
, and
$106.11
, respectively, each 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 each period are included in the calculation of diluted earnings per share for fiscal 2019 and the 2018 transition period. 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 13,
Debt
, for additional information related to the Company’s convertible senior notes, warrant transactions, and hedge transactions.
5. Acquisitions
Fiscal 2019.
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 estimated to be approximately
$0.5 million
. This acquisition expands the Company’s geographic presence within its existing customer base.
Fiscal 2017.
During March 2017, the Company acquired Texstar Enterprises, Inc. (“Texstar”) for
$26.1 million
, net of cash acquired. Texstar provides construction and maintenance services for telecommunications providers in the Southwest and Pacific Northwest United States. This acquisition expands the Company’s geographic presence within its existing customer base.
Fiscal 2016.
During August 2015, the Company acquired TelCom Construction, Inc. and an affiliate (together, “TelCom”). The purchase price was
$48.8 million
paid in cash. TelCom, based in Clearwater, Minnesota, provides construction and maintenance services for telecommunications providers throughout the United States. This acquisition expands the Company’s geographic presence within its existing customer base. During May 2016, the Company acquired NextGen Telecom Services Group, Inc. (“NextGen”) for
$5.6 million
, net of cash acquired. NextGen provides construction and maintenance services for telecommunications providers in the Northeast United States. Additionally, during July 2016, the Company acquired certain assets and assumed certain liabilities associated with the wireless network deployment and wireline operations of Goodman Networks Incorporated (“Goodman”) for a net cash purchase price of
$100.9 million
after an adjustment of approximately
$6.6 million
for working capital received below a target amount. The acquired operations provide wireless construction services in a number of markets, including Texas, Georgia, and Southern California. The acquisition reinforces the Company’s wireless construction resources and expands the Company’s geographic presence within its existing customer base.
Purchase Price Allocations
The purchase price allocations of each of the 2017 and 2016 acquisitions were completed within the 12-month measurement period from the dates of acquisition. Adjustments to provisional amounts were recognized in the reporting period in which the adjustments were determined and were not material. The purchase price allocation of the business acquired in fiscal 2019 is preliminary and will be completed when valuations for intangible assets and other amounts are finalized within the 12-month measurement period from the date of acquisition.
The following table summarizes the aggregate consideration paid for businesses acquired in fiscal 2019, fiscal 2017, and fiscal 2016 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2017
|
|
2016
|
Assets
|
|
|
|
|
|
Accounts receivable
|
$
|
5.6
|
|
|
$
|
8.9
|
|
|
$
|
16.9
|
|
Contract assets
|
—
|
|
|
2.4
|
|
|
21.8
|
|
Inventories and other current assets
|
0.2
|
|
|
0.2
|
|
|
15.0
|
|
Property and equipment
|
0.5
|
|
|
5.6
|
|
|
11.5
|
|
Goodwill
|
4.0
|
|
|
10.1
|
|
|
39.9
|
|
Intangible assets - customer relationships
|
12.3
|
|
|
9.8
|
|
|
94.5
|
|
Intangible assets - trade names and other
|
—
|
|
|
0.7
|
|
|
1.8
|
|
Total assets
|
22.6
|
|
|
37.7
|
|
|
201.4
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Accounts payable
|
2.2
|
|
|
3.2
|
|
|
23.7
|
|
Accrued and other current liabilities
|
—
|
|
|
3.4
|
|
|
22.3
|
|
Deferred tax liabilities, net non-current
|
—
|
|
|
5.0
|
|
|
—
|
|
Total liabilities
|
2.2
|
|
|
11.6
|
|
|
46.0
|
|
|
|
|
|
|
|
Net Assets Acquired
|
$
|
20.4
|
|
|
$
|
26.1
|
|
|
$
|
155.4
|
|
The goodwill associated with the stock purchase of Texstar is not deductible for tax purposes. Results of businesses acquired are included in the consolidated financial statements from their respective dates of acquisition. The revenues and net income of the fiscal 2019 acquisition, TelCom, NextGen, and Texstar were not material during fiscal 2019,
the 2018 transition period
, fiscal 2017, or fiscal 2016.
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. See Note 2,
Significant Accounting Policies and Estimates
, for further information on the Company’s policies related to these balance sheet accounts, as well as its revenue recognition policies.
Accounts Receivable
Accounts receivable, net classified as current consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
Trade accounts receivable
|
$
|
331,903
|
|
|
$
|
300,271
|
|
Unbilled accounts receivable
|
283,463
|
|
|
—
|
|
Retainage
|
10,831
|
|
|
19,411
|
|
Total
|
626,197
|
|
|
319,682
|
|
Less: allowance for doubtful accounts
|
(939
|
)
|
|
(998
|
)
|
Accounts receivable, net
|
$
|
625,258
|
|
|
$
|
318,684
|
|
Accounts receivable of
$24.8 million
from Windstream are classified as non-current in other assets and are net of the related allowance for doubtful accounts. See Note 7,
Other Assets
, for further information on the Company’s non-current accounts receivable, net.
As of January 27, 2018, the Company’s accounts receivable, net were
$318.7 million
. Subsequently, on January 28, 2018 (the Company’s first day of adoption of ASU 2014-09) the Company reclassified
$311.7 million
of unbilled receivables from contract assets (historically referred to as Costs and Estimated Earnings in Excess of Billings) to accounts receivable, net in accordance with the guidance under ASU 2014-09. As a result of the reclassification, accounts receivable, net were
$630.4 million
as of January 28, 2018. As of January 26, 2019, the corresponding balance was
$625.3 million
, including current and non-current receivables. See Note 3,
Accounting Standards
, for further information on the adoption of ASU 2014-09.
The Company maintains an allowance for doubtful accounts for estimated losses on uncollected balances. The allowance for doubtful accounts changed as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
January 26, 2019
|
|
January 27, 2018
|
Allowance for doubtful accounts at beginning of period
|
$
|
998
|
|
|
$
|
835
|
|
Bad debt expense
|
16,677
|
|
|
201
|
|
Amounts recovered (charged) against the allowance
|
27
|
|
|
(38
|
)
|
Allowance for doubtful accounts at end of period
|
$
|
17,702
|
|
|
$
|
998
|
|
Approximately
$16.8 million
of the allowance for doubtful accounts as of January 26, 2019 is classified as non-current.
Contract Assets and Contract Liabilities
Net contract assets consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
Contract assets
|
$
|
215,849
|
|
|
$
|
369,472
|
|
Contract liabilities
|
15,125
|
|
|
6,480
|
|
Contract assets, net
|
$
|
200,724
|
|
|
$
|
362,992
|
|
As of January 27, 2018, the Company’s contract assets (historically referred to as Costs and Estimated Earnings in Excess of Billings) were
$369.5 million
. Subsequently, on January 28, 2018 (the Company’s first day of adoption of ASU 2014-09) the Company reclassified
$311.7 million
of unbilled receivables from contract assets to accounts receivable, net in accordance with the guidance under ASU 2014-09. As a result of the reclassification, contract assets were
$57.8 million
as of January 28, 2018. As of January 26, 2019, the corresponding balance was
$215.8 million
. The increase primarily resulted from services performed under contracts consisting of multiple tasks, for which billings will be submitted upon completion of the remaining tasks not yet completed. There were no other significant changes in contract assets during the period. During
fiscal 2019
, the Company performed services and recognized revenue related to all but an immaterial amount of its contract liabilities that existed at
January 27, 2018
. See Note 3,
Accounting Standards,
for further information on the adoption of ASU 2014-09 and 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
January 26, 2019
or
January 27, 2018
were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
|
Amount
|
|
% of Total
|
|
Amount
|
|
% of Total
|
Verizon Communications Inc.
|
$
|
298.4
|
|
|
36.2%
|
|
$
|
98.2
|
|
|
14.4%
|
CenturyLink, Inc.
|
$
|
147.2
|
|
|
17.9%
|
|
$
|
126.0
|
|
|
18.5%
|
Comcast Corporation
|
$
|
127.2
|
|
|
15.4%
|
|
$
|
166.5
|
|
|
24.5%
|
AT&T Inc.
|
$
|
90.6
|
|
|
11.0%
|
|
$
|
79.2
|
|
|
11.6%
|
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
January 26, 2019
or
January 27, 2018
.
7. Other Current Assets and Other Assets
Other current assets consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
Prepaid expenses
|
$
|
12,758
|
|
|
$
|
13,167
|
|
Insurance recoveries/receivables for accrued insurance claims
|
—
|
|
|
13,701
|
|
Receivables on equipment sales
|
69
|
|
|
31
|
|
Deposits and other current assets, including restricted cash
|
16,318
|
|
|
12,811
|
|
Total other current assets
|
$
|
29,145
|
|
|
$
|
39,710
|
|
Other assets (long-term) consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
Deferred financing costs
|
$
|
9,036
|
|
|
$
|
3,873
|
|
Restricted cash
|
4,253
|
|
|
5,253
|
|
Insurance recoveries/receivables for accrued insurance claims
|
13,684
|
|
|
6,722
|
|
Long-term contract assets
|
30,399
|
|
|
5,486
|
|
Long-term accounts receivable, net
|
24,815
|
|
|
—
|
|
Other non-current deposits and assets
|
7,251
|
|
|
6,856
|
|
Total other assets
|
$
|
89,438
|
|
|
$
|
28,190
|
|
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
fiscal 2019
, total insurance recoveries/receivables decreased approximately
$6.7 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. During
fiscal 2019
, long-term contract assets increased approximately
$24.9 million
primarily due to a long-term customer agreement entered into during
fiscal 2019
.
Long-term accounts receivable, net of allowance for doubtful accounts, represent trade receivables due from Windstream as of January 26, 2019. On February 25, 2019, Windstream filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. As of January 26, 2019, the Company had outstanding receivables and contract assets in aggregate of approximately
$45.0 million
. Against this amount, the Company has recorded a non-cash charge of
$17.2 million
reflecting its current evaluation of recoverability of these receivables and contract assets as of January 26, 2019.
8. Cash and Equivalents and Restricted Cash
Amounts of cash and equivalents and restricted cash reported in the consolidated statement of cash flows consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
Cash and equivalents
|
$
|
128,342
|
|
|
$
|
84,029
|
|
Restricted cash included in:
|
|
|
|
Other current assets
|
1,556
|
|
|
900
|
|
Other assets (long-term)
|
4,253
|
|
|
5,253
|
|
Total cash and equivalents and restricted cash
|
$
|
134,151
|
|
|
$
|
90,182
|
|
9. Property and Equipment
Property and equipment consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Lives (Years)
|
|
January 26, 2019
|
|
January 27, 2018
|
Land
|
—
|
|
$
|
4,359
|
|
|
$
|
3,470
|
|
Buildings
|
10-35
|
|
13,555
|
|
|
12,315
|
|
Leasehold improvements
|
1-10
|
|
16,185
|
|
|
14,202
|
|
Vehicles
|
1-5
|
|
589,741
|
|
|
536,379
|
|
Computer hardware and software
|
1-7
|
|
140,327
|
|
|
117,058
|
|
Office furniture and equipment
|
1-10
|
|
12,804
|
|
|
11,686
|
|
Equipment and machinery
|
1-10
|
|
296,408
|
|
|
273,712
|
|
Total
|
|
|
1,073,379
|
|
|
968,822
|
|
Less: accumulated depreciation
|
|
|
(648,628
|
)
|
|
(554,054
|
)
|
Property and equipment, net
|
|
|
$
|
424,751
|
|
|
$
|
414,768
|
|
Depreciation expense and repairs and maintenance expense were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
January 26, 2019
|
|
January 27, 2018
|
|
July 29, 2017
|
|
July 30, 2016
|
Depreciation expense
|
$
|
156,959
|
|
|
$
|
72,961
|
|
|
$
|
123,125
|
|
|
$
|
105,514
|
|
Repairs and maintenance expense
|
$
|
36,109
|
|
|
$
|
16,438
|
|
|
$
|
31,272
|
|
|
$
|
29,487
|
|
10. Goodwill and Intangible Assets
Goodwill
The Company’s goodwill balance was
$325.7 million
and
$321.7 million
as of
January 26, 2019
and
January 27, 2018
respectively. Changes in the carrying amount of goodwill were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Accumulated Impairment Losses
|
|
Total
|
Balance as of July 29, 2017
|
$
|
517,515
|
|
|
$
|
(195,767
|
)
|
|
$
|
321,748
|
|
Purchase price allocation adjustments from fiscal 2017 acquisition
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
Balance as of January 27, 2018
|
517,510
|
|
|
(195,767
|
)
|
|
321,743
|
|
Goodwill from fiscal 2019 acquisition
|
4,097
|
|
|
—
|
|
|
4,097
|
|
Purchase price allocation adjustments from fiscal 2019 acquisition
|
(91
|
)
|
|
—
|
|
|
(91
|
)
|
Balance as of January 26, 2019
|
$
|
521,516
|
|
|
$
|
(195,767
|
)
|
|
$
|
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. 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 established 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 evaluates current operating results, including any losses, in the assessment of goodwill and other intangible assets. The estimates and assumptions used in assessing the fair value of the reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. Changes in judgments and estimates could result in significantly different estimates of the fair value of the reporting units and could result in impairments of goodwill or intangible assets of the reporting units. In addition, adverse changes to the key valuation assumptions contributing to the fair value of the Company’s reporting units could result in an impairment of goodwill or intangible assets.
The Company has historically completed its annual goodwill impairment assessment as of the first day of the fourth fiscal quarter of each year. As a result of the change in the Company’s fiscal year end, the annual goodwill impairment assessment date was changed to the first day of the fiscal quarter ending on the last Saturday in January, as this became the first day of the Company’s fourth fiscal quarter. The change in the annual goodwill impairment assessment date is deemed a change in accounting principle, which the Company believes to be preferable as the change was made to better align the annual goodwill impairment test with the change in the Company’s annual planning and budgeting process related to the new fiscal year end. This change in accounting principle did not delay, accelerate or avoid a goodwill impairment charge and had no effect on the consolidated financial statements, including any cumulative effect on retained earnings.
The Company performed its annual impairment assessment for
fiscal 2019
,
the 2018 transition period
,
fiscal 2017
, and
fiscal 2016
, and concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit for any of the periods. In each of these periods, qualitative assessments were performed on reporting units that comprise a substantial portion of the Company’s consolidated goodwill balance. A qualitative assessment includes evaluating all identified events and circumstances that could affect the significant inputs used to determine the fair value of a reporting unit or indefinite-lived intangible asset for the purpose of determining whether it is more likely than not that these assets are impaired. The Company considers various factors while performing qualitative assessments, including macroeconomic conditions, industry and market conditions, financial performance of the reporting units, changes in market capitalization, and any other specific reporting unit considerations. These qualitative assessments indicated that it was more likely than not that the fair value
exceeded carrying value for those reporting units. For the remaining reporting units, the Company performed the first step of the quantitative analysis described in ASC Topic 350 in each of these periods. When performing the quantitative analysis, the Company determines the fair value of its reporting units using a weighing of fair values derived in equal proportions from the income approach and market approach valuation methodologies. Under the income approach, the key valuation assumptions used in determining the fair value estimates of the Company’s reporting units for each annual test were: (a) a discount rate based on the Company’s best estimate of the weighted average cost of capital adjusted for certain risks for the reporting units; (b) terminal value based on the Company’s best estimate of terminal growth rates; and (c) seven expected years of cash flow before the terminal value based on the Company’s best estimate of the revenue growth rate and projected operating margin.
In fiscal 2017, the Company performed the first step of the quantitative analysis on its indefinite-lived intangible asset. In fiscal 2019, the 2018 transition period, and fiscal 2016, qualitative assessments were performed on the Company’s indefinite-lived intangible asset.
The table below outlines certain assumptions used in the Company’s quantitative impairment analyses for fiscal 2019, the 2018 transition period, fiscal 2017, and fiscal 2016:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
January 26, 2019
|
|
January 27, 2018
|
|
July 29, 2017
|
|
July 30, 2016
|
Terminal Growth Rate
|
2.5% - 3.0%
|
|
2.5% - 3.0%
|
|
2.0% - 3.0%
|
|
2.0% - 3.0%
|
Discount Rate
|
11.0%
|
|
11.0%
|
|
11.0%
|
|
11.5%
|
The discount rate reflects risks inherent within each reporting unit operating individually. These risks are greater than the risks inherent in the Company as a whole.
Determination of discount rates included consideration of
market inputs such as the risk-free rate, equity risk premium, industry premium, and cost of debt, among other assumptions.
The discount rate for
fiscal 2019
was consistent with
the 2018 transition period
and
fiscal 2017
. The decrease in discount rate for
fiscal 2017
from
fiscal 2016
was a result of reduced risk in industry conditions.
The Company believes the assumptions used in the impairment analysis each year are reflective of the risks inherent in the business models of its reporting units and its industry. Under the market approach, the guideline company method develops valuation multiples by comparing the Company’s reporting units to similar publicly traded companies. Key valuation assumptions and valuation multiples used in determining the fair value estimates of the Company’s reporting units rely on: (a) the selection of similar companies; (b) obtaining estimates of forecast revenue and earnings before interest, taxes, depreciation, and amortization for the similar companies; and (c) selection of valuation multiples as they apply to the reporting unit characteristics.
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 in the
fiscal 2019
assessment. Management determined that significant changes were not likely in the factors considered to estimate fair value, and analyzed the impact of such changes were they to occur. Specifically, if the discount rate applied in the
fiscal 2019
impairment analysis had been
100
basis points higher than estimated for each of the reporting units, and all other assumptions were held constant, the conclusion of the assessment would remain unchanged and there would be no impairment of goodwill. Additionally, if there was a
25%
decrease in the fair value of any of the reporting units due to a decline in their discounted cash flows resulting from lower operating performance, the conclusion of the assessment would remain unchanged for all reporting units except for two. For one of these reporting units with goodwill of
$5.7 million
, the excess of fair value above its carrying value was
18%
of the fair value. For the other of these reporting units with goodwill of
$10.1 million
, the excess of fair value above its carrying value was
19%
of the fair value. Additionally, a third reporting unit with goodwill of
$13.2 million
as of
January 26, 2019
had a high concentration of its contract revenues from Windstream. This reporting unit’s fair value was substantially in excess of its carrying value as of the date of the
fiscal 2019
impairment assessment. On
February 25, 2019
, Windstream filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. The Company expects to continue to provide services to Windstream pursuant to existing contractual obligations but the amount of services performed in the future could be reduced or eliminated. Recent operating performance, along with assumptions for specific customer and industry opportunities, were considered in the key assumptions used during the fiscal 2019 impairment analysis. Management has determined the goodwill balance of these three reporting units may have an increased likelihood of impairment if a prolonged downturn in customer demand were to occur, or if the reporting units were not able to execute against customer opportunities, and the long-term outlook for their cash flows were adversely impacted. Furthermore, changes in the long-term outlook may result in a change to other valuation assumptions. Factors monitored by management which could result in a change to the reporting units’ estimates include the outcome of customer requests for proposals and subsequent awards, strategies of competitors, labor market conditions and levels of overall economic activity. As of
January 26, 2019
, the Company believes the goodwill
and the indefinite-lived intangible asset are
recoverable for all of the reporting units and that no impairment has
occurred. However, significant adverse changes in the projected revenues and cash flows of a reporting unit could result in an impairment of goodwill or
the indefinite-lived intangible asset
. There can be no assurances that goodwill or
the indefinite-lived intangible asset
may not be impaired in future periods.
Intangible Assets
The Company’s intangible assets consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
|
Weighted Average Remaining Useful Lives (Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Intangible Assets, Net
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Intangible Assets, Net
|
Customer relationships
|
11.1
|
|
$
|
312,017
|
|
|
$
|
157,691
|
|
|
$
|
154,326
|
|
|
$
|
299,717
|
|
|
$
|
135,544
|
|
|
$
|
164,173
|
|
Trade names
|
8.0
|
|
10,350
|
|
|
8,312
|
|
|
2,038
|
|
|
10,350
|
|
|
7,872
|
|
|
2,478
|
|
UtiliQuest trade name
|
—
|
|
4,700
|
|
|
—
|
|
|
4,700
|
|
|
4,700
|
|
|
—
|
|
|
4,700
|
|
Non-compete agreements
|
1.5
|
|
200
|
|
|
139
|
|
|
61
|
|
|
450
|
|
|
332
|
|
|
118
|
|
|
|
|
$
|
327,267
|
|
|
$
|
166,142
|
|
|
$
|
161,125
|
|
|
$
|
315,217
|
|
|
$
|
143,748
|
|
|
$
|
171,469
|
|
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
$22.6 million
,
$12.1 million
,
$24.8 million
, and
$19.4 million
for
fiscal 2019
,
the 2018 transition period
,
fiscal 2017
, and fiscal 2016, respectively.
As of
January 26, 2019
, total amortization expense for existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
Amount
|
2020
|
|
$
|
21,180
|
|
2021
|
|
20,663
|
|
2022
|
|
17,490
|
|
2023
|
|
15,334
|
|
2024
|
|
13,903
|
|
Thereafter
|
|
67,855
|
|
Total
|
|
$
|
156,425
|
|
As of
January 26, 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 and the assets could be impaired.
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 fiscal 2016 through fiscal 2019, 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 was
$78.9 million
for fiscal 2019,
$67.1 million
for the 2018 transition period,
$103.7 million
for fiscal 2017, and
$84.6 million
for fiscal 2016.
The Company is party to a stop-loss agreement for losses under its employee group health plan. For calendar years 2016 through 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):
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
Accrued insurance claims - current
|
$
|
39,961
|
|
|
$
|
53,890
|
|
Accrued insurance claims - non-current
|
68,315
|
|
|
59,385
|
|
Total accrued insurance claims
|
$
|
108,276
|
|
|
$
|
113,275
|
|
|
|
|
|
Insurance recoveries/receivables:
|
|
|
|
Current (included in Other current assets)
|
$
|
—
|
|
|
$
|
13,701
|
|
Non-current (included in Other assets)
|
13,684
|
|
|
6,722
|
|
Total insurance recoveries/receivables
|
$
|
13,684
|
|
|
$
|
20,423
|
|
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
fiscal 2019
, total insurance recoveries/receivables decreased approximately
$6.7 million
primarily due to the settlement of claims. Accrued insurance claims decreased by a corresponding amount.
12. Other Accrued Liabilities
Other accrued liabilities consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
Accrued payroll and related taxes
|
$
|
25,591
|
|
|
$
|
23,010
|
|
Accrued employee benefit and incentive plan costs
|
25,482
|
|
|
16,097
|
|
Accrued construction costs
|
36,449
|
|
|
24,582
|
|
Other current liabilities
|
16,552
|
|
|
15,968
|
|
Total other accrued liabilities
|
$
|
104,074
|
|
|
$
|
79,657
|
|
13. Debt
The Company’s outstanding indebtedness consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
Credit Agreement - Revolving facility (matures October 2023)
|
$
|
—
|
|
|
$
|
—
|
|
Credit Agreement - Term loan facility (matures October 2023)
|
450,000
|
|
|
358,063
|
|
0.75% convertible senior notes, net (mature September 2021)
|
423,199
|
|
|
402,249
|
|
|
873,199
|
|
|
760,312
|
|
Less: current portion
|
(5,625
|
)
|
|
(26,469
|
)
|
Long-term debt
|
$
|
867,574
|
|
|
$
|
733,843
|
|
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 (the “Credit Agreement”), with the various lenders party thereto. 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
$48.6 million
, issued as part of the Company’s insurance program, were outstanding under the Credit Agreement as of both
January 26, 2019
and
January 27, 2018
.
The weighted average interest rates and fees for balances under the Credit Agreement as of
January 26, 2019
and
January 27, 2018
were as follows:
|
|
|
|
|
|
Weighted Average Rate End of Period
|
|
January 26, 2019
|
|
January 27, 2018
|
Borrowings - Term loan facilities
|
4.25%
|
|
3.30%
|
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
January 26, 2019
or
January 27, 2018
.
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
January 26, 2019
and
January 27, 2018
, the Company was in compliance with the financial covenants of the Credit Agreement and had borrowing availability under the revolving facility of
$412.9 million
and
$401.4 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 fourth quarter of fiscal 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 January 26, 2019. As a result, the Notes were not convertible during the fourth quarter of fiscal 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
$19.1 million
,
$9.2 million
,
$17.6 million
, and
$14.7 million
of interest expense during
fiscal 2019
,
the 2018 transition period
,
fiscal 2017
, and
fiscal 2016
, respectively, for the non-cash amortization of the debt discount. The liability component of the Notes consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
Liability component
|
|
|
|
Principal amount of 0.75% convertible senior notes due September 2021
|
$
|
485,000
|
|
|
$
|
485,000
|
|
Less: Debt discount
|
(55,795
|
)
|
|
(74,899
|
)
|
Less: Debt issuance costs
|
(6,006
|
)
|
|
(7,852
|
)
|
Net carrying amount of Notes
|
$
|
423,199
|
|
|
$
|
402,249
|
|
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
$96.31
and
$136.01
as of
January 26, 2019
and
January 27, 2018
, respectively (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
Fair value of principal amount of Notes
|
$
|
467,104
|
|
|
$
|
659,649
|
|
Less: Debt discount and debt issuance costs
|
(61,801
|
)
|
|
(82,751
|
)
|
Fair value of Notes
|
$
|
405,303
|
|
|
$
|
576,898
|
|
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. The total cost of the convertible note hedge transactions was
$115.8 million
.
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. The Company received proceeds of approximately
$74.7 million
from the sale of these warrants.
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 consolidated balance sheets.
See
Note 14,
Income Taxes
,
for additional information regarding the Company’s deferred tax liabilities and assets.
7.125%
Senior Subordinated Notes - Loss on Debt Extinguishment
As of July 25, 2015, Dycom Investments, Inc. (the “Issuer”), a wholly-owned subsidiary of the Company, had outstanding an aggregate principal amount of
$277.5 million
of
7.125%
senior subordinated notes due 2021 (the “
7.125%
Notes”). The outstanding
7.125%
Notes were redeemed on October 15, 2015 (the “Redemption Date”) with a portion of the proceeds from the Notes offering described above. The aggregate amount paid in connection with the redemption was
$296.6 million
and was comprised of the
$277.5 million
principal amount of the outstanding
7.125%
Notes,
$4.9 million
for accrued and unpaid interest to the Redemption Date, and approximately
$14.2 million
for the applicable call premium as defined in the indenture governing the
7.125%
Notes. The call premium amount consisted of: (a) the present value as defined under the indenture of the sum of (i) approximately
$4.9 million
representing interest for the period from the Redemption Date through January 15, 2016, and (ii) the redemption price of
103.563%
(expressed as a percentage of the principal amount) of the
7.125%
Notes at January 15, 2016, minus (b) the principal amount of the
7.125%
Notes.
In connection with the redemption of the
7.125%
Notes, the Company incurred a pre-tax charge for early extinguishment of debt of approximately
$16.3 million
during fiscal 2016. This charge is comprised of: (i)
$4.9 million
for the present value of the interest payments for the period from the Redemption Date through January 15, 2016, (ii)
$6.5 million
for the excess of the present value of the redemption price over the carrying value of the
7.125%
Notes, and (iii)
$4.9 million
for the write-off of deferred financing charges related to the fees incurred in connection with the issuance of the
7.125%
Notes.
14. Income Taxes
The components of the provision (benefit) for income taxes were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
January 26, 2019
|
|
January 27, 2018
|
|
July 29, 2017
|
|
July 30, 2016
|
Current:
|
|
|
|
|
|
|
|
Federal
|
$
|
9,507
|
|
|
$
|
(4,384
|
)
|
|
$
|
62,455
|
|
|
$
|
42,096
|
|
Foreign
|
2,204
|
|
|
598
|
|
|
176
|
|
|
310
|
|
State
|
4,897
|
|
|
1,166
|
|
|
12,344
|
|
|
8,399
|
|
|
16,608
|
|
|
(2,620
|
)
|
|
74,975
|
|
|
50,805
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
8,706
|
|
|
(21,332
|
)
|
|
17,051
|
|
|
26,467
|
|
Foreign
|
(446
|
)
|
|
(37
|
)
|
|
(35
|
)
|
|
(296
|
)
|
State
|
263
|
|
|
1,704
|
|
|
1,217
|
|
|
611
|
|
|
8,523
|
|
|
(19,665
|
)
|
|
18,233
|
|
|
26,782
|
|
Total provision (benefit) for income taxes
|
$
|
25,131
|
|
|
$
|
(22,285
|
)
|
|
$
|
93,208
|
|
|
$
|
77,587
|
|
The Tax Cu
ts and Jobs Act of 2017 (“Tax Reform”) was enacted in December 2017 and includes significant changes to U.S. income tax law. Tax Reform, among other things, reduced the U.S. federal corporate tax rate from 35 percent to 21 percent.
The Company’s effective income tax rate 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, certain tax impacts from the vesting and exercise of share-based awards, and impacts from Tax Reform. The Company was subject to a blended statutory tax rate of approximately
33%
for the six months ended
January 27, 2018
resulting from Tax Reform taking effect for a portion of the period based on the Company’s fiscal year end. A reconciliation of the amount computed by applying the Company’s statutory income tax rate to pre-tax income to the total tax provision is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
January 26, 2019
|
|
January 27, 2018
|
|
July 29, 2017
|
|
July 30, 2016
|
Statutory rate applied to pre-tax income
|
$
|
18,488
|
|
|
$
|
15,334
|
|
|
$
|
87,649
|
|
|
$
|
72,214
|
|
State taxes, net of federal tax benefit
|
4,004
|
|
|
1,406
|
|
|
9,868
|
|
|
7,398
|
|
Tax Reform and related effects
|
—
|
|
|
(32,249
|
)
|
|
—
|
|
|
—
|
|
Federal benefit of vesting and exercise of share-based awards
|
(200
|
)
|
|
(7,067
|
)
|
|
—
|
|
|
—
|
|
Non-deductible and non-taxable items, net
|
2,433
|
|
|
1,585
|
|
|
(4,686
|
)
|
|
(2,013
|
)
|
Change in accruals for uncertain tax positions
|
464
|
|
|
250
|
|
|
632
|
|
|
113
|
|
Tax credits
|
(1,835
|
)
|
|
(1,596
|
)
|
|
—
|
|
|
—
|
|
Change in valuation allowance
|
291
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Effect of rates other than statutory
|
1,537
|
|
|
557
|
|
|
6
|
|
|
118
|
|
Other items, net
|
(51
|
)
|
|
(505
|
)
|
|
(261
|
)
|
|
(243
|
)
|
Total provision (benefit) for income taxes
|
$
|
25,131
|
|
|
$
|
(22,285
|
)
|
|
$
|
93,208
|
|
|
$
|
77,587
|
|
During the six months ended
January 27, 2018
, the Company recognized an income tax benefit of approximately
$32.2 million
primarily resulting from the re-measurement of the Company’s net deferred tax liabilities to reflect the reduced rate under Tax Reform. Additionally, the Company recognized an income tax benefit (including federal and state tax benefits) of approximately
$7.8 million
during the six months ended
January 27, 2018
for certain tax effects of the vesting and exercise of share-based awards.
During fiscal 2017 and 2016, non-taxable and non-deductible items consisted of a production related tax deduction of
$6.0 million
and
$4.5 million
, respectively, offset by
$1.3 million
and
$2.5 million
of non-deductible items, respectively. There was no production related tax deduction for the six months ended
January 27, 2018
. Additionally, beginning in fiscal 2019, the production related tax deduction is no longer permitted as a result of changes from Tax Reform.
During fiscal 2017 and 2016, tax credits of
$1.0 million
and
$0.7 million
, respectively, were presented within Non-deductible and non-taxable items, net in the table above.
Deferred Income Taxes
The deferred tax provision represents the change in the deferred tax assets and the liabilities representing the tax consequences of changes in the amount of temporary differences and changes in tax rates during the year. The significant components of deferred tax assets and liabilities consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
January 26, 2019
|
|
January 27, 2018
|
Deferred tax assets:
|
|
|
|
Insurance and other reserves
|
$
|
22,885
|
|
|
$
|
22,368
|
|
Allowance for doubtful accounts and reserves
|
5,323
|
|
|
1,081
|
|
Net operating loss carryforwards
|
5,515
|
|
|
822
|
|
Stock-based compensation
|
3,324
|
|
|
3,405
|
|
Other
|
3,764
|
|
|
1,174
|
|
Total deferred tax assets
|
40,811
|
|
|
28,850
|
|
Valuation allowance
|
(418
|
)
|
|
(148
|
)
|
Deferred tax assets, net of valuation allowance
|
$
|
40,393
|
|
|
$
|
28,702
|
|
Deferred tax liabilities:
|
|
|
|
Property and equipment
|
$
|
77,490
|
|
|
$
|
59,933
|
|
Goodwill and intangibles
|
27,780
|
|
|
25,852
|
|
Other
|
1,086
|
|
|
345
|
|
Deferred tax liabilities
|
$
|
106,356
|
|
|
$
|
86,130
|
|
|
|
|
|
Net deferred tax liabilities
|
$
|
65,963
|
|
|
$
|
57,428
|
|
The Company’s net deferred tax liabilities as of
January 27, 2018
were remeasured to reflect the reduced rate under Tax Reform that will apply in future periods when such assets and liabilities are expected to be settled or realized.
The valuation allowance above reduces the deferred tax asset balances to the amount that the Company has determined is more likely than not to be realized. The valuation allowance primarily relates to immaterial state net operating loss carryforwards and an immaterial foreign tax credit carryforward, which generally begin to expire in fiscal 2023 and fiscal 2022, respectively.
Uncertain Tax Positions
As of
January 26, 2019
and
January 27, 2018
, the Company had total unrecognized tax benefits of
$3.8 million
and
$3.3 million
, respectively, resulting from uncertain tax positions. The Company’s effective tax rate will be reduced during future periods if it is determined these unrecognized tax benefits are realizable. The Company had approximately
$1.4 million
and
$1.2 million
accrued for the payment of interest and penalties as of
January 26, 2019
and
January 27, 2018
, respectively. Interest expense related to unrecognized tax benefits for the Company was not material during fiscal 2019,
the 2018 transition period
, or fiscal 2017, or fiscal 2016.
A summary of unrecognized tax benefits is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
January 26, 2019
|
|
January 27, 2018
|
|
July 29, 2017
|
|
July 30, 2016
|
Balance at beginning of year
|
$
|
3,322
|
|
|
$
|
3,072
|
|
|
$
|
2,440
|
|
|
$
|
2,327
|
|
Additions based on tax positions related to the fiscal year
|
444
|
|
|
283
|
|
|
441
|
|
|
161
|
|
Additions (reductions) based on tax positions related to prior years
|
77
|
|
|
(33
|
)
|
|
229
|
|
|
86
|
|
Reductions related to the expiration of statutes of limitation
|
(57
|
)
|
|
—
|
|
|
(38
|
)
|
|
(134
|
)
|
Balance at end of year
|
$
|
3,786
|
|
|
$
|
3,322
|
|
|
$
|
3,072
|
|
|
$
|
2,440
|
|
15. Other Income, Net
The components of other income, net, were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
January 26, 2019
|
|
January 27, 2018
|
|
July 29, 2017
|
|
July 30, 2016
|
Gain on sale of fixed assets
|
$
|
19,390
|
|
|
$
|
7,217
|
|
|
$
|
14,866
|
|
|
$
|
9,806
|
|
Miscellaneous expense, net
|
(3,392
|
)
|
|
(992
|
)
|
|
(2,086
|
)
|
|
627
|
|
Write-off of deferred financing costs
|
(156
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Total other income, net
|
$
|
15,842
|
|
|
$
|
6,225
|
|
|
$
|
12,780
|
|
|
$
|
10,433
|
|
For one customer, the Company has participated in a customer-sponsored vendor payment program since fiscal 2016. All 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 of the customer. 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 an expense component in other income, net, in the consolidated statements of operations. During
fiscal 2019
,
the 2018 transition period
, fiscal
2017
, and fiscal
2016
, miscellaneous expense, net includes approximately
$4.1 million
,
$1.4 million
,
$3.2 million
, and
$0.2 million
, respectively, of discount fee expense incurred in connection with the non-recourse sale of accounts receivable under this program. The operation of this program has not changed since the Company began participating.
The Company recognized
$0.2 million
in write-off of deferred financing costs during
fiscal 2019
in connection with an amendment to the Credit Agreement.
16. Employee Benefit Plans
The Company sponsors a defined contribution plan that provides retirement benefits to eligible employees who elect to participate (the “Dycom Plan”). Under the plan, participating employees may defer up to
75%
of their base pre-tax eligible compensation up to the IRS limits. The Company contributes
30%
of the first
5%
of base eligible compensation that a participant contributes to the plan and may make discretionary matching contributions from time to time. The Company’s contributions were
$3.5 million
,
$1.7 million
,
$5.0 million
, and
$4.8 million
related to fiscal 2019, the 2018 transition period fiscal 2017, and fiscal 2016, respectively.
Certain of the Company’s subsidiaries contribute amounts to multiemployer defined benefit pension plans under the terms of collective bargaining agreements (“CBA”) that cover employees represented by unions. Contributions are generally based on fixed amounts per hour per employee for employees covered by the plan. Participating in a multiemployer plan entails risks different from single-employer plans in the following aspects:
|
|
•
|
assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;
|
|
|
•
|
if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be allocated to the remaining participating employers; and
|
|
|
•
|
if the Company stops participating in the multiemployer plan, the Company may be required to pay the plan an amount based on the underfunded status of the plan. This payment is referred to as a withdrawal liability.
|
The information available to the Company about the multiemployer plans in which it participates is generally dated due to the nature of the reporting cycle of multiemployer plans and legal requirements under the Employee Retirement Income Security Act (“ERISA”) as amended by the Multiemployer Pension Plan Amendments Act (“MPPAA”). Based upon the most recently available annual reports, the Company’s contribution to each of the plans was less than
5%
of each plan’s total contributions. The Pension, Hospitalization and Benefit Plan of the Electrical Industry – Pension Trust Fund
(“the Plan”) was considered individually significant and is presented separately below. All other plans are presented in the aggregate in the following table (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Contributions
|
|
|
|
Expiration Date of CBA
|
|
|
PPA Zone Status
(1)
|
|
FIP/ RP Status
(2)
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
Surcharge Imposed
|
|
Fund
|
|
2017
|
|
2016
|
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
|
The Plan (EIN 13-6123601)
|
|
Green
|
|
Green
|
|
No
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,057
|
|
|
No
|
|
5/5/2016
|
Other Plans
|
|
|
|
|
|
|
|
726
|
|
|
319
|
|
|
384
|
|
|
622
|
|
|
|
|
Various
|
Total
|
|
|
|
|
|
|
|
$
|
726
|
|
|
$
|
319
|
|
|
$
|
384
|
|
|
$
|
3,679
|
|
|
|
|
|
(1)
The most recent Pension Protection Act (the “PPA”) zone status was provided by the Plan for Plan years ending September 30, 2017 and September 30, 2016, respectively. The zone status is based on information provided by the Plan and is certified by the Plan’s actuary. Generally, plans in the red zone are less than
65%
funded, plans in the yellow zone are between
65%
and
80%
funded, and plans in the green zone are at least
80%
funded.
(2)
The “FIR/RP Status” column indicates plans for which a financial improvement plan (FIP) or rehabilitation plan (RP), as required by the Internal Revenue Code, is either pending or has been implemented.
In the fourth quarter of fiscal 2016, one of the Company’s subsidiaries, which previously contributed to the Plan, ceased operations. 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 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 the first half of calendar 2019. As required by ERISA, in November 2016, the subsidiary began making monthly payments of a withdrawal liability to the Plan in the amount of approximately
$0.1 million
. If the Company prevails in disputing the withdrawal liability, all such payments will be refunded to the Company.
17. Capital Stock
Repurchases of Common Stock.
The Company did not repurchase any of its common stock during fiscal 2019. The following table summarizes the Company’s share repurchases during fiscal 2016, fiscal 2017, and
the 2018 transition period
(all shares repurchased have been canceled):
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Number of Shares Repurchased
|
|
Total Consideration
(In thousands)
|
|
Average Price Per Share
|
Fiscal 2016
|
|
2,511,578
|
|
|
$
|
169,997
|
|
|
$
|
67.69
|
|
Fiscal 2017
|
|
713,006
|
|
|
$
|
62,909
|
|
|
$
|
88.23
|
|
2018 Transition Period
|
|
200,000
|
|
|
$
|
16,875
|
|
|
$
|
84.38
|
|
Fiscal 2016.
In connection with the Notes offering in September 2015, the Company used approximately
$60.0 million
of the net proceeds from the Notes to repurchase
805,000
shares of its common stock from the initial purchasers of the Notes in privately negotiated transactions at a price of
$74.53
per share, the closing price of Dycom’s common stock on September 9, 2015. The additional
$110.0 million
paid during fiscal 2016 was for shares repurchased under the Company’s authorized share repurchase program.
Fiscal 2017.
As of the beginning of fiscal 2017, the Company had
$100.0 million
available for share repurchases through October 2017 under the Company’s April 26, 2016 repurchase authorization. During the second quarter of fiscal 2017, the Company repurchased
313,006
shares of its common stock, at an average price of
$79.87
, for
$25.0 million
. During the third quarter of fiscal 2017, the Company’s Board of Directors extended the term of the
$75.0 million
remaining available under the April 26, 2016 authorization through August 2018. In connection with the extension of this authorization, the Company’s Board of Directors also authorized an additional
$75.0 million
to repurchase shares of the Company’s common stock through August 2018 in open market or private transactions. The Company repurchased
400,000
shares of its common stock, at an average price of
$94.77
per share, for
$37.9 million
during the third quarter of fiscal 2017.
2018 Transition Period.
The Company repurchased
200,000
shares of its common stock, at an average price of
$84.38
per share, for
$16.9 million
during the 2018 transition period. As of January 27, 2018,
$95.2 million
remained available for repurchases through August 2018.
Fiscal 2019. O
n August 29, 2018, the Company announced that its Board of Directors had authorized a new
$150.0 million
program to repurchase shares of the Company’s outstanding common stock through February 2020 in open market or private transactions. The repurchase authorization replaced the Company’s previous repurchase authorization which expired in August 2018. At expiration, approximately
$95.2 million
of the previous authorization remained outstanding. The Company did not repurchase any of its common stock during fiscal 2019. As of
January 26, 2019
,
$150.0 million
remained available for repurchases through February 2020 under the Company’s share repurchase program.
Restricted Stock Tax Withholdings.
During fiscal 2019,
the 2018 transition period
, fiscal 2017, and fiscal 2016, the Company withheld
73,300
shares,
117,426
shares,
134,736
shares, and
161,988
shares, respectively, totaling
$4.7 million
,
$12.6 million
,
$10.8 million
, and
$12.6 million
, respectively, to meet payroll tax withholdings obligations arising from the vesting of restricted share units. All shares withheld have been canceled. Shares of common stock withheld for tax withholdings do not reduce the Company’s total share repurchase authority.
Upon cancellation of shares repurchased or withheld for tax withholdings, the excess over par value is recorded as a reduction of additional paid-in capital until the balance is reduced to zero, with any additional excess recorded as a reduction of retained earnings. During
the 2018 transition period
, fiscal 2017, and fiscal 2016,
$11.5 million
,
$42.8 million
, and
$17.1 million
, respectively, was charged to retained earnings related to shares canceled during the respective fiscal year.
18. Stock-Based Awards
The Company has outstanding stock-based awards under its 2003 Long-Term Incentive Plan, 2007 Non-Employee Directors Equity Plan, 2012 Long-Term Incentive Plan, and 2017 Non-Employee Directors Equity Plan (collectively, the “Plans”). No further awards will be granted under the 2003 Long-Term Incentive Plan or 2007 Non-Employee Directors Equity Plan. As of January 26, 2019, the total number of shares available for grant under the Plans was
1,201,611
.
Stock-based compensation expense and the related tax benefit recognized during fiscal 2019,
the 2018 transition period
,
fiscal 2017
, and
fiscal 2016
were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
January 26, 2019
|
|
January 27, 2018
|
|
July 29, 2017
|
|
July 30, 2016
|
Stock-based compensation
|
$
|
20,187
|
|
|
$
|
13,277
|
|
|
$
|
20,805
|
|
|
$
|
16,850
|
|
Recognized tax benefit of stock-based compensation
|
$
|
5,043
|
|
|
$
|
4,793
|
|
|
$
|
7,996
|
|
|
$
|
6,436
|
|
In addition, the Company realized approximately
$0.2 million
,
$7.8 million
,
$8.4 million
, and
$13.0 million
of excess tax benefits, net of tax deficiencies, during
fiscal 2019
,
the 2018 transition period
,
fiscal 2017
, and
fiscal 2016
, respectively, related to the vesting and exercise of share-based awards. Excess tax benefits, net of tax deficiencies, represent cash flows realized from tax deductions in excess of the recognized tax benefit of stock-based compensation.
As of
January 26, 2019
, the Company had unrecognized compensation expense related to stock options, RSUs, and Performance RSUs (based on the Company’s expected achievement of performance measures) of
$2.5 million
,
$9.0 million
, and
$16.7 million
, respectively. This expense will be recognized over a weighted-average number of years of
2.2
,
2.4
, and
1.0
, respectively, based on the average remaining service periods for the awards. As of
January 26, 2019
, the Company may recognize an additional
$10.3 million
in compensation expense in future periods if the maximum amount of Performance RSUs is earned based on certain performance measures being met.
The following table summarizes the valuation of stock options and restricted share units granted during fiscal 2019,
the 2018 transition period
, fiscal 2017, and fiscal 2016 and the significant valuation assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
January 26, 2019
|
|
January 27, 2018
|
|
July 29, 2017
|
|
July 30, 2016
|
Weighted average fair value of RSUs granted
|
$
|
97.90
|
|
|
$
|
87.34
|
|
|
$
|
79.04
|
|
|
$
|
72.41
|
|
Weighted average fair value of Performance RSUs granted
|
$
|
106.19
|
|
|
$
|
84.13
|
|
|
$
|
79.29
|
|
|
$
|
77.86
|
|
Weighted average fair value of stock options granted
|
$
|
48.19
|
|
|
$
|
42.60
|
|
|
$
|
39.90
|
|
|
$
|
45.13
|
|
Stock option assumptions:
|
|
|
|
|
|
|
|
Risk-free interest rate
|
2.7
|
%
|
|
2.3
|
%
|
|
2.3
|
%
|
|
2.0
|
%
|
Expected life (in years)
|
6.3
|
|
|
7.6
|
|
|
7.6
|
|
|
7.3
|
|
Expected volatility
|
43.3
|
%
|
|
43.4
|
%
|
|
44.7
|
%
|
|
55.0
|
%
|
Expected dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|