UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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x☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 27, 201330, 2016 |
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ |
Commission File Number 001-10613
DYCOM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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| Florida | | 59-1277135 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1177011780 US Highway 1, Suite 101,
600, Palm Beach Gardens, Florida FL | | 33408 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (561) 627-7171
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Name of Each Exchange on Which Registered |
| Common Stock, par value $0.33 1/3 per share | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨☐ No x☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No x☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ($(§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant'sregistrant’s knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. x☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer” and "smaller“smaller reporting company"company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer x☒ | Accelerated filer ¨☐ | Non-accelerated filer ¨☐ | Smaller reporting company ¨☐ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
The aggregate market value of the common stock, par value $0.33 1/3 per share, held by non-affiliates of the registrant, computed by reference to the closing price of such stock on the New York Stock Exchange on January 26, 2013,23, 2016, was $688,599,652.$2,045,494,004.
There were 33,295,80331,425,887 shares of common stock with a par value of $0.33 1/3 outstanding at September 6, 2013.August 29, 2016.
DOCUMENTS INCORPORATED BY REFERENCE |
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| Document | Part of Form 10-K into which incorporated |
Portions of the registrant’s Proxy Statement to be filed by November 24, 201326, 2016 | Parts II and III |
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Such Proxy Statement, except for the portions thereof which have been specifically incorporated by reference, shall not be deemed "filed"“filed” as part of this Annual Report on Form 10-K. |
Dycom Industries, Inc. Table of Contents |
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Cautionary Note Concerning Forward-Looking Statements
This Annual Report on Form 10-K, including any documents incorporated by reference or deemed to be incorporated by reference herein, contains "forward-looking statements," which areforward-looking statements relating to future events, future financial performance, strategies, expectations, and the competitive environment. Words such as "outlook," "believe," "expect," "anticipate," "estimate," "intend," "forecast," "may," "should," "could," "project"“outlook,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “forecast,” “may,” “should,” “could,” “project,” “target,” and similar expressions, as well as statements written in the future tense, identify forward-looking statements.
You should not read forward-looking statements as a guarantee of future performance or results. They will not necessarily indicate accuratelybe accurate indications of whether or at what time such performance or results will be achievedachieved. You should not consider forward-looking statements as guarantees of future performance or at what time.results. Forward-looking statements are based on information available at the time those statementsthey are made and/or management’s good faithgood-faith belief at that time with respect to future events. Such statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors, assumptions, uncertainties, and risks that could cause such differences include, but are not limited to:
anticipated outcomes of contingent events, including litigation;
projections of revenues, income or loss, or capital expenditures;
determinations as to whether the carrying value of our assets is impaired;
expected benefits and synergies of businesses acquired including those acquired in fiscal 2013, and future opportunities for the combined businesses;
plans for future operations, growth and acquisitions, dispositions, or financial needs;
availability of financing;financing availability;
the outcomeoutcomes of our plans for future operations, growth and services, including contract backlog;
restrictions imposed by our credit agreement and the indenture governing our senior subordinated notes;agreement;
the use of our cash flow to service our debt;
future economic conditions and trends in the industries we serve;
assumptions relating to any of the foregoing;
and other factors discussed within Item 1, Business, Item 1A, Risk Factors and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report on Form 10-K and other risks outlined in our periodic filings with the Securities and Exchange Commission ("SEC"(“SEC”). Our forward-looking statements are expressly qualified in their entirety by this cautionary statement. Our forward-looking statements are only made as of the date of this Annual Report on Form 10-K, and we undertake no obligation to update these forward-looking statementsthem to reflect new information or events or circumstances arising after such date.
Available Information
Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), are available free of charge at our website, www.dycomind.com, as soon as reasonably practicable after we file these reports with, or furnish these reports to, the SEC. All references to www.dycomind.com in this report are inactive textual references only and the information on our website is not incorporated into this Annual Report on Form 10-K.
PART I
Item 1. Business.
Dycom Industries, Inc. (“Dycom” or the “Company”) is a leading provider of specialty contracting services and was incorporated in the State of Florida in 1969. These services, which are provided throughout the United States and in Canada, includeCanada. Our subsidiary companies provide program management, engineering, construction, maintenance, and installation services tofor telecommunications providers, underground facility locating services tofor various utilities, including telecommunications providers, and other construction and maintenance services tofor electric and gas utilities and others. The terms "Company," "we," "us," and "our" mean utilities. Our consolidated revenues for fiscal 2016 were $2.673 billion.
Dycom Industries, Inc. and all subsidiaries includedwas incorporated in the Consolidated Financial StatementsState of Florida in Part II, Item 8, Financial Statements1969 and Supplementary Data, of this Annual Reporthas since expanded its geographic scope and service offerings, both organically and through acquisitions. Our established footprint and decentralized workforce provide the scale needed to quickly execute on Form 10-K unless the context indicates otherwise.
We have established relationships with many leading telephone companies, cable television multiple system operators,opportunities to service existing and electric and gas utilities and others. These companies include AT&T Inc. ("AT&T"), CenturyLink, Inc. ("CenturyLink"), Comcast Corporation ("Comcast"), Verizon Communications Inc. ("Verizon"), Windstream Corporation ("Windstream"), Charter Communications, Inc. ("Charter"), Time Warner Cable Inc. ("Time Warner Cable"), Frontier Communications Corporation ("Frontier"), Ericsson Inc. ("Ericsson"), and Cablevision Systems Corporation ("Cablevision"), as well as numerous rural service providers.
On December 3, 2012, we acquired substantially all of the telecommunications infrastructure services subsidiaries (the "Acquired Subsidiaries") of Quanta Services, Inc. Additionally, during the fourth quarter of fiscal 2013, we acquired Sage Telecommunications Corp of Colorado, LLC ("Sage") and certain assets of a tower construction and maintenance company. The results of operations of the businesses acquired are included in the accompanying consolidated financial statements from their respective dates of acquisition.new customers.
Specialty Contracting Services
Engineering. We provide outside plant engineersOur subsidiaries supply telecommunication providers with a broad range of specialty contracting services, from program management, engineering, construction, maintenance, and draftersinstallation to telecommunication providers. These personnelunderground facility locating. Engineering services include the design of aerial, underground, and buried fiber optic, copper, and coaxial cable systems that extend from the telephone company central office, or cable operator headend, to the consumer'sconsumer’s home or business. The engineering services we provide to telephone companies include: the design of service area concept boxes, terminals, buried and aerial drops, transmission and central office equipment; the proper administration of feeder and distribution cable pairs; and fiber cable routing and design. For cable television multiple system operators, we perform make-ready studies, strand mapping, field walk-out, computer-aided radio frequency design and drafting, and fiber cable routing and design. We also obtain rights of way and permits in support of our engineering activities and those of our customers andas well as provide construction management and inspection personnel in conjunction with engineering services or on a stand-alone basis.
Construction, Maintenance,maintenance, and Installation. We placeinstallation services include the placement and splicesplicing of fiber, copper, and coaxial cables. In addition, we excavate trenches in which to place these cables; place related structures such as poles, anchors, conduits, manholes, cabinets, and closures; place drop lines from main distribution lines to the consumer'sconsumer’s home or business; and maintain and remove these facilities. TheseWe provide these services are provided tofor both telephone companies and cable television multiple system operators in connection with the deployment, of new networks and the expansion, or maintenance of new and existing networks. We also provide tower construction, lines and antenna installation, and foundation and equipment pad construction for wireless carriers, as well as equipment installation and material fabrication and site testing services. For cable television system operators, we install and maintain customer premise equipment such as digital video recorders, set top boxes and modems.
We provide toweralso perform construction lines and antenna installation, and foundation and equipment pad construction for wireless carriers, as well as equipment and material fabrication and site testing services. Additionally, premise wiring services are provided to various companies, as well as state and local governments. These services include the installation, repair and maintenance of telecommunications infrastructure within improved structures.
Underground Facility Locating Services. Weservices for electric and gas utilities and other customers. In addition, we provide underground facility locating services tofor a variety of utility companies, including telecommunication providers. Under various state laws excavators are required, prior to excavating, to request from utility companies the location of their underground facilities in order to prevent utility network outages and to safeguard the general public from the consequences of damages to underground utilities. Utility companies are required to respond within specified time periods to these requests to mark underground and buried facilities. Our underground facility locating services include locating telephone, cable television, power, water, sewer, and gas lines.
Electric and Gas Utilities and Other Construction and Maintenance Services. We perform construction and maintenance services for electric and gas utilities and other customers. These services are performed primarily on a stand-alone basis and typically include installing and maintaining overhead and underground power distribution lines. In addition, we periodically provide these services for the combined projects of telecommunication providers and electric utility companies, primarily in
joint trenching situations, in which services are being delivered to new housing subdivisions. We also maintain and install underground natural gas transmission and distribution systems for gas utilities.
Revenues by Type of Customer
We recognize revenues under the percentage of completion method of accounting using the units-of-delivery or cost-to-cost measures. A majority of our contracts are based on units-of-delivery and revenue is recognized as each unit is completed. Revenues from contracts using the cost-to-cost measures of completion are recognized based on the ratio of contract costs incurred to date to total estimated contract costs. Revenues from services provided under time and materials based contracts are recognized as the services are performed.
The following table presents information regarding percentage of total revenues by type of customer:
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| Telecommunications | 87.7 | % | | 84.5 | % | | 82.1 | % |
| Underground facility locating | 7.9 | % | | 10.9 | % | | 14.0 | % |
| Electric and gas utilities and other customers | 4.4 | % | | 4.6 | % | | 3.9 | % |
| Total contract revenues | 100.0 | % | | 100.0 | % | | 100.0 | % |
Business Strategy
Capitalize on Long-Term Growth Drivers. We are well positionedwell-positioned to benefit from the increased demand for network bandwidth which ensuresthat is necessary to ensure reliable video, voice, and data services. As telecommunications networks experience increased demand, our customers must expandSignificant developments in consumer applications, such as advanced digital and video service offerings, continue to increase the demands for greater capacity and improvereliability on the performancewireline and wireless networks of their existing networksour customers. Additionally, demand for mobile broadband remains strong, driven by the proliferation of smart phones, tablets and in certain instances, deploy new networks. This is increasingly important to our customers as theother wireless data devices. The service offerings of telephone and cable companies continue to converge, with each offering reliable, competitively priced voice, video, and data services to consumers and businesses. Additionally, there is a significant increase in demand for mobile broadband driven byThese accelerating developments have heightened the proliferationimportance of smart phones and other wireless data devices. Our customers' networks, both wireline and wireless, are increasingly facing demands for greater capacity and reliability which increases the demand for the services we provide.network performance.
Selectively Increase Market Share. We believe our reputation for high quality and our ability to provide services nationally creates opportunities to expand our market share. Our decentralized operating structure and numerous points of contact within customer organizations position us favorably to win new opportunities with existing customers. Our significant financial resources enable us to address larger opportunities whichthat some of our relatively capital-constrained competitors may be unable to perform. We do not intend to increase market share by pursuing unprofitable work.
Pursue Disciplined Financial and Operating Strategies. We manage the financial aspects of our business by centralizing certain activities whichthat allow us to reduce costs through leveraging our scope and scale. FunctionsWe have centralized functions such as treasury, tax and risk management, the approval of capital equipment procurements, and the design and administration of employee benefit plans, as well as the review and promulgation of "best practices" in certain other aspects ofplans. We also centralize our operations, are centralized. Additionally, we centralize efforts in information technology that are designedinfrastructure to support and enhance ourprovide enhanced operating efficiency. In contrast, we decentralize the recording of transactions and the financial reporting necessary for timely operational decisions. Decentralization promotes greater accountability for business outcomes from our local decision makers. We also maintain a decentralized approach to marketing, field operations, and ongoing customer service, empowering local managers to capture
new business and execute contracts on a timely and cost-effective basis. ThisOur approach enables us to utilize our capital resources effectively and efficiently while retaining the organizational agility necessary to compete with our predominantly small,smaller, privately owned local competitors.
Pursue Selective Acquisitions. We selectively pursue acquisitions when we believe doing so isthat are operationally and financially beneficial although we do not rely solely on acquisitions for growth.the Company as a whole. In particular, we pursue acquisitions that we believe will provide us with incremental revenue and geographic diversification while complementing our existing operations. We generally target companies for acquisition that have defensible leadership positions in their market niches, profitability whichthat meets or exceeds industry averages, proven operating histories, sound management and certain clearly identifiable cost synergies.
Acquisitions
TableFiscal 2016 - During August 2015, we 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 our geographical presence within our existing customer base. During July 2016, we acquired certain assets and assumed certain liabilities associated with the wireless network deployment and wireline operations of ContentsGoodman Networks Incorporated (“Goodman”) for a cash purchase price of $107.5 million, subject to working capital adjustments. The total cash transaction consideration paid was $102.8 million after a preliminary working capital adjustment of $4.7 million. The acquired operations provide wireless construction services in a number of markets, including Texas, Georgia, and Southern California. The acquisition reinforces our wireless construction resources and expands our geographical presence within our existing customer base. During the fourth quarter of fiscal 2016, we 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 Northeastern United States.
Fiscal 2015 - During the first quarter of fiscal 2015, we acquired Hewitt Power & Communications, Inc. (“Hewitt”) for $8.0 million, net of cash acquired. Hewitt provides specialty contracting services primarily for telecommunications providers in the Southeastern United States. During the second quarter of fiscal 2015, we acquired the assets of two cable installation contractors for an aggregate purchase price of $1.5 million. During the fourth quarter of fiscal 2015, we acquired Moll’s Utility Services, LLC (“Moll’s”) for $6.5 million, net of cash acquired. Moll’s provides specialty contracting services primarily for utilities in the Midwest United States. We also acquired the assets of Venture Communications Group, LLC (“Venture”) for $15.6 million during the fourth quarter of fiscal 2015. Venture provides specialty contracting services primarily for telecommunications providers in the Midwest and Southeastern United States.
Fiscal 2014 - During the third quarter of fiscal 2014, we acquired a telecommunications specialty construction contractor in Canada for $0.7 million. Additionally, during the fourth quarter of fiscal 2014, we acquired Watts Brothers Cable Construction, Inc. (“Watts Brothers”) for $16.4 million. Watts Brothers provides specialty contracting services primarily for telecommunications providers in the Midwest and Southeastern United States.
Customer Relationships
We have established relationships with many leading telecommunications providers, including telephone companies, including AT&T, CenturyLink, Verizon, Windstream, and Frontier as well ascable television multiple system operators, wireless carriers, telecommunication equipment and infrastructure providers, including Ericsson and Crown Castle International Corp. We also provide telecommunications engineering, construction, installation and maintenance services to cable television multiple system operators, including Comcast, Charter, Time Warner Cable, Cablevision and Bright House Networks. Premise wiring services are provided to various companies, as well as state and local governments. Our underground facility locating services are provided to telecommunication providers and to a variety of utility and gas companies, including Edison International and Washington Gas Light Company. We also provide construction and maintenance services to a number of electric and gas utility companies, including Questar Gas Company.
utilities. Our customer base is highly concentrated, with our top five customers in each of fiscal 2016, 2015, and 2014 accounting for approximately 58.5%69.7%, 59.6%61.1% and 62.0%58.3% of our total revenues, in fiscal 2013, 2012, and 2011, respectively. During fiscal 2013,2016, we derived approximately 15.5%24.4% of our total revenues was derived from AT&T 14.6%Inc., 14.5% from CenturyLink, 10.9%Inc., 13.6% from Comcast 9.6%Corporation, 11.0% from Verizon Communications, Inc. and 7.9%6.2% from Windstream.another significant customer. We believe that a substantial portion of our total revenues and operating income will continue to be derivedgenerated from a concentrated group of customers.
A significant portionWe serve our markets locally through dedicated and experienced personnel. Our sales and marketing efforts are the responsibility of the management teams of our subsidiaries who possess intimate knowledge of their particular markets, allowing us to be responsive to customer needs. Our executive management team supplements these efforts, both at the local and national levels, focusing on contact with the appropriate managers within our customers’ organizations.
We perform a majority of our services are performed under master service agreements and other arrangements with customers that extend for periods of one or more years. We are party to numerous master service agreements and generally maintain multiple agreements with each of our customers. Master service agreements generally contain customer-specified service requirements, such as discrete pricing for individual tasks. We generally possess multiple agreements with each of our significant customers. To the extent that such agreements specify exclusivity, there are often a number of exceptions, including the customer’s ability of the customer to issue work orders valued above a specified dollar amount to other service providers, performthe performance of work with the customer'scustomer’s own employees, and the use of other service providers when jointly placing facilities with another utility. In most cases, a customer may terminate an agreement for convenience with written notice.
A customer's decision to engage us to perform a specific construction or maintenance project is often made by local customer management working with our subsidiaries. As a result, our relationships with customers are generally broad and extend deeply into their organizations.notice. Historically, multi-year master service agreements have been awarded primarily through a competitive bidding process; however, we have beenare occasionally able to extend some of these agreements on a negotiated basis. Wethrough negotiations. The remainder of our services are performed under contracts for specific projects. These contracts may be long-term (with terms greater than one year) or short-term (with terms generally three to four months in duration) and often include customary retainage provisions under which the customer may withhold 5% to 10% of the invoiced amounts pending project completion.
Cyclicality and Seasonality
The cyclical nature of the industry we serve may affect demand for our services. The capital expenditure and maintenance budgets of our customers, and the related timing of approvals and seasonal spending patterns, influence our revenues and results of operations. The business demands of our customers and the demands of their consumers, the introduction of new communication technologies, the physical maintenance needs of customer infrastructure, the actions of our government and the Federal Communications Commission, and overall economic conditions may affect the capital expenditures and maintenance budgets of our telecommunications customers. Changes in our mix of customers, contracts, and business activities, as well as changes in the general level of construction activity also enter into both long-termdrive variations in revenues and short-term single project contracts with our customers.results of operations.
Our markets are served locally by dedicatedrevenues and experienced personnel. The managementresults of operations exhibit seasonality as we perform a significant portion of our subsidiaries possesses intimate knowledgework outdoors. Consequently, extended periods of their particular markets, allowing usadverse weather, which are more likely to be more responsive in addressing customer needs. Our salesoccur during the winter season, impact our operations during our second and marketing efforts are the responsibilitythird fiscal quarters. In addition, a disproportionate percentage of management, including management of our subsidiaries. These marketing efforts tend to focus on contacts with managerspaid holidays fall within our customers' organizations.second fiscal quarter, which decreases the number of available workdays. Because of these factors, we are most likely to experience reduced revenue and profitability during the second and third fiscal quarters.
Backlog
Our backlog totaled $2.197 billion and $1.565 billion at July 27, 2013 and July 28, 2012, respectively. We expect to complete 55.4% of the July 27, 2013 backlog during fiscal 2014. The increase in backlog is due in part to the incremental backlog resulting from businesses acquired in fiscal 2013.
Our backlog consists of the estimated uncompleted portion of services to be performed under job-specific contractscontractual agreements with our customers and the estimated value of future services that wetotaled $6.031 billion and $3.680 billion at July 30, 2016 and July 25, 2015, respectively. The increase in backlog primarily relates to new awards and contract extensions during fiscal 2016. We expect to providecomplete 38.5% of the July 30, 2016 backlog during the next twelve months. Our backlog estimates represent amounts under master service agreements and other contracts. Many of our contracts are multi-yearcontractual agreements and we include in our backlog the amount offor services projected to be performed over the terms of the contracts and are based on contract terms, our historical experience with customers and, more generally, our experience in procurementssimilar procurements. The significant majority of this type. our backlog estimates comprise services under master service agreements and long-term contracts.
Revenue estimates included in our backlog can be subject to change as a resultbecause of project accelerations, contract cancellations, or delays due to various factors, including, but not limited to, commercial issues such as permitting, engineering changes, incremental documentation requirements, difficult job site conditions, and adverse weather. These factors can also cause revenue amounts to be realized in different periods and at levelsor in different thanamounts from those originally projected.reflected in backlog. In many instances, our customers are not contractually committed to procure specific volumes of services under a contract. Our estimatesWhile we did not experience any material cancellations during fiscal 2016, 2015, or 2014, many of our customers may cancel our contracts upon notice regardless of whether or not we are in default. The amount of backlog related to uncompleted projects in which a customer's requirements during a particular future period may prove to be inaccurate.provision for estimated losses was recorded is not material.
Backlog is considerednot a non-GAAP financial measure as defined by SEC Regulation G;United States generally accepted accounting principles; however, it is a common measurement used in our industry. Our methodology for determining backlog may not be comparable to the methodologies used by others.
Competition
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TableThe specialty contracting services industry in which we operate is highly fragmented and includes a large number of Contentsparticipants. We compete with several large corporations and numerous small, privately owned companies. We also face competition from the in-house service organizations of our existing and prospective customers, particularly telecommunications providers that employ personnel who perform some of the same services we provide. Relatively few barriers to entry exist in the markets in which we operate. As a result, any organization that has adequate financial resources, access to technical expertise, and the necessary equipment and materials may become a competitor. The principal competitive factors for our services include geographic presence, breadth of service offerings, worker and general public safety, price, quality of service, and industry reputation. We believe that we compare favorably to our competitors when evaluated against these factors.
Employees
We employed approximately 12,750 persons as of July 30, 2016. Our workforce includes a core group of technical and managerial personnel to supervise our projects and fluctuates in size to meet the demands of our customers. We consider our relations with employees to be good and believe our future success will depend, in part, on our continuing ability to attract, hire, and retain skilled and experienced personnel.
Materials and Subcontractors
For a majority of the contract services we perform, our customers provide all materials required, while we provide the necessary personnel, tools, and equipment. Because our customers retain the financial and performance risk associated with materials they provide, we do not include associated amounts in our revenue or costs of sales. Under contracts that require us to supply part or all of the required materials, we do not depend upon any one source for materials and do not anticipate experiencing procurement difficulties.
We contract with independent subcontractors to help manage fluctuations in work volumes and reduce the amount that we would otherwise expend on fixed assets and working capital. These independent subcontractors are typically small, locally owned companies that provide their own employees, vehicles, tools and insurance coverage. There are no individual independent subcontractors that are significant to the Company.
Safety and Risk Management
We are committed to ensuring thatinstilling safe work habits through proper training and supervision of our employees perform theirand expect adherence to safety practices that ensure a safe work safely, and we regularly communicate with ourenvironment. Our safety program requires employees to reinforceparticipate in safety training required by law as well as that commitment and instill safewhich is specifically relevant to the work habits.they perform. The safety directors of our subsidiariesbusinesses review accidentssafety incidents and claims for our operations, examine trends, and implement changes in procedures to address safety issues.
Claims arising in our business generally include workers'workers’ compensation claims, various general liability and damage claims, and claims related to motor vehicle accidents,collisions, including personal injury and property damage. We insure against the risk of loss arising fromFor claims within our operations up to certain deductible limits in substantially all of the states in which we operate. In addition,insurance program, we retain the risk of loss, up to certain limits, under ourfor matters related to automobile liability, general liability (including damages associated with underground facility locating services), workers’ compensation, and employee group health plan.
health. We carefully monitor claims and actively participate with our insurers in determining claims estimates and adjustments. TheWe accrue the estimated costs of claims are accrued as liabilities, and include estimates for claims incurred but not reported. Due to fluctuations in our loss experience from year to year, insurance accruals have varied and can affect the consistency of our operating margins. IfOur business could be materially and adversely affected if we experience insurance claims in excess of our umbrella coverage limit, our business could be materially and adversely affected.limit. See Item 7, Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 8, Accrued Insurance Claims, ofin the Notes to Consolidated Financial Statements.
Competition
The specialty contracting services industry in which we operate is highly fragmented. It is characterized by a large number of participants, including several large companies as well as a significant number of small, privately owned, local competitors. We also face competition from the in-house service organizations of our existing and prospective customers, particularly telecommunications providers that employ personnel who perform some of the same services that we provide. We have been performing specialty contracting services through relationships with our subsidiaries that in many cases have existed for decades. However, our existing and prospective customers may elect to discontinue outsourcing specialty contracting services in the future. In addition, there are relatively few barriers to entry into the markets in which we operate. As a result, any organization that has adequate financial resources and access to technical expertise may become a competitor.
A significant portion of our revenue is currently derived from master service agreements, and price is often an important factor in awarding such agreements. Accordingly, we may be underbid by our competitors if they elect to reduce their prices in order to procure business or we could be required to lower the price charged under a contract being rebid. Our competitors may also have or develop the expertise, experience and resources to provide services that are equal or superior in both price and quality to our services, and we may not be able to maintain or enhance our competitive position.
The principal competitive factors for our services include geographic presence, breadth of service offerings, worker and general public safety, price, quality of service, and industry reputation. We believe that we perform as well as or better than our competitors with respect to these factors.
Employees
As of July 27, 2013, we employed approximately 10,822 persons. The number of our employees varies with the level of our work in progress. We maintain a nucleus of technical and managerial personnel to supervise all projects and add employees as needed to complete specific projects.
Materials and Subcontractors
For a majority of the contract services we perform, our customers provide all the materials required while we provide the necessary personnel, tools, and equipment. Materials supplied by our customers, for which the customer retains financial and performance risk, are not included in our revenue or costs of sales. Under contracts where we are required to supply part or all of the materials, we are not generally dependent upon any one source for the materials that we customarily use to complete projects. We do not manufacture materials for resale.
We use independent subcontractors to help manage fluctuations in work volumes and reduce the amount that we may otherwise be required to spend on fixed assets and working capital. These independent subcontractors typically are small locally owned companies. Independent subcontractors provide their own employees, vehicles, tools, and insurance coverage. No single independent subcontractor is significant.
Seasonality
Our revenues exhibit seasonality as a significant portion of the work we perform is outdoors. Consequently, our operations are impacted by extended periods of inclement weather. Generally, inclement weather is more likely to occur during the winter season, which falls during our second and third fiscal quarters. Also, a disproportionate percentage of total paid holidays fall within our second quarter, which decreases the number of available workdays. Additionally, our customer premise equipment installation activities for cable providers historically decrease around calendar year end holidays as their customers generally require less activity during this period. As a result, we may experience reduced revenue in the second or third quarters of our fiscal year.
Environmental Matters
A significant portion of the work we perform is associated with the underground networks of our customers. We could be subject to potential material liabilities in the event we cause a release of hazardous substances or other environmental damage resulting from underground objects we encounter. Additionally,Liabilities for contamination or exposure to hazardous materials, or failure to comply with environmental laws and regulations which relate to our business include those regarding the removal and remediation of hazardous substances. These laws and regulations can imposecould result in significant costs including clean-up costs, fines, and criminal sanctions for violations. Costs associated with the discharge of hazardous substances may include clean-up costsviolations, and related damagesthird-party claims for property damage or liabilities.personal injury. These costs, could be significant andas well as any direct impact to ongoing operations, could adversely affect our results of operations and cash flows.
Executive Officers of the Registrant
The following table sets forth certain information concerning the Company'sCompany’s executive officers, all of whom serve at the pleasure of the Board of Directors.
|
| | | | | | |
| Name | | Age | | Office | | Executive Officer Since |
| Steven E. Nielsen | | 5053 | | Chairman, President and Chief Executive Officer | | February 26, 1996 |
| Timothy R. Estes | | 5962 | | Executive Vice President and Chief Operating Officer | | September 1, 2001 |
| H. Andrew DeFerrari | | 4447 | | Senior Vice President and Chief Financial Officer | | November 22, 2005 |
| Richard B. Vilsoet | | 6063 | | Vice President, General Counsel and Corporate Secretary | | June 11, 2005 |
| Kimberly Dickens | | 54 | | Vice President and Chief Human Resources Officer | | March 24, 2014 |
There are no arrangements or understandings between any executive officer of the Company and any other person pursuant to which any executive officer was selected as an officer of the Company. There are no family relationships among the Company'sCompany’s executive officers.
Steven E. Nielsen has been the Company'sCompany’s President and Chief Executive Officer since March 1999. Prior to that, Mr. Nielsen was President and Chief Operating Officer of the Company from August 1996 to March 1999, and Vice President from February 1996 to August 1996.
Timothy R. Estes has been the Company'sCompany’s Executive Vice President and Chief Operating Officer since September 2001. Prior to that, Mr. Estes was the President of Ansco & Associates, Inc., one of the Company'sCompany’s subsidiaries, from 1997 until 2001 and Vice President from 1994 until 1997.
H. Andrew DeFerrari has been the Company'sCompany’s Senior Vice President and Chief Financial Officer since April 2008. Prior to that, Mr. DeFerrari was the Company'sCompany’s Vice President and Chief Accounting Officer since November 2005 and was the Company'sCompany’s Financial Controller from July 2004 through November 2005. Mr. DeFerrari was previously a senior audit manager with Ernst & Young Americas, LLC.
Richard B. Vilsoet has been the Company'sCompany’s General Counsel and Corporate Secretary since June 2005 and Vice President since November 2005. Before joining the Company, Mr. Vilsoet was a partner with Shearman & Sterling LLP. Mr. Vilsoet was with Shearman & Sterling LLP for over 15fifteen years.
Kimberly Dickens has been the Company’s Vice President and Chief Human Resources Officer since May 2014. Before joining the Company in March 2014, Ms. Dickens was the Vice President, Global Human Resources of Cooper Standard Automotive, Inc. from 2008 to 2013. Prior to this, she held a similar position at Federal Signal Corporation from 2004 to 2008 and spent over fifteen years in a variety of human resources leadership roles at Borg Warner Corporation.
Item 1A. Risk Factors.
Our business is subject to a variety of risks and uncertainties, including, but not limited to, the risks and uncertainties described below. You should read the following risk factors carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. If any of the risks described below, or elsewhere in this Annual Report on Form 10-K or the Company's other filings with the Securities and Exchange Commission, were to occur, our financial condition and results of operations could suffer and the trading price of our common stock could decline. Additionally, if other risks not presently known to us, or that we do not currently believe to be significant, occur or become significant, our financial condition and results of operations could suffer and the trading price of our common stock could decline.
Uncertain economic conditions and/or challenges in the financial and credit markets may adversely impact our customers' future spending. The U.S. economy is still recovering from the recent recession, and growth in U.S. economic activity has remained slow. It is uncertain when these conditions will significantly improve. Economic downturns adversely impact the demand for our services and potentially result in the delay or cancellation of projects by our customers. This makes it difficult to estimate our customers' requirements for our services and adds uncertainty to the determination of our backlog. In addition, our customers generally finance their projects though cash flow from operations, the issuance of debt, or the issuance of equity. As a result, reduced cash flow from operations or volatility in the credit and equity markets could reduce the availability of debt or equity financing for our customers. This may result in a reduction in our customers' spending for our services, which could adversely affect our operations as a result of less demand for our services or lower margins.
Demand for our services is cyclical and vulnerable to economic downturns affecting the industries we serve. Demand for our services by telecommunications customers has been, and will likely continue to be, cyclical in nature and vulnerable to downturns in the economy and telecommunications industry. Our results for fiscal 2009 and fiscal 2010 were impacted by customer reductions in near-term spending plans. Although we experienced an improved operating environment in fiscal 2013, 2012, and 2011, there is no guarantee that future downturns will not occur. During times of uncertain or slowing economic conditions, our customers often reduce their capital expenditures and defer or cancel pending projects. In addition, uncertain or adverse economic conditions that create volatility in the credit and equity markets may reduce the availability of debt or equity financing for our underground facility locating services more generally are influencedcustomers causing them to reduce capital spending. Any reduction in capital spending or deferral or cancellation of projects by the level of overall economic activity. As a result of the foregoing,our customers could reduce demand for our services, may decline during periods of economic weakness adversely affecting our operations, cash flows, and liquidity. In addition, these conditions make it difficult to estimate our customers’ demand for our services and add uncertainty to the determination of our backlog.
We derive a significant portion of our revenues from master service agreements and long-term contracts which may be canceled by our customers upon notice, do not guaranty a specific amount of work, or which we may be unable to renew on negotiated terms. During fiscal 2013,2016, we derived approximately 77.0%81.0% of our revenues from master service agreements and long-term contracts. By their terms, theThe majority of these contracts may be canceledare cancelable by our customers upon notice regardless of whether or not we are in default. In addition, our customers generally have no obligation to assign a specific amount of work to us under these agreements. Consequently, projected expenditures by customers are not assured until a definitive work order is placed with us and the work completed. This makes it difficult to estimate our customers’ demand for our services. Furthermore, our customers generally require competitive bidding of these contracts. Accordingly, wecontracts upon expiration of their terms. We may not be underbid byable to renew a contract if our competitors if they elect to reduce their prices and underbid us in order to procure business, or we could be required to lower the price charged for work under athe contract being rebid.rebid in order to retain the contract. The loss of work obtained through master service agreements and long-term contracts or the reduced profitability of such work could adversely affect our results of operations, cash flows, and liquidity.
The industries we serve havetelecommunications industry has experienced, and may continue to experience, rapid technological, structural, and competitive changes that could reduce the need for our services and adversely affect our revenues. We generate the majority of our revenues from customers in the telecommunications industry. The telecommunications industry is characterized by rapid technological change, intense competition and changing consumer demands. We generate a significant portion of our revenues from customers in the telecommunications industry. New technologies, or upgrades to existing technologies by customers, could reduce the need for our services and adversely affect our revenues and profitability.by enabling telecommunication companies to improve their networks without physically upgrading them. New, developing, or existing services could displace the wireline or wireless systems that we install and that are used by our customers use to deliver services to consumers and businesses. In addition, improvements in existing technology may allow telecommunication companies to improve their networks without physically upgrading them. Reduced demand for our services or a loss of a significant customer due to technological changes could adversely affect our results of operations, cash flows, and liquidity.
We derive a significant portion of our revenues from a limited number of customers, and the loss of one or more of these customers through industry consolidation or otherwise could adversely impactaffect our revenues and profitability. Our customer base is highly concentrated, with our top five customers in each of fiscal 2016, 2015, and 2014 accounting for approximately 58.5%69.7%, 59.6%,61.1% and 62.0%58.3% of our total revenues, in fiscal 2013, 2012, and 2011, respectively. IfRevenues under our contracts with significant customers may vary from period to period depending on the timing or volume of work that those customers order or perform with their in-house service organizations. Our revenue could significantly decline if we were to lose one or more of our significant customers or if one or more of our revenue may significantly decline. In addition, revenues under our contracts with significant customers may vary from period-to-period depending onwere to elect to do the timing or volume of work which those customers order or performwe provide with their in-house service organizations.teams or shift a significant portion of that work to another service provider. Additionally, the telecommunications industry has been characterized by consolidation. In the case of a consolidation, merger or acquisition of an existing customer, may result in a change inthe amount of work we receive could be reduced if procurement strategies employed by the surviving entity which could reducechange from those of the amount of work we receive.existing customer or the surviving entity chooses to use a different service provider. The loss of work from a significant customer could adversely affect our results of operations, cash flows, and liquidity.
The specialty contracting services industry in which we operate is highly competitive. We compete with other specialty contractors, including numerous small, privately owned companies, as well as several companieslarge corporations that may have financial, technical, and marketing resources that exceed our own.exceeding ours. Relatively few barriers to entry exist in the markets in which we operate and, asoperate. Any organization may become a result, any organization withcompetitor if they have adequate financial resources, and access to technical expertise, may become a competitor.and the necessary equipment and materials. Additionally, our competitors may develop the expertise, experience and resources to provide services that are equal or superior to our services in both price and quality, to our services, and we may not be able to maintain or enhance our competitive position. We also face competition from the in-house service organizations of our customers whose personnel perform some of the services that we provide. We can offer no assurance that our existing or prospective customers will continue to outsource specialty contracting services in the future.
Our financial results are based on estimates and assumptions that may differ from actual results. In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, a number of estimates and assumptions are made by management that affect the amounts reported in the financial statements. These estimates and assumptions must be made because certain information that is used in the preparation of our financial statements is either dependent on future events or cannot be calculated with a high degree of precision from available data. In some instances, these estimates are particularly uncertain and we must exercise significant judgment. Estimates are primarily used in our assessment of the recognition of revenue for costs and estimated earnings under the percentage of completion method of accounting, allowance for doubtful accounts, the fair value of reporting units for goodwill impairment analysis, the assessment of impairment of intangibles and other long-lived assets, the purchase price allocations of businesses acquired, accrued insurance claims, income taxes, asset lives used in computing depreciation and amortization, stock-based compensation expense for performance-based stock awards, and accruals for contingencies, including legal matters. At the time they are made, we believe that such estimates are fair when considered in conjunction with our consolidated financial position and results of operations, taken as a whole. However, actual resultscash flows, and liquidity could differ from those estimatesbe materially and such differences may be materialadversely affected if we are unsuccessful in bidding on projects, if our ability to win projects requires that we settle for reduced margins or if our financial statements.customers reduce the amount of specialty contracting services that are outsourced.
Our profitability is based on our delivering services within the estimated costs established when pricing our contracts. We recognize revenues under the percentage of completion method of accounting using the units-of-delivery or cost-to-cost measures. A significantperform a majority of our contracts areservices under master service agreements and other agreements that contain customer-specified service requirements, such as discrete pricing for individual tasks. Revenue is recognized under these arrangements based on units-of-delivery and revenue is recognized as each unit is completed. AsDue to the fixed price for eachnature of the units is fixed by the contract,these contracts, our profitability could decline if our actual cost to complete each unit exceeds our original estimates. Revenues fromThe remainder of our services, representing less than 5% of our contract revenues during fiscal 2016 and less than 10% of our contract revenues during each of fiscal 2015 and 2014, are performed under contracts using the cost-to-cost measuresmeasure of the percentage of completion aremethod of accounting. Revenue is recognized under these arrangements based on the ratio of contract costs incurred to date to total estimated contract costs. Application of the percentage of completion method of accounting requires that we estimate the use of estimates of costs to be incurred in performingfor the performance of the contract. OurThe cost estimation process for estimating costs is based on the knowledge and experience of our project managers and
financial professionals. AnyDue to the fixed price nature of our contracts, any changes in original cost estimates, or the assumptions underpinning such estimates, may result in changes to costs, and income. Thesethereby reducing our profitability. We recognize these changes would be recognized in the period in which they are determined, and could resultpotentially resulting in significant changes toa reduction or elimination of previously reported profits.recognized earnings.
We have a significant amount of accounts receivable and costs and estimated earnings in excess of billings.billings, which could become uncollectible. We extend credit to our customers as a result of performing work under contract prior to billing our customers for that work. These customers include telephone companies, cable television multiple system operators, and gas and electric utilities and others. At July 27, 2013, we had net accounts receivable of $252.2 million and costs and estimated earnings in excess of billings of $204.3 million. We periodically assess the credit risk of our customers and continuouslyregularly monitor the timeliness of their payments. SlowingHowever, slowing conditions in the industries we serve, bankruptcies or financial difficulties within the telecommunications sector may impair the financial condition of one or more of our customers and hinder their ability to pay us on a timely basis or at all. Furthermore, bankruptcies or financial difficulties within the telecommunications sector could hinder the abilityAs of our customers to pay us on a timely basis or at all.July 30, 2016, we had net accounts receivable of $328.0 million and costs and estimated earnings in excess of billings of $377.0 million. The failure or delay in payment by our customers could reduce our expected cash flows and adversely impactaffect our liquidity and profitability.
We retain the risk of loss for certain insurance relatedinsurance-related liabilities. WeWithin our insurance program, we retain the risk of loss, up to certain limits, for claimsmatters related to automobile liability, general liability, workers'workers’ compensation, employee group health, and locate damages.damages associated with underground facility locating services. We are self-insured for the majority of all claims because most claims against us fall below the deductibles under our insurance policies. We estimate and develop our accrual for these claims, including losses incurred but not reported, based on facts, circumstances and historical evidence. However, the estimate for accrued insurance claims remains subject to uncertainty as it depends in part on factors that cannot benot known with precision. These factors include the estimated numberdevelopment 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. Should a greater number of claims occur compared to what we have estimated, or should the dollar amount or cost of actual claims exceed what we have anticipated, our recorded reserves may not be sufficient, and we could incur substantial additional unanticipated charges. See Item 7, Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Accrued Insurance Claims, and Note 8, Accrued Insurance Claims, of Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Our backlog is subject to reduction or cancellation. Our backlog consists of the estimated uncompleted portion of services to be performed under job-specific contracts and the estimated value of future services that we expect to providecontractual obligations with our customers. Our backlog estimates represent amounts under master service agreements and other contracts. Many of our contracts are multi-yearcontractual agreements and we include in our backlog the amount offor services projected to be performed over the terms of the contracts and are based on contract terms, our historical experience with customers and, more generally, our experience in procurementssimilar procurements. The significant majority of this type.our backlog estimates comprise services under master service agreements and long-term contracts. Revenue estimates included in our backlog can be subject to change as a resultbecause of project accelerations, contract cancellations, or delays due to various factors, including, but not limited to, commercial issues such as permitting, engineering changes, incremental documentation requirements, difficult job site conditions, and adverse weather. These factors can also cause revenue amounts to be realized in different periods and at levelsor in different thanamounts from those originally projected.reflected in backlog. In many instances, our customers are not contractually committed to procure specific volumes of services under a contract.contract and may cancel a contract for convenience. Our estimates of a customer'scustomer’s requirements during a particular future period may prove to be inaccurate. As a result, our backlog as of any particular date is an uncertain indicator of future revenues and earnings.
We may incur impairment charges on goodwill or other intangible assets. We account for goodwill and other intangibles in accordance with Financial Accounting Standards Board ("FASB"(“FASB”) Accounting Standard Codification ("ASC"(“ASC”) Topic 350, Intangibles-Goodwill and Other ("(“ASC Topic 350"350”). Our goodwill resides in multiple reporting unitsunits. We assess goodwill and other related indefinite-lived intangible assets are assessedfor impairment annually, as of the first day of the fourth fiscal quarter of each year in order to determine whether their carrying value exceeds their fair value. In addition, theyreporting units are tested on an interim basis if an event occurs or circumstances change between annual tests that would more likely than not reduce their fair value below carrying value. If we determine the fair value of the goodwill or other indefinite-lived intangible assets is less than their carrying value as a result of the tests, an impairment loss is recognized. Any such write-down would adversely affectsaffect our results of operations.
Our goodwill resides in multiple reporting units. As a result of the fiscal 2013 annual impairment analysis, the Company concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit. For businesses acquired in fiscal 2013, there were no significant changes in forecast assumptions between the initial valuation date and the annual impairment analysis. As a result, the estimated fair values determined during the fiscal 2013 annual impairment analysis approximated the reporting units' carrying values for the businesses acquired in fiscal 2013. Our UtiliQuest reporting unit, having a goodwill balance of approximately $35.6 million and an indefinite-lived trade name of $4.7 million, has been at lower operating levels as compared to historical levels. The fair value of the UtiliQuest reporting unit exceeds its carrying value by approximately 20%. The UtiliQuest reporting unit provides services to a broad range of customers including utilities and telecommunication providers. These services are required prior to underground excavation and are influenced by overall economic activity, including construction activity. The goodwill balance of this reporting unit may have an increased likelihood of impairment if a downturn in customer demand were to occur, or if the reporting unit 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 for this reporting unit may result in changes to other valuation assumptions.
The profitability of individual reporting units may suffer periodically fromdue to downturns in customer demand and other factors resulting from the level of overall economic activity, including in particular construction and housing activity. Our customers may reduce capital expenditures and defer or cancel pending projects during times of slowing economic conditions. Additionally, adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of our reporting units. The cyclical nature of our business, the high level of competition existing within our industry, and the concentration of our revenues from a limited number of customers and the level of overall economic activity. Individualmay also cause results to vary. These factors may affect individual reporting units may be relatively more impacted by these factors thandisproportionately, relative to the company as a whole. Specifically, during times of slowing economic conditions, our customers may reduce capital expenditures and defer or cancel pending projects. As a result, demand for the servicesperformance of one or more of the reporting units could decline, which could adversely affectresulting in an impairment of goodwill or intangible assets. In addition, adverse changes to the key valuation assumptions contributing to the fair value of our operations, cash flow, and liquidity, andreporting units could result in an impairment of goodwill or intangible assets.
We may be subject to periodic litigation and regulatory proceedings, including Fair Labor Standards Act and state wage and hour class action lawsuits, which may adversely affect our business and financial performance. From time to time, we may beare involved in lawsuits and regulatory actions that are brought or threatened against us in the ordinary course of business. These actions and proceedings may involve claims for, among other things, compensation for alleged personal injury, workers'workers’ compensation, employment discrimination, breach of contract or property damage. In addition, we may be subject to class action lawsuits involving allegations of violations of the Fair Labor Standards Act and state wage and hour laws. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such actions or proceedings. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify, because as plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts in these types of lawsuits, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time.time. In addition, plaintiffs in many types of actions may seek punitive damages, civil penalties, consequential damages or other losses, or injunctive or declaratory relief. The ultimate resolution of these matters through settlement, mediation, or court judgment could have a material impact on our financial condition, results of operations, and cash flows. In addition, regardless of the outcome, theseThese proceedings could result in substantial cost and may require us to devote substantial resources to defend ourselves. For a description of current legal proceedings, see Item 3, Legal Proceedings, and Note 18,17, Commitments and Contingencies, of Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
The loss of certainone or more of our executive officers or other key managersemployees could adversely affect our business. We depend on the services of our executive officers and the senior management of our subsidiaries. Our senior management team hassubsidiaries who have many years of experience in our industry, and theindustry. The loss of any one of them could negatively affect our customer relationships or the ability to execute our business strategy, and adversely affectaffecting our operations. Although we have entered into employment agreements with certain of our executive officers and certain other key employees, we cannot guarantee that any of them or other key management personnel will remain employed by us for any length of time. We do not carry significant "key-person"“key-person” life insurance on any of our employees.
Our business is labor intensive, and we may be unable to attract and retain qualified employees. Our ability to maintain our productivity and profitability is limited by our ability to employ, train, and retain the skilled personnel is necessary to operate our business.business and maintain productivity and profitability. We cannot be certain that we will be able to maintain the skilled labor force necessary to operate efficiently and support our growth strategy. Our ability to do so depends on a number of factors, such as general rates of employment, competitive demands for employees possessing the skills we need and the level of compensation required to hire and retain qualified employees. In addition, our labor costs may increase when there is a shortage in the supply of skilled personnel.personnel and we may be unable to pass these increases on to our customers due to the long-term nature of our contracts, thereby adversely affecting our results of operations.
We may be unable to secure sufficient independent subcontractors to fulfill our obligations, or our independent subcontractors may fail to satisfy their obligations.obligations to us. We utilizecontract with independent subcontractors to completehelp manage fluctuations in work volumes and reduce the amount that we would otherwise expend on a portion of our projects.fixed assets and working capital. If we are unable to secure independent subcontractors at a reasonable cost or at all, we may be delayed in completing work under a contract or the cost of completing the work may increase. In addition, we may have disputes with these independent subcontractors arising from, among other things, the quality and timeliness of the work they have performed. We may incur additional costs in order to correct such shortfalls in the work performed by subcontractors. Any of these factors could adversely affect the quality of our service, our ability to perform under certain contracts and theour relationship with our customers, which could have an adverse effect on our results of operations, cash flows, and liquidity.
The nature of our business exposes us to warranty claims, which may reduce our profitability. We typically warrant the services we provide, guaranteeing the work performed against defects in workmanship and the material we supply. Historically, warranty claims have not been material as our customers evaluate much of the work we perform for defects shortly after work is completed. However, if warranty claims occur, we could be required to repair or replace warrantied items at our cost. In addition, our customers may elect to repair or replace the warrantied item by using the services of another provider and require us to pay for the cost of the repair or replacement. Costs incurred as a result of warranty claims could adversely affect our operating results and financial condition.
Higher fuel prices may increase our cost of doing business, and we may not be able to pass along added costs to customers.Fuel prices fluctuate based on market events outside of our control. Most of our contracts do not allow us to adjust our pricing for higher fuel costs during a contract term and we may be unable to secure price increases reflecting rising costs when renewing or bidding contracts. As a result, higher fuel costs may negatively impactaffect our financial condition and results of operations. Although we may hedge our anticipated fuel purchases with the use of financial instruments, underlying commodity costs have been volatile in recent periods. Accordingly, there can be no assurance that, at any given time, we will have financial instruments in place to hedge against the impact of increased fuel costs. To the extent we enter into hedge transactions, declines in fuel prices below the levels established in the financial instruments may require us to make payments, which could have an adverse impact on our financial condition and results of operations.
Our results of operations fluctuate seasonally. Our revenues and results of operations exhibit seasonality as we perform a significant portion of theour work we perform is outdoors. Consequently, our operations are impacted by extended periods of inclement weather. Generally, inclementadverse weather impact our operations. Adverse weather is moremost likely to occur during the winter season, which falls during our second and third fiscal quarters. Also,In addition, a disproportionate percentage of total paid holidays fall within our second fiscal quarter, which decreases the number of available workdays. Additionally, our customer premise equipment installation activities historically decrease around calendar year end holidays as their customers generally require less activity during this period. As a result,Because of these factors, we mayare most likely to experience periods of reduced revenue in theand profitability during our second orand third quarters of our fiscal year.quarters.
WeOur financial results include certain estimates and assumptions that may differ from actual results. In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, a number of estimates and assumptions are made by management that affect the amounts reported in the financial statements. These estimates and assumptions must be unable to generate internal growth. Our internal growth may be affected by, among other factors, our ability to offermade because certain information that is used in the services our existing customers require, attract new customers, and hire and retain qualified employees or independent subcontractors. Many of the factors affecting our ability to generate internal growth, such as the capital budgetspreparation of our customers and the availabilityfinancial statements is either dependent on future events or cannot be calculated with a high degree of qualified employees, may be beyondprecision from available data. Estimates are primarily used in our control. Should one or more of these factors occur, we may not be able to achieve internal growth, expand our operations or grow our business.
Failure to combine and integrate the businesses acquired in fiscal 2013 into our operations in a successful and timely manner could adversely affect our business and results of operations. On December 3, 2012, we acquired substantially all of the telecommunications infrastructure service subsidiaries (the "Acquired Subsidiaries") of Quanta Services, Inc. Our integration of the Acquired Subsidiaries into our operations is a complex and time-consuming process which requires significant efforts and expenses. The difficulties of combining the businesses of the Acquired Subsidiaries with our operations includes, among others:
•retaining and integrating management and other key employees;
•unanticipated issues in integrating information, communications and other systems;
•consolidating corporate and administrative infrastructures;
•minimizing the diversion of management's attention from ongoing business concerns; and
•failure to manage successfully and coordinate the growth of the combined company.
These factors could result in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy, which could materially impact our business, financial condition and results of operations.
We may not realize the anticipated benefitsassessment of the purchase price allocations of businesses acquired, the Acquired Subsidiaries even iffair value of reporting units for goodwill impairment analysis, the assessment of impairment of intangibles and other long-lived assets, asset lives used in computing depreciation and amortization, accrued insurance claims, income taxes, accruals for contingencies, including legal matters, recognition of revenue for costs and estimated earnings under the percentage of completion method of accounting, allowance for doubtful accounts, and stock-based compensation expense for performance-based stock awards. In some instances, we must exercise significant judgment for these estimates. At the time they are successfully integrated intomade, we believe that such estimates are fair when considered in conjunction with our operations. We purchased the Acquired Subsidiaries with the expectation that the acquisition would result in various benefits for the Company, including, among others, the strategic strengthening of our customer base, geographic scope, and technical service offerings, as well as the enhancement of our rural telecommunications engineering and construction capabilities. However, these anticipated benefits may not materialize if we are unable to capitalize on expected business opportunities due to competition or other factors, or general industry and business conditions deteriorate. If the anticipated benefits of the acquisition are not realized, our business,consolidated financial conditionposition and results of operations taken as a whole. However, actual results could differ from those estimates and such differences may be adversely affected.material to our financial statements.
Failure to integrate future acquisitions successfully could adversely affect our business and results of operations. As part of our growth strategy, we may acquire companies that expand, complement, or diversify our business. We regularly review various opportunities and periodically engage in discussions regarding possible acquisitions. Future acquisitions may divert management’s attention from our existing business and expose us to operational challenges and risks, including the diversion of management's attention from our existing business, the failure to retainretaining management and other key personnel or customers of an acquired business, theemployees; unanticipated issues in integrating information, communications and other systems; assumption of unknown liabilities or liabilities for which inadequate reserves have been established; consolidating corporate and administrative infrastructures; and failure to manage successfully and coordinate the growth of the acquiredcombined company. These factors could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially affect our business, for which there are inadequate reserves;financial condition, and the potential impairmentresults of acquired intangible assets. Our ability to grow and maintain our competitive position may be adversely affected by our ability to successfully integrate any businesses acquired.operations.
Unanticipated changes in our tax rates or exposure to additional income and other tax liabilities could affect our profitability. We are subject to income taxes in many different jurisdictions of the United States and Canada and certain of our tax liabilities are subject to the apportionment of income to different jurisdictions. Our effective tax rates could be adversely affected by changesChanges in the mix of earnings in locations with differing tax rates, the valuation of deferred tax assets and liabilities or tax laws.laws may adversely affect our effective tax rate. An increase to our effective tax rate may increase our tax obligations. In addition, the amount of income and other taxes we pay is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax authority could affect our profitability.
The indenture under which our senior subordinated notes were issued and ourOur bank credit facility imposeimposes restrictions whichthat may prevent us from engaging in beneficial transactions.At July 27, 2013, we had outstanding an aggregate principal amount of $277.5 million in senior subordinated notes due 2021 (the "2021 Notes"). We also have a credit agreement (the "Credit Agreement") with a syndicate of banks, which provides for a $125.0 million term loan (the "Term Loan") and a $275.0$450.0 million revolving facility, including$350.0 million in aggregate term loan facilities, and contains a sublimit of $150.0$200.0 million for the issuance of letters of credit. At As of July 27, 2013,30, 2016, we had $49.0 million of outstanding borrowings under the revolving facility, $121.9$346.3 million outstanding under the Term Loan,term loans and $46.7$57.6 million of outstanding letters of credit issued under the Credit Agreement.credit agreement. We did not have any outstanding borrowings under the revolving facility as of July 30, 2016. The terms of our indebtedness containcredit agreement contains covenants that restrict our ability to, among other things: make certain payments, including the payment of dividends;dividends, redeem or repurchase our capital stock;stock, incur additional indebtedness and issue preferred stock;stock, make investments or create liens;liens, enter into sale and leaseback transactions;transactions, merge or consolidate with another entity;entity, sell certain assets;assets, and enter into transactions with affiliates. In addition, the Credit Agreementcredit agreement requires us to comply with a consolidated leverage ratio and a consolidated interest coverage ratio. A default under our Credit Agreement or the indenture governing the 2021 Notes could result in the acceleration of our obligations under either or both of those agreements as a result of cross acceleration and cross default provisions. In addition, theseThese covenants may prevent us from engaging in transactions that benefit us, including responding to changing business and economic conditions or securing additional financing, if needed. In addition, a default under our credit agreement could result in the acceleration of our obligations under both the credit agreement and the indenture governing our $485.0 million of 0.75% convertible senior notes due September 15, 2021 (the “Notes”) as a result of cross-acceleration and cross-default provisions.
The convertible note hedge transactions and the warrant transactions may affect the value of our common stock. In connection with the issuance of our Notes, we entered into privately negotiated convertible note hedge transactions with the hedge counterparties. The convertible note hedge transactions cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlay the Notes sold in the offering. We also entered into separate, privately
negotiated warrant transactions with the hedge counterparties relating to the same number of shares of our common stock, subject to customary anti-dilution adjustments.
The hedge counterparties and/or their affiliates may modify their hedge positions with respect to the convertible note hedge transactions and the warrant transactions from time to time. They may do so by purchasing and/or selling shares of our common stock and/or other securities of ours, including the Notes, in privately-negotiated transactions and/or open-market transactions or by entering into and/or unwinding various over-the-counter derivative transactions with respect to our common stock. The hedge counterparties are likely to modify their hedge positions during any observation period related to a conversion of the Notes or following any repurchase of Notes by us on any fundamental change (as defined in the indenture governing the Notes) repurchase date.
The effect, if any, of these transactions on the market price of our common stock will depend on a variety of factors, including market conditions, and could adversely affect the market price of our common stock. In addition, the hedge counterparties and/or their affiliates may choose to engage in, or to discontinue engaging in, any of these transactions with or without notice at any time, and their decisions will be at their sole discretion and not within our control.
We are subject to counterparty risk with respect to the convertible note hedge transactions. The hedge counterparties are financial institutions, and we are subject to the risk that they might default under the convertible note hedge transactions. Our exposure to the credit risk of the hedge counterparties is unsecured by any collateral. Global economic conditions have from time to time resulted in failure or financial difficulties for many financial institutions. If a hedge counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with that counterparty. Our exposure will depend on many factors but, generally, our exposure will increase in correlation to the increase in the market price and volatility of our common stock. In addition, upon a default by a hedge counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of any hedge counterparty.
Conversion of the Notes or exercise of the warrants evidenced by the warrant transactions may dilute the ownership interest of existing stockholders, including holders who had previously converted their Notes. At our election, we may settle Notes tendered for conversion entirely or partly in shares of our common stock. Further, the warrants evidenced by the warrant transactions are expected to be settled on a net-share basis. As a result, the conversion of some or all of the Notes or the exercise of some or all of such warrants may dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion of the Notes or such exercise of the warrants could adversely affect the then-prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could depress the price of our common stock.
Many of our telecommunications customers are highly regulated, and new regulations or changes to existing regulations may adversely impact their demand for and the profitability of our specialty contracting service.services. ManyThe Federal Communications Commission (“FCC”) regulates many of our telecommunications customers are regulated by the Federal Communications Commission ("FCC"). The FCCand may alter its application of current regulations and may impose additional regulations. If existing or new regulations have an adverseadversely affect on our telecommunications customers and adversely impact the profitability of the services they provide, our customers may reduce expenditures, which could impactaffect the demand for specialty contracting services.
We may incur liabilities or suffer negative financial impact relating to occupational health and safety matters. Our operations are subject to stringent laws and regulations governing workplace safety. Our workers frequently operate heavy machinery and work near high voltage lines. As a result, theylines, subjecting them and others are subject to potential injury andor death. If any of our workers or any other persons are injured or killed in the course of our operations, we could be found to have violated relevant safety regulations, which could resultresulting in a fine or, in extreme cases, criminal sanction. In addition, if our safety record were to deteriorate substantially deteriorate over time, customers could decide to cancel our contracts or not award us future business.
Our failure to comply with environmental laws could result in significant liabilities. A significant portion of the work we perform is associated with the underground networks of our customers. We could be subject to potential material liabilities in the event we cause or are responsible for a release of hazardous substances or other environmental damage resulting from underground objects we encounter. Additionally, thedamage. Liabilities for contamination or exposure to hazardous materials, or failure to comply with environmental laws and regulations, which relate to our business include those regarding the removal and remediation of hazardous substances. These laws and regulations can imposecould result in significant costs including clean-up costs, fines, and criminal sanctions for violations. Costs associated with the discharge of hazardous substances may include clean-up costsviolations, and related damagesthird-party claims for property damage or liabilities.personal injury. These costs could be significant andas well as any direct impact to ongoing operations could adversely affect our results of operations and cash flows. In addition, new laws and regulations, altered enforcement of existing laws and regulations, the discovery of previously unknown contamination or leaks, or the imposition of new clean-up requirements could require us to incur significant costs or create new or increased liabilities that could harm our financial condition and results of operations.
We may not have access in the future to sufficient funding to finance desired growth. Using cash for operational growth, capital expenditures, share repurchases, or acquisitions may limit our financial flexibility and make us more likely to seek additional capital through future debt or equity financings. Our existing debt agreements contain significant restrictions on our operational and financial flexibility, including our ability to incur additional debt. Also,In addition, if we seek to incur more debt, we may be required to agree to additional covenants that further limit our operational and financial flexibility. If we pursue additional debt or equity financings, we cannot be certain that such funding will be available on terms acceptable to us or at all.
Our capital expenditures may fluctuate as a resultbecause of changes in business requirements. Our anticipated capital expenditure requirements may vary from time to time as a resultbecause of changes in our business. Increased capital expenditures will use cash flow and may increase our borrowing costs if cash for capital expenditures is not available from operations.
Increases in our health insurancecare costs could adversely impactaffect our results of operations and cash flows. The costs of employee health care insurance have been increasing in recent years due to rising health care costs, legislative changes, and general economic conditions. Additionally, we may incur additional costs as a resultWe retain the risk of theloss, up to certain limits, under our employee group health care plan. The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "Health“Health Care Reform Laws"Laws”) have had a significant impact on employers, insurers and others associated with the health care industry, and are expected to continue to increase our employee health care costs. This legislation requires certain employers like the Company to offer health care benefits to full-time employees or face potential annual penalties. To avoid the penalties, employers must offer health benefits providing a minimum level of coverage and limit the amount that were signed into law in March 2010.employees are charged for the coverage. Because of the breadth and complexity of these laws, as well as other health care reform legislation considered by Congress and state legislations, we cannot predict with certainty the future effect of these laws on us. A continued increase in health care costs or additional costs incurred as a result of the Health Care Reform Laws or other future health care reform laws imposed by Congress or state legislations could have a negative impact on our financial position and results of operations.
Several of our subsidiaries participate in multiemployer pension plans under which underwe could incur material liabilities in certain circumstances could result in material liabilities being incurred. A few. Pursuant to collective bargaining agreements, several of our subsidiaries participate in various multiemployer pension plans under union and industry-wide agreements that generally provide defined pension benefits to employees covered by collective bargaining agreements.employees. Because of the nature of multiemployer plans, there are risks associated with participation in these plans that differ from single-employer plans. Assets contributed by an employer to a multiemployer plan are not segregated into a separate account and are not restricted to provide benefits only to employees of that contributing employer. Under the Employee Retirement Income Security Act, absent an applicable exemption, a contributing employer to an underfunded multiemployer plan is liable generally upon termination or withdrawal from a plan, for its proportionate share of the plan'splan’s unfunded vested liability. We currently have no intentionOne of withdrawing from any multiemployer plan inour subsidiaries, which we participate. However, a future withdrawal frompreviously contributed to the Pension, Hospitalization and Benefit Plan of the Electrical Industry - Pension Trust Fund (the “Plan”), a multiemployer pension plan, ceased operations during the fourth quarter of fiscal 2016. We do not expect to be assessed a withdrawal liability under the Plan because we believe there is a statutory exemption available under the Employee Retirement Income Security Act for multiemployer pension plans that primarily cover employees in the building and construction industry. However, there can be no assurance that the Plan will not make a claim for withdrawal liability or that, if made, we will be successful in asserting the statutory exemption as a defense. In such instance, payment of the withdrawal liability could adversely affect our results of operations and cash flows. In addition, if any of the plans in which we participate could result in a material withdrawal liabilitybecome underfunded as defined by the Pension Protection Act of 2006, we may be required to make additional cash contributions related to the extent that any unfunded vested liability under such plan is allocable to the Company.underfunding of those plans.
Failure to adequately protect critical data and technology systems adequately could materially affect our operations. We use our own information technology systems as well as those of our business partners to maintain certain datamanage our operations and provide reports. Our measures protecting these systems may be compromised as a resultother business processes and to protect sensitive information maintained in the normal course of third-partybusiness. Third-party security breaches, employee error, malfeasance or other irregularity,irregularities may compromise our measures to protect these systems and may result in persons obtaining unauthorized access to our or our customers'customers’ data or accounts. The occurrence of any such event could have a material adverse effect on our business.
The market price of our common stock has been, and may continue to be, highly volatile. During fiscal 2013,2016, our common stock fluctuated from a highlow of $26.77$48.61 per share to a lowhigh of $13.09 per share.$95.94. We may continue to experience significant volatility in the market price of our common stock due to numerous factors, including, but not limited to:
•fluctuations in our operating results or the operating results of one or more of our competitors;
•announcements by us or our competitors of significant contracts, acquisitions or capital commitments;
•announcements by our customers regarding their capital spending and start-up, deferral or cancellation of projects;
•changes in recommendations or earnings estimates by securities analysts; and
•the impact of economic conditions on the credit and stock markets and on our customers’ demand for our services.
In addition, factors unrelated to our operating performance, such as market disruptions, industry outlook, general economic conditions, and political events, could decrease the market price of our common stock and, as a result, investors could lose some or all of their investments.
Anti-takeover provisions of Florida law and provisions in our articles of incorporation and by-laws could make it more difficult to effect an acquisition of our company or a change in our control. Certain provisions of our articles of incorporation and by-laws could delay or prevent an acquisition or change in control and the replacement of our incumbent directors and management. For example, our board of directors is divided into three classes. At any annual meeting of our shareholders, our shareholders only have the right to appoint approximately one-third of the directors on our board of directors. In addition, our articles of incorporation authorize our board of directors, without further shareholder approval, to issue up to 1,000,000 shares of preferred stock on such terms and with such rights as our board of directors may determine. The issuance of preferred stock could dilute the voting power of the holders of common stock, including by the grant of voting control to others. Our by-laws also restrict the right of stockholders to call a special meeting of stockholders. Lastly, we are subject to certain anti-takeover provisions of the Florida Business Corporation Act. These anti-takeover provisions could discourage or prevent a change in control.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We lease our executive offices located in Palm Beach Gardens, Florida. Our subsidiaries operate from owned or leased administrative offices, district field offices, equipment yards, shop facilities, and temporary storage locations throughout the United States and Canada. Our leased properties operate under both non-cancellablenon-cancelable and cancellablecancelable leases. We believe that our facilities are adequate for our current operations and additional facilities would be available on commercially reasonable terms, if necessary.
Item 3. Legal Proceedings.
In October 2012, a former employee of UtiliQuest,May 2013, CertusView Technologies, LLC ("UtiliQuest"(“CertusView”), a wholly-owned subsidiary of the Company, commenced a lawsuitfiled suit against UtiliQuestS & N Communications, Inc. and S&N Locating Services, LLC (together, “S&N”) in the Superior Court of California (the "California Superior Court"). The lawsuit alleges that UtiliQuest violated the California Labor Code, the California Business & Professions Code and the Labor Code Private Attorneys General Act of 2004 by failing to pay for all hours worked (including overtime) and failing to provide meal breaks and accurate wage statements. The plaintiff seeks unspecified damages and other relief on behalf of himself and a putative class of current and former employees of UtiliQuest who worked as locators in the State of California in the four years preceding the filing date of the lawsuit. In January 2013, UtiliQuest removed the case to the United States District Court for the NorthernEastern District of California (the "District Court") and the plaintiff subsequently filed a Motion to Remand the case back to the California Superior Court.Virginia alleging infringement of certain United States patents. In April 2013, the parties exchanged initial disclosures and in July 2013,January 2015, the District Court granted plaintiff's MotionS&N’s motion for judgment on the pleadings for failure to Remand. An initialclaim patent-eligible subject matter, and entered final judgment on those claims the same day. CertusView filed a Notice of Appeal in February 2015 with the Court of Appeals for the Federal Circuit. In May 2015, the District Court reopened the case management conferenceto allow S&N to proceed with inequitable conduct counterclaims. In July 2015, the Court of Appeals dismissed the appeal in that court pending resolution of proceedings in the District Court. A bench trial in the District Court on the inequitable conduct counterclaims whereby S&N was seeking additional grounds to find the patents unenforceable took place in March 2016 and post-trial briefs were filed with the District Court in April 2016. In August 2013.2016, the District Court ruled against S&N and in favor of CertusView on the inequitable conduct counterclaims and entered final judgment. Subsequent to the judgment being entered, on August 24, 2016, S&N filed a motion requesting the District Court make a finding that the suit was an exceptional case and award S&N recovery of its attorney fees. It is too early to evaluate the likelihood of an outcome to this matter or estimate the amount or range of potential loss, if any. We intendmotion and CertusView intends to vigorously defend ourselves against this lawsuit.itself.
From time to time, we and our subsidiaries are partiesparty to various other claims and legal proceedings. It is the opinion of our management, based on information available at this time, that such other pending claims or proceedings will not have a material effect on the Company's consolidatedour financial statements.
As part of our insurance program, we retain the risk of loss, up to certain limits, for claims related to automobile liability, general liability, workers' compensation, employee group health, and locate damages, and we have established reserves that we believe to be adequate based on current evaluations and our experience with these types of claims. For these claims, the effect on our financial statements is generally limited to the amount needed to satisfy our insurance deductibles or retentions.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information for Our Common Stock
Our common stock is traded on the New York Stock Exchange ("NYSE"(“NYSE”) under the symbol "DY"“DY”. The following table shows the range of high and low closing sales prices for each quarter within the last two fiscal years as reported on the NYSE.NYSE:
| | | | Fiscal 2013 | | Fiscal 2012 | Fiscal 2016 | | Fiscal 2015 |
| | High | | Low | | High | | Low | High | | Low | | High | | Low |
| First Quarter | $ | 19.38 |
| | $ | 13.09 |
| | $ | 20.20 |
| | $ | 12.59 |
| $ | 79.32 |
| | $ | 59.38 |
| | $ | 33.68 |
| | $ | 26.17 |
|
| Second Quarter | $ | 21.51 |
| | $ | 14.20 |
| | $ | 22.18 |
| | $ | 17.86 |
| $ | 88.91 |
| | $ | 61.89 |
| | $ | 35.65 |
| | $ | 25.67 |
|
| Third Quarter | $ | 21.88 |
| | $ | 18.25 |
| | $ | 23.79 |
| | $ | 21.28 |
| $ | 68.13 |
| | $ | 48.61 |
| | $ | 49.89 |
| | $ | 30.81 |
|
| Fourth Quarter | $ | 26.77 |
| | $ | 18.47 |
| | $ | 23.58 |
| | $ | 16.75 |
| $ | 95.94 |
| | $ | 66.44 |
| | $ | 69.62 |
| | $ | 45.84 |
|
Holders
As of September 6, 2013,August 29, 2016, there were approximately 502480 holders of record of our $0.33 1/3 par value per share common stock.
Issuer Purchases of Equity Securities During the Fourth Quarter of Fiscal 2013
During the three months endedJuly 27, 2013, the Company did not repurchase any of its common stock.
During fiscal 2013, 2012, and 2011, the Company made the following repurchases of its common stock under its share repurchase programs:
|
| | | | | | | | | | | |
| Fiscal Year Ended | | Number of Shares Repurchased | | Total Consideration
(Dollars in thousands) | | Average Price Per Share |
| July 30, 2011 | | 5,389,500 |
| | $ | 64,548 |
| | $ | 11.98 |
|
| July 28, 2012 | | 597,700 |
| | $ | 12,960 |
| | $ | 21.68 |
|
| July 27, 2013 | | 1,047,000 |
| | $ | 15,203 |
| | $ | 14.52 |
|
All shares repurchased have been subsequently canceled. As of July 27, 2013, approximately $22.8 million of the $40.0 million authorized on March 15, 2012 remained authorized for repurchases through September 15, 2013. On August 27, 2013, the Company announced that its Board of Directors had authorized $40.0 million to repurchase shares of the Company's outstanding common stock to be made over the next eighteen months in open market or private transactions. The repurchase authorization replaces the Company's previous repurchase authorization described above. As of September 12, 2013, the full $40.0 million remained authorized for repurchase.
Performance Graph
The performance graph below compares the cumulative total returns for our common stock against the cumulative total return (including reinvestment of dividends) of the Standard & Poor’s (S&P) 500 Composite Stock Index and a peer group index for the last five fiscal years, assuming an investment of $100 in our common stock and each of the respective indices noted on July 26, 2008. For comparing total returns on our common stock, a peer group consisting of MasTec, Inc., Quanta Services, Inc., Pike Electric Corporation, MYR Group, Inc., and Willbros Group, Inc. was selected. The comparisons in the graph are required by the Securities and Exchange Commission and are not intended to be forecast or be indicative of possible future performance of our common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Dycom Industries, Inc., the S&P 500 Index and a Peer Group
_____________
*$100 invested on 7/31/08 in stock or index, including reinvestment of dividends. Fiscal year ending July 31.
Copyright © 2013 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Dividend Policy
We have not paid cash dividends since 1982. Our Board of Directors regularlyperiodically evaluates our dividend policy based on our financial condition, profitability, cash flow, capital requirements, and the outlook of our business. We currently intend to retain any earnings for use in the business, including for investment in acquisitions, and consequently we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Additionally, the indenture governing our senior subordinated notes contains covenants that restrict our ability to make certain payments, including the payment of dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A.
Issuer Purchases of Equity Securities During the Fourth Quarter of Fiscal 2016
The following table summarizes the Company’s purchases of its common stock during the three months ended July 30, 2016:
|
| | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
| April 24, 2016 - May 21, 2016 | | 1,670(2) | | $ | 70.20 |
| | — | | (3) |
| May 22, 2016 - June 18, 2016 | | 3,649(2) | | $ | 85.12 |
| | — | | (3) |
| June 19, 2016 - July 30, 2016 | | 307(2) | | $ | 92.43 |
| | — | | (3) |
(1) All shares repurchased have been subsequently canceled.
(2) Represents shares withheld to meet payroll tax withholdings obligations arising from the vesting of restricted share units. Shares withheld do not reduce our total share repurchase authority.
(3) On April 26, 2016, the Company announced that its Board of Directors authorized $100.0 million to repurchase shares of the Company’s outstanding common stock through October 2017 in open market or private transactions, including through accelerated share repurchase agreements with one or more counterparties from time to time. As of July 30, 2016, $100.0 million remained available for repurchases.
Performance Graph
The performance graph below compares the five-year cumulative total return for our common stock with the cumulative total return (including reinvestment of dividends) of the Standard & Poor’s (S&P) 500 Composite Stock Index and that of a selected peer group consisting of MasTec, Inc., Quanta Services, Inc., MYR Group, Inc., and Willbros Group, Inc. The graph assumes an investment of $100 in our common stock and in each of the respective indices noted on July 31, 2011. The comparisons in the graph are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of the possible future performance of our common stock.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
Among Dycom Industries, Inc., the S&P 500 Index, and a Selected Peer Group
___________
*$100 invested on 7/31/11 in stock or index, including reinvestment of dividends. Fiscal year ending July 31.
Copyright © 2016 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Item 6. Selected Financial Data.
We use aOur fiscal year endingends on the last Saturday in July. As a result, each fiscal year consists of either 52 weeks or 53 weeks of operations (with the additional week of operations occurring in the fourth quarter). Fiscal 2016 consisted of 53 weeks of operations. Fiscal 2015, 2014, 2013,, 2012, 2011, and 20092012 all consisted of 52 weeks while fiscal 2010 consisted of 53 weeks.operations. Fiscal 2017 will consist of 52 weeks of operations. The following selected financial data is derived from the audited consolidated financial statements for the applicable fiscal year.
Amounts set forth in ourThe selected financial data include the results and balances of acquired companies from their respective date of acquisition. This databelow should be read in conjunction with our consolidated financial statements and notes thereto, and with Item 7, Management'sManagement’s Discussion and Analysis of Financial Condition and Results of OperationsOperations. .The results of operations of businesses acquired are included in the following selected financial data from their dates of acquisition (dollars in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | 2016(3) | | 2015(4) | | 2014 | | 2013(5) | | 2012 |
Operating Data: | | | | | | | | | |
| Revenues | $ | 2,672,542 |
| | $ | 2,022,312 |
| | $ | 1,811,593 |
| | $ | 1,608,612 |
| | $ | 1,201,119 |
|
| Net income | $ | 128,740 |
| | $ | 84,324 |
| | $ | 39,978 |
| | $ | 35,188 |
| | $ | 39,378 |
|
Earnings Per Common Share: | | | | | | | | | |
| Basic | $ | 3.98 |
| | $ | 2.48 |
| | $ | 1.18 |
| | $ | 1.07 |
| | $ | 1.17 |
|
| Diluted | $ | 3.89 |
| | $ | 2.41 |
| | $ | 1.15 |
| | $ | 1.04 |
| | $ | 1.14 |
|
Balance Sheet Data (at end of period): | | | | | | | | | |
Total assets(1) | $ | 1,719,716 |
| | $ | 1,353,936 |
| | $ | 1,206,718 |
| | $ | 1,147,927 |
| | $ | 767,977 |
|
Long-term liabilities(1) | $ | 839,802 |
| | $ | 620,026 |
| | $ | 525,252 |
| | $ | 519,751 |
| | $ | 260,483 |
|
Stockholders’ equity(2) | $ | 557,287 |
| | $ | 507,200 |
| | $ | 484,934 |
| | $ | 428,361 |
| | $ | 392,931 |
|
(1) Balance sheet data presented for periods prior to fiscal 2016 reflect the retrospective adoption of Accounting Standards Update No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, under which certain debt issuance costs are now presented as a contra-liability of the corresponding long-term debt rather than as other non-current assets. As a result, both total assets and long-term liabilities were reduced by $4.9 million, $5.6 million, $6.3 million, and $4.2 million as of July 25, 2015, July 24, 2014, July 27, 2013 and July 28, 2012, respectively.
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year |
| | 2013 (1) | | 2012 | | 2011 (2) | | 2010 (3) | | 2009 (4) |
| | (In thousands, except per share amounts) |
| Operating Data: | | | | | | | | | |
| Revenues | $ | 1,608,612 |
| | $ | 1,201,119 |
| | $ | 1,035,868 |
| | $ | 988,623 |
| | $ | 1,106,900 |
|
| Income (loss) from continuing operations | $ | 35,188 |
| | $ | 39,378 |
| | $ | 16,107 |
| | $ | 5,849 |
| | $ | (53,094 | ) |
| Net income (loss) | $ | 35,188 |
| | $ | 39,378 |
| | $ | 16,107 |
| | $ | 5,849 |
| | $ | (53,180 | ) |
| Earnings (Loss) Per Common Share: | | | | | | | | | |
| Basic | $ | 1.07 |
| | $ | 1.17 |
| | $ | 0.46 |
| | $ | 0.15 |
| | $ | (1.35 | ) |
| Diluted | $ | 1.04 |
| | $ | 1.14 |
| | $ | 0.45 |
| | $ | 0.15 |
| | $ | (1.35 | ) |
| Balance Sheet Data (at end of period): | | | | | | | | | |
| Total assets | $ | 1,154,208 |
| | $ | 772,193 |
| | $ | 724,755 |
| | $ | 679,556 |
| | $ | 693,457 |
|
| Long-term liabilities (5) | $ | 526,032 |
| | $ | 264,699 |
| | $ | 254,391 |
| | $ | 187,798 |
| | $ | 192,804 |
|
| Stockholders' equity (6) | $ | 428,361 |
| | $ | 392,931 |
| | $ | 351,851 |
| | $ | 394,555 |
| | $ | 390,623 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Shares | 2,511,578 |
| | 1,669,924 |
| | 360,900 |
| | 1,047,000 |
| | 597,700 |
|
| Amount paid (dollars in millions) | $ | 170.0 |
| | $ | 87.1 |
| | $ | 10.0 |
| | $ | 15.2 |
| | $ | 13.0 |
|
| Average price per share | $ | 67.69 |
| | $ | 52.19 |
| | $ | 27.71 |
| | $ | 14.52 |
| | $ | 21.68 |
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(1) | Includes the results of the Acquired Subsidiaries (acquired on December 3, 2012). Additionally, during the fourth quarter of fiscal 2013, the Company acquired Sage and certain assets of a tower construction and maintenance company. The results of operations of these businesses acquired are also included in the selected financial data above from their respective dates of acquisition. In connection with the businesses acquired in fiscal 2013, we recognized approximately $6.8 million and $3.4 million of pre-tax acquisition and integration costs, respectively, during fiscal 2013 which are included within general and administrative expenses. We also recognized $0.3 million in pre-tax write-off of deferred financing costs during the second quarter of fiscal 2013 in connection with the replacement of our prior credit agreement. See Note 10, Debt, in Notes to the Consolidated Financial Statements.(3) During fiscal 2016 we issued $485.0 million principal amount of 0.75% convertible senior notes due September 2021 (the “Notes”) in a private placement. A portion of the proceeds were used to fund the full redemption of our aggregate principal amount of $277.5 million of 7.125% senior subordinated notes. In connection with the offering of the Notes, we entered into convertible note hedge transactions at a cost of approximately $115.8 million. In addition, we entered into separately negotiated warrant transactions resulting in proceeds of approximately $74.7 million. We also amended the credit agreement to establish an additional term loan in the aggregate principal amount of $200.0 million, thereby increasing the aggregate term loan facilities to $350.0 million. See Note 10, Debt, in Notes to the Consolidated Financial Statements for additional information regarding our debt transactions. |
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(2) | Includes the results of Communication Services, Inc. (acquired November 2010) and NeoCom Solutions, Inc. (acquired December 2010) from their respective dates of acquisition. Additionally, during fiscal 2011, the Company recognized debt extinguishment costs consisting of (a) $6.0 million in tender premiums and legal and professional fees associated with the tender offer to purchase the $135.35 million outstanding aggregate principal amount of its 8.125% senior subordinated notes due 2015 (the "2015 Notes") and the subsequent redemption of the remaining balance of the 2015 Notes not tendered for purchase; and (b) $2.3 million in deferred debt issuance costs that were written off as a result of the completion of such tender offer and redemption. See Note 10, Debt, in Notes to the Consolidated Financial Statements.(4) During fiscal 2015, we amended our existing credit agreement to extend its maturity date to April 24, 2020 and, among other things, increase the maximum revolver commitment from $275.0 million to $450.0 million, and increase the term loan facility to $150.0 million. |
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(3) | During the first quarter of fiscal 2010, we recognized a non-cash income tax charge of $1.1 million for a valuation allowance on a deferred tax asset associated with an investment that became impaired for tax purposes. See Note 11, Income Taxes, in Notes to the Consolidated Financial Statements.(5) On December 3, 2012, we acquired substantially all of the telecommunications infrastructure services subsidiaries of Quanta Services, Inc. for the sum of $275.0 million in cash, an adjustment of approximately $40.4 million for working capital received |
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(4) | During fiscal 2009, we recognized a goodwill impairment charge of $94.4 million as a result of an interim impairment test of goodwill that included impairments at the following reporting units: Broadband Installation Services for $14.8 million, C-2 Utility Contractors for $9.2 million, Ervin Cable Construction for $15.7 million, Nichols Construction for $2.0 million, Stevens Communications for $2.4 million and UtiliQuest for $50.5 million. |
in excess of a target amount, and approximately $3.7 million for other specified items. Additionally, on December 3, 2012, we entered into a new, five-year credit agreement which provided for a $275.0 million revolving facility, a $125.0 million term loan, and contained a sublimit of $150.0 million for the issuance of letters of credit. On December 12, 2012, we issued an additional $90.0 million aggregate principal amount of 7.125% senior subordinated notes due 2021. The net proceeds of this issuance were used to repay a portion of the borrowings under the credit facility. In connection with businesses acquired in fiscal 2013, we incurred approximately $6.8 million and $3.4 million of acquisition expenses and integration costs, respectively.
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(5) | During fiscal 2009, we repurchased a principal amount of $14.65 million of our 2015 Notes for $11.3 million. During fiscal 2011, we issued $187.5 million aggregate principal amount of 7.125% senior subordinated notes due 2021 in a private placement. A portion of the net proceeds was used to fund a tender offer and redemption of the $135.35 million outstanding aggregate principal amount of the 2015 Notes. In March 2011, we filed a registration statement on Form S-4 with the SEC to exchange the $187.5 million of 7.125% senior subordinated notes due 2021 for registered notes with substantially similar terms. The registration statement became effective on June 23, 2011. On December 12, 2012, an additional $90.0 million in aggregate principal amount of our 7.125% senior subordinated notes due 2021 were issued. The net proceeds of this issuance were used to repay a portion of the borrowings under our credit facility entered into in December 2012. In December 2012, we filed a registration statement on Form S-4 with the SEC to exchange the $90.0 million of 7.125% senior subordinated notes due 2021 for registered notes with substantially similar terms. The registration statement became effective on March 7, 2013. See Note 10, Debt, in Notes to the Consolidated Financial Statements.
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(6) | We repurchased 1,047,000 shares of our common stock in fiscal 2013 for $15.2 million at an average price of $14.52 per share, 597,700 shares of our common stock in fiscal 2012 for $13.0 million at an average price of $21.68 per share, 5,389,500 shares of our common stock in fiscal 2011 for $64.5 million at an average price of $11.98 per share, 475,602 shares of our common stock in fiscal 2010 for $4.5 million at an average price of $9.44 per share, and 450,000 shares of our common stock in fiscal 2009 for $2.9 million at an average price of $6.48 per share. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes thereto, as well as the "Business"Part I, Item 1, Business, and "Risk Factors" sectionsPart II, Item 1A, Risk Factors, of this Annual Report on Form 10-K.
Overview
Introduction
We are a leading provider of specialty contracting services throughout the United States and in Canada. These services includeOur subsidiary companies provide program management, engineering, construction, maintenance, and installation services tofor telecommunications providers, underground facility locating services tofor various utilities, including telecommunications providers, and other construction and maintenance services tofor electric and gas utilitiesutilities. We provide the labor, tools and others. For equipment necessary to design, engineer, locate, maintain, expand, install and upgrade the fiscal year endedJuly 27, 2013, the percentagetelecommunications infrastructure of our revenue by customer type from telecommunications, underground facility locating, and electric and gas utilities and other customers, was approximately 87.7%, 7.9%, and 4.4%, respectively.customers.
We conduct operations throughSignificant developments in consumer applications within the telecommunications industry, including advanced digital and video service offerings, continue to increase the demand for greater capacity and enhanced reliability from our subsidiaries. Our revenues may fluctuatecustomers’ wireline and wireless networks. Telecommunications providers outsource a significant portion of their engineering, construction, maintenance, and installation requirements, driving demand for our services.
Telecommunications network operators are increasingly deploying fiber optic cable technology deeper into their networks and closer to consumers and businesses in order to respond to consumer demand, competitive realities, and public policy support. Several large telephone companies have pursued fiber-to-the-premise and fiber-to-the-node initiatives to compete actively with cable operators. Some telephone companies, which have previously deployed fiber-to-the-node architectures, have definitively transitioned to fiber-to-the-home architectures, while others are beginning to provision video over their fiber-to-the-node architectures. Cable companies continue to increase the speeds of their services to residential customers and to deploy fiber to business customers with increasing urgency. Many industry participants are deploying networks designed to provision 1 gigabit speeds to individual consumers and some have articulated plans to deploy speeds beyond 1-gigabit.
Opportunities exist to improve rural networks as a result of changesPhase II of the Connect America Fund. This six-year program, administered by the Federal Communications Commission, will provide $1.676 billion in funding per year to price cap carriers and others to expand and support broadband deployments in rural areas. In aggregate, our current customers, including several of our top ten customers, have accepted over $1.496 billion in funding per year under this program. New projects resulting from the Connect America Fund Phase II are in planning, engineering, and construction. These projects are deploying fiber deeper into rural networks, and more are expected as new multi-year opportunities emerge. These opportunities also include fixed wireless deployments. We expect this program to contribute to demand for services in our industry.
Significant demand for wireless broadband is driven by the proliferation of smart phones and other mobile data devices. Wireless carriers are actively spending on their networks to respond to the significant increase in wireless data traffic, to upgrade network technologies to improve performance and efficiency, and to consolidate disparate technology platforms. As the demand for mobile broadband grows, the amount of wireless traffic that must be “backhauled” over customers’ fiber networks increases and, as a result, carriers are accelerating the deployment of fiber optic cables to cellular sites and small cells. These trends are driving demand for our services and the increasing wireless data traffic is prompting further wireline deployments.
The cyclical nature of the industry we serve may affect demand for our services. The capital expenditure and maintenance budgets of our customers, changes inand the general levelrelated timing of construction activity, as well as overall economic conditions.approvals and seasonal spending patterns, influence our revenues and results of operations. The capital expenditures and maintenance budgetsbusiness demands of our telecommunications customers may be impacted by consumer and businessthe demands on telecommunications providers,of their consumers, the introduction of new communication technologies, the physical maintenance needs of theircustomer infrastructure, the actions of our government and the Federal Communications Commission,FCC, and generaloverall economic conditions. conditions may affect the capital expenditures and maintenance budgets of our telecommunications
A significant portioncustomers. Changes in our mix of customers, contracts, and business activities, as well as changes in the general level of construction activity also drive variations in revenues and results of operations.
Customer Relationships and Contractual Arrangements
We have established relationships with many leading telecommunications providers, including telephone companies, cable television multiple system operators, wireless carriers, telecommunication equipment and infrastructure providers, and electric and gas utilities. Our customer base is highly concentrated, with our top five customers in each of fiscal 2016, 2015, and 2014 accounting for approximately 69.7%, 61.1% and 58.3% of our services are performed under master service agreementstotal revenues, respectively. The following reflects the percentage of total revenue from customers who contributed at least 2.5% to our total revenue during fiscal 2016, 2015, or 2014:
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| | Fiscal Year Ended |
| | 2016 | | 2015 | | 2014 |
| AT&T Inc. | 24.4% | | 20.8% | | 19.2% |
| CenturyLink, Inc. | 14.5% | | 14.2% | | 13.8% |
| Comcast Corporation | 13.6% | | 12.9% | | 11.7% |
| Verizon Communications Inc. | 11.0% | | 7.6% | | 8.2% |
Charter Communications, Inc.(1) | 6.1% | | 8.5% | | 10.4% |
| Windstream Corporation | 5.7% | | 4.7% | | 5.3% |
(1) For comparison purposes in the above table, revenues from Charter Communications, Inc., Time Warner Cable Inc., and other arrangements with customers that extendBright House Networks, LLC have been combined for periods of one or more years. prior to their May 2016 merger.
In addition, another customer contributed 6.2%, 5.6%, and 3.2% to our total revenue during fiscal 2016, 2015, and 2014, respectively.
We are party to numerous master service agreements and generally maintainpossess multiple agreements with each of our significant customers. Master service agreements generally contain customer-specified service requirements, such as discrete pricing for individual tasks. To the extent that such contractsagreements specify exclusivity, there are often a number of exceptions, including the customer’s ability of the customer to issue work orders valued above a specified dollar amount to other service providers, performthe performance of work with the customer'scustomer’s own employees, and the use of other service providers when jointly placing facilities with another utility. In most cases, a customer may terminate an agreement for convenience with written notice. TheHistorically, multi-year master service agreements have been awarded primarily through a competitive bidding process, however, we occasionally are able to extend these agreements through negotiations. Revenues from multi-year master service agreements were approximately 61.4% during fiscal 2016, and 65.2% during each of fiscal 2015 and 2014.
We provide the remainder of our services are provided pursuant to contracts for specific projects. Long-termThese contracts relate to specific projects withmay be long-term (with terms in excess ofgreater than one year from the contract date. Short-term contracts for specific projects areyear) or short-term (with terms generally of three to four months in duration. A portion of our contractsduration) and often include customary retainage provisions byunder which the customer may withhold 5% to 10% of the contract invoicing may be withheld by the customerinvoiced amounts pending project completion.
We recognize revenues under the percentage of completion method of accounting using the units-of-delivery or cost-to-cost measures. A majority of our contracts are based on units-of-delivery and revenue is recognized as each unit is completed. Revenues from contracts using the cost-to-cost measures of completion are recognized based on the ratio of contract costs incurred to date to total estimated contract costs. Revenues from services provided under time and materials based contracts are recognized as the services are performed.
The following table summarizes our revenues from multi-year master service agreements and other long-term contracts for specific projects were 19.6%, 14.7%, and 13.7%, as a percentage of total contract revenues: |
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| | Fiscal Year Ended |
| | 2013 | | 2012 | | 2011 |
| Multi-year master service agreements | 65.2 | % | | 70.3 | % | | 75.5 | % |
| Other long-term contracts | 11.8 |
| | 10.3 |
| | 10.4 |
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| Total long-term contracts | 77.0 | % | | 80.6 | % | | 85.9 | % |
The percentage of revenue from long-term contracts varies from period to period depending on the mix of work performed under our contracts. During revenues during fiscal 2013, a higher percentage of revenue was earned for services performed under short-term contracts as compared to the prior two fiscal years, primarily as a result of increased work performed for certain rural
broadband customers. Additionally, during fiscal 2013 we performed increased work for storm restoration services pursuant to short-term contracts.2016, 2015, and 2014, respectively.
A significant portion of our revenue is derived from several large customers. The following table reflects the percentage of total revenue from those customers who contributed at least 2.5% of our total revenue in fiscal 2013, 2012, or 2011:
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| | Fiscal Year Ended |
| | 2013 | | 2012 | | 2011 |
| AT&T Inc. | 15.5% | | 13.7% | | 21.1% |
| CenturyLink, Inc. | 14.6% | | 13.6% | | 10.8% |
| Comcast Corporation | 10.9% | | 12.6% | | 14.3% |
| Verizon Communications Inc. | 9.6% | | 11.3% | | 8.9% |
| Windstream Corporation | 7.9% | | 8.4% | | 5.7% |
| Charter Communications, Inc. | 5.7% | | 6.5% | | 6.8% |
| Time Warner Cable Inc. | 4.5% | | 4.6% | | 5.9% |
Cost of earned revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs. We retain the risk of loss, up to certain limits, for claims related to automobile liability, general liability, workers' compensation, employee group health, and locate damages. Locate damage claims result from property and other damages arising in connection with our underground facility locating services. A change in claims experience or actuarial assumptions related to these risks could materially affect our results of operations. For a majority of the contract services we perform, our customers provide all required materials while we provide the necessary personnel, tools, and equipment. Materials supplied by our customers, for which the customer retains financial and performance risk, are not included in our revenue or costs of sales.
General and administrative expenses include costs of management personnel and administrative overhead at our subsidiaries, as well as our corporate costs. These costs primarily consist of employee compensation and related expenses, including stock-based compensation, legal, consulting and professional fees, information technology and development costs, provision for or recoveries of bad debt expense, and other costs that are not directly related to the performance of our services under customer contracts. In connection with the businesses acquired in fiscal 2013, we recognized approximately $6.8 million and $3.4 million of pre-tax acquisition and integration costs, respectively, during fiscal 2013 which are included within general and administrative expenses.
Our senior management, including the senior managers of our subsidiaries, perform substantially all of our sales and marketing functions as part of their management responsibilities and, accordingly, we have not incurred material sales and marketing expenses. Information technology and development costs included in general and administrative expenses are primarily incurred to support and to enhance our operating efficiency. To protect our rights, we have filed for patents on certain of our innovations.
We are subject to concentrations of credit risk relating primarily to our cash and equivalents, trade accounts receivable, other receivables and costs and estimated earnings in excess of billings. Cash and equivalents primarily include balances on deposit in banks. We maintain substantially all of our cash and equivalents at financial institutions we believe to be of high credit quality. To date we have not experienced any loss or lack of access to cash in our operating accounts.
We grant credit under normal payment terms, generally without collateral, to our customers. These customers primarily consist of telephone companies, cable television multiple system operators and electric and gas utilities. With respect to a portion of the services provided to these customers, we have certain statutory lien rights which may, in certain circumstances, enhance our collection efforts. Adverse changes in overall business and economic factors may impact our customers and increase potential credit risks. These risks may be heightened as a result of economic uncertainty and market volatility. In the past, some of our customers have experienced significant financial difficulties and likewise, some may experience financial difficulties in the future. These difficulties expose us to increased risks related to the collectability of amounts due for services performed. We believe that none of our significant customers were experiencing financial difficulties that would materially impact the collectability of our trade accounts receivable and costs in excess of billings as of July 27, 2013.
Legal Proceedings
In October 2012, a former employee of UtiliQuest, LLC ("UtiliQuest"), a wholly-owned subsidiary of the Company, commenced a lawsuit against UtiliQuest in the Superior Court of California (the "California Superior Court"). The lawsuit alleges that UtiliQuest violated the California Labor Code, the California Business & Professions Code and the Labor Code Private Attorneys General Act of 2004 by failing to pay for all hours worked (including overtime) and failing to provide meal breaks and accurate wage statements. The plaintiff seeks unspecified damages and other relief on behalf of himself and a putative class of current and former employees of UtiliQuest who worked as locators in the State of California in the four years preceding the filing date of the lawsuit. In January 2013, UtiliQuest removed the case to the United States District Court for the Northern District of California (the "District Court") and the plaintiff subsequently filed a Motion to Remand the case back to the California Superior Court. In April 2013, the parties exchanged initial disclosures and in July 2013, the District Court granted plaintiff's Motion to Remand. An initial case management conference took place in August 2013. It is too early to evaluate the likelihood of an outcome to this matter or estimate the amount or range of potential loss, if any. We intend to vigorously defend ourselves against this lawsuit.
From time to time, we and our subsidiaries are parties to various other claims and legal proceedings. It is the opinion of our management, based on information available at this time, that such other pending claims or proceedings will not have a material effect on our financial statements.
As part of our insurance program, we retain the risk of loss, up to certain limits, for claims related to automobile liability, general liability, workers' compensation, employee group health, and locate damages, and we have established reserves that we believe to be adequate based on current evaluations and our experience with these types of claims. For these claims, the effect on our financial statements is generally limited to the amount needed to satisfy our insurance deductibles or retentions.
Acquisitions
As part of our growth strategy, we may acquire companies that expand, complement, or diversify our business. We regularly review opportunities and periodically engage in discussions regarding possible acquisitions. Our ability to sustain our growth and maintain our competitive position may be affected by our ability to identify, acquire, and successfully integrate companies.
On December 3, 2012,Fiscal 2016 - During August 2015, we acquired substantially all of the telecommunications infrastructure services subsidiaries (the "Acquired Subsidiaries") of Quanta Services,TelCom Construction, Inc. for $275.0and an affiliate (together, “TelCom”). The purchase price was $48.8 million paid in cash plus an adjustment of approximately $40.4 million for working capital receivedcash. TelCom, based in excess of a target amount and approximately $3.7 million for other specified items. The acquisition was funded through a combination of borrowings under a new $400 million credit facility and cash on hand. On December 12, 2012, our wholly-owned subsidiary, Dycom Investments, Inc., issued and additional $90.0 million of 7.125% senior subordinated notes due 2021 and used the net proceeds to repay approximately $90.0 million of the credit facility borrowings.
We recognized approximately $6.5 million of pre-tax acquisition costs during fiscal 2013 related to the acquisition of the Acquired Subsidiaries, which are included within general and administrative expenses. Additionally, we incurred approximately $3.4 million in pre-tax integration costs during fiscal 2013, which are also included within general and administrative expense.
The Acquired Subsidiaries provide specialty contracting services, including engineering, construction, maintenance and installation services to telecommunications providers, and otherClearwater, Minnesota, provides construction and maintenance services for telecommunications providers throughout the United States. This acquisition expands our geographical presence within our existing customer base. During July 2016, we acquired certain assets and assumed certain liabilities associated with the wireless network deployment and wireline operations of Goodman Networks Incorporated (“Goodman”) for a cash purchase price of $107.5 million, subject to electricworking capital adjustments. The total cash transaction consideration paid was $102.8 million after a preliminary working capital adjustment of $4.7 million. The acquired operations
provide wireless construction services in a number of markets, including Texas, Georgia, and gas utilities and others. Principal business facilities are located in Arizona, California, Florida, Georgia, Minnesota, New York, Pennsylvania, and Washington. On a combined basis, the businesses operate in 49 states serving over 300 individual customers. We believe that theSouthern California. The acquisition strengthens our customer base, geographic scope and technical services offerings. In addition, it reinforces our rural engineering and construction capabilities, wireless construction resources and broadband construction competencies. We expect the acquisition to enhance the efficiency of the Company's operating scale.
expands our geographical presence within our existing customer base. During the fourth quarter of fiscal 2013,2016, we acquired Sage Telecommunications CorpNextGen Telecom Services Group, Inc. (“NextGen”) for $5.6 million, net of Colorado, LLC ("Sage"). Sagecash acquired. NextGen provides telecommunications construction and project managementmaintenance services for telecommunications providers in the Northeastern United States.
With respect to the Goodman acquisition, $22.5 million of the purchase price was placed into an escrow account, $2.5 million of which is available for working capital adjustments and $20.0 million of which is available to us for indemnification obligations of the seller. Of the $20.0 million available for indemnification obligations, $10.0 million will be released to the seller upon the occurrence of certain conditions, but in no event earlier than the twelve-month anniversary of the closing date. The remaining $10.0 million will be released to the seller when the seller satisfies certain conditions with respect to a dispute with the state of Texas over a sales tax liability of approximately $31.7 million (the “Sales Tax Liability”). Under the purchase agreement, Goodman has retained responsibility for this Sales Tax Liability. Should Goodman not resolve this matter, the state may assert that we are a successor to the operations and seek to recover from us. In such event we would seek indemnification for recovery from Goodman, including from the funds contained in the escrow account, for any amount we pay.
Fiscal 2015 - During the first quarter of fiscal 2015, we acquired Hewitt Power & Communications, Inc. (“Hewitt”) for $8.0 million, net of cash acquired. Hewitt provides specialty contracting services primarily for cable operatorstelecommunications providers in the WesternSoutheastern United States. During the second quarter of fiscal 2015, we acquired the assets of two cable installation contractors for an aggregate purchase price of $1.5 million. During the fourth quarter of fiscal 2015, we acquired Moll’s Utility Services, LLC (“Moll’s”) for $6.5 million, net of cash acquired. Moll’s provides specialty contracting services primarily for utilities in the Midwest United States. We recognized approximatelyalso acquired the assets of Venture Communications Group, LLC (“Venture”) for $15.6 million during the fourth quarter of fiscal 2015. Venture provides specialty contracting services primarily for telecommunications providers in the Midwest and Southeastern United States.
Fiscal 2014 $0.2 million- During the third quarter of fiscal 2014, we acquired a telecommunications specialty construction contractor in pre-tax acquisition costs related to Sage.Canada for $0.7 million. Additionally, during the fourth quarter of fiscal 20132014, we acquired certain assets of a tower constructionWatts Brothers Cable Construction, Inc. (“Watts Brothers”) for $16.4 million. Watts Brothers provides specialty contracting services primarily for telecommunications providers in the Midwest and maintenance company.Southeastern United States.
Understanding Our Results of Operations
The purchase pricesfollowing information is presented in order for the reader to better understand certain factors impacting our results of operations and profitability, and should be read in conjunction with Critical Accounting Policies and Estimates below as well as Note 1, Basis of Presentation and Accounting Policies, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Revenues. We perform a majority of our services under master service agreements and other agreements that contain customer-specified service requirements, such as discrete pricing for individual tasks. Revenue is recognized under these arrangements based on units-of-delivery and revenue is recognized as each unit is completed. The remainder of our services are performed under contracts using the cost-to-cost measure of the businesses acquired have been allocatedpercentage of completion method of accounting as more fully described within Critical Accounting Policies and Estimates below.
Cost of Earned Revenues. Cost of earned revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation), direct materials, insurance costs, and other direct costs. For claims within our insurance program, we retain the risk of loss, up to the tangiblecertain limits, for matters related to automobile liability, general liability (including damages associated with underground facility locating services), workers’ compensation, and intangible assets acquiredemployee group health.
General and the liabilities assumed on the basisAdministrative Expenses. General and administrative expenses primarily consist of their fair values on the respective datesemployee compensation and related expenses, including performance-based compensation and stock-based compensation, legal, consulting and professional fees, information technology and development costs, provision for or recoveries of acquisition. Purchase price in excess of fair value of the separately identifiable assets acquiredbad debt expense, acquisition and the liabilities assumed have been allocated to goodwill. Purchase price
allocations are based on information regarding the fair value of assets acquired and liabilities assumed as of the dates of acquisition. We determined the fair values used in the purchase price allocation for intangible assets based on historical data, estimated discounted future cash flows, contract backlog amounts, if applicable, and expected royalty rates for trademarks and trade names among other information. For the Acquired Subsidiaries, the fair values used in the purchase price allocation for intangible assets were determined with the assistance of an independent valuation specialist. 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. The allocation of the purchase price of the Acquired Subsidiaries was completed during the fourth quarter of fiscal 2013. Purchase price allocationsintegration costs of businesses acquired, duringand other costs not directly related to the fourth quarterprovision of our services under customer contracts. We incur information technology and development costs primarily to support and enhance our operating efficiency. To protect our rights, we have filed for patents on certain of our innovations. Our executive management team and the senior management of our subsidiaries perform substantially all of our sales and marketing functions as part of their management responsibilities.
Depreciation and Amortization. Our property and equipment primarily consist of vehicles, equipment and machinery, and computer hardware and software. We depreciate property and equipment on a straight-line basis over the estimated useful lives of the assets. In addition, we have intangible assets, including customer relationships, contract backlog, trade names, and non-compete intangibles, which we amortize over the estimated useful lives. We recognize amortization of customer relationship intangibles and acquired contract backlog intangibles on an accelerated basis as a function of the expected economic benefit. We recognize amortization of our other finite-lived intangibles on a straight-line basis over the estimated useful life.
Loss on Debt Extinguishment. Loss on debt extinguishment for fiscal 2013 are preliminary2016 includes pre-tax charges related to the redemption of our 7.125% senior subordinated notes (the “7.125% Notes”), including the write-off of deferred debt issuance costs on the 7.125% Notes.
Interest Expense, Net. Interest expense, net, consists of interest incurred on outstanding variable rate and will be completedfixed rate debt and certain other obligations. Interest expense also includes non-cash amortization of our convertible senior notes debt discount and amortization of debt issuance costs. See Note 10, Debt, in the Notes to the Consolidated Financial Statements for information on the non-cash amortization of the debt discount and debt issuance costs.
Other Income, Net. Other income, net, primarily consists of gains or losses from sales of fixed assets. Other income, net during fiscal 2014 when the valuations for intangible assets and other amounts2016 also includes immaterial discount fees related to a customer-sponsored vendor payment program in which we participate. Under this program, accounts receivable are finalized. Additional information, which existed ascollected on an expedited basis pursuant to a non-recourse sale of the date of acquisition but at that time was unknown, may become knownreceivables to us during the remaindera bank partner of the measurement period, a period notcustomer. The program significantly reduces the time required to exceed twelve months from the acquisition date. Adjustments in the purchase price allocations may require a recasting of the amounts allocated to goodwill.
Outlookcollect that customer’s receivables.
The telecommunications industry has undergoneSeasonality and continues to undergo significant changes due to advances in technology, increased competitionQuarterly Fluctuations. Our revenues and results of operations exhibit seasonality as the telephone and cable companies have converged, growing consumer demand for enhanced and bundled services, and governmental broadband stimulus funding. As a result of these factors, the networks of our customers increasingly face demands for more capacity and greater reliability. Telecommunications providers continue to outsourcewe perform a significant portion of their engineering, constructionour work outdoors. Consequently, extended periods of adverse weather, which are more likely to occur during the winter season, impact our operations during our second and maintenance requirements in orderthird fiscal quarters. In addition, a disproportionate percentage of paid holidays fall within our second fiscal quarter, which decreases the number of available workdays. Because of these factors, we are most likely to reduce their investment in capital equipment, provide flexibility in workforce sizing, expand product offerings without large increases in incremental hiringexperience reduced revenue and focus on those competencies they consider core to their business success. These factors drive customer demand for the types of services we provide.profitability during our second and third fiscal quarters.
Telecommunications network operators are increasingly relying on the deploymentWe experience quarterly variations in revenues and results of fiber optic cable technology deeper into their networks and closer to consumers and businesses in order to respond to demands for capacity, reliability, and product bundles of voice, video, and high speed data services. Fiber deployments have enabled an increasing number of cable companies to offer voice services in addition to their traditional video and data services. These voice services require the installation of customer premise equipment and at times the upgrade of in-home wiring. Additionally, fiber deployments are also facilitating the provisioning of video services by local telephone companies in addition to their traditional voice and high speed data services. Several large telephone companies have pursued fiber-to-the-premise and fiber-to-the-node initiatives to compete actively with cable operators. These long-term initiatives and the possibility that other telephone companies may pursue similar strategies present opportunities for us.
Significant demand for mobile broadband is driven by the proliferation of smart phones and other wireless data devices. This demand and other advances in technology have created the need for wireless carriers to upgrade their networks. Wireless carriers are actively spending on their networks to respond to the explosion in wireless data traffic, upgrade network technologies to improve performance and efficiency and consolidate disparate technology platforms. These customer initiatives present long-term opportunities for us with the wireless service providers we serve. Further, the demand for mobile broadband has increased bandwidth requirements on the wired networks of our customers. As the demand for mobile broadband grows, the amount of wireless traffic that must be "backhauled" over customers' fiber networks increases and,operations as a result carriers are accelerating the deployment of fiber optic cablesother factors as well. Such factors include fluctuations in insurance expense due to cellular sites. These trends are also increasing the demand for the types of services we provide.
Cable companies are continuing to target the provision of datachanges in claims experience and voice services to residential customersactuarial assumptions, variances in incentive pay and have expanded their service offerings to business customers. Often times these services are provided over fiber optic cables using "metro Ethernet" technology. The commercial geographies that cable companies are targeting for network deployments generally require incremental fiber optic cable deployment and,stock-based compensation expense as a result requireof operating performance and vesting provisions, and changes in the typeemployer portion of engineeringpayroll taxes, including unemployment taxes, as a result of reaching statutory limits. Other factors that may contribute to quarterly variations in results of operations include other income recognized as a result of the timing and construction services that we provide.levels of capital assets sold during the period, income tax expense attributable to levels of taxable earnings, and the impact of disqualifying dispositions of incentive stock option expenses.
Additionally,Accordingly, operating results for any fiscal period are not necessarily indicative of results we provide underground facility locating services to a variety of utility companies, including telecommunication providers. Underground facility locating is required prior to underground excavation and is impacted by overall economic activity. Underground excavation is requiredmay achieve for the construction and maintenance of telephone, cable television, power, water, sewer, and gas utility networks, the construction and maintenance of roads and highways as well as the construction of new and existing commercial and residential projects. As a result, the level of outsourcing of this requirement, along with the pace of overall economic activity influence the demand for underground facility locating services.any subsequent fiscal period.
Within the context of a slowly growing economy, we believe the latest trends and developments support our industry outlook. We will continue to closely monitor the effects that changes in economic and market conditions may have on our customers and our business and we will continue to manage those areas of the business we can control.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.America (“GAAP”). The preparation of these financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported thereinin these consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate these estimates and assumptions, including those related to recognition of revenue for costs and estimated earnings under the percentage of completion method of accounting, allowance for doubtful accounts, the fair value of reporting units for goodwill impairment analysis, the assessment of impairment of intangibles and other long-lived assets, the purchase price allocations of businesses acquired, accrued insurance claims, income taxes, asset lives used in computing depreciation and amortization, stock-based compensation expense for performance-based stock awards, and accruals for contingencies, including legal matters. These estimates and assumptions require the use of judgment as to the likelihood of various future outcomes and, as a result, actual results could differ materially from these estimates.
We have identified the accounting policies below as critical to the accounting for our business operations and the understanding of our results of operations because they involve making significant judgments and estimates that are used in the preparation of our consolidated financial statements. The impact of these policies affectaffects our reported and expected financial results and are discussed below.results. We have discussed the development, selection and application of our critical accounting policies with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the disclosure relating to our critical accounting policies herein.
Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also important to understanding our consolidated financial statements. The Notes to Consolidated Financial Statements in this Annual Report on Form 10-K contain additional information related to our accounting policies including the critical accounting policies described herein, and should be read in conjunction with this discussion.
Revenue Recognition. We perform a majority of our services under master service agreements and other agreements that contain customer-specified service requirements, such as discrete pricing for individual tasks. We recognize revenue under these arrangements based on units-of-delivery as each unit is completed. The remainder of our services, representing less than 5% of our contract revenues during fiscal 2016 and less than 10% of our contract revenues during each of fiscal 2015 and 2014, are performed under contracts using the cost-to-cost measure of the percentage of completion method of accounting using the units-of-delivery or cost-to-cost measures. A majority of our contracts are based on units-of-delivery and revenueaccounting. Revenue is recognized as each unit is completed. Revenues from contracts using the cost-to-cost measures of completion are recognizedunder these arrangements based on the ratio of contract costs incurred to date to total estimated contract costs. Revenues from services provided underFor contracts using the cost-to-cost measure of completion, we accrue the entire amount of a contract loss at the time the loss is determined to be probable and materials based contracts arecan be reasonably estimated. During each of fiscal 2016, 2015, and 2014, there was no material impact to our results of operations due to changes in contract estimates.
There were no material amounts of unapproved change orders or claims recognized as the services are performed.during each of fiscal 2016, 2015, or 2014. The current asset "Costs“Costs and estimated earnings in excess of billings"billings” represents revenues recognized in excess of amounts billed. The current liability "Billings“Billings in excess of costs and estimated earnings"earnings” represents billings in excess of revenues recognized.
Application of the percentage of completion method of accounting requires the use of estimates of costs to be incurred for the performance of the contract. The cost estimation process is based on the knowledge and experience of our project managers and financial professionals. Factors that we consider in estimating the work to be completed and ultimate contract recovery include the availability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays in performance and the recoverability of any claims. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in changes to costs and income and their effects are recognized in the period in which the revisions are determined. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is accrued.
Allowance for Doubtful Accounts. We grant credit under normal payment terms, generally without collateral, to our customers. We maintain an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments.on uncollected balances. Management analyzes the collectability of accounts receivable balances each period. This analysis considers the aging of account balances, historical bad debt experience, changes in customer creditworthiness, current economic trends, customer payment activity, and other relevant factors. Should any of these factors change, the estimate made by management may also change, which could affect the level of our future provision for doubtful accounts. We recognize an increase in the allowance for doubtful accounts when it is probable that a receivable is not collectible and the loss can be reasonably estimated. Any increase in the allowance account has a corresponding negative effect on our results of operations. We believe that none of our significant customers were experiencing financial difficulties that would materially impact our trade accounts receivable or allowance for doubtful accounts as of July 27, 2013.
Goodwill and Intangible Assets. As of July 27, 2013, we had $267.8 million of goodwill, $4.7 million of indefinite-lived intangible assets and $120.6 million of finite-lived intangible assets, net of accumulated amortization. As of July 28, 2012, we
had $174.8 million of goodwill, $4.7 million of indefinite-lived intangible assets and $45.1 million of finite-lived intangible assets, net of accumulated amortization. The increase in goodwill and intangible assets is a result of our fiscal 2013 acquisitions. See Note 7, Goodwill and Intangible Assets, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
We account for goodwill in accordance with Financial Accounting Standards Board Accounting Standard Codification ("ASC") Topic 350, Intangibles – Goodwill and Other ("ASC Topic 350"). Our reporting units goodwill and other related indefinite-lived intangible assets are assessed annually as of the first day of the fourth fiscal quarter of each year in accordance with ASC Topic 350 in order to determine whether their carrying value exceeds their fair value. In addition, they are tested on an interim basis if an event occurs or circumstances change between annual tests that would more likely than not reduce their fair value below carrying value. During fiscal 2013, the Company adopted Accounting Standards Update No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment ("ASU 2011-08"). ASU 2011-08 permits entities testing for goodwill impairment to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. If we determine the fair value of goodwill or other indefinite-lived intangible assets is less than their carrying value as a result of the tests, an impairment loss is recognized. Impairment losses, if any, are reflected in operating income or loss in the consolidated statements of operations during the period incurred.
In accordance with ASC Topic 360, Impairment or Disposal of Long-Lived Assets, we review finite-lived intangible assets for impairment whenever an event occurs or circumstances change which indicates 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 we determine the fair value of an asset is less than the carrying value, an impairment loss is incurred. Impairment losses, if any, are reflected in operating income or loss in the consolidated statements of operations during the period incurred.
We use judgment in assessing if goodwill and intangible assets are impaired. Estimates of fair value are based on our 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. To measure fair value, we employ a combination of present value techniques which reflect market factors. Changes in our judgments and projections could result in significantly different estimates of fair value potentially resulting in additional impairments of goodwill and other intangible assets.
Our goodwill resides in multiple reporting units. The profitability of individual reporting units may suffer periodically from downturns in customer demand and other factors resulting from the cyclical nature of our business, the high level of competition existing within our industry, the concentration of our revenues from a limited number of customers, and the level of overall economic activity. During times of slowing economic conditions, our customers may reduce capital expenditures and defer or cancel pending projects. Individual reporting units may be relatively more impacted by these factors than the Company as a whole. As a result, demand for the services of one or more of our reporting units could decline resulting in an impairment of goodwill or intangible assets.
We performed our annual impairment assessment as of the first day of the fourth quarter of each of fiscal 2013, 2012 and 2011 and concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit in each of fiscal 2013, 2012 and 2011. During fiscal 2013, we performed qualitative assessments on reporting units that comprise less than 30% of our consolidated goodwill balance. The 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 we performed the first step of the quantitative analysis described in ASC Topic 350. The key valuation assumptions contributing to the fair value estimates of our reporting units were (a) a discount rate based on our best estimate of the weighted average cost of capital adjusted for risks associated with the reporting units; (b) terminal value based on terminal growth rates; and (c) seven expected years of cash flow before the terminal value for each annual test. The table below outlines the key assumptions in each of our fiscal 2013, 2012 and 2011 annual quantitative impairment analyses:
|
| | | | | |
| | 2013 | | 2012 | | 2011 |
| Terminal growth rate range | 1.5% - 2.5% | | 1.5% - 3.0% | | 1.5% - 3.0% |
| Discount rate | 11.5% | | 13.0% | | 13.5% |
The discount rate reflects risks inherent within each reporting unit operating individually, which is greater than the risks inherent in the Company as a whole. The decreases in discount rates in both fiscal 2013 and fiscal 2012 are a result of reduced risk relative to industry conditions and a lower interest rate environment at the time of the analysis. We believe the assumptions used in the impairment analysis each year are reflective of the risks inherent in the business models of our reporting units and within our industry.
For the businesses acquired in fiscal 2013, there were no significant changes in forecast assumptions between the initial valuation date and the annual impairment analysis. As a result, the estimated fair values determined during the fiscal 2013 annual impairment analysis approximated the reporting units' carrying values. Excluding these businesses, if the discount rate applied in the fiscal 2013 impairment analysis had been 100 basis points higher than estimated for each reporting unit and all other assumptions were held constant, the conclusion would remain unchanged and there would be no impairment of goodwill or the indefinite-lived intangible asset.
Our UtiliQuest reporting unit, having a goodwill balance of approximately $35.6 million and an indefinite-lived trade name of $4.7 million, has been at lower operating levels as compared to historical levels. The fair value of the UtiliQuest reporting unit exceeds its carrying value by approximately 20%. The UtiliQuest reporting unit provides services to a broad range of customers including utilities and telecommunication providers. These services are required prior to underground excavation and are influenced by overall economic activity, including construction activity. The goodwill balance of this reporting unit may have an increased likelihood of impairment if a downturn in customer demand were to occur, or if the reporting unit 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 changes to other valuation assumptions. As of July 27, 2013, we believe the goodwill is recoverable for all of the reporting units; however, there can be no assurances that the goodwill will not be impaired in future periods.
Current operating results, including any losses, are evaluated by us 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 a significantly different estimate of the fair value of the reporting units and could result in impairments of goodwill or intangible assets at additional reporting units. Additionally, adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of our reporting units.
Certain of our reporting units also have other intangible assets including customer relationships, trade names, and non-compete intangibles. As of July 27, 2013, we believe that the carrying amounts of these 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.
Business Combinations. We account for business combinations under the acquisition method of accounting. The purchase price of each acquired business is allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of 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. 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 at that time was unknown to us, may become known during the remainder of the measurement period, a period not to exceed twelve months from the acquisition date. Adjustments in the purchase price allocation may require a recasting of the amounts allocated to goodwill and intangible assets. In accordance with the acquisition method of accounting, acquisition costs are expensed as incurred.
Accrued Insurance Claims. WeFor claims within our insurance program, we retain the risk of loss, up to certain limits, for claimsmatters related to automobile liability, general liability workers' compensation, employee group health, and locate damages. Locate damage claims result from property and other(including damages arising in connectionassociated with our underground facility locating services.services), workers’ compensation, and employee group health. We have established reserves that we believe to be adequate based on current evaluations and our 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 our financial statements is generally limited to the amount needed to satisfy our insurance deductibles or retentions. The liability for total accrued insurance claims and related accrued processing costs was $56.3$89.7 million and $48.8$87.3 million at as of July 27, 201330, 2016 and July 28, 2012,25, 2015, respectively, and included incurred but not reported losses of approximately $44.5 million and $39.4 million, respectively. Based on prior payment patterns for similarInsurance recoveries/receivables related to accrued claims we expect $29.1as of July 30, 2016 and July 25, 2015 was $5.7 million and $9.5 million, respectively, of which $5.7 million and $8.9 million, respectively, was included in non-current other assets in the amount accrued at consolidated balance sheets. As of July 27, 2013 to be paid within the next twelve months.25, 2015, $0.6 million of insurance recoveries/receivables was included in other current assets.
We estimate the liability for claims based on facts, circumstances, and historical evidence. Whenexperience. Recorded loss reserves are recorded they are not discounted even though they will not be paid until sometime in the future. Factors affecting the determination of the expected cost for existing and incurred but not reported claims include, but are not limited to, the estimated numbermagnitude 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.
With regard to losses occurring in fiscal 20112014 through fiscal 2013,2016, we retain the risk of loss of up to $1.0 million on a per occurrenceper-occurrence basis for automobile liability, general liability, and workers'workers’ compensation. We have maintained this same level of retention for fiscal 2014.2017. These retention amounts are applicable to all of the states in which we operate, except with respect to workers'workers’ compensation insurance in threetwo states in which we participate in a state sponsoredstate-sponsored insurance fund.funds. Aggregate stop lossstop-loss coverage for automobile liability, general liability, and workers'workers’ compensation claims was $84.6 million for fiscal 2016 and is $52.5$103.7 million for fiscal 2013 and $56.3 million for fiscal 2014. Quanta Services, Inc. has retained the risk of loss for insured claims of the Acquired Subsidiaries outstanding, or incurred but not reported, as of the date of acquisition.2017.
For losses under our employee health plan, weWe are party to a stop-loss agreement for losses under whichour employee group health plan. For calendar years 2014 and 2015, we retained the risk of loss up to the first $250,000 of claims per participant as well as an annual aggregate amount. With regard to losses occurring in calendar year 2016, we retain the risk of loss, on an annual basis, ofup to the first $250,000$400,000 of claims per participant. In addition,participant as well as an annual aggregate amount.
Stock-Based Compensation. The Company has certain stock-based compensation plans under which it grants stock-based awards, including stock options, restricted share units, and performance share units to attract, retain, and reward talented employees, officers and directors, and to align stockholder and employee interests. We have granted stock-based awards under
our 2012 Long-Term Incentive Plan (“2012 Plan”), 2003 Long-Term Incentive Plan (“2003 Plan”) and 2007 Non-Employee Directors Equity Plan (“2007 Directors Plan” and, together with the 2012 Plan and 2003 Plan, the “Plans”). Our policy is to issue new shares to satisfy equity awards under the Plans. The total number of shares available for grant under the Plans as of July 30, 2016 was 1,023,162.
Compensation expense for stock-based awards is based on fair value at the measurement date and fluctuates over time as a result of the vesting period of the stock-based awards and our performance, as measured by criteria set forth in the performance-based awards. This expense is included in general and administrative expenses in the consolidated statements of operations and the amount of expense ultimately recognized depends on the number of awards that actually vest. For performance-based restricted share units (“Performance RSUs”), we retainevaluate compensation expense quarterly and recognize expense for performance-based awards only if we determine it is probable that the risk of lossperformance measures for the first $550,000awards will be met. In the event we determine it is no longer probable that we will achieve certain performance measures for the awards, the associated stock-based compensation expense that we had previously recognized is reversed in the period such a determination is made. Accordingly, stock-based compensation expense may vary from fiscal year to fiscal year.
The fair value of claim amountsstock option grants is estimated on the date of grant using the Black-Scholes option pricing model. Stock options generally vest ratably over a four-year period and are exercisable over a period of up to ten years. The fair value of time-based restricted share units (“RSUs”) and Performance RSUs is estimated on the date of grant and is generally equal to the closing stock price on that aggregate across all participants having claimsdate. RSUs and Performance RSUs are settled in one share of our common stock upon vesting. RSUs vest ratably over a period of four years. Performance RSUs vest over a period of three years from the date of grant if certain performance measures are achieved. The performance measures for target awards are based on our fiscal year operating earnings (adjusted for certain amounts) as a percentage of contract revenues and our fiscal year operating cash flow level. Additionally, certain Performance RSU awards include three-year performance measures that, exceed $250,000.if met, result in supplemental shares being awarded. The three-year performance measures required to earn supplemental awards are more difficult to achieve than those required to earn annual target awards and are based on our three-year cumulative operating earnings (adjusted for certain amounts) as a percentage of contract revenues and our three-year cumulative operating cash flow level.
Income Taxes. We account 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. Our effective income tax rate differs from the statutory rate for the tax jurisdictions where we operate primarily as the result of the impact of non-deductible and non-taxable items and tax credits recognized in relation to pre-tax results. Measurement of our tax position is based on the applicable statutes, federal and state case law, and our interpretations of tax regulations. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider 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 we determine that we would be able to realize deferred income tax assets in excess of their net recorded amount, we would adjust the valuation allowance, which would reduce the provision for income taxes.
In accordance with ASC Topic 740, Income Taxes ("“ASC Topic 740"740”) prescribes a two-step process for, we recognize tax benefits in the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it isamount that we deem more likely than not that the position will be sustainedrealized upon examination, based on the technical meritsultimate settlement of the position. The second step measures the benefitany tax uncertainty. Tax positions that fail to bequalify for recognition are recognized in the financial statements for those incomeperiod in which the more-likely-than-not standard has been reached, when the tax positions that meetare resolved with the more likely than not recognition threshold. ASC Topic 740 also provides guidance on derecognition, classification, recognition and classificationrespective taxing authority or when the statute of limitations for tax examination has expired. We recognize applicable interest related to tax amounts in interest expense and penalties accounting in interim periods, disclosurewithin general and transition. Under ASC Topic 740, companies may recognize a previously unrecognized tax benefit if the tax position is effectively (as opposed to "ultimately") settled through examination, negotiation or litigation.administrative expenses.
Stock-Based Compensation. Our stock-based award programs are intendedDuring fiscal 2015, we adopted new IRS regulations for capitalizing and deducting costs incurred to attract, retain and reward talented employees, officers and directors, and to align stockholder and employee interests. Weacquire, produce, or improve tangible property. The new regulations did not have granted stock-based awards under our 2012 Long-Term Incentive Plan ("2012 Plan"), 2003 Long-Term Incentive Plan ("2003 Plan"), and the 2007 Non-Employee Directors Equity Plan ("2007 Directors Plan" and, together with the 2012 Plan and 2003 Plan, the "Plans"). In addition, awards are outstanding under other plans under which no further awards will be granted. Our policy is to issue new shares to satisfy equity awards under the Plans. The Plans provide for the grants of a number of types of stock-based awards, including stock options, restricted shares, performance shares, restricted share units, performance share units ("Performance RSUs"), and stock appreciation rights. The total number of shares available for grant under the Plans as of July 27, 2013 was 2,033,272.
Compensation expense for stock-based awards is based on the fair value at the measurement date and is included in general and administrative expenses in the consolidated statements of operations. The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model based on certain assumptions including: expected volatility based on the historical price of our stock over the expected life of the option; the risk free rate of return based on the U.S. Treasury yield curve inmaterial effect at the time of grant for the expected term of the option; the expected life based on the period of time the options are expected to be outstanding using historical data to estimate option exercise and employee termination; and dividend yield based on our history and expectation of dividend payments. Stock options generally vest ratably over a four-year period and are exercisable over a period of up to ten years.
The fair value of time-based restricted share units ("RSUs") and Performance RSUs is estimated on the date of grant and is generally equal to the closing stock price on that date. RSUs vest ratably over a period of four years and are settled in one share of our common stock on the vesting date. Performance RSUs vest over a three-year period from the date of grant if certain performance goals are achieved. The performance targets are based on our fiscal year operating earnings (adjusted for certain amounts) as a percentage of contract revenues and our fiscal year operating cash flow level. For the fiscal 2013 performance period, the performance targets exclude amounts attributable to significant businesses acquired in fiscal 2013, including acquisition, financing, and other related costs of the businesses acquired. Additionally, the awards include three year performance goals having similar measures as the fiscal year targets which, if met, result in supplemental shares awarded. For Performance RSUs, we evaluate compensation expense quarterly and recognize expense for performance-based awards if we determine it is probable that the performance criteria for the awards will be met.
The total amount of stock-based compensation expense ultimately recognized is based on the number of awards that actually vest and fluctuates as a result of performance criteria for performance-based awards, as well as the vesting period of all stock-based awards. Accordingly, the amount of compensation expense recognized during any fiscal year may not be
representative of future stock-based compensation expense. In accordance with ASC Topic 718, Compensation – Stock Compensation, compensation costs for performance-based awards are recognized over the requisite service period if it is probable that the performance goal will be satisfied. We use our best judgment to determine probability of achieving the performance goals at each reporting period and recognize compensation costs based on the estimate of the shares that are expected to vest.consolidated financial statements.
Contingencies and Litigation. In the ordinary course of our business, we are involved in certain legal proceedings. ASCFinancial Accounting Standards Board Accounting Standard Codification (“ASC”) Topic 450, Contingencies ("“ASC Topic 450"450”) requires that an estimated loss from a loss contingency should be accrued by a charge to incomeoperating results if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, we evaluate, among other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. If only a range of probable loss can be determined, we accrue for our best estimate within the range for the contingency. In those cases where none of the estimates within the range is better than another, we accrue for the amount representing the low end of the range in accordance with ASC Topic 450. As additional information becomes available, we reassess the potential liability related to our pending contingencies and litigation and revise our estimates.estimates as applicable. Revisions of our estimates of the potential liability could materially impact our results of operations.
Additionally, if the final outcome of such litigation and contingencies differs adversely from that currently expected, it would result in a charge to earningsoperating results when determined.
Business Combinations. We account 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 liabilities assumed is allocated to goodwill. We determine the fair values used in purchase price allocations for intangible assets based on historical data, estimated discounted future cash flows, contract backlog amounts, if applicable, and 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 us at that time, may become known during the remainder of the measurement period, a period not to exceed twelve months from the acquisition date. Adjustments in the purchase price allocation may require a recasting of the amounts allocated to goodwill and intangible assets. 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.
Goodwill and Intangible Assets. As of July 30, 2016, we had $310.2 million of goodwill, $4.7 million of indefinite-lived intangible assets and $193.2 million of finite-lived intangible assets, net of accumulated amortization. As of July 25, 2015, we had $271.7 million of goodwill, $4.7 million of indefinite-lived intangible assets and $116.2 million of finite-lived intangible assets, net of accumulated amortization. The increase in goodwill during fiscal 2016 is primarily the result of preliminary purchase price allocations associated with businesses acquired in fiscal 2016. The increase in net intangible assets is a result of businesses acquired during fiscal 2016, partially offset by amortization of intangibles during fiscal 2016. See Note 7, Goodwill and Intangible Assets, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
We account for goodwill 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 as of the first day of the fourth fiscal quarter of each year, or more frequently if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value. We perform our annual impairment review of goodwill at the reporting unit level. Each of our operating segments with goodwill represents a reporting unit for the purpose of assessing impairment. If we determine 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 the tests, an impairment loss is recognized and reflected in operating income or loss in the consolidated statements of operations during the period incurred.
In accordance with ASC Topic 360, Impairment or Disposal of Long-Lived Assets, we review finite-lived intangible assets for impairment whenever an event occurs or circumstances change that indicates 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 we determine 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.
We use judgment in assessing whether goodwill and intangible assets are impaired. Estimates of fair value are based on our 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. We determine the fair value of our reporting units using a weighting of fair values derived equally from the income approach and the market approach valuation methodologies. The income approach uses the discounted cash flow method and the market approach uses the guideline company method. Changes in our 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.
Our goodwill resides in multiple reporting units. The profitability of individual reporting units may suffer periodically due to downturns in customer demand and the level of overall economic activity including, in particular, construction and housing activity. Our customers may reduce capital expenditures and defer or cancel pending projects during times of slowing economic conditions. Additionally, adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of our reporting units. The cyclical nature of our business, the high level of competition existing within our industry, and the concentration of our 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.
We evaluate 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 our reporting units could result in an impairment of goodwill or intangible assets.
We performed our annual impairment assessment as of the first day of the fourth quarter of each of fiscal 2016, 2015, and 2014 and concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit for any of the years. Qualitative assessments on reporting units that comprise a substantial portion of our consolidated goodwill balance and on our indefinite-lived intangible asset were performed. 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. We consider 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, we performed the first step of the quantitative analysis described in ASC Topic 350. Under the income approach, the key valuation assumptions used in determining the fair value estimates of our reporting units for each annual test were (a) a discount rate based on our best estimate of the weighted average cost of capital adjusted for certain risks for the reporting units; (b) terminal value based on terminal growth rates; and (c) seven expected years of cash flow before the terminal value. The table below outlines certain assumptions in each of our fiscal 2016, 2015, and 2014 annual quantitative impairment analyses:
|
| | | | | |
| | 2016 | | 2015 | | 2014 |
| Terminal Growth Rate Range | 2.0% - 3.0% | | 1.5% - 2.5% | | 1.5% - 3.0% |
| Discount Rate | 11.5% | | 11.5% | | 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. The fiscal 2016, 2015, and 2014 analyses used the same discount rate and included consideration of market inputs such as the risk-free rate, equity risk premium, industry premium, and cost of debt, among other assumptions. The changes in these inputs from fiscal 2016, 2015 and 2014 had offsetting impacts and the discount rate remained at 11.5%. We believe the assumptions used in the impairment analysis each year are reflective of the risks inherent in the business models of our reporting units and within our industry. Under the market approach, the guideline company method develops valuation multiples by comparing our reporting units to similar publicly traded companies. Key valuation assumptions and valuation multiples used in determining the fair value estimates of our 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.
We determined that the fair values of each of the reporting units were substantially in excess of their carrying values in the fiscal 2016 annual 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 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. Additionally, if the discount rate applied in the fiscal 2016 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. As of July 30, 2016, we believe the goodwill is recoverable for all of the reporting units; however, there can be no assurances that goodwill may not be impaired in future periods.
Certain of our reporting units also have other intangible assets, including customer relationships, contract backlog, trade names, and non-compete intangibles. As of July 30, 2016, we believe that the carrying amounts of these 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.
Outlook
Significant developments in consumer applications continue to increase the demands for greater capacity and enhanced reliability from the wireline and wireless networks of our customers. A proliferation of technological developments has been made possible by improved networks and their underlying fiber connections. Faster broadband connections are enabling the creation of other industries in which products and services rely on robust network connections for advanced functionality. Telecommunications providers will continue to expand their network capabilities to meet the demand of their consumers, driving demand for our services as these providers outsource a significant portion of their engineering, construction, maintenance, and installation requirements.
Telecommunications network operators are increasingly deploying fiber optic cable technology deeper into their networks and closer to consumers and businesses in order to respond to consumer demand, competitive realities, and public policy support. Fiber deployments have enabled cable companies to offer voice services in addition to their traditional video and data services. Additionally, fiber deployments are enabling video services for local telephone companies in addition to their traditional voice and high-speed data services. Several large telephone companies have pursued fiber-to-the-premise and fiber-to-the-node initiatives to compete actively with cable operators. Some telephone companies, which have previously deployed fiber-to-the-node architectures, have definitively transitioned to fiber-to-the-home architectures, while others are beginning to provision video over their fiber-to-the-node architectures. Further, many industry participants are deploying networks designed to provision 1-gigabit speeds to individual consumers and some have articulated plans to deploy speeds beyond 1-gigabit. Cable companies continue to increase the speeds of their services to residential customers and to deploy fiber to business customers with increasing urgency. Often these services to businesses are provided over fiber optic cables using “metro Ethernet” technology. The commercial geographies targeted by cable companies for network deployments generally require incremental fiber optic cable deployment and, as a result, require our services. These long-term initiatives and the possibility that other industry participants may pursue similar strategies create opportunities for us.
We expect the continued expansion of networks into areas of the U.S. that are currently unserved or underserved by high-speed broadband. Phase II of the Connect America Fund has been established to improve rural networks. This six-year program, administered by the Federal Communications Commission (the “FCC”), will provide $1.676 billion in funding per year to price cap carriers and others to expand and support broadband deployments in rural areas. In aggregate, our current customers, including several of our top ten customers, have accepted over $1.496 billion in funding per year under this program. New projects resulting from the Connect America Fund II are in planning, engineering, and construction. These projects are deploying fiber deeper into rural networks, and more are expected as new multi-year opportunities emerge. These opportunities also include fixed wireless deployments. We expect this program to contribute to demand for services in our industry.
Significant demand for wireless broadband is driven by the proliferation of smart phones and other mobile data devices. To respond to this demand, and other advances in technology, wireless carriers are upgrading their networks to 4G technologies and contemplating next generation mobile solutions such as small cells and 5G technologies. Wireless carriers are actively spending on their networks to respond to the explosion in wireless data traffic, to upgrade network technologies to improve performance and efficiency, and to consolidate disparate technology platforms. These initiatives present long-term opportunities for us with the wireless service providers we serve. Further, the demand for mobile broadband has increased bandwidth requirements on the wired networks of our customers. As the demand for mobile broadband grows, the amount of wireless traffic that must be “backhauled” over customers’ fiber networks increases and, as a result, carriers are accelerating the deployment of fiber optic cables to cellular sites and small cells. These trends are also driving the demand for our services and the increasing wireless data traffic is prompting further wireline deployments.
Significant consolidation and merger activity among telecommunications providers can also provide increased demand for our services as networks are integrated. As a result of recent merger activity, several of our large customers have committed to the FCC to expand and increase broadband network capabilities. These customer activities may further create a competitive response that will drive long-term demand for our services.
Overall economic activity, including in particular construction and housing activity, also contributes to the demand for our services. Within the context of the current economy, we believe the latest trends and developments support our industry outlook. We will continue to closely monitor the effects that changes in economic and market conditions may have on our customers and our business and we will continue to manage those areas of the business we can control.
Results of Operations
The Company uses a fiscal year ending on the last Saturday in July. On December 3, 2012, we acquired substantially allresults of the telecommunications infrastructure services subsidiariesoperations of Quanta Services, Inc. Additionally, during the fourth quarter of fiscal 2013, the Company acquired Sage and certain assets of a tower construction and maintenance company. The businesses acquired in fiscal 2013 have beenare included in the consolidated financial statements of operations sincefrom their respective dates of acquisition. The following table sets forth as a percentage of revenues earned, our consolidated statements of operations for the periods indicated and the amounts as a percentage of revenue (totals may not add due to rounding) (dollars in millions):
| | | | Fiscal Year Ended | | | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 | Fiscal Year Ended |
| | (Dollars in millions) | 2016 | | 2015 | | 2014 |
| Revenues | $ | 1,608.6 |
| | 100.0 | % | | $ | 1,201.1 |
| | 100.0 | % | | $ | 1,035.9 |
| | 100.0 | % | $ | 2,672.5 |
| | 100.0 | % | | $ | 2,022.3 |
| | 100.0 | % | | $ | 1,811.6 |
| | 100.0 | % |
| Expenses: | |
| | |
| | |
| | |
| | | | |
| | | | | | | | | |
| | |
|
| Cost of earned revenue, excluding depreciation and amortization | 1,300.4 |
| | 80.8 |
| | 968.9 |
| | 80.7 |
| | 837.1 |
| | 80.8 |
| 2,083.6 |
| | 78.0 |
| | 1,593.3 |
| | 78.8 |
| | 1,475.0 |
| | 81.4 |
|
| General and administrative | 145.8 |
| | 9.1 |
| | 104.0 |
| | 8.7 |
| | 94.6 |
| | 9.1 |
| 217.1 |
| | 8.1 |
| | 178.7 |
| | 8.8 |
| | 161.9 |
| | 8.9 |
|
| Depreciation and amortization | 85.5 |
| | 5.3 |
| | 62.7 |
| | 5.2 |
| | 62.5 |
| | 6.0 |
| 124.9 |
| | 4.7 |
| | 96.0 |
| | 4.7 |
| | 92.8 |
| | 5.1 |
|
| Total | 1,531.7 |
| | 95.2 |
| | 1,135.7 |
| | 94.6 |
| | 994.3 |
| | 96.0 |
| 2,425.7 |
| | 90.8 |
| | 1,868.0 |
| | 92.4 |
| | 1,729.7 |
| | 95.5 |
|
| Interest expense, net | (23.3 | ) | | (1.5 | ) | | (16.7 | ) | | (1.4 | ) | | (15.9 | ) | | (1.5 | ) | (34.7 | ) | | (1.3 | ) | | (27.0 | ) | | (1.3 | ) | | (26.8 | ) | | (1.5 | ) |
| Loss on debt extinguishment | — |
| | — |
| | — |
| | — |
| | (8.3 | ) | | (0.8 | ) | (16.3 | ) | | (0.6 | ) | | — |
| | — |
| | — |
| | — |
|
| Other income, net | 4.6 |
| | 0.3 |
| | 15.8 |
| | 1.3 |
| | 11.1 |
| | 1.1 |
| 10.4 |
| | 0.4 |
| | 8.3 |
| | 0.4 |
| | 11.2 |
| | 0.6 |
|
| Income before income taxes | 58.2 |
| | 3.6 |
| | 64.6 |
| | 5.4 |
| | 28.5 |
| | 2.7 |
| 206.3 |
| | 7.7 |
|
| 135.6 |
| | 6.7 |
| | 66.3 |
| | 3.7 |
|
| Provision for income taxes | 23.0 |
| | 1.4 |
| | 25.2 |
| | 2.1 |
| | 12.4 |
| | 1.2 |
| 77.6 |
| | 2.9 |
| | 51.3 |
| | 2.5 |
| | 26.3 |
| | 1.5 |
|
| Net income | $ | 35.2 |
| | 2.2 | % | | $ | 39.4 |
| | 3.3 | % | | $ | 16.1 |
| | 1.6 | % | $ | 128.7 |
| | 4.8 | % | | $ | 84.3 |
| | 4.2 | % | | $ | 40.0 |
| | 2.2 | % |
Year Ended July 27, 201330, 2016 Compared to Year Ended July 28, 201225, 2015
Revenues. The following table presents information regarding totalRevenues increased to $2.673 billion during fiscal 2016 from $2.022 billion during fiscal 2015. Revenues increased in the current period primarily from services for customers deploying 1-gigabit networks, new awards with significant customers, and revenues by type of customer for the fiscal years endedJuly 27, 2013 and July 28, 2012 (totals may not add due to rounding):
|
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | 2013 | | 2012 | | | | % |
| | Revenue | | % of Total | | Revenue | | % of Total | | Increase (decrease) | | Increase (decrease) |
| | (Dollars in millions) |
| Telecommunications | $ | 1,410.5 |
| | 87.7 | % | | $ | 1,014.6 |
| | 84.5 | % | | $ | 395.9 |
| | 39.0 | % |
| Underground facility locating | 127.8 |
| | 7.9 |
| | 131.3 |
| | 10.9 |
| | (3.5 | ) | | (2.7 | ) |
| Electric and gas utilities and other customers | 70.3 |
| | 4.4 |
| | 55.2 |
| | 4.6 |
| | 15.1 |
| | 27.4 |
|
| Total contract revenues | $ | 1,608.6 |
| | 100.0 | % | | $ | 1,201.1 |
| | 100.0 | % | | $ | 407.5 |
| | 33.9 | % |
Revenues increased$407.5 million, or 33.9%, during fiscal 2013 as compared to fiscal 2012. Of this increase, $337.9 million was generated by businesses acquired induring fiscal 2013.2016 and 2015. Additionally, fiscal 2016 included an additional week of operations as a result of our fiscal calendar.
The following table presentsDuring fiscal 2016 and 2015, total revenues of $159.0 million and $17.7 million, respectively, were generated by type of customer businesses that were not owned for the full year in both the current and prior fiscal years endedJuly 27, 2013 and July 28, 2012, excluding theyears. Excluding these amounts, attributed to the businesses acquired.
|
| | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | 2013 | | 2012 | | | | |
| | Revenue | | Revenue | | Increase (decrease) | | Increase (decrease) |
| | (Dollars in millions) |
| Telecommunications | $ | 1,104.8 |
| | $ | 1,014.6 |
| | $ | 90.2 |
| | 8.9 | % |
| Underground facility locating | 126.4 |
| | 131.3 |
| | (4.9 | ) | | (3.7 | ) |
| Electric and gas utilities and other customers | 39.5 |
| | 55.2 |
| | (15.7 | ) | | (28.4 | ) |
| | $ | 1,270.7 |
| | $ | 1,201.1 |
| | $ | 69.6 |
| | 5.8 | % |
| Revenues from businesses acquired in fiscal 2013 | 337.9 |
| | — |
| | 337.9 |
| | * |
| Total contract revenues | $ | 1,608.6 |
| | $ | 1,201.1 |
| | $ | 407.5 |
| | 33.9 | % |
* Not meaningful.
Revenues from specialty construction services provided to telecommunications companies, excluding amounts attributed to businesses acquired inrevenues increased by approximately $508.9 million during fiscal 2013, increased8.9%, or $90.2 million, to $1,104.8 million during fiscal 20132016 as compared to $1,014.6 million during fiscal 2012. During fiscal 2013 and fiscal 2012, the Company earned revenues from storm restoration services of $16.7 million and $6.0 million, respectively. During fiscal 2013, revenues2015. Revenues increased by approximately $77.7$224.9 million for a significant telecommunications customer including revenuesimproving its network and by approximately $139.7 million for a large telecommunications customer primarily for increased activity for services performed for its wireless network under contracts entered into during fiscal 2012.new awards. Revenues increased $26.7 million for threea leading cable multiple system operators foroperator by approximately $102.8 million from installation, maintenance and construction services, including services to provision fiber to small and medium businesses as well as network upgrades. Revenuesimprovements. Further, revenues increased $9.4by approximately $69.3 million for another cable multiple system operator enhancing its fiberoptic network. Additionally,services performed for a telecommunications customer in connection with rural services. Revenues also increased for services performed on a customer’s fiber network by approximately $54.5 million. Partially offsetting these increases, revenues increased $8.0related to stimulus work on projects funded in part by the American Recovery and Reinvestment Act of 2009 declined by $41.5 million during fiscal 2016 as the program was completed. In addition, revenues declined by $31.5 million for a telephone customer which is expanding and enhancing its broadband services related to rural access lines it acquired and for broadband stimulus initiatives. These increaseswhere we were partially offset byproviding fiber construction on their end customer’s network. All other customers, on a decrease in revenue of $12.2 million for a telephone customer fromcombined basis, had net decreases in services provided under existing contracts and broadband stimulus initiatives. Additionally, we experienced a decrease in revenuerevenues of $10.4$9.3 million for a significant telephone customer as a result of reduced spending in during fiscal 20132016, as compared to fiscal 2012. Other2015.
The percentage of our revenue by customer type from telecommunications, customers had net decreases in revenue of $19.7 million in fiscal 2013 as compared to fiscal 2012.
Revenues from underground facility locating, customers, excluding amounts attributed to businesses acquired in fiscal 2013, decreased3.7% to $126.4 million during fiscal 2013 compared to $131.3 million during fiscal 2012. The decrease partially resulted from a contract that ended during the second quarter of fiscal 2012 and due to reduced work from current customers.
Revenues from electric and gas utilities and other constructioncustomers, was approximately 90.7%, 5.9%, and maintenance customers, excluding amounts attributed to businesses acquired in3.4%, respectively, for fiscal 2013, decreased to $39.5 million during fiscal 20132016, compared to $55.2 million during 90.0%, 6.2%, and 3.8%, respectively, for fiscal 2012. The decrease was primarily attributable to decreases in work performed for several gas companies and electric utilities during fiscal 2013 as compared to fiscal 2012.2015.
Costs of Earned Revenues.Costs of earned revenues increased to $1,300.4 million$2.084 billion during fiscal 20132016, compared to $968.9 million$1.593 billion during fiscal 2012.2015. The increase was primarily due to a higher level of operations during fiscal 2013,2016, including the operating costs of the businesses acquired induring fiscal 2013.2016 and fiscal 2015 as well as an additional week of operations during fiscal 2016 as a result of our fiscal calendar. The primary components of the total increase was were a $235.8$410.5 million aggregate increase in direct labor and independent subcontractor costs, a $41.2$46.3 millionincrease in direct material costs, $13.0 million net increase in equipment rental, maintenance and an aggregate $54.5fuel costs, and $20.5 million net increase in other direct costs, including a pre-tax $0.5 million charge for a wage and hour class action settlement.costs.
Costs of earned revenues as a percentage of contract revenues increased 0.2%revenue decreased 0.8% during fiscal 2013 as2016, compared to fiscal 2012.2015. Direct material costs as a percentage of total revenue increased 0.3% compared to fiscal 2012 as our mix of work included a higher level of projects where we provided materials to the customer. Otherand other direct costs increased 0.3% as a percentagecombined decreased 2.2% of totalcontract revenue primarily as a result of theoperating leverage on our increased level of operations, mix of work, performed and from lower fuel prices. Partially offsetting these decreases, labor and subcontractor costs increased equipment and claims related costs as1.4% of contract revenue for fiscal 2016, compared to fiscal 2012. Offsetting these increases, fuel2015. The increase in labor and subcontractor costs decreased 0.3% as a percentage of totalcontract revenue primarily resulted from changes in work type mix and costs incurred to expand operations for several large customer programs, including the impact on productivity. Additionally, during the second quarter of fiscal 2013 as compared to fiscal 2012. Additionally, total labor and subcontractor costs decreased 0.1% as2016 we experienced a percentage of total revenue for fiscal 2013 as compared to fiscal 2012.more pronounced seasonal impact from the businesses acquired during calendar year 2015.
General and Administrative Expenses. General and administrative expenses increased to $145.8$217.1 million, or 8.1% of contract revenue during fiscal 2013 as2016, compared to $104.0$178.7 million, for or 8.8% of contract revenue, during fiscal 2012. General2015. The increase in total general and administrative expenses during fiscal 2016 primarily resulted from increased payroll and performance-based compensation costs, costs of businesses acquired in fiscal 2016 and 2015, and increased technology and facilities costs as we expanded our operations. We recognized approximately $0.7 million of acquisition costs during fiscal 2016 in connection with a business acquired in the fourth quarter of fiscal 2016. Additionally, stock-based compensation increased to $16.8 million during fiscal 2016, compared to $13.9 million during fiscal 2015. The decrease in general and administrative expenses as a percentage of contract revenues were 9.1% and 8.7% for fiscal 2013 and fiscal 2012, respectively. The increase in total general and administrative expenses for fiscal 2013 resulted primarily from the general and administrative costsrevenue is due to operating leverage on our increased level of the businesses acquired in fiscal 2013 and approximately $6.8 million and $3.4 million of pre-tax acquisition and integration costs, respectively, during fiscal 2013. Additionally, stock-based compensation increased to $9.9 million during fiscal 2013 from $7.0 million during fiscal 2012. Other increases in general and administrative expenses were increased payroll expenses as a result of growth, increased incentive pay expenses from improved operations, and higher professional fees for legal and accounting services.operations.
Depreciation and Amortization. Depreciation and amortization increased to $85.5was $124.9 million and $96.0 million during fiscal 2013 from $62.7 million during fiscal 20122016 and 2015, respectively, and totaled 5.3% and 5.2% as a percentage4.7% of contract revenuesrevenue during the current and prior year, respectively.each fiscal year. The increase in depreciation and amortization expense for during fiscal 20132016 is primarily a result of the addition of fixed assets during fiscal 2016 and amortizing intangibles relating to the2015 and incremental expense of businesses acquired in fiscal 2016 and 2015. Amortization expense was $19.4 million and $16.7 million during fiscal 2013. These increases were partially offset by certain fixed assets becoming fully depreciated in fiscal 20122016 and 2013.2015, respectively.
Interest Expense, Net. Interest expense, net was $34.7 million and $27.0 million during fiscal 2016 and 2015, respectively. Interest expense includes approximately $14.7 million for the non-cash amortization of debt discount associated with our convertible senior notes during fiscal 2016. Excluding this amortization, interest expense, net decreased to $20.0 million during fiscal 2016 primarily due to a lower interest coupon rate on the convertible senior notes issued in September 2015 compared to the previously outstanding 7.125% Notes. See Note 10, $23.3 million and $16.7 million during fiscal 2013 and 2012Debt, respectively. The in Notes to the Consolidated Financial Statements on this Annual Report on Form 10-K for additional information regarding the Company’s debt transactions.
increaseLoss on Debt Extinguishment. In connection with the redemption of our 7.125% Notes, we incurred a pre-tax charge for fiscal 2013 reflects higherearly extinguishment of debt balances outstandingof approximately $16.3 million during the current year primarilyfirst quarter of 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 of October 15, 2015 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 financingfees incurred in connection with the issuance of the purchase of the Acquired Subsidiaries. The additional debt includes $90.0 million in 7.125% senior subordinated notes due 2021 issued on December 12, 2012, as well as outstanding amounts during the period under our new five-year credit agreement (the "Credit Agreement"). The additional interest cost on incremental debt was partially offset by lower cost of debt related to the replacement of our previous credit agreement during fiscal 2013.Notes.
Other Income, Net. Other income decreased to $4.6was $10.4 million and $8.3 million during fiscal 2013 from $15.8 million during fiscal 2012.2016 and 2015, respectively. The decreasesincrease in other income, werenet is primarily a function of the number of assets sold and prices obtained for those assets during fiscal 2013.2016, compared to fiscal 2015. Other income, net during fiscal 2016 also includes immaterial discount fees related to a customer-sponsored vendor payment program in which we participate. Under this program, accounts receivable are collected on an expedited basis pursuant to a non-recourse sale of the receivables to a bank partner of the customer. The program significantly reduces the time required to collect that customer’s receivables.
Income Taxes. The following table presents our income tax provision and effective income tax rate for fiscal 2016 and 2015 (dollars in millions):
|
| | | | | | | | |
| | | Fiscal Year Ended |
| | | 2016 | | 2015 |
| Income tax provision | | $ | 77.6 |
| | $ | 51.3 |
|
| Effective income tax rate | | 37.6 | % | | 37.8 | % |
Fluctuations in our effective income tax rate were primarily attributable to the difference in income tax rates from state to state, non-deductible and non-taxable items, disqualifying dispositions of incentive stock option exercises, and production-related tax deductions recognized in relation to our pre-tax results during the periods. The decrease in our effective income tax rate during the current year period, as compared to the prior year period, is primarily due to increased production-related tax deductions recognized in relation to higher pre-tax results in the current period and a lesser impact of non-deductible items. We had total unrecognized tax benefits of approximately $2.4 million and $2.3 million as of July 30, 2016 and July 25, 2015, respectively, which, if recognized, would favorably affect our effective tax rate.
Net Income. Net income was $128.7 million for fiscal 2016, compared to $84.3 million for fiscal 2015.
Year Ended July 25, 2015 Compared to Year Ended July 26, 2014
Revenues. Revenues increased to $2.022 billion during fiscal 2015 from $1.812 billion during fiscal 2014. Revenues increased in fiscal 2015 from services for customers deploying 1-gigabit networks and from new awards with significant customers. Additionally, work performed during fiscal 2015 was significantly less impacted by weather conditions as compared to fiscal 2014.
During fiscal 2015, total revenues of $40.4 million were generated by businesses acquired during fiscal 2015 as well as during the fourth quarter of fiscal 2014. During fiscal 2014, total revenues of $2.8 million were generated by businesses acquired during the fourth quarter of fiscal 2014. Excluding amounts from these businesses that were not owned for the full year in both fiscal years, revenues increased by approximately $173.1 million during fiscal 2015 as compared to fiscal 2014. Revenues increased for a significant customer investing in improvements to its networks by approximately $56.3 million. Revenues also increased for services performed on a customer’s fiber network by approximately $55.1 million. In addition, revenues increased for a leading cable multiple system operator by approximately $48.2 million from maintenance and construction services, including services to provision fiber to small and medium businesses as well as network improvements. Other increases in revenue include increases of approximately $39.9 million for a customer for which we recognized are performing fiber construction services on their end customer’s network and increases of approximately $24.0 million for a large telecommunications customer investing in improvements to its network. Partially offsetting these increases, revenues related to stimulus work on projects funded in part by the American Recovery and Reinvestment Act of 2009 declined by approximately $61.4 million during fiscal 2015, compared to fiscal 2014, as the program was completed. Furthermore, revenues for a cable multiple system operator declined $17.9 million. All other customers, on a combined basis, had net increases in revenues of $28.9 million during fiscal 2015, compared to fiscal 2014.
The percentage of our revenue by customer type from telecommunications, underground facility locating, and electric and gas utilities and other customers, was approximately 90.0%, 6.2%, and 3.8%, respectively, for fiscal 2015, compared to 88.2%, 7.0% and 4.8%, respectively, for fiscal 2014.
$0.3 millionCosts of Earned Revenues. Costs of earned revenues increased to $1.593 billion during fiscal 2015, compared to $1.475 billion during fiscal 2014. The increase was primarily due to a higher level of operations during fiscal 2015, including the operating costs of businesses acquired during fiscal 2015 and 2014. The primary components of the increase were a $102.4 million aggregate increase in write-offdirect labor and subcontractor costs, $16.1 million increase in direct material costs, and $8.8 million increase in other direct costs, including insurance claim expense. These increases were partially offset by a $9.1 million aggregate decrease from lower fuel consumption and lower fuel prices during fiscal 2015, compared to fiscal 2014.
Costs of deferred financingearned revenues as a percentage of contract revenue decreased 2.6% during fiscal 2015, compared to fiscal 2014. The decrease was partially due to higher productivity resulting from the mix of work performed and better weather conditions during the second and third quarters of fiscal 2015, compared to the same periods in fiscal 2014. Adverse weather conditions during the second and third quarters of fiscal 2014 negatively impacted productivity and margins during those periods. Labor and subcontractor costs during represented a lower percentage of total revenue for fiscal 20132015 and decreased 1.0% as a percentage of
contract revenue, compared to fiscal 2014, as a result of improved operating efficiency based on the mix of work performed. In addition, costs decreased 0.7% from lower fuel consumption and lower fuel prices. Direct material costs decreased 0.2% as a percentage of contract revenue and other direct costs decreased 0.7% as a percentage of contract revenue, compared to fiscal 2014, as a result of improved operating leverage on our increased level of operations.
General and Administrative Expenses. General and administrative expenses increased to $178.7 million, or 8.8% as a percentage of contract revenue, during fiscal 2015, compared to $161.9 million, or 8.9% as a percentage of contract revenue, during fiscal 2014. The increase in connection withtotal general and administrative expenses during fiscal 2015 resulted from increased payroll and performance-based compensation costs, higher legal and other professional fees, and the replacementcosts of businesses acquired in fiscal 2015 and 2014. Additionally, stock-based compensation increased to $13.9 million during fiscal 2015, from $12.6 million during fiscal 2014. Stock-based compensation recognized in fiscal 2014 for Performance RSUs was lower than fiscal 2015 because the Company did not fully achieve the performance goals set forth for the fiscal 2014 performance period.
Depreciation and Amortization. Depreciation and amortization increased to $96.0 million during fiscal 2015, from $92.8 million during fiscal 2014, and totaled 4.7% and 5.1% of contract revenue, respectively. The increase in depreciation expense, arising from the addition of fixed assets during fiscal 2015 and depreciation from businesses acquired in fiscal 2015 and 2014, was partially offset by a decrease in amortization expense. Amortization expense decreased to $16.7 million during fiscal 2015 from $18.3 million during fiscal 2014. The decrease in amortization expense was a result of certain contract backlog intangible assets of the telecommunications infrastructure services subsidiaries acquired from Quanta Services, Inc. becoming fully amortized during fiscal 2015.
Interest Expense, Net. Interest expense, net was $27.0 million and $26.8 million during fiscal 2015 and 2014, respectively. The increase for fiscal 2015 reflects higher debt balances outstanding for a longer time period during fiscal 2015 compared to fiscal 2014. The additional cost on incremental debt was partially offset by lower interest rates on the outstanding balances as a result of the amendment of our credit facilityagreement during the third quarter of fiscal 2015.
Other Income, Net. Other income, net was $8.3 million and $11.2 million during fiscal 2015 and 2014, respectively. The decrease in December 2012.other income was primarily a function of the number of assets sold and prices obtained for those assets during fiscal 2015, compared to fiscal 2014.
Income Taxes. The following table presents our income tax expenseprovision and effective income tax rate for fiscal years 20132015 and 20122014 (dollars in millions):
| | | | Fiscal Year Ended | | | | | |
| | 2013 | | 2012 | Fiscal Year Ended |
| | (Dollars in millions) | 2015 | | 2014 |
| Income tax provision | $ | 23.0 |
| | $ | 25.2 |
| $ | 51.3 |
| | $ | 26.3 |
|
| Effective income tax rate | 39.5 | % | | 39.0 | % | 37.8 | % | | 39.7 | % |
Our effective income tax rate differs from the statutory rates for the tax jurisdictions where we operate. VariationsFluctuations in our effective income tax rate for fiscal 2013 and 2012 arewere primarily attributable to the impact ofdifference in income tax rates from state to state, non-deductible and non-taxable items, disqualifying dispositions of incentive stock option exercises, and a production-related tax creditsdeduction recognized in relation to
our pre-tax results during the period. Non-deductible and non-taxable items will generally have a reduced impact on the effective income tax rate in periods of greaterincreased pre-tax results. We had total unrecognized tax benefits of approximately $2.3$2.3 million and $2.2$2.4 million as of July 27, 201325, 2015 and July 28, 2012,26, 2014, respectively, whichthat, if recognized, would reducefavorably affect our effective tax rate during the periods recognized if it is determined that those liabilities are no longer required.rate.
Net Income. Net income was $35.2$84.3 million for fiscal 2013 as2015, compared to $39.4$40.0 million during for fiscal 2012.2014.
Year Ended July 28, 2012 Compared to Year Ended July 30, 2011
Revenues. The following table presents information regarding total revenues by type of customer for the fiscal years ended July 28, 2012 and July 30, 2011 (totals may not add due to rounding):
|
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | 2012 | | 2011 | | | | % |
| | Revenue | | % of Total | | Revenue | | % of Total | | Increase (decrease) | | Increase (decrease) |
| | (Dollars in millions) |
| Telecommunications | $ | 1,014.6 |
| | 84.5 | % | | $ | 850.5 |
| | 82.1 | % | | $ | 164.1 |
| | 19.3 | % |
| Underground facility locating | 131.3 |
| | 10.9 |
| | 144.7 |
| | 14.0 |
| | (13.4 | ) | | (9.2 | ) |
| Electric and gas utilities and other customers | 55.2 |
| | 4.6 |
| | 40.7 |
| | 3.9 |
| | 14.5 |
| | 35.6 |
|
| Total contract revenues | $ | 1,201.1 |
| | 100.0 | % | | $ | 1,035.9 |
| | 100.0 | % | | $ | 165.3 |
| | 16.0 | % |
Revenues increased $165.3 million, or 16.0%, during fiscal 2012 compared to fiscal 2011. Businesses acquired during the second quarter of fiscal 2011 generated $54.5 million of revenues during fiscal 2012 compared to $33.8 million during fiscal 2011.
Revenues from specialty construction services provided to telecommunications companies increased 19.3%, or $164.1 million, to $1,014.6 million during fiscal 2012 compared to $850.5 million during fiscal 2011. Businesses acquired during the second quarter of fiscal 2011 generated $20.7 million of this increase. Revenue increased $50.5 million for a significant telephone customer for services provided under existing contracts, including fiber to the cell site activity, and for services provided under new contracts which expanded our geographic service area. For another significant telecommunications customer revenue increased $41.4 million for services provided under new contracts entered into during fiscal 2011 which expanded our geographic service area. Additionally, we had incremental revenue of $36.6 million for a telephone customer from services provided under existing contracts and rural broadband initiatives. For two leading cable multiple system operators, we experienced a $13.0 million increase in revenue for installation, maintenance, and construction services, which included services to provision fiber to cellular sites. Other telecommunications customers had net increases in revenue of $58.0 million for fiscal 2012, including services provided under new contracts for rural broadband initiatives, expanding both our customer base and geographic service areas. These increases were partially offset by a decrease in revenue of $50.6 million for a significant telephone customer compared to fiscal 2011 as a result of reduced spending by the customer in fiscal 2012 and a $5.6 million decline in services provided to another leading cable multiple system operator.
Total revenues from underground facility locating customers during fiscal 2012 decreased 9.2% to $131.3 million compared to $144.7 million during fiscal 2011. The decrease resulted from contracts that were terminated during fiscal 2011, reflecting a planned de-emphasis of technician intensive customer contracts.
Total revenues from electric and gas utilities and other construction and maintenance customers during fiscal 2012 increased 35.6% to $55.2 million compared to $40.7 million during fiscal 2011. The increase was primarily attributable to increases in work performed for several gas companies and electric utilities during fiscal 2012 as compared to fiscal 2011.
Costs of Earned Revenues. Costs of earned revenues increased to $968.9 million during fiscal 2012 compared to $837.1 million during fiscal 2011. The increase was primarily due to a higher level of operations during fiscal 2012, including the operating costs of Communication Services, Inc. ("Communication Services") and NeoCom Solutions, Inc. ("NeoCom") since their acquisitions during the second quarter of fiscal 2011. The primary components of the increase were a $93.0 million aggregate increase in direct labor and independent subcontractor costs, a $28.8 million increase in direct materials costs, a $7.9 million increase in other direct costs, and a $2.1 million increase in fuel costs.
Costs of earned revenues as a percentage of contract revenues decreased 0.1% during fiscal 2012 compared to fiscal 2011. Labor and subcontractor costs decreased 0.3% in fiscal 2012 compared to fiscal 2011 as a result of improved operating efficiency and the mix of work performed. Additionally, fuel costs decreased 0.3% as a percentage of total revenue as compared to fiscal 2011. Other direct costs decreased 0.9% as a percentage of total revenue compared to fiscal 2011, primarily as a result of reduced costs for insurance claims during fiscal 2012 and improved operating cost leverage. Offsetting these decreases, material usage increased 1.4% as a percentage of total revenue based on our mix of work.
General and Administrative Expenses. General and administrative expenses increased $9.4 million to $104.0 million during fiscal 2012 compared to $94.6 million for fiscal 2011. The increase is partially a result of incremental general and administrative expenses of Communication Services and NeoCom which were acquired during the second quarter of fiscal 2011. Further, the increase in total general and administrative expenses during fiscal 2012 resulted from increased payroll from the growth of operations, higher incentive pay expenses as a result of improved operating results, and increased stock-based compensation expense. Stock-based compensation expense was $7.0 million during fiscal 2012 compared to $4.4 million during fiscal 2011.
General and administrative expenses as a percentage of contract revenues were 8.7% and 9.1% for fiscal 2012 and fiscal 2011, respectively. The decrease in general and administrative expenses as a percentage of contract revenues is the result of improved operating leverage on our increase in revenue.
Depreciation and Amortization. Depreciation and amortization increased to $62.7 million during fiscal 2012 from $62.5 million during fiscal 2011 and totaled 5.2% and 6.0% as a percentage of contract revenues during fiscal 2012 and fiscal 2011, respectively. The decrease in depreciation and amortization as a percentage of contract revenues was primarily the result of our mix of work and greater leverage on depreciable assets as our revenue has grown.
Interest Expense, Net. Interest expense, net was $16.7 million and $15.9 million during fiscal 2012 and fiscal 2011, respectively. The increase reflects higher debt balances outstanding during the period as a result of the issuance of our 7.125% senior subordinated notes due 2021, as described below, and the related purchase and redemption of our outstanding 8.125% senior subordinated notes due 2015. However, our overall effective interest rate has been reduced as a result of the issuance of our 7.125% senior subordinated notes due 2021.
Fiscal 2011 – Loss on Debt Extinguishment. On January 21, 2011, Dycom Investments, Inc., one of our subsidiaries, issued $187.5 million aggregate principal amount of 7.125% senior subordinated notes due 2021 in a private placement. A portion of the net proceeds was used to fund the purchase in January 2011 of $86.96 million aggregate principal amount of our outstanding 8.125% senior subordinated notes due 2015 (the "2015 Notes") at a price of 104.313% of the principal amount pursuant to a tender offer to purchase, for cash, any and all of our $135.35 million in aggregate principal amount of outstanding 2015 Notes. Additionally, a portion of the net proceeds was used to fund our redemption in February 2011 of the remaining $48.39 million outstanding aggregate principal amount of 2015 Notes at a price of 104.063% of the principal amount. As a result, we recognized a loss on debt extinguishment of approximately $6.0 million during fiscal 2011, comprised of tender premiums and legal and professional fees associated with the tender offer and redemption and $2.3 million for the write off of deferred debt issuance costs for the 2015 Notes redeemed.
Other Income, Net. Other income increased to $15.8 million during fiscal 2012 from $11.1 million during fiscal 2011. The increase in other income was primarily a function of assets sold and prices obtained for those assets during fiscal 2012, including approximately $0.6 million for the gain on sale of a non-core cable system asset.
Income Taxes. The following table presents our income tax expense and effective income tax rate for continuing operations for fiscal years 2012 and 2011:
|
| | | | | | | |
| | Fiscal Year Ended |
| | 2012 | | 2011 |
| | (Dollars in millions) |
| Income tax provision | $ | 25.2 |
| | $ | 12.4 |
|
| Effective income tax rate | 39.0 | % | | 43.5 | % |
Our effective income tax rates differ from the statutory rate for the tax jurisdictions where we operate. Variations in our effective income tax rate for fiscal 2012 and 2011 are primarily attributable to the impact of non-deductible and non-taxable items, disqualifying dispositions of incentive stock option exercises, and production-related tax credits recognized in relation to our pre-tax results during the period. Non-deductible and non-taxable items will generally have a reduced impact on the
effective income tax rate in periods of greater pre-tax results. We had total unrecognized tax benefits of approximately $2.2 million and $2.1 million as of July 28, 2012 and July 30, 2011, respectively, which would reduce our effective tax rate during the periods recognized if it is determined that those liabilities are no longer required.
Net Income. Net income was $39.4 million for fiscal 2012 as compared to $16.1 million for fiscal 2011.
Liquidity and Capital Resources
We are subject to concentrations of credit risk relating primarily to our cash and equivalents, accounts receivable, and costs and estimated earnings in excess of billings. Cash and equivalents primarily include balances on deposit with banks and totaled $33.8 million as of July 30, 2016, compared to $21.3 million as of July 25, 2015. We maintain our cash and equivalents at financial institutions we believe to be of high credit quality. To date, we have not experienced any loss or lack of access to cash in our operating accounts.
In connection with the issuance of the 0.75% convertible senior notes due September 2021, we entered into privately-negotiated convertible note hedge transactions with certain counterparties. We are subject to counterparty risk with respect to these convertible note hedge transactions. The hedge counterparties are financial institutions, and we are subject to the risk that
they might default under the convertible note hedge transactions. To mitigate that risk, we contracted with institutional counterparties who met specific requirements under our risk assessment process. Additionally, the transactions are subject to a netting arrangement, which also reduces credit risk.
Capital requirements. Sources of Cash.Historically, our Our sources of cash have been operating activities, long-term debt, equity offerings, stock option proceeds, bank borrowings, and proceeds from the sale of idle and surplus equipment and real property. OurCash flow from operations is primarily influenced by demand for our services and operating margins, but can also be influenced by working capital needs vary based on our level ofassociated with the services that we provide. In particular, working capital needs may increase when we have growth in operations and generally increasewhere project costs, primarily associated with higher levels of revenue.labor, equipment, materials, and subcontractors, are required to be paid before the related customer balances owed to us are invoiced and collected. Our working capital requirements are also impacted by the time it takes to collect our accounts receivable for work performed for customers. Cash and equivalents totaled $18.6 million at July 27, 2013 compared to $52.6 million at July 28, 2012. Working capital (total current assets less total current liabilities)liabilities, excluding the current portion of debt) was $341.3$541.7 million at as of July 27, 201330, 2016, compared to $262.4$473.7 million at as of July 28, 2012.25, 2015.
Capital resources are used primarily used to purchase equipment and maintain sufficient levels of working capital in order to support our contractual commitments to customers. We periodically borrow from and repay our revolving credit facility depending on our cash requirements. Additionally, our capital requirements may increase to the extent we make acquisitions that involve consideration other than our stock, buy back our common stock, repay revolving borrowings, or repurchase or call our senior subordinated notes. We have not paid cash dividends since 1982. Our board of directors regularly evaluates our dividend policy based on our financial condition, profitability, cash flow, capital requirements, and the outlook of our business. We currently intend to retain any earnings for use in the business, including for investment in acquisitions, and consequently we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Additionally, the indenture governing our senior subordinated notes contains covenants that restrict our ability to make certain payments, including the payment of dividends.
We expect capital expenditures, net of disposals, to range from $70$175.0 million to $75$185.0 million for fiscal 2014.2017 to support growth opportunities and the replacement of certain fleet assets. Our level of capital expenditures can vary depending on the customer demand for our services, the replacement cycle we select for our equipment, and overall growth. We intend to fund these expenditures primarily from operating cash flows, availability under our credit facilityagreement and cash on hand.
Sufficiency of Capital Resources. We believe that our capital resources, including existing cash balances and amounts available under our credit agreement, are sufficient to meet our financial obligations. These obligations include interest payments required on our convertible senior notes and outstanding borrowings under our credit agreement, working capital requirements, and the normal replacement of equipment at our current level of operations for at least the next twelve months. Our capital requirements may increase to the extent we seek to grow by acquisitions that involve consideration other than our stock, or to the extent we repurchase our common stock, repay credit agreement borrowings, or repurchase or convert our convertible senior notes. Changes in financial markets or other components of the economy could adversely impact our ability to access the capital markets, in which case we would expect to rely on a combination of available cash and our credit agreement to provide short-term funding. Management regularly monitors the financial markets and assesses general economic conditions for possible impact on our financial position. We believe our cash investment policies are prudent and expect that any volatility in the capital markets would not have a material impact on our cash investments.
Net cash flows. The following table presents our net cash flows for fiscal 2016, 2015, and 2014 (dollars in millions):
| | | | For the Fiscal Year Ended | | | | | | | |
| | 2013 | | 2012 | | 2011 | Fiscal Year Ended |
| | (Dollars in millions) | 2016 | | 2015 | | 2014 |
| Net cash flows: | | | | |
| | | | | |
| Provided by operating activities | $ | 106.7 |
| | $ | 65.1 |
| | $ | 43.9 |
| $ | 261.5 |
| | $ | 141.9 |
| | $ | 84.2 |
|
| Used in investing activities | $ | (389.1 | ) | | $ | (51.9 | ) | | $ | (85.4 | ) | $ | (333.1 | ) | | $ | (130.1 | ) | | $ | (91.1 | ) |
| Provided by (used in) financing activities | $ | 248.3 |
| | $ | (5.4 | ) | | $ | (17.0 | ) | $ | 84.1 |
| | $ | (11.2 | ) | | $ | 9.0 |
|
Cash fromProvided by Operating Activities. During fiscal 2013,2016, net cash provided by operating activities was $106.7 million.$261.5 million. Non-cash items in the cash flows from operating activities during fiscal 20132016, 2015, and 2014 were primarily depreciation and amortization, gain on sale of assets, bad debt expense, stock-based compensation, amortization of debt discount, non-cash loss on debt extinguishment, amortization of debt issuance costs, and deferred income taxes. Changes in working capital (excluding cash) and changes in other long termlong-term assets and liabilities used$17.5 $33.8 million of operating cash flow during fiscal 2013. The primary working capital sources of cash flow during fiscal 2013 were decreases in accounts receivable of $3.6 million, including amounts collected for balances from business acquired during fiscal 2013. Additionally, net decreases in income tax receivables was $6.0 million during the period due to the timing of payments.2016. Working capital changes that used operating cash flow during fiscal 20132016 included an increase in costs and estimated earnings in excess of billings of $71.0 million. In addition, net increases in other current assets and other non-current assets combined used $16.7 million of operating cash flow during fiscal 2016 primarily for inventory and prepaid costs. Working capital changes that provided operating cash flow during fiscal 2016, primarily resulting from the timing of payments, were net increases in income taxes payable of $20.1 million, accrued liabilities of $15.9 million, primarily resulting from an increase in accrued performance-based compensation as a result of operating performance, and accounts payable of $15.1 million. Additionally, a decrease in accounts receivable provided $2.7 million of operating cash flow during fiscal 2016.
Our days sales outstanding (“DSO”) for accounts receivable is calculated based on the ending accounts receivable divided by the average daily revenue for the most recently completed quarter. Contract payment terms vary by customer and primarily range from 30 to 90 days after invoicing. Our DSO was 41 days as of July 30, 2016, compared to 50 days as of July 25, 2015. Our DSO declined due to strong customer collections during the fourth quarter of fiscal 2016. During the fourth quarter of fiscal 2016, we began participating in a customer-sponsored vendor payment program whereby accounts receivable are collected on an expedited basis pursuant to a non-recourse sale of the receivables to a bank partner of the customer. The program significantly reduces the time required to collect that customer’s receivables. We incur a slight discount fee associated with the collection of the accounts receivable that is reflected as an expense component in other income, net in the consolidated statements of operations. During the fourth quarter of fiscal 2016, we sold $85.6 million of receivables under this program to the customer’s bank in advance of the original contract payment terms, improving the time required to collect the related receivables by 10 days as of July 30, 2016. We believe the DSO level for accounts receivable as of July 30, 2016 can be sustained so long as we continue on with the program. Our DSO for costs and estimated earnings in excess of billings (“CIEB”) was 44 days and 41 days as of July 30, 2016 and July 25, 2015, respectively.
Our CIEB balances are maintained at a detailed task-specific level or project level and are evaluated regularly for realizability. Such amounts are invoiced in the normal course of business according to contract terms that consider the completion of specific tasks and the passage of time. Project delays for commercial issues such as permitting, engineering changes, incremental documentation requirements, or difficult job site conditions can extend the time needed to complete certain work orders, which may delay invoicing to the customer for work performed. We were not experiencing any material project delays or other circumstances that would impact the realizability of the CIEB balance as of July 30, 2016. Additionally, there were no material amounts of CIEB related to claims or unapproved change orders as of July 30, 2016 or July 25, 2015. As of July 30, 2016, we believe that none of our significant customers were experiencing financial difficulties that would impact the realizability of our CIEB or the collectability of our trade accounts receivable.
During fiscal 2015, net cash provided by operating activities was $141.9 million. Changes in working capital (excluding cash) and changes in other long-term assets and liabilities used $40.3 million of operating cash flow during fiscal 2015. Working capital changes that used operating cash flow during fiscal 2015 were increases in accounts receivable and net costs and estimated earnings in excess of billings of $12.3$40.4 million as a result of growth in operations during fiscal 2013. Other working capital changes that used operating cash flow during fiscal 2013 were decreases in accounts payable of $11.2 and $41.0 million, as a result of timing of payments. Additionally, decreases in accrued liabilities, insurance claims and other liabilities used $2.5 million of cash flow. respectively. Net increases in other current and other non-current assets combined used $1.1$8.0 million of operating cash flow during fiscal 20132015, primarily for inventorypre-paid costs during fiscal 2015. The primary working capital sources of cash flow during fiscal 2015 were changes in other accrued liabilities of $30.3 million, primarily resulting from an increase in accrued insurance claims and other pre-paid costs.an increase in accrued performance-based compensation as a result of operating performance. In addition, increases in accounts payable of $7.1 million and increases in income tax payable, net of income tax receivables, of $11.8 million provided operating cash flow during fiscal 2015 due to the timing of cash payments.
BasedOur DSO for accounts receivable (based on the ending accounts receivable divided by the average daily revenue duringfor the applicable quarter,most recently completed quarter) was 50 days sales outstanding calculated for accounts receivable, net was 48 as of July 27, 201325, 2015, compared to 51 days as of July 26, 2014. Contract payment terms vary by customer and primarily range from 30 to 60 days after invoicing. Our DSO for CIEB was 41 days as of both July 28, 201225, 2015 and July 26, 2014. During fiscal 2015, we collected certain of the past due balances from a customer on a rural project funded in part by the American Recovery and Reinvestment Act of 2009 (the “ARRA”). Days sales outstanding calculated for costs and estimated earnings in excessAs of billings, netJuly 25, 2015, approximately, $6.8 million was owed to us by this customer, the entirety of billings in excess of costs and estimated earnings,which was 36 days as of both July 27, 2013 and July 28, 2012. The change in days sales outstanding for accounts receivable resulted from growth in operationscollected during fiscal 2013, the impact of generally higher days sales outstanding for the Acquired Subsidiaries and other
changes in customer mix compared to fiscal 2012. We believe that none of our major customers were experiencing financial difficulties which would materially affect our cash flows or liquidity as of July 27, 2013.2016.
During fiscal 2012,2014, net cash provided by operating activities was $65.1$84.2 million. Non-cash items during fiscal 2012 were primarily depreciation and amortization, gain on sale of assets, stock-based compensation, and deferred income taxes. Changes in working capital (excluding cash) and changes in other long termlong-term assets and liabilities used $37.9$43.3 million of operating cash flow during fiscal 2012.2014. The primary working capital useschanges that used operating cash flow during fiscal 20122014 were increases in accounts receivable of $3.4 million and increases in net costs and estimated earnings in excess of billings of $35.7 million. The increases in accounts receivable$16.9 million and costs and estimated earnings in excess of billings are$25.4 million, respectively, as a result of an increase in the level of our operations, including growth in operationswith certain customers, and slightly longer collection times during fiscal 2012 and changes to the customer mix compared to fiscal 2011. Other working capital changes that used operating cash flow during fiscal 2012 were2014. Net increases in other current and other non-current assets combined used $13.4 million of $6.3 million,operating cash flow during fiscal 2014 primarily for higher levels of inventory, andinventory. Additionally, decreases in accrued liabilities and accrued insurance claimsaccounts payable used $4.2 million of $1.2 million.operating cash flow as a result of timing of payments. Working capital sources of cash flow during fiscal 2012 were income taxes receivable of $5.7 million used during the period and increases in accounts payable of $3.0 million as a result of timing of higher operating levels and timing of payments.
During fiscal 2011, net cash provided by operating activities was $43.9 million. Operating cash flow and net income for fiscal 2011 were reduced by our payment of $6.0 million in consent and other fees related to our repurchase of $135.35 million in aggregate principal amount of the 2015 Notes. Non-cash items during fiscal 2011 were primarily depreciation and amortization, gain on sale of assets, stock-based compensation, deferred income taxes, amortization of debt issuance costs, and the write-off of approximately $2.3 million of debt issuance costs in connection with the tender offer and subsequent redemption of the outstanding 2015 Notes. Changes in working capital (excluding cash) and changes in other long term assets and liabilities used $47.4 million of operating cash flow during fiscal 2011. The primary working capital uses during fiscal 20112014 were increases in accounts receivable of $21.7 million and increases in net costs and estimated earnings in excess of billings of $23.2 million. The increases in accounts receivable and costs and estimated earnings in excess of billings are a result of higher revenue levels during the fourth quarter of fiscal 2011, including storm restoration services. Other uses of working capital included other currentaccrued liabilities, insurance claims, and other non-current assets combinedliabilities of $4.4$10.0 million primarily for higher levelsdue to timing of inventory,insurance claims related payments and increases in income taxes receivabletax payable, net of $5.0 million as a result of the timing of federal and state income tax payments. Working capital changes that increased operating cash flow during fiscal 2011 were increases in accounts payablereceivables, of $2.6$6.7 million and increases in other accrued liabilities and accrued insurance claims of $4.3 million. These increases were primarily attributabledue to higher operating levels of fiscal 2011 and the timing of payments.
Cash Used in Investing Activities. Net cash used in investing activities was $389.1$333.1 million during fiscal 2013.2016. During fiscal 20132016, we paid $330.3$157.2 million in connection with acquisitions during the acquisition of businesses, including $319.0 million for the Acquired Subsidiaries, net of cash acquired. Additionally, during fiscal 2013 capitalyear. Capital expenditures of $64.7 million were offset in part by proceeds from the sale of assets of $5.8 million. Restricted cash, primarily related to funding provisions of our insurance program, decreased less than $0.1 million during fiscal 2013.
Net cash used in investing activities was $51.9 million during fiscal 2012. During fiscal 2012 capital expenditures of $77.6$186.0 million were offset in part by proceeds from the sale of assets of $24.8$10.5 million including approximately $5.5 million related to the sale of non-core cable system assets during the third quarter of fiscal 2012. Capital expenditures of $77.6 million for fiscal 2012 increased from $61.5 million in fiscal 20112016, primarily as thea result of spending for new work opportunities and the replacement of certain fleet assets. In addition, we incurred certain capital expenditures to increase the fuel and operating efficiency of our fleet of vehicles. Restricted cash, primarily related to funding provisions of our insurance programs, decreased $0.9program, increased approximately $0.5 million during fiscal 2012.2016.
During fiscal 2011 net
Net cash used in investing activities was $85.4$130.1 million including $9.0during fiscal 2015. During fiscal 2015, we paid $31.9 million and $27.5 million paid in connection with acquisitions during the acquisitions of Communication Services, Inc. and NeoCom Solutions, Inc., respectively.year. Capital expenditures of $61.5$103.0 million were offset in part by proceeds from the sale of assets of $12.3 million.$9.4 million during fiscal 2015. Additionally, during fiscal 2015, we made an investment of $4.0 million in non-voting senior units of a former customer in connection with their restructuring plan. Restricted cash, primarily related to funding provisions of our insurance program, decreasedincreased approximately $0.2$0.5 million during fiscal 2011.2015.
Net cash used in investing activities was $91.1 million during fiscal 2014. During fiscal 2014, we paid $17.1 million in connection with acquisitions during the year. Capital expenditures of $89.1 million were offset in part by proceeds from the sale of assets of $15.4 million during fiscal 2014. Restricted cash, primarily related to funding provisions of our insurance program, increased approximately $0.3 million during fiscal 2014.
Cash Provided by (Used in) Financing Activities. Net cash provided by financing activities was $248.3$84.1 million during fiscal 2013. During2016. The primary source of cash provided by financing activities during fiscal 2013 we received $93.82016 was the $485.0 million principal amount of 0.75% convertible senior notes due 2021 (the “Notes”) issued in grossa private placement in September 2015. We used $277.5 million of the net proceeds from the Notes issuance of long-term debt comprised ofto fund the issuance of an incremental $90.0 million in aggregate principal amountredemption of our 7.125% senior subordinated notes due 2021 and $3.8 million in premium receivednotes. Furthermore, in connection with the issuance,offering of the Notes, we entered into convertible note hedge transactions with counterparties for a total cost of approximately $115.8 million. We also entered into separately negotiated warrant transactions with the same counterparties, and received proceeds of approximately $74.7 million from the sale of these warrants. See Note 10, $125.0Debt, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional discussion of these debt transactions. During fiscal 2016, net repayments on the revolving facility under our credit agreement were $95.3 million in proceeds from and net borrowings on the term loan ("Term Loan")facilities under our Credit Agreement and net revolving borrowings under our Credit Agreement of $49.0 million, partially offset by principal payments on the Term Loan of $3.1credit agreement were $196.3 million. Additionally, we paid $6.7approximately $16.4 million of in total debt issuance costs in connection with the new Credit Agreementamendments of our credit agreement and our issuance of the 7.125% senior subordinated notes due 2021Notes during fiscal 2013.
2016. During fiscal 2013,2016, we repurchased 1,047,0002,511,578 shares of our common stock in open market transactions, at an average price of $14.52$67.69 per share, for approximately $15.2$170.0 million. In addition, during fiscal 2016 we received $2.7 million. from the exercise of stock options and received excess tax benefits of $13.0 million, primarily from the exercise of stock options and vesting of restricted share units. We withheld shares and paid $12.6 million to tax authorities in order to meet the payroll tax withholding obligations on restricted share units that vested during fiscal 2016.
Net cash used in financing activities was $11.2 million during fiscal 2015. During fiscal 2015, borrowings under our credit agreement, net of repayments, were $68.2 million. Additionally, in fiscal 2015, we paid $3.9 million of debt issuance costs in connection with the amendment of our credit agreement. We also paid a $1.0 million obligation related to a business acquired in the fourth quarter of fiscal 2013. During fiscal 2015, we repurchased 1,669,924 shares of our common stock in open market transactions for approximately $87.1 million, an average price of $52.19 per share. Additionally, we received $8.9 million from the exercise of stock options and received excess tax benefits of $8.4 million primarily from the exercise of stock options and vesting of restricted share units during fiscal 2015. We withheld shares and paid $0.9$4.7 million to tax authorities in order to meet payroll tax withholdings obligations on restricted share units that vested to employees and certain officers during fiscal 2013. Additionally,2015.
Net cash provided by financing activities was $9.0 million during fiscal 2014. During fiscal 2014, we received $5.3$14.6 million from the exercise of stock options and received$3.0 million of excess tax benefits of $1.3 millionprimarily from the exercises of stock options and vesting of restricted share units and exercisesduring fiscal 2014. Additionally, net revolving borrowings under our credit agreement were $14.0 million, partially offset by principal payments on the term loan under our credit agreement of stock options during $7.8 million. Additionally, we paid a $1.0 million obligation related to a business acquired in the fourth quarter of fiscal 2013.
Net cash used in financing activities was $5.4 million during 2013. During fiscal 2012. During fiscal 2012,2014, we repurchased 597,700360,900 shares of our common stock in open market transactions, at an average price of $21.68$27.71 per share, for approximately $13.0$10.0 million. We received $6.5 million from the exercise of stock options and received excess tax benefits of $1.6 million primarily from the vesting of restricted share units and exercises of stock options during fiscal 2012. During fiscal 2012, we withheld shares of restricted units and paid $0.3$3.8 million to tax authorities in order to meet payroll tax withholdings obligations on restricted units that vested to certain officers and employees during those periods. Additionally, we paid approximately $0.2 million during fiscal 2012 for principal payments on capital leases.
Net cash used in financing activities was $17.0 million for fiscal 2011. During fiscal 2011, we received $187.5 million in gross proceeds from the issuance of $187.5 million aggregate principal amount of 7.125% senior subordinated notes due 2021 and paid $5.2 million in debt issuance costs. A portion of the net proceeds from the issuance were used in January 2011 to fund the purchase of $86.96 million principal amount of our 2015 Notes pursuant to a concurrent tender offer and to fund the redemption of the remaining $48.39 million outstanding aggregate principal amount in February 2011. Additionally, we paid $0.6 million in principal payments on capital leases. During fiscal 2011 we repurchased 5,389,500 shares of our common stock in open market transactions for $64.5 million, at an average price of $11.98 per share. Additionally, we received $1.3 million from the exercise of stock options during fiscal 2011. Further, during fiscal 2011 we withheld shares of restricted share units and paid $0.2 million to tax authorities in order to meet payroll tax withholding obligations on our restricted share units that vested to certain officers and employees during those periods.fiscal 2014.
Compliance with Credit Agreement and Indenture. OnWe are party to a credit agreement with the various lenders named therein, dated as of December 3, 2012 we entered into our new, five-year Credit Agreement with various lenders.(as amended as of June 17, 2016, May 20, 2016, April 24, 2015 and September 9, 2015), that matures on April 24, 2020. The Credit Agreement matures in December 2017 andcredit agreement provides for a $125$450.0 million revolving facility, $350.0 million in aggregate term loan facilities, and a $275 million revolving facility. The Credit Agreement contains a sublimit of $150$200.0 million for the issuance of letters of credit. Subject to certain conditions, the Credit Agreementcredit agreement provides forus with the ability to enter into one or more incremental facilities, either by increasing the revolving commitments under the Credit Agreementcredit agreement and/or in the form of term loans, up to the greater of (i) $150.0 million and (ii) an amount such that, after giving effect to such incremental facility on a pro forma basis (assuming that the amount of the incremental commitments are fully drawn and funded), the consolidated senior secured leverage ratio does not exceed 2.25 to 1.00. The consolidated senior secured leverage ratio is the ratio of our consolidated senior secured indebtedness to our trailing twelve-month consolidated earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as defined by the credit agreement. The incremental facilities can be in an aggregate amount not to exceed $100 million. Borrowingsthe form of revolving commitments under the Credit Agreement can be used to refinance certain indebtedness, to provide general working capital, and for other general corporate purposes. We used borrowingscredit agreement and/or in the form of term loans. Payments under the Credit Agreement in connection withcredit agreement are guaranteed by substantially all of our subsidiaries and secured by the acquisitionequity interests of businesses during fiscal 2013, including the Acquired Subsidiaries.substantial majority of our subsidiaries.
The Credit Agreement replacedBorrowings under our prior credit agreement datedbear interest at rates described below based upon our consolidated leverage ratio, which is the ratio of our consolidated total funded debt to our trailing twelve month consolidated EBITDA, as of June 4, 2010, which was due to expire in June 2015. Atdefined by the time of termination, there were no outstanding borrowingscredit agreement. In addition, we incur certain fees for unused balances and all outstanding letters of credit were transferred to the Credit Agreement. We did not incur any material early termination penalties in connection with the termination of the prior credit agreement. We recognized $0.3 million in write-off of deferred financing costs during the second quarter of fiscal 2013 in connection with the replacement of the prior credit agreement.at rates described below, also based upon our consolidated 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 | 0.25% - 0.40% |
| Standby Letters of Credit | 1.25% - 2.00% |
| Commercial Letters of Credit | 0.625% - 1.00% |
Borrowings under the Credit Agreement (other than Swingline Loans (as defined in the Credit Agreement)) bear interest at a(1) The agent’s base rate equal to either (a) the administrative agent's base rate,is described in the Credit Agreementcredit agreement as the highest of (i) the administrative agent'sagent’s prime rate, (ii) the Federal Funds Rate plus 0.50%, and (iii) a floatingthe Eurodollar rate of interest equal to one month LIBOR plus 1.00%, or (b) the Eurodollar Rate, plus in each case, an applicable margin based upon our consolidated leverage ratio. Swingline Loans bearmargin.
The weighted average interest at a rate equal to the administrative agent's base rate plus a margin based upon our consolidated leverage ratio. As of July 27, 2013, borrowings are eligible for a margin of 1.0% for borrowings based on the administrative agent's base rate and 2.0% for borrowings based on the Eurodollar Rate. Borrowings under the Credit Agreement are guaranteed by substantially all of our subsidiaries and secured by the stock of each of the wholly-owned, domestic subsidiaries (subject to specified exceptions). We incur fees under the Credit Agreement for the unutilized commitments at rates that range from 0.25% to 0.40% per annum, fees for outstanding standby letters of credit at rates that range from 1.50% to 2.25% per annum and fees for balances under the credit agreement as of July 30, 2016 and July 25, 2015 were as follows:
|
| | | |
| | Weighted Average Rate End of Period |
| | July 30, 2016 | | July 25, 2015 |
| Borrowings - Term loan facilities | 2.49% | | 1.94% |
Borrowings - Revolving facility(1) | —% | | 2.02% |
| Standby Letters of Credit | 2.00% | | 1.75% |
| Unused Revolver | 0.40% | | 0.35% |
(1) There were no outstanding commercial lettersborrowings under the revolving facility as of credit at rates that range from 0.75% to 1.125% per annum, in each case based on our consolidated leverage ratio. As of July 27, 2013, $49.0 million of outstanding revolving borrowings and the Term Loan were based on the Eurodollar Rate at a rate per annum of 2.19%. Unutilized commitments and outstanding standby letters of credit were at rates per annum of 0.35% and 2.0%, respectively.30, 2016.
The Term Loan is subject to annual amortization payable in equal quarterly installments of principal, with installments paid during the third and fourth quarters of fiscal 2013. The remaining amortization for the Term Loan as of July 27, 2013 is as follows: $7.8 million during fiscal 2014, $10.9 million during fiscal 2015; $14.1 million during fiscal 2016; $17.2 million during fiscal 2017; and $71.9 million during fiscal 2018.
The Credit Agreementcredit agreement contains affirmative and negative covenants which are customary for similar credit agreements, including, without limitation, limitations on us and our subsidiaries with respect to indebtedness, liens, investments, distributions, mergers and acquisitions, disposition of assets, sale-leaseback transactions, transactions with affiliates and capital expenditures. The Credit Agreement containsa financial covenants which requirecovenant that requires us to (i) maintain a consolidated leverage ratio of not greater than (a) 3.50 to 1.00, for fiscal quarters ending July 27, 2013 through April 26, 2014, (b) 3.25 to 1.00 for fiscal quarters ending July 26, 2014 through April 25, 2015 and (c) 3.00 to 1.00 for fiscal quarters ending July 25, 2015 and each fiscal quarter thereafter, as measured on a trailing four quarter basis at the end of each fiscal quarter,quarter. It provides for certain increases to this ratio in connection with permitted acquisitions on the terms and (ii)conditions specified in the credit agreement. In addition, the credit agreement contains a financial covenant that requires us to maintain a consolidated interest coverage ratio, which is the ratio of our trailing twelve-month consolidated EBITDA to our consolidated interest expense, as defined by the credit agreement, of not less than 3.00 to 1.00, as measured at the end of each fiscal quarter.
On At July 27, 2013 we had $46.7 million of outstanding letters of credit issued under the Credit Agreement. The outstanding letters of credit are issued as part of our insurance program. At July 27, 201330, 2016 and July 28, 201225, 2015, we were in compliance with the financial covenants of the applicableour credit agreement and had additional borrowing availability in the revolving facility of $179.3$392.4 million and $186.5$300.3 million, respectively, as determined by the most restrictive covenants of the applicable agreement.covenants.
On July 28, 2012, Dycom Investments, Inc., one of our subsidiaries, had outstanding an aggregate principal amount of $187.5 million of 7.125% senior subordinated notes due 2021 that were issued under an indenture dated January 21, 2011 (the "Indenture"). On December 12, 2012, an additional $90.0 million in aggregate principal amount of 7.125% senior subordinated notes due 2021 were issued under the Indenture at 104.25% of the principal amount. The resulting debt premium of $3.8 million is being amortized to interest expense over the remaining term of the notes and was $3.6 million as of July 27, 2013. The net proceeds of this issuance were used to repay a portion of the borrowings under our Credit Agreement. Holders of all $277.5 million aggregate principal amount of the 7.125% senior subordinated notes due 2021 (the "2021 Notes") vote as one series under the Indenture.
On July 27, 2013, $277.5 million in aggregate principal amount of 2021 Notes was outstanding under the Indenture. The 2021 Notes are guaranteed by substantially all of our subsidiaries. The Indenture contains covenants that limit, among other things, our ability and the ability of our subsidiaries to incur additional debt and issue preferred stock, make certain restricted payments, consummate specified asset sales, enter into transactions with affiliates, incur liens, impose restrictions on the ability of our subsidiaries to pay dividends or make payments to us and our restricted subsidiaries, merge or consolidate with another person, and dispose of all or substantially all of its assets.
Contractual Obligations. The following tables settable sets forth our outstanding contractual obligations including related party leases, as of July 27, 201330, 2016 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| | Less than 1 Year | | Years 1 – 3 | | Years 3 – 5 | | Greater than 5 Years | | Total |
| | (Dollars in thousands) |
| 7.125% senior subordinated notes due 2021 | $ | — |
| | $ | — |
| | $ | — |
| | $ | 277,500 |
| | $ | 277,500 |
|
| Credit Agreement – revolving borrowings | — |
| | — |
| | 49,000 |
| | — |
| | 49,000 |
|
| Credit Agreement – Term Loan | 7,813 |
| | 25,000 |
| | 89,062 |
| | — |
| | 121,875 |
|
| Fixed interest payments on long-term debt (a) | 19,772 |
| | 39,544 |
| | 39,544 |
| | 49,429 |
| | 148,289 |
|
| Operating lease obligations | 14,880 |
| | 17,414 |
| | 5,891 |
| | 1,860 |
| | 40,045 |
|
| Employment agreements | 6,423 |
| | 7,320 |
| | 783 |
| | — |
| | 14,526 |
|
| Purchase and other contractual obligations | 11,697 |
| | — |
| | — |
| | — |
| | 11,697 |
|
| Total | $ | 60,585 |
| | $ | 89,278 |
| | $ | 184,280 |
| | $ | 328,789 |
| | $ | 662,932 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Less than 1 Year | | Years 1 – 3 | | Years 3 – 5 | | Greater than 5 Years | | Total |
| 0.75% convertible senior notes due September 2021 | $ | — |
| | $ | — |
| | $ | — |
| | $ | 485,000 |
| | $ | 485,000 |
|
| Credit agreement – revolving borrowings | — |
| | — |
| | — |
| | — |
| | — |
|
| Credit agreement – term loan facilities | 13,125 |
| | 48,125 |
| | 285,000 |
| | — |
| | 346,250 |
|
Fixed interest payments on long-term debt(1) | 3,637 |
| | 7,275 |
| | 7,275 |
| | 1,819 |
| | 20,006 |
|
| Operating lease obligations | 19,845 |
| | 25,993 |
| | 8,500 |
| | 5,098 |
| | 59,436 |
|
| Employment agreements | 12,122 |
| | 14,540 |
| | 753 |
| | — |
| | 27,415 |
|
Purchase and other contractual obligations(2) | 23,844 |
| | — |
| | — |
| | — |
| | 23,844 |
|
| Total | $ | 72,573 |
| | $ | 95,933 |
| | $ | 301,528 |
| | $ | 491,917 |
| | $ | 961,951 |
|
(a) (1) Includes interest payments on our $277.5$485.0 million in aggregate principal amount of 0.75% convertible senior notes due 2021 Notes outstanding and excludes any interest payments on our variable rate debt. Variable rate debt as of July 27, 2013 was comprised30, 2016 consisted of $121.9$346.3 million outstanding on our Term Loan and $49.0 million in outstanding revolving borrowings under our Credit Agreement.term loan facilities.
(2) Purchase and other contractual obligations in the above table primarily representsrepresent obligations under agreements to purchase undelivered vehicles and equipment.equipment that have not been received as of July 30, 2016. We have excluded contractual obligations under the multiemployermulti-employer defined pension plans that cover certain of our employees, as these obligations are determined based on our future union employee payrolls, which cannot be reliably determined as of July 27, 2013. During fiscal 2013, 2012, and 2011, our contributions to the multiemployer defined pension plan totaled approximately $3.2 million, $2.9 million, and $3.8 million, respectively.30, 2016.
Our consolidated balance sheet as of July 27, 201330, 2016 includes a long-term liability of approximately $27.3$52.8 million for accrued insurance claims. This liability has been excluded from the above table as the timing of any cash payments is uncertain. See Note 8, Accrued Insurance Claims, of the Notes to the Consolidated Financial Statements for additional information regarding our accrued insurance claims liability.
The liability for unrecognized tax benefits for uncertain tax positions at was $2.4 million and $2.3 million as of July 27, 201330, 2016 and July 28, 2012 was $2.3 million and $2.2 million,25, 2015, respectively, and is included in other liabilities in the consolidated balance sheet. This amount has been excluded from the contractual obligations table because we are unable to reasonably estimate the timing of the resolution of the underlying tax positions with the relevant tax authorities.
Off-Balance Sheet Arrangements.
Performance Bonds and Guarantees – We have obligations under performance and other surety contract bonds related to certain of our customer contracts. Performance bonds generally provide a customer with the right to obtain payment and/or performance from the issuer of the bond if we fail to perform our contractual obligations. As of July 27, 2013,30, 2016 and July 25, 2015, we had $446.5$165.8 million and $294.9 million of outstanding performance and other surety contract bonds.bonds, respectively. The estimated cost to complete projects secured by our outstanding performance and other surety contract bonds was approximately $132.1$45.8 million as of July 27, 2013. No events have occurred in which the customers have exercised their rights under the bonds.30, 2016. Additionally, we have periodically guaranteed certain obligations of our subsidiaries, including obligations in connection with obtaining state contractor licenses and leasing real property and equipment.
Letters of Credit – We have standby letters of credit issued under our Credit Agreementcredit agreement as part of our insurance program. These letters of credit collateralize our obligations to our insurance carriers in connection with the settlement of potential claims. As of July 27, 201330, 2016 and July 28, 201225, 2015, we had $46.7$57.6 million and $38.5$54.4 million,, respectively, outstanding standby letters of credit issued under the Credit Agreement.
Sufficiency of Capital Resources. We believe that our capital resources, including existing cash balances and amounts available under our Credit Agreement, are sufficient to meet our financial obligations. These obligations include interest payments required on our senior subordinated notes and outstanding borrowings under our Credit Agreement, working capital requirements, and the normal replacement of equipment at our current level of operations for at least the next twelve months. Our future operating results and cash flows may be affected by a number of factors including our success in bidding on future contracts and our ability to manage costs effectively. To the extent we seek to grow by acquisitions that involve consideration other than our stock, or to the extent we buy back our common stock, repay revolving borrowings or repurchase or call our senior subordinated notes, our capital requirements may increase. Changes in financial markets or other areas of the economy could adversely impact our ability to access the capital markets, in which case we would expect to rely on a combination of available cash and the Credit Agreement to provide short-term funding.
Management continually monitors the financial markets and assesses general economic conditions for any impact on our financial position. If changes in financial markets or other areas of the economy adversely impact our ability to access capital markets, we would expect to rely on a combination of available cash and the existing committed credit facility to provide short-term funding. We believe that our cash investment policies are conservative and we expect that the current volatility in the capital markets will not have a material impact on our cash investments.agreement.
Backlog. Our backlog totaled $2.197 billion and $1.565 billion at July 27, 2013 and July 28, 2012, respectively. We expect to complete 55.4%consists of the July 27, 2013 backlog during the next twelve months. The increase in backlog is due in part to the incremental backlog resulting from businesses acquired in fiscal 2013.
Our backlog consists of theestimated uncompleted portion of services to be performed under job-specific contractscontractual agreements with our customers and the estimated value of future services that wetotaled $6.031 billion and $3.680 billion at July 30, 2016 and July 25, 2015, respectively. The increase in backlog primarily relates to new awards. We expect to providecomplete 38.5% of the July 30, 2016 backlog during the next twelve months. Our backlog estimates represent amounts under master service agreements and other contracts. Many of our contracts are multi-yearcontractual agreements and we include in our backlog the amount offor services projected to be performed over the terms of the contracts and are based on contract terms, our historical experience with customers and, more generally, our experience in procurementssimilar procurements. The significant majority of this type. our backlog estimates comprise services under master service agreements and long-term contracts.
Revenue estimates included in our backlog can be subject to change as a resultbecause of project accelerations, contract cancellations, or delays due to various factors, including, but not limited to, commercial issues such as permitting, engineering changes, incremental documentation requirements, difficult job site conditions, and adverse weather. These factors can also cause revenue amounts to be realized in different periods and at levelsor in different thanamounts from those originally projected.reflected in backlog. In many
instances, our customers are not contractually committed to procure specific volumes of services under a contract. Our estimatesWhile we did not experience any material cancellations during fiscal 2016, 2015, or 2014, many of our customers may cancel our contracts upon notice regardless of whether or not we are in default. The amount of backlog related to uncompleted projects in which a customer's requirements during a particular future period may prove to be inaccurate.provision for estimated losses was recorded is not material.
Backlog is considerednot a non-GAAP financial measure as defined by SEC Regulation G;United States generally accepted accounting principles; however, it is a common measurement used in our industry. Our methodology for determining backlog may not be comparable to the methodologies used by others.
Seasonality and Quarterly Fluctuations
Legal Proceedings
Our revenues exhibit seasonality as
In May 2013, CertusView Technologies, LLC (“CertusView”), a significant portionwholly-owned subsidiary of the work we perform is outdoors. Consequently, our operations are impacted by extended periods of inclement weather. Generally, inclement weather is more likely to occur during the winter season which falls during our secondCompany, filed suit against S & N Communications, Inc. and third fiscal quarters. Also, a disproportionate percentage of total paid holidays fall within our second quarter, which decreases the number of available workdays. Additionally, our customer premise equipment installation activities for cable providers historically decrease around calendar year end holidays as their customers generally require less activity during this period. As a result, we may experience reduced revenueS&N Locating Services, LLC (together, “S&N”) in the second or third quartersUnited States District Court for the Eastern District of our fiscal year.
Virginia alleging infringement of certain United States patents. In addition, we have experiencedJanuary 2015, the District Court granted S&N’s motion for judgment on the pleadings for failure to claim patent-eligible subject matter, and expectentered final judgment on those claims the same day. CertusView filed a Notice of Appeal in February 2015 with the Court of Appeals for the Federal Circuit. In May 2015, the District Court reopened the case to continueallow S&N to experience quarterly variationsproceed with inequitable conduct counterclaims. In July 2015, the Court of Appeals dismissed the appeal in revenuesthat court pending resolution of proceedings in the District Court. A bench trial in the District Court on the inequitable conduct counterclaims whereby S&N was seeking additional grounds to find the patents unenforceable took place in March 2016 and net income aspost-trial briefs were filed with the District Court in April 2016. In August 2016, the District Court ruled against S&N and in favor of CertusView on the inequitable conduct counterclaims and entered final judgment. Subsequent to the judgment being entered, on August 24, 2016, S&N filed a resultmotion requesting the District Court make a finding that the suit was an exceptional case and award S&N recovery of other factors, including:its attorney fees. It is too early to evaluate the likelihood of an outcome to this motion and CertusView intends to vigorously defend itself.
From time to time, we are party to various other claims and legal proceedings. It is the timing and volumeopinion of customers' construction and maintenance projects, including possible delays asmanagement, based on information available at this time, that such other pending claims or proceedings will not have a result of material procurement;effect on our financial statements.
seasonal budgetary spending patterns of customers and the timing of their budget approvals;
the commencement or termination of master service agreements and other long-term agreements with customers;
costs incurred to support growth internally or through acquisitions;
fluctuations in results of operations caused by acquisitions;
fluctuations in the employer portion of payroll taxes as a result of reaching the limitation on payroll withholdings obligations;
changes in mix of customers, contracts, and business activities;
fluctuations in insurance expense due to changes in claims experience and actuarial assumptions;
fluctuations in stock-based compensation expense as a result of performance criteria in performance-based share awards, as well as the timing and vesting period of all stock-based awards;
fluctuations in incentive pay as a result of operating results;
fluctuations in interest expense due to levels of debt and related borrowing costs;
fluctuations in other income as a result of the timing and levels of capital assets sold during the period; and
fluctuations in income tax expense due to levels of taxable earnings, the impact of non-deductible items and tax credits, and the impact of disqualifying dispositions of incentive stock option expenses.
Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any subsequent fiscal period.
Recently Issued Accounting Pronouncements
Refer to Note 1, Accounting Policies, of Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for a discussion of recent accounting standards and pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate and Market Price Risk -We are exposed to market risks related to interest rates on our cash and equivalents and interest rates and market price sensitivity on our debt obligations. We monitor the effects of market changes on interest rates and manage interest rate risks by investing in short-term cash equivalents with market rates of interest and by maintaining a mix of fixed and variable rate debt obligations. A hypothetical 100 basis point increase in interest rates would result in an increase to annual earnings of approximately $0.2 million if our cash and equivalents held as of July 27, 2013 were to be fully invested in interest bearing financial instruments.
Our revolving credit facilityagreement permits borrowings at a variable rate of interest. On July 27, 2013,30, 2016, we had variable rate debt outstanding under the Credit Agreementour credit agreement of $49.0$346.3 million of revolver borrowings and a $121.9 millionunder our term loan.loan facilities. Interest related to thethese borrowings fluctuates based on LIBOR or the base rate of the bank administrative agent of the Credit Agreement.credit agreement. At the current level of borrowings, for every 50 basis point change in the interest rate, interest expense associated with such borrowings would correspondingly increase or decreasechange by approximately $0.9$1.7 million annually. Additionally, outstanding long-term debt on July 27, 2013 included $277.5
In September 2015, we issued $485.0 million of principal amount of the 2021 Notes,convertible senior notes (the “Notes”), which bear a fixed rate of interest of 7.125%0.75%. Due to the fixed rate of interest on the notes,Notes, changes in interest rates would not have an impact on the related interest expense. The fair value of the outstanding notes was approximately $292.4 million on July 27, 2013, based on quoted market prices, as compared to $281.1 million carrying value (including debt premium of $3.6 million). ThereHowever, there exists market risk sensitivity on the fair value of the fixed rate notesNotes with respect to changes in interest rates. Generally, the fair value of the fixed rate Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the Notes is affected by the price and volatility of our common stock and will generally increase or decrease as the market price of our common stock changes. The fair value of the Notes was approximately $458.7 million on July 30, 2016, based on quoted market prices, compared to the $373.1 million net carrying amount. The fair value and net carrying amount are both reflected net of the debt discount of $101.7 million and debt issuance costs attributable to the liability component of $10.2 million as of July 30, 2016. The fair value was determined based on the closing trading price per $100 of the Notes as of the last day of trading for the fourth quarter of fiscal 2016, which was $117.65.
A hypothetical 50 basis point change in the market interest rates in effect would result in an increase or decrease in the fair value of the notesNotes of approximately $8.4$13.0 million,, calculated on a discounted cash flow basis.
In connection with the issuance of the Notes, we 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. 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 to us up to 5.006 million shares of our common stock or pay cash to us in a similar amount as the value that we deliver to the holders of the Notes based on a conversion price of $96.89 per share. The convertible note hedge is intended to offset potential dilution from the Notes.
We also entered into separately negotiated warrant transactions with the same counterparties as the convertible note hedge transactions whereby we sold warrants to purchase, subject to certain anti-dilution adjustments, up to 5.006 million shares of our common stock at a price of $130.43 per share. We expect to settle the warrant transactions on a net share basis. See Note 10, Debt, in Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional discussion of these debt transactions.
We also have market risk for foreign currency exchange rates related to our operations in Canada. As of July 27, 2013,30, 2016, the market risk for foreign currency exchange rates was not significant as our operations in Canada havewere not been material.
Item 8. Financial Statements and Supplementary Data.Statements.
Index to Consolidated Financial Statements
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 27, 2013 AND JULY 28, 2012
|
| | | | | | | |
| | July 27, 2013 | | July 28, 2012 |
| | (Dollars in thousands) |
| ASSETS | | | |
| CURRENT ASSETS: | | | |
| Cash and equivalents | $ | 18,607 |
| | $ | 52,581 |
|
| Accounts receivable, net | 252,202 |
| | 141,788 |
|
| Costs and estimated earnings in excess of billings | 204,349 |
| | 127,321 |
|
| Inventories | 35,999 |
| | 26,274 |
|
| Deferred tax assets, net | 16,853 |
| | 15,633 |
|
| Income taxes receivable | 2,516 |
| | 4,884 |
|
| Other current assets | 10,608 |
| | 8,466 |
|
| Total current assets | 541,134 |
| | 376,947 |
|
| | | | |
| PROPERTY AND EQUIPMENT, NET | 202,703 |
| | 158,247 |
|
| GOODWILL | 267,810 |
| | 174,849 |
|
| INTANGIBLE ASSETS, NET | 125,275 |
| | 49,773 |
|
| OTHER | 17,286 |
| | 12,377 |
|
| TOTAL NON-CURRENT ASSETS | 613,074 |
| | 395,246 |
|
| TOTAL ASSETS | $ | 1,154,208 |
| | $ | 772,193 |
|
| | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | |
|
| CURRENT LIABILITIES: | |
| | |
|
| Accounts payable | $ | 77,954 |
| | $ | 36,823 |
|
| Current portion of debt | 7,813 |
| | 74 |
|
| Billings in excess of costs and estimated earnings | 13,788 |
| | 1,522 |
|
| Accrued insurance claims | 29,069 |
| | 25,218 |
|
| Other accrued liabilities | 71,191 |
| | 50,926 |
|
| Total current liabilities | 199,815 |
| | 114,563 |
|
| | | | |
| LONG-TERM DEBT (including debt premium of $3.6 million at July 27, 2013) | 444,169 |
| | 187,500 |
|
| ACCRUED INSURANCE CLAIMS | 27,250 |
| | 23,591 |
|
| DEFERRED TAX LIABILITIES, NET NON-CURRENT | 48,612 |
| | 49,537 |
|
| OTHER LIABILITIES | 6,001 |
| | 4,071 |
|
| Total liabilities | 725,847 |
| | 379,262 |
|
| | | | |
| COMMITMENTS AND CONTINGENCIES, Notes 10, 11, and 18 |
|
| |
|
|
| | | | |
| STOCKHOLDERS' EQUITY: | |
| | |
|
| Preferred stock, par value $1.00 per share: 1,000,000 shares authorized: no shares issued and outstanding | — |
| | — |
|
| Common stock, par value $0.33 1/3 per share: 150,000,000 shares authorized: 33,264,117 and 33,587,744 issued and outstanding, respectively | 11,088 |
| | 11,196 |
|
| Additional paid-in capital | 115,205 |
| | 114,820 |
|
| Accumulated other comprehensive income | 103 |
| | 138 |
|
| Retained earnings | 301,965 |
| | 266,777 |
|
| Total stockholders' equity | 428,361 |
| | 392,931 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,154,208 |
| | $ | 772,193 |
|
| | | | |
| See notes to the consolidated financial statements. |
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) |
| | | | | | | |
| | July 30, 2016 | | July 25, 2015 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and equivalents | $ | 33,787 |
| | $ | 21,289 |
|
| Accounts receivable, net | 328,030 |
| | 315,134 |
|
| Costs and estimated earnings in excess of billings | 376,972 |
| | 274,730 |
|
| Inventories | 73,606 |
| | 48,650 |
|
| Deferred tax assets, net | 22,733 |
| | 20,630 |
|
| Other current assets | 16,106 |
| | 16,199 |
|
| Total current assets | 851,234 |
| | 696,632 |
|
| | | | |
| Property and equipment, net | 326,670 |
| | 231,564 |
|
| Goodwill | 310,157 |
| | 271,653 |
|
| Intangible assets, net | 197,879 |
| | 120,926 |
|
| Other | 33,776 |
| | 33,148 |
|
| Total non-current assets | 868,482 |
| | 657,291 |
|
| Total assets | $ | 1,719,716 |
| | $ | 1,353,923 |
|
| | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
|
| Current liabilities: | |
| | |
|
| Accounts payable | $ | 115,492 |
| | $ | 71,834 |
|
| Current portion of debt | 13,125 |
| | 3,750 |
|
| Billings in excess of costs and estimated earnings | 19,557 |
| | 16,896 |
|
| Accrued insurance claims | 36,844 |
| | 35,824 |
|
| Income taxes payable | 15,307 |
| | 8,916 |
|
| Other accrued liabilities | 122,302 |
| | 89,490 |
|
| Total current liabilities | 322,627 |
| | 226,710 |
|
| | | | |
| Long-term debt | 706,202 |
| | 516,900 |
|
| Accrued insurance claims | 52,835 |
| | 51,476 |
|
| Deferred tax liabilities, net non-current | 76,587 |
| | 47,388 |
|
| Other liabilities | 4,178 |
| | 4,249 |
|
| Total liabilities | 1,162,429 |
| | 846,723 |
|
| | | | |
| COMMITMENTS AND CONTINGENCIES, Note 17 |
|
| |
|
|
| | | | |
| Stockholders’ equity: | |
| | |
|
| Preferred stock, par value $1.00 per share: 1,000,000 shares authorized: no shares issued and outstanding | — |
| | — |
|
| Common stock, par value $0.33 1/3 per share: 150,000,000 shares authorized: 31,420,310 and 33,381,779 issued and outstanding, respectively | 10,473 |
| | 11,127 |
|
| Additional paid-in capital | 10,208 |
| | 71,004 |
|
| Accumulated other comprehensive loss | (1,274 | ) | | (1,198 | ) |
| Retained earnings | 537,880 |
| | 426,267 |
|
| Total stockholders’ equity | 557,287 |
| | 507,200 |
|
| Total liabilities and stockholders’ equity | $ | 1,719,716 |
| | $ | 1,353,923 |
|
| | | | |
| See notes to the consolidated financial statements. |
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JULY 27, 2013, JULY 28, 2012, AND JULY 30, 2011 | |
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JULY 30, 2016, JULY 25, 2015, AND JULY 26, 2014 (Dollars in thousands, except share amounts) | | DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JULY 30, 2016, JULY 25, 2015, AND JULY 26, 2014 (Dollars in thousands, except share amounts) |
| | | 2013 | | 2012 | | 2011 | Fiscal Year Ended |
| | (Dollars in thousands, except per share amounts) | 2016 | | 2015 | | 2014 |
| REVENUES: | | | | | | | | | | |
| Contract revenues | $ | 1,608,612 |
| | $ | 1,201,119 |
| | $ | 1,035,868 |
| $ | 2,672,542 |
| | $ | 2,022,312 |
| | $ | 1,811,593 |
|
| | | | | | | | | | | |
| EXPENSES: | |
| | |
| | | | | |
| | |
| Costs of earned revenues, excluding depreciation and amortization | 1,300,416 |
| | 968,949 |
| | 837,119 |
| 2,083,579 |
| | 1,593,250 |
| | 1,475,045 |
|
| General and administrative (including stock-based compensation expense of $9.9 million, $7.0 million, and $4.4 million, respectively) | 145,771 |
| | 104,024 |
| | 94,622 |
| |
| General and administrative (including stock-based compensation expense of $16.8 million, $13.9 million, and $12.6 million respectively) | | 217,149 |
| | 178,700 |
| | 161,858 |
|
| Depreciation and amortization | 85,481 |
| | 62,693 |
| | 62,533 |
| 124,940 |
| | 96,044 |
| | 92,772 |
|
| Total | 1,531,668 |
| | 1,135,666 |
| | 994,274 |
| 2,425,668 |
| | 1,867,994 |
| | 1,729,675 |
|
| | | | | | | | | | | |
| Interest expense, net | (23,334 | ) | | (16,717 | ) | | (15,911 | ) | (34,720 | ) | | (27,025 | ) | | (26,827 | ) |
| Loss on debt extinguishment | — |
| | — |
| | (8,295 | ) | (16,260 | ) | | — |
| | — |
|
| Other income, net | 4,589 |
| | 15,825 |
| | 11,096 |
| 10,433 |
| | 8,291 |
| | 11,228 |
|
| INCOME BEFORE INCOME TAXES | 58,199 |
| | 64,561 |
| | 28,484 |
| |
| Income before income taxes | | 206,327 |
| | 135,584 |
| | 66,319 |
|
| | | | | | | | | | | |
| PROVISION (BENEFIT) FOR INCOME TAXES: | |
| | |
| | | |
| Provision for income taxes: | | | | | | |
| Current | 25,281 |
| | 15,309 |
| | (2,351 | ) | 50,805 |
| | 50,016 |
| | 32,664 |
|
| Deferred | (2,270 | ) | | 9,874 |
| | 14,728 |
| 26,782 |
| | 1,244 |
| | (6,323 | ) |
| Total | 23,011 |
| | 25,183 |
| | 12,377 |
| |
| Total provision for income taxes | | 77,587 |
| | 51,260 |
| | 26,341 |
|
| | | | | | | | | | | |
| NET INCOME | $ | 35,188 |
| | $ | 39,378 |
| | $ | 16,107 |
| |
| Net income | | $ | 128,740 |
| | $ | 84,324 |
| | $ | 39,978 |
|
| | | | | | | | | | | |
| EARNINGS PER COMMON SHARE: | |
| | |
| | |
| |
| Earnings per common share: | | | | | | |
| Basic earnings per common share | $ | 1.07 |
| | $ | 1.17 |
| | $ | 0.46 |
| $ | 3.98 |
| | $ | 2.48 |
| | $ | 1.18 |
|
| | | | | | | | | | | |
| Diluted earnings per common share | $ | 1.04 |
| | $ | 1.14 |
| | $ | 0.45 |
| $ | 3.89 |
| | $ | 2.41 |
| | $ | 1.15 |
|
| | | | | | | | | | | |
| SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE: | | |
| | | |
| Shares used in computing earnings per common share: | | | | | | |
| Basic | 33,012,595 |
| | 33,653,055 |
| | 35,306,900 |
| 32,315,636 |
| | 34,045,481 |
| | 33,773,158 |
|
| | | | | | | |
| Diluted | 33,782,187 |
| | 34,481,895 |
| | 35,754,168 |
| 33,115,755 |
| | 35,026,688 |
| | 34,816,381 |
|
| | | | | | | | | | | |
See notes to the consolidated financial statements. |
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED JULY 27, 2013, JULY 28, 2012, AND JULY 30, 2011 |
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| | (Dollars in thousands) |
| NET INCOME | $ | 35,188 |
| | $ | 39,378 |
| | $ | 16,107 |
|
| Foreign currency translation (losses) gains | (35 | ) | | (161 | ) | | 130 |
|
| COMPREHENSIVE INCOME | $ | 35,153 |
| | $ | 39,217 |
| | $ | 16,237 |
|
| | | | | | |
| See notes to the consolidated financial statements. |
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED JULY 30, 2016, JULY 25, 2015, AND JULY 26, 2014 (Dollars in thousands) |
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | 2016 | | 2015 | | 2014 |
| Net income | $ | 128,740 |
| | $ | 84,324 |
| | $ | 39,978 |
|
| Foreign currency translation losses, net of tax | (76 | ) | | (1,040 | ) | | (261 | ) |
| Comprehensive income | $ | 128,664 |
| | $ | 83,284 |
| | $ | 39,717 |
|
| | | | | | |
| See notes to the consolidated financial statements. |
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JULY 27, 2013, JULY 28, 2012, AND JULY 30, 2011 | |
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Dollars in thousands) | | DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Dollars in thousands) |
| | | Common Stock | | Additional
Paid-in Capital | | Accumulated Other
Comprehensive
Income | | Retained
Earnings | | Total
Equity | Common Stock | | Additional
Paid-in Capital | | Accumulated Other
Comprehensive
Income (Loss) | | Retained
Earnings | | Total
Equity |
| | Shares | | Amount | | Shares | | Amount | |
| | (Dollars in thousands, except shares) | |
| Balances at July 31, 2010 | 38,656,190 |
| | $ | 12,885 |
| | $ | 170,209 |
| | $ | 169 |
| | $ | 211,292 |
| | $ | 394,555 |
| |
| Balances as of July 27, 2013 | | 33,264,117 |
| | $ | 11,088 |
| | $ | 115,205 |
| | $ | 103 |
| | $ | 301,965 |
| | $ | 428,361 |
|
| Stock options exercised | 153,841 |
| | 51 |
| | 1,270 |
| | — |
| | — |
| | 1,321 |
| 803,796 |
| | 268 |
| | 14,300 |
| | — |
| | — |
| | 14,568 |
|
| Non-cash stock-based compensation expense | — |
| | — |
| | 4,314 |
| | — |
| | — |
| | 4,314 |
| |
| Issuance of restricted stock, net of tax withholdings | 67,109 |
| | 23 |
| | (51 | ) | | — |
| | — |
| | (28 | ) | |
| Repurchase of common stock | (5,389,500 | ) | | (1,797 | ) | | (62,751 | ) | | — |
| | — |
| | (64,548 | ) | |
| Other comprehensive income | — |
| | — |
| | — |
| | 130 |
| | — |
| | 130 |
| |
| Net income | — |
| | — |
| | — |
| | — |
| | 16,107 |
| | 16,107 |
| |
| Balances at July 30, 2011 | 33,487,640 |
| | 11,162 |
| | 112,991 |
| | 299 |
| | 227,399 |
| | 351,851 |
| |
| Stock options exercised | 617,103 |
| | 206 |
| | 6,284 |
| | — |
| | — |
| | 6,490 |
| |
| Non-cash stock-based compensation expense | 5,168 |
| | 2 |
| | 6,780 |
| | — |
| | — |
| | 6,782 |
| |
| Stock-based compensation | | 3,999 |
| | 1 |
| | 12,595 |
| | — |
| | — |
| | 12,596 |
|
| Issuance of restricted stock, net of tax withholdings | 75,533 |
| | 25 |
| | (354 | ) | | — |
| | — |
| | (329 | ) | 279,577 |
| | 93 |
| | (3,874 | ) | | — |
| | — |
| | (3,781 | ) |
| Repurchase of common stock | (597,700 | ) | | (199 | ) | | (12,761 | ) | | — |
| | — |
| | (12,960 | ) | (360,900 | ) | | (120 | ) | | (9,879 | ) | | — |
| | — |
| | (9,999 | ) |
| Other comprehensive loss | — |
| | — |
| | — |
| | (161 | ) | | — |
| | (161 | ) | — |
| | — |
| | — |
| | (261 | ) | | — |
| | (261 | ) |
| Tax benefits from stock-based compensation | — |
| | — |
| | 1,880 |
| | — |
| | — |
| | 1,880 |
| — |
| | — |
| | 3,472 |
| | — |
| | — |
| | 3,472 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 39,378 |
| | 39,378 |
| — |
| | — |
| | — |
| | — |
| | 39,978 |
| | 39,978 |
|
| Balances at July 28, 2012 | 33,587,744 |
| | 11,196 |
| | 114,820 |
| | 138 |
| | 266,777 |
| | 392,931 |
| |
| Balances as of July 26, 2014 | | 33,990,589 |
| | 11,330 |
| | 131,819 |
| | (158 | ) | | 341,943 |
| | 484,934 |
|
| Stock options exercised | 544,162 |
| | 181 |
| | 5,072 |
| | — |
| | — |
| | 5,253 |
| 735,330 |
| | 245 |
| | 8,677 |
| | — |
| | — |
| | 8,922 |
|
| Non-cash stock-based compensation expense | 5,674 |
| | 2 |
| | 9,900 |
| | — |
| | — |
| | 9,902 |
| |
| Stock-based compensation | | 4,062 |
| | 1 |
| | 13,922 |
| | — |
| | — |
| | 13,923 |
|
| Issuance of restricted stock, net of tax withholdings | 173,537 |
| | 58 |
| | (942 | ) | | — |
| | — |
| | (884 | ) | 321,722 |
| | 107 |
| | (4,818 | ) | | — |
| | — |
| | (4,711 | ) |
| Repurchase of common stock | (1,047,000 | ) | | (349 | ) | | (14,854 | ) | | — |
| | — |
| | (15,203 | ) | (1,669,924 | ) | | (556 | ) | | (86,590 | ) | | — |
| | — |
| | (87,146 | ) |
| Other comprehensive loss | — |
| | — |
| | — |
| | (35 | ) | | — |
| | (35 | ) | — |
| | — |
| | — |
| | (1,040 | ) | | — |
| | (1,040 | ) |
| Tax benefits from stock-based compensation | — |
| | — |
| | 1,209 |
| | — |
| | — |
| | 1,209 |
| — |
| | — |
| | 7,994 |
| | — |
| | — |
| | 7,994 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 35,188 |
| | 35,188 |
| — |
| | — |
| | — |
| | — |
| | 84,324 |
| | 84,324 |
|
| Balances at July 27, 2013 | 33,264,117 |
| | $ | 11,088 |
| | $ | 115,205 |
| | $ | 103 |
| | $ | 301,965 |
| | $ | 428,361 |
| |
| Balances as of July 25, 2015 | | 33,381,779 |
| | 11,127 |
| | 71,004 |
| | (1,198 | ) | | 426,267 |
| | 507,200 |
|
| Stock options exercised | | 212,619 |
| | 71 |
| | 2,674 |
| | — |
| | — |
| | 2,745 |
|
| Stock-based compensation | | 3,015 |
| | 1 |
| | 16,849 |
| | — |
| | — |
| | 16,850 |
|
| Issuance of restricted stock, net of tax withholdings | | 334,475 |
| | 111 |
| | (12,715 | ) | | — |
| | — |
| | (12,604 | ) |
| Repurchase of common stock | | (2,511,578 | ) | | (837 | ) | | (152,033 | ) | | — |
| | (17,127 | ) | | (169,997 | ) |
| Other comprehensive loss | | — |
| | — |
| | — |
| | (76 | ) | | — |
| | (76 | ) |
| Tax benefits from stock-based compensation | | — |
| | — |
| | 13,003 |
| | — |
| | — |
| | 13,003 |
|
| Equity component of 0.75% convertible senior notes due 2021, net | | — |
| | — |
| | 112,554 |
| | — |
| | — |
| | 112,554 |
|
| Sale of warrants | | — |
| | — |
| | 74,690 |
| | — |
| | — |
| | 74,690 |
|
| Purchase of convertible note hedges | | — |
| | — |
| | (115,818 | ) | | — |
| | — |
| | (115,818 | ) |
| Net income | | — |
| | — |
| | — |
| | — |
| | 128,740 |
| | 128,740 |
|
| Balances as of July 30, 2016 | | 31,420,310 |
| | $ | 10,473 |
| | $ | 10,208 |
| | $ | (1,274 | ) | | $ | 537,880 |
| | $ | 557,287 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
See notes to the consolidated financial statements. |
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JULY 27, 2013, JULY 28, 2012, AND JULY 30, 2011 | |
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JULY 30, 2016, JULY 25, 2015, AND JULY 26, 2014 (Dollars in thousands) | | DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JULY 30, 2016, JULY 25, 2015, AND JULY 26, 2014 (Dollars in thousands) |
| | | 2013 | | 2012 | | 2011 | Fiscal Year Ended |
| | (Dollars in thousands) | 2016 | | 2015 | | 2014 |
| OPERATING ACTIVITIES: | | | | | | | | | | |
| Net income | $ | 35,188 |
| | $ | 39,378 |
| | $ | 16,107 |
| $ | 128,740 |
| | $ | 84,324 |
| | $ | 39,978 |
|
| Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions: | | | | | | | | | | |
| Depreciation and amortization | 85,481 |
| | 62,693 |
| | 62,533 |
| 124,940 |
| | 96,044 |
| | 92,772 |
|
| Bad debt expense (recovery), net | 139 |
| | 186 |
| | (23 | ) | |
| Deferred income tax provision (benefit) | | 26,782 |
| | 1,244 |
| | (6,323 | ) |
| Stock-based compensation | | 16,850 |
| | 13,923 |
| | 12,596 |
|
| Bad debt expense, net | | 1,252 |
| | 465 |
| | 615 |
|
| Gain on sale of fixed assets | (4,683 | ) | | (15,430 | ) | | (10,216 | ) | (9,806 | ) | | (7,110 | ) | | (10,706 | ) |
| Deferred income tax (benefit) provision | (2,270 | ) | | 9,874 |
| | 14,728 |
| |
| Stock-based compensation | 9,902 |
| | 6,782 |
| | 4,409 |
| |
| Write-off of deferred financing costs | 321 |
| | — |
| | 2,337 |
| |
| Write-off of deferred financing fees and premium on long-term debt | | 2,017 |
| | — |
| | — |
|
| Amortization of premium on long-term debt | (218 | ) | | — |
| | — |
| (94 | ) | | (397 | ) | | (369 | ) |
| Amortization of debt discount | | 14,709 |
| | — |
| | — |
|
| Amortization of debt issuance costs and other | 1,652 |
| | 1,297 |
| | 1,295 |
| 2,875 |
| | 2,040 |
| | 1,916 |
|
| Excess tax benefit from share-based awards | (1,283 | ) | | (1,625 | ) | | — |
| (13,003 | ) | | (8,371 | ) | | (3,025 | ) |
| Other | 57 |
| | (105 | ) | | 87 |
| |
| Change in operating assets and liabilities: | | | | | | | | | | |
| Accounts receivable, net | 3,625 |
| | (3,421 | ) | | (21,665 | ) | 2,729 |
| | (40,444 | ) | | (16,949 | ) |
| Costs and estimated earnings in excess of billings, net | (12,338 | ) | | (35,693 | ) | | (23,157 | ) | (70,957 | ) | | (41,021 | ) | | (25,356 | ) |
| Other current assets and inventory | (1,083 | ) | | (6,403 | ) | | (5,014 | ) | (13,800 | ) | | (1,138 | ) | | (12,843 | ) |
| Other assets | (31 | ) | | 62 |
| | 617 |
| (2,936 | ) | | (6,875 | ) | | (555 | ) |
| Income taxes receivable/payable | 5,994 |
| | 5,747 |
| | (5,025 | ) | 20,148 |
| | 11,758 |
| | 6,685 |
|
| Accounts payable | (11,163 | ) | | 2,978 |
| | 2,580 |
| 15,132 |
| | 7,114 |
| | (4,244 | ) |
| Accrued liabilities, insurance claims, and other liabilities | (2,546 | ) | | (1,195 | ) | | 4,264 |
| 15,910 |
| | 30,344 |
| | 9,993 |
|
| Net cash provided by operating activities | 106,744 |
| | 65,125 |
| | 43,857 |
| 261,488 |
| | 141,900 |
| | 84,185 |
|
| | | | | | | | | | | |
| INVESTING ACTIVITIES: | | | |
| | | | | | | |
| Cash paid for acquisitions, net of cash acquired | (330,291 | ) | | — |
| | (36,451 | ) | (157,183 | ) | | (31,909 | ) | | (17,088 | ) |
| Capital expenditures | (64,650 | ) | | (77,612 | ) | | (61,457 | ) | (186,011 | ) | | (102,997 | ) | | (89,136 | ) |
| Proceeds from sale of assets | 5,827 |
| | 24,783 |
| | 12,305 |
| 10,540 |
| | 9,392 |
| | 15,407 |
|
| Changes in restricted cash | 60 |
| | 926 |
| | 225 |
| (479 | ) | | (538 | ) | | (303 | ) |
| Other investing activities | | — |
| | (4,000 | ) | | — |
|
| Net cash used in investing activities | (389,054 | ) | | (51,903 | ) | | (85,378 | ) | (333,133 | ) | | (130,052 | ) | | (91,120 | ) |
| | | | | | | | | | | |
| FINANCING ACTIVITIES: | | | |
| | | | | | | |
| Proceeds from issuance of 7.125% senior subordinated notes due 2021 (including $3.8 million premium on fiscal 2013 issuance) | 93,825 |
| | — |
| | 187,500 |
| |
| Proceeds from Term Loan on senior Credit Agreement | 125,000 |
| | — |
| | — |
| |
| Proceeds from borrowings on senior Credit Agreement | 404,500 |
| | — |
| | — |
| |
| Principal payments on senior Credit Agreement, including Term Loan | (358,625 | ) | | — |
| | — |
| |
| Purchase of 8.125% senior subordinated notes due 2015 | — |
| | — |
| | (135,350 | ) | |
| Proceeds from borrowings on senior credit agreement, including term loans | | 1,310,000 |
| | 535,750 |
| | 502,000 |
|
| Principal payments on senior credit agreement, including term loans | | (1,209,000 | ) | | (467,563 | ) | | (495,813 | ) |
| Proceeds from issuance of 0.75% convertible senior notes due 2021 | | 485,000 |
| | — |
| | — |
|
| Proceeds from sale of warrants | | 74,690 |
| | — |
| | — |
|
| Purchase of convertible note hedges | | (115,818 | ) | | — |
| | — |
|
| Principal payments for satisfaction and discharge of 7.125% senior subordinated notes | | (277,500 | ) | | — |
| | — |
|
| Debt issuance costs | (6,739 | ) | | — |
| | (5,177 | ) | (16,376 | ) | | (3,854 | ) | | — |
|
| Repurchases of common stock | (15,203 | ) | | (12,960 | ) | | (64,548 | ) | (169,997 | ) | | (87,146 | ) | | (9,999 | ) |
| Exercise of stock options and other | 5,253 |
| | 6,490 |
| | 1,321 |
| |
| Exercise of stock options | | 2,745 |
| | 8,922 |
| | 14,568 |
|
| Restricted stock tax withholdings | (884 | ) | | (329 | ) | | (197 | ) | (12,604 | ) | | (4,711 | ) | | (3,781 | ) |
| Excess tax benefit from share-based awards | 1,283 |
| | 1,625 |
| | — |
| 13,003 |
| | 8,371 |
| | 3,025 |
|
| Principal payments on other financing activities | | — |
| | (1,000 | ) | | (1,000 | ) |
| Net cash provided by (used in) financing activities | | 84,143 |
| | (11,231 | ) | | 9,000 |
|
| Net increase in cash and equivalents | | 12,498 |
| | 617 |
| | 2,065 |
|
| | | | | | | |
| CASH AND EQUIVALENTS AT BEGINNING OF PERIOD | | 21,289 |
| | 20,672 |
| | 18,607 |
|
| | | | | | | |
| CASH AND EQUIVALENTS AT END OF PERIOD | | $ | 33,787 |
| | $ | 21,289 |
| | $ | 20,672 |
|
| | | | | | | |
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JULY 27, 2013, JULY 28, 2012, AND JULY 30, 2011 |
| | | | | | | | | | | |
| Principal payments on capital lease obligations | (74 | ) | | (233 | ) | | (582 | ) |
| Net cash provided by (used in) financing activities | 248,336 |
| | (5,407 | ) | | (17,033 | ) |
| | | | | | |
| Net (decrease) increase in cash and equivalents | (33,974 | ) | | 7,815 |
| | (58,554 | ) |
| | | | | | |
| CASH AND EQUIVALENTS AT BEGINNING OF PERIOD | 52,581 |
| | 44,766 |
| | 103,320 |
|
| | | | | | |
| CASH AND EQUIVALENTS AT END OF PERIOD | $ | 18,607 |
| | $ | 52,581 |
| | $ | 44,766 |
|
| | | | | | |
| SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES: | |
| | |
| | |
|
| Cash paid during the period for: | |
| | |
| | |
|
| Interest | $ | 21,414 |
| | $ | 15,443 |
| | $ | 17,296 |
|
| Income taxes | $ | 19,128 |
| | $ | 10,722 |
| | $ | 3,481 |
|
| | | | | | |
| Purchases of capital assets included in accounts payable or other accrued liabilities at period end | $ | 13,639 |
| | $ | 4,593 |
| | $ | 10,173 |
|
| | | | | | |
| See notes to the consolidated financial statements. |
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) FOR THE YEARS ENDED JULY 30, 2016, JULY 25, 2015, AND JULY 26, 2014 (Dollars in thousands) |
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | 2016 | | 2015 | | 2014 |
| SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES: | |
| | |
| | |
| Cash paid for interest | $ | 15,917 |
| | $ | 25,369 |
| | $ | 25,291 |
|
| Cash paid for taxes, net | $ | 31,159 |
| | $ | 39,057 |
| | $ | 26,738 |
|
| Purchases of capital assets included in accounts payable or other accrued liabilities at period end | $ | 7,196 |
| | $ | 2,372 |
| | $ | 2,651 |
|
| | | | | | |
| See notes to the consolidated financial statements. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Accounting Policies
Basis of Presentation –
Dycom Industries, Inc. ("Dycom"(“Dycom” or the "Company"“Company”) is a leading provider of specialty contracting services throughout the United States and in Canada. These services includeThe Company provides program management, engineering, construction, maintenance and installation services tofor telecommunications providers, underground facility locating services tofor various utilities, including telecommunications providers, and other construction and maintenance services tofor electric and gas utilities and others.utilities.
The consolidated financial statements include the results of Dycom and its subsidiaries, all of which are wholly-owned. All intercompany accounts and transactions have been eliminated and the financial statements reflect all adjustments, consisting of only normal recurring accruals that are, in the opinion of management, necessary for a fair presentation of such statements. These financial statements have been prepared in accordance with U.S.accounting principles generally accepted accounting principles ("GAAP"in the United States of America (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"(“SEC”).
On December 3, 2012,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). Management of the operating segments report to the Company’s Chief Operating Officer who reports to the 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. The Company’s operating segments provide services throughout the United States and in Canada. Revenues from services provided in Canada were immaterial during each of fiscal 2016, 2015, and 2014. Additionally, the Company acquired substantially allhad no material long-lived assets in Canada as of the telecommunications infrastructure service subsidiaries (the "Acquired Subsidiaries") of Quanta Services, Inc. Additionally, during the fourth quarter of fiscal 2013, the Company acquired Sage Telecommunications Corp of Colorado, LLC ("Sage") and certain assets of a tower construction and maintenance company. The results of operations of the businesses acquired are included in the accompanying consolidated financial statements from their respective dates of acquisition.July 30, 2016 or July 25, 2015.
Accounting Period – The Company uses aCompany’s fiscal year endingends on the last Saturday in July. As a result, each fiscal year consists of either 52 weeks or 53 weeks of operations (with the additional week of operations occurring in the fourth quarter). Fiscal 2016 consisted of 53 weeks of operations. Fiscal 2015 and 2014 each consisted of 52 weeks of operations. Fiscal 2017 will consist of 52 weeks of operations.
Significant Accounting Policies & 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 thereinin these consolidated financial statements and accompanying notes. For the Company, key estimates include: recognitionthe purchase price allocations of revenue for costs and estimated earnings under the percentage of completion method of accounting, allowance for doubtful accounts,businesses acquired, the fair value of reporting units for goodwill impairment analysis, the assessment of impairment of intangibles and other long-lived assets, the purchase price allocations of businesses acquired, accrued insurance claims, income taxes, asset lives used in computing depreciation and amortization, accrued insurance claims, income taxes, accruals for contingencies, including legal matters, recognition of revenue for costs and estimated earnings under the cost-to-cost measure of the percentage of completion method of accounting, allowance for doubtful accounts, and stock-based compensation expense for performance-based stock awards,awards. These estimates are based on the Company’s historical experience and accruals for contingencies, including legal matters.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 consolidated financial position and results of operations taken as a whole. However, actual results could differ materially from those estimates and such differences may be material to the financial statements.estimates.
Revenue Recognition –. The Company recognizesperforms a majority of its services under master service agreements and other agreements that contain customer-specified service requirements, such as discrete pricing for individual tasks. Revenue is recognized under these arrangements based on units-of-delivery as each unit is completed. The remainder of the Company’s services, representing less than 5% of its contract revenues during fiscal 2016 and less than 10% of its contract revenues during each of fiscal 2015 and 2014, are performed under contracts using the cost-to-cost measure of the percentage of completion method of accounting using the units-of-delivery or cost-to-cost measures. A majority of the Company’s contracts are based on units-of-delivery and revenueaccounting. Revenue is recognized as each unit is completed. Revenues from contracts using the cost-to-cost measures of completion are recognizedunder these arrangements based on the ratio of contract costs incurred to date to total estimated contract costs. Revenues from services provided underFor contracts using the cost-to-cost measure of the percentage of completion method of accounting, the Company accrues the entire amount of a contract loss at the time the loss is determined to be probable and materials based contracts arecan be reasonably estimated. During fiscal 2016, 2015, and 2014, there was no material impact to the Company’s results of operations due to changes in contract estimates.
There were no material amounts of unapproved change orders or claims recognized when the services are performed.during fiscal 2016, 2015, or 2014. The current asset "Costs“Costs and estimated earnings in excess of billings"billings” represents revenues recognized in excess of amounts billed. The current liability "Billings“Billings in excess of costs and estimated earnings"earnings” represents billings in excess of revenues recognized.
Application of the percentage of completion method of accounting requires the use of estimates of costs to be incurred for the performance of the contract. The cost estimation process is based on the knowledge and experience of the Company’s project managers and financial professionals. Factors that the Company considers in estimating the work to be completed and ultimate contract recovery include the availability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays in performance and the recoverability of any claims. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in changes to costs and income and their effects are recognized in the period in which the revisions are determined. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is accrued.
Cash and Equivalents – Cash and equivalents primarily include balances on deposit in banks. The Company maintains substantially all of 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.
Restricted Cash – As of July 27, 201330, 2016 and July 28, 2012,25, 2015, the Company had approximately $3.7$5.0 million and $4.5 million, respectively, in restricted cash, which is held as collateral in support of the Company'sCompany’s insurance obligations. Restricted cash is included in other current assets and other assets in the consolidated balance sheets and changes in restricted cash are reported in cash flows used in investing activities in the consolidated statements of cash flows.
Allowance for Doubtful Accounts –The Company grants credit under normal payment terms, generally without collateral, to its customers. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the failure of its customers to make required payments.on uncollected balances. Management analyzes the collectability of accounts receivable balances each period. This analysis considers the aging of account balances, historical bad debt experience, changes in customer creditworthiness, current economic trends, customer payment activity, and other relevant factors. Should any of these factors change, the estimatesestimate made by management may also change, which could affect the level of the Company’s future provision for doubtful accounts. The company recognizes an increase in the allowance for doubtful accounts when it is probable that a receivable is not collectible and the loss can be reasonably estimated. Any increase in the allowance account has a corresponding negative effect on the Company’s results of operations.
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 market. Inventories also include certain job specific materials whichthat 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 thea customer, the loss of thea 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 6, Property and Equipment, for the range of useful lives). AmortizationLeasehold improvements are depreciated on a straight-line basis over the lesser of capitalthe estimated useful life of the asset or the remaining lease assets is included in depreciation expense.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"(“FASB”) Accounting Standard Codification ("ASC"(“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 gross cost andat net book value of $18.3$23.0 million and $11.6$21.8 million, respectively, as of July 27, 2013,30, 2016, and gross cost and net book value of $11.6 million and $7.4 million, respectively, as of July 28, 2012.25, 2015, respectively.
Goodwill and Intangible Assets – The Company accounts for goodwill and other intangibles in accordance with ASC Topic 350, Intangibles-GoodwillIntangibles - Goodwill and Other(" (“ASC Topic 350"350”). The Company's reporting units goodwillGoodwill and other related indefinite-lived intangible assets are assessed annually for impairment as of the first day of the fourth fiscal quarter of each year, in accordance with ASC Topic 350 in order to determine whether their carrying value exceeds their fair value. In addition, they are tested on an interim basisor more frequently if an event occurs or circumstances change between annual testsevents occur that would more likely than not reduce theirindicate 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 the tests, an impairment loss is recognized. Impairment losses, if any, arerecognized and reflected in operating income or loss in the consolidated statements of operations during the period incurred.
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 whichthat indicates 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. AnShould 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 theits carrying value, an impairment loss is incurred. Impairment losses, if any, are reflectedrecognized in operating income or loss in the consolidated statements of operations during the period incurred.
The Company uses judgment in assessing ifwhether goodwill and intangible assets are impaired. Estimates of fair value are based on the Company'sCompany’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. To measureThe Company determines the fair value of its reporting units using a weighting of fair values derived equally from the Company employs a combination of present value techniques which reflectincome approach and the market factors.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'sCompany’s judgments and projections could result in significantly different estimates of fair value potentially resulting in additional 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.
Business Combinations –TheCompany accounts for business combinations under the acquisition method of accounting. The purchase price of each business acquired business is allocated to the tangible and intangible assets acquired and the liabilities assumed based on the basis ofinformation 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, and 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 at that time was unknown to the Company at that time, may become known during the remainder of the measurement period, a period not to exceed twelve months from the acquisition date. Adjustments in the purchase price allocation may require a recasting of the amounts allocated to goodwill and intangible assets. In accordance with the acquisition method of accounting, acquisitionAcquisition 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 carrying amount or fair value less costs to sell.
Accrued Insurance Claims – The CompanyFor claims within the Company’s insurance program, it retains the risk of loss, up to certain limits, for claimsmatters related to automobile liability, general liability workers' compensation, employee group health, and locate damages. Locate damage claims result from property and other(including damages arising in connectionassociated with the Company's underground facility locating services.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 liability for total accrued insurance claims and related accrued processing costs was $56.3$89.7 million and $48.8$87.3 million at as of July 27, 201330, 2016 and July 28, 2012,25, 2015, respectively, and included incurred but not reported losses of approximately $26.0$44.5 million and $22.3$39.4 million,, respectively. Based on prior payment patterns for similar claims, the Company expects $29.1$36.8 million and $35.8 million of the amountamounts accrued at as of July 30, 2016 and July 25, 2015July 27, 2013, respectively, were expected to be paid within the next twelve months. Insurance recoveries/receivables related to accrued claims as of July 30, 2016 and July 25, 2015 was $5.7 million and $9.5 million, respectively, of which $5.7 million and $8.9 million, respectively, was included in non-current other assets in the accompanying consolidated balance sheets. As of July 25, 2015, $0.6 million of insurance recoveries/receivables was included in other current assets.
The Company estimates the liability for claims based on facts, circumstances, and historical evidence. Whenexperience. Recorded loss reserves are recorded they are not discounted even though they will not be paid until sometime in the future. Factors affecting the determination of the expected cost for existing and incurred but not reported claims include, but are not limited to, the estimated numbermagnitude 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.
Stock-Based Compensation – The Company has certain stock-based compensation plans under which it grants stock-based awards, including stock options, restricted share units, and performance share units to attract, retain, and reward talented employees, officers and directors, and to align stockholder and employee interests. The Company has granted stock-based awards under its 2012 Long-Term Incentive Plan (“2012 Plan”), 2003 Long-Term Incentive Plan (“2003 Plan”) and the 2007 Non-Employee Directors Equity Plan (“2007 Directors Plan” and, together with the 2012 Plan and 2003 Plan, the “Plans”). The Company’s policy is to issue new shares to satisfy equity awards under the Plans. The total number of shares available for grant under the Plans as of July 30, 2016 was 1,023,162.
Compensation expense for stock-based awards is based on fair value at the measurement date and fluctuates over time as a result of the vesting period of the stock-based awards and the Company’s performance, as measured by criteria set forth in the performance-based awards. This expense is included in general and administrative expenses in the consolidated statements of operations and the amount of expense ultimately recognized depends on the number of awards that actually vest. For performance-based restricted share units (“Performance RSUs”), the Company evaluates compensation expense quarterly and recognizes expense for performance-based awards only if it determines it is probable that the performance measures for the awards will be met. Accordingly, stock-based compensation expense may vary from fiscal year to fiscal year.
The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. Stock options generally vest ratably over a four-year period and are exercisable over a period of up to ten years. The fair value of time-based restricted share units (“RSUs”) and Performance RSUs is estimated on the date of grant and is generally equal to the closing stock price on that date. RSUs and Performance RSUs are settled in one share of the Company’s common stock upon vesting. RSUs vest ratably over a period of four years. Performance RSUs vest over a period of three years from the date of grant if certain performance measures are achieved. The performance measures are based on the Company’s fiscal year operating earnings (adjusted for certain amounts) as a percentage of contract revenues and its fiscal year operating cash flow level. Additionally, certain Performance RSU awards include three-year performance measures that, if met, result in supplemental shares being awarded. The three-year performance measures required to earn supplemental awards are more difficult to achieve than those required to earn annual target awards and are based on the Company’s three-year cumulative operating earnings (adjusted for certain amounts) as a percentage of contract revenues and its three-year cumulative operating cash flow level.
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 events that have been included intemporary differences between the financial statements. Under this method, deferredcarrying amounts and the tax bases of assets and liabilities are determinedliabilities. 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 and tax credits recognized in relation to pre-tax results. Measurement of the Company’s tax position is based on the differences between the financial statementsapplicable statutes, federal and state case law, and its interpretations of tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.regulations. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in 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 available positive and negative evidence,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 its deferred income tax assets in the future in excess of their net recorded amount, itthe Company would make an adjustment toadjust the valuation allowance, which would reduce the provision for income taxes.
ASC Topic 740, Income Taxes ("ASC Topic 740") prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on derecognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Under ASC Topic 740, companies may recognize a previously unrecognized tax benefit if the tax position is effectively (as opposed to "ultimately") settled through examination, negotiation or litigation.
Per Share Data – Basic earnings per common share is computed based on the weighted average number of shares outstanding during the period, excluding unvested restricted share units. Diluted earnings per common share includes the weighted average common shares outstanding for the period and dilutive potential common shares, including unvested restricted share units. Performance vesting restricted share units are only included in diluted earnings per common share calculations for the period if all the necessary performance conditions are satisfied and their impact is dilutive. Common stock equivalents related to stock options are excluded from diluted earnings per common share calculations if their effect would be anti-dilutive.
Stock-Based Compensation – The Company's stock-based award programs are intended to attract, retain and reward talented employees, officers and directors, and to align stockholder and employee interests. Stock-based awards are granted by the Company under its 2012 Long-Term Incentive Plan ("2012 Plan"), 2003 Long-Term Incentive Plan ("2003 Plan"), and the 2007 Non-Employee Directors Equity Plan ("2007 Directors Plan" and, together with the 2012 Plan and 2003 Plan, the "Plans"). The Company also has several other plans, both expired and current, under which awards are outstanding but under which no further awards will be granted. The Company's policy is to issue new shares to satisfy equity awards under the Plans.
The Plans provide for the grants of a number of types of stock-based awards, including stock options, restricted shares, performance shares, restricted share units, performance share units ("Performance RSUs"), and stock appreciation rights. The total number of shares available for grant under the Plans as of July 27, 2013 was 2,033,272.
Compensation expense for stock-based awards is based on the fair value at the measurement date and is included in general and administrative expenses in the consolidated statements of operations. The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model based on certain assumptions including: expected volatility based on the historical price of the Company's stock over the expected life of the option; the risk free rate of return based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option; the expected life based on the period of time the options are expected to be outstanding using historical data to estimate option exercise and employee termination; and dividend yield based on the Company's history and expectation of dividend payments. Stock options generally vest ratably over a four-year period and are exercisable over a period of up to ten years.
The fair value of time-based restricted share units ("RSUs") and Performance RSUs is estimated on the date of grant and is generally equal to the closing stock price on that date. RSUs vest ratably over a period of four years and are settled in one share of the Company's common stock on the vesting date. Performance RSUs vest over a three year period from the date of grant if certain performance goals are achieved. The performance targets are based on the Company's fiscal year operating earnings (adjusted for certain amounts) as a percentage of contract revenues and the Company's fiscal year operating cash flow level. For the fiscal 2013 performance period, the performance targets exclude amounts attributable to significant businesses acquired in fiscal 2013, including acquisition, financing, and other related costs of the businesses acquired. Additionally, the awards include three year performance goals having similar measures as the fiscal year targets which, if met, result in supplemental shares awarded. For Performance RSUs, the Company evaluates compensation expense quarterly and recognizes expense for performance-based awards only if management determines it is probable that the performance criteria for the awards will be met.
The total amount of stock-based compensation expense ultimately recognized is based on the number of awards that actually vest and fluctuates as a result of performance criteria for performance-based awards, as well as the vesting period of all stock-based awards. Accordingly, the amount of compensation expense recognized during any fiscal year may not be representative of future stock-based compensation expense. In accordance with ASC Topic 718, 740,Compensation – Stock Compensation Income Taxes (“ASC Topic 740”), compensation coststhe 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 performance-based awardsrecognition are recognized overin the requisite service period if it is probable thatin which the performance goal will be satisfied.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 uses its best judgmentrecognizes applicable interest related to determine probability of achievingtax amounts in interest expense and penalties within general and administrative expenses.
During fiscal 2015, the performance goals at each reporting periodCompany adopted new IRS regulations for capitalizing and recognizes compensationdeducting costs basedincurred to acquire, produce, or improve tangible property. The new regulations did not have a material effect on the estimate of the shares that are expected to vest.Company’s consolidated financial statements.
Fair Value of Financial Instruments – ASC Topic 820, Fair Value Measurements and Disclosures ("ASC Topic 820") defines and establishes a measurement framework for fair value and expands disclosure requirements. ASC Topic 820 requires that assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: (1) Level 1 – Quoted market prices in active markets for identical assets or liabilities; (2) Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data; and (3) Level 3 – Unobservable inputs not corroborated by market data which require the reporting entity's own assumptions. The Company'sCompany’s financial instruments primarily consist primarily of cash and equivalents, restricted cash, accounts and other receivables,receivable, income taxes receivable and payable, accounts payable, and certain accrued expenses, and long-term debt. The carrying amounts of these items approximate fair value due to their short maturity, except for certain of the Company'sCompany’s outstanding 7.125% senior subordinated notes due 2021 (the "2021 Notes")long-term debt, which are categorized as Level 2 as of July 27, 2013 and July 28, 2012,is based on observable market-based inputs.inputs (Level 2). See Note 10, Debt, for further information regarding the fair value of the 2021 Notes.such financial instruments. The Company'sCompany’s cash and equivalents are categorized as Level 1 as of July 27, 2013 and July 28, 2012, based on quoted market prices in active markets for identical assets.assets (Level 1) as of July 30, 2016 and July 25, 2015. During fiscal 20132016
and 2012,2015, the Company had no non-recurringmaterial nonrecurring fair value measurements of assets or liabilities subsequent to their initial recognition.
Taxes Collected from Customers – ASC Topic 605, Taxes Collected from Customers and Remitted to Governmental Authorities, addresses the income statement presentation of any taxtaxes 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 in an accounting policy decision that should be disclosed. The Company'sCompany’s policy is to present contract revenues net of sales taxes.
Segment Information Other Assets– TheAs of July 30, 2016 and July 25, 2015, other non-current assets consist of deferred financing costs related to the Company’s revolving credit facility of $6.4 million and $6.7 million, respectively, insurance recoveries/receivables related to accrued claims of $5.7 million and $8.9 million, respectively, as well as long-term deposits, prepaid discounts, and other non-current assets totaling $17.7 million and $13.5 million, respectively. As of July 30, 2016 and July 25, 2015, other non-current assets also included $4.0 million for an investment in nonvoting senior units of a former customer, which is accounted for using the cost method. See Reclassifications below regarding the reclassification of unamortized debt issuance costs as of July 25, 2015.
Reclassifications
As of July 25, 2015, income taxes payable of $8.9 million has been reclassified in the consolidated balance sheets from Other accrued liabilities to Income taxes payable in order to conform to the current year presentation. In addition, during the fourth quarter of fiscal 2016, the Company operatesearly adopted Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which resulted in one reportable segmentthe reclassification of $4.9 million of unamortized debt issuance costs from other non-current assets to long-term debt as a specialty contractor, providing engineering, construction, maintenance and installation services to telecommunications providers, underground facility locating services to various utilities including telecommunications providers, and other construction and maintenance services to electric and gas utilities and others. Allcontra-liability within the consolidated balance sheets as of the Company's operating segments have been aggregated into one reporting segment due to their similar economic characteristics, nature of services and production processes, type of customers, and service distribution methods. The Company's services are provided by its various subsidiaries throughout the United States and in Canada.
Revenues from services provided in Canada were approximately $13.0 million, $11.9 million, and $7.4 million during fiscal 2013, 2012, 2011, respectively. The Company had no material long-lived assets in the Canadian operations at July 27, 2013 or July 28, 2012.25, 2015.
Recently Issued Accounting Pronouncements
Adoption of NewRecently Adopted Accounting PronouncementsStandards
Discontinued Operations - In June 2011,April 2014, the FASB issued Accounting Standards Update No. 2011-05,2014-08, Comprehensive Income (Topic 220): Presentation of Comprehensive IncomeFinancial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("(“ASU 2011-05"2014-08”). ASU 2011-05 requires2014-08 changes the totalcriteria for reporting discontinued operations. In accordance with ASU 2014-08, a disposal of comprehensive income, thea component of an entity or a group of components of netan entity is required to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. ASU 2014-08 also requires expanded disclosures about the assets, liabilities, income, and the componentsexpenses of other comprehensive income to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 also requires entities to present on the facediscontinued operations as well as disclosure of the financial statements reclassification adjustmentspre-tax income arising from a disposal of a significant part of an organization that does not qualify for items that are reclassified from other comprehensive income to net income.discontinued operations reporting. The Company adopted ASU 2011-052014-08 in the first quarter of fiscal 2013.
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Comprehensive Income (Topic 220) ("ASU 2013-02"), which does not change the requirements for reporting net income or other comprehensive income in financial statements under ASU 2011-05; however, the amendments require entities to report either on the income statement or in a footnote to the financial statements, the effects on earnings from items that are classified out of accumulated other comprehensive income. The Company adopted ASU 2013-02 in fiscal 2013. The adoption of this guidance2016 and it did not have a material effect on the Company'sCompany’s consolidated financial statements.
Going Concern - In September 2011,August 2014, the FASB issued Accounting Standards Update No. 2011-08,2014-15, Intangibles – Goodwill and Other (Topic 350)Presentation of Financial Statements—Going Concern (Subtopic 205-40): Testing Goodwill for Impairment Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern(" (“ASU 2011-08"2014-15”). ASU 2011-08 permits entities testing for goodwill impairment2014-15 requires management to perform a qualitative assessmentevaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amountcontinue as a basisgoing concern for determining whether ita period of one year following the date its financial statements are issued. If such conditions or events exist, an entity should disclose that there is necessarysubstantial doubt about the entity’s ability to performcontinue as a going concern for a period of one year following the two-step goodwill impairment test describeddate its financial statements are issued. Disclosure should include the principal conditions or events that raise substantial doubt, management’s evaluation of the significance of those conditions or events in ASC Topic 350. ASU 2011-08 does not change how goodwill is determinedrelation to the entity’s ability to meet its obligations, and management’s plans that are intended to mitigate those conditions or assigned to reporting units, nor does it revise the requirement to assess goodwill at least annually for impairment. ASU 2011-08 is effective for goodwill impairment tests performed in interim and annual periods for fiscal years beginning after December 15, 2011.events. The Company early adopted ASU 2011-08 in2014-15 during the fourth quarter of fiscal 2013. The adoption of this guidance2016 and it did not have a material effect on the Company'sCompany’s consolidated financial statements.
Extraordinary and Unusual Items - In January 2015, the FASB issued Accounting Standards Update No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”), which eliminates the concept of an extraordinary item from GAAP. As a result, an entity is no longer required to separately classify, present, or disclose extraordinary events and transactions; however, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained. The Company early adopted ASU 2015-01 during the fourth quarter of fiscal 2016 and it did not have a material effect on the Company’s consolidated financial statements.
Debt Issuance Costs - In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which requires debt issuance costs to be presented as a direct deduction from the associated debt liability on the balance sheet. In August 2015, the FASB issued Accounting Standards Update No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30) Presentation and Subsequent of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”), to clarify guidance within ASU 2015-03 with respect to line-of-credit arrangements. ASU 2015-15 allows an entity, in the case of a line-of-credit arrangement, to either follow ASU 2015-03 or defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company early adopted ASU 2015-03 and ASU 2015-15 during the fourth quarter of fiscal 2016 on a retrospective basis. The adoption of ASU 2015-15 did not have an impact on the Company’s consolidated financial statements as the Company opted to continue to defer and present debt issuance costs related to its revolving credit facility as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the revolving credit facility. The adoption of ASU 2015-03 resulted in the classification of $1.2 million of unamortized debt issuance costs related to the Company’s convertible senior notes as a direct deduction of long-term debt in the consolidated balance sheet as of July 30, 2016. In addition, $4.9 million of unamortized debt issuance costs related to the Company’s senior subordinated notes outstanding at July 25, 2015 was reclassified from other non-current assets to long-term debt within the consolidated balance sheet as of July 25, 2015.
Internal-Use Software Accounting - In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”), which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance does not change the current treatment for accounting for software licenses or service contracts. The Company early adopted ASU 2015-05 during the fourth quarter of fiscal 2016 on a prospective basis and it did not have a material effect on the Company’s consolidated financial statements.
Accounting Standards Not Yet Adopted
Stock Compensation - In July 2012,March 2016, the FASB issued Accounting Standards Update No. 2012-02,2016-09, Intangibles-Goodwill and OtherCompensation - Stock Compensation (Topic 350):718) Testing Indefinite-Lived Intangible Assets for ImpairmentImprovements to Employee Share-Based Payment Accounting ("(“ASU 2012-02"2016-09”). ASU 2012-02 amends Topic 350 by establishing2016-09 includes provisions intended to simplify accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under ASU 2016-09, all excess tax benefits (or tax deficiencies) will be recognized as income tax benefit (or expense) in the statement of operations. Additionally, when applying the treasury stock method for computing diluted earnings per share under ASU 2016-09 the assumed proceeds will not include any windfall tax benefits, resulting in equity awards which may result in a greater number of dilutive shares outstanding. Further, excess tax benefits will be classified along with other income tax cash flows as an optional two-step analysisoperating activity. ASU 2016-09 also permits withholding up to the maximum statutory tax rate in applicable jurisdictions as the threshold to qualify for impairment testingequity classification. ASU 2016-09 will be effective for the Company in fiscal 2018 and interim reporting periods within that year. Early adoption is permitted as of indefinite-lived intangibles otherthe beginning of an interim or annual reporting period with all adjustments to be reflected as of the beginning of the fiscal year of adoption. The Company is currently evaluating the effect of the adoption of this guidance on the Company’s consolidated financial statements.
Revenue Recognition - In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) requiring entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”) which defers the effective date for ASU 2014-09. As such, ASU 2014-09 will be effective for the Company beginning in fiscal 2019 and interim reporting periods within that year, using either the retrospective or cumulative effect transition method. The Company is currently evaluating the transition methods and the effect of the adoption of this guidance on the Company’s consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606):Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), which clarifies the implementation guidance provided in ASU 2014-09 on principal versus agent considerations. Additionally, in April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”), which clarifies the implementation guidance in ASU 2014-09 on licensing and identifying
performance obligations. Furthermore, in May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies implementation guidance in ASU 2014-09 on assessing collectability, noncash consideration, presentation of sales tax and completed contracts and contract modifications at transition. ASU 2016-08, ASU 2016-10 and ASU 2016-12 must be adopted concurrently with ASU 2014-09. The Company is currently evaluating the transition methods and the effect of the adoption of this guidance on the Company’s consolidated financial statements.
Leases - In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 substantially retains the classification for leasing transactions as finance or operating leases. The new guidance establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms greater than goodwill. This update allows12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For finance leases the lessee would recognize interest expense and amortization of the right-of-use asset and for operating leases the lessee would recognize straight-line total lease expense. ASU 2016-02 will be effective for the Company in fiscal 2020 and interim reporting periods within that year. The Company is currently evaluating the effect of the adoption of this guidance on the Company’s consolidated financial statements.
Income Taxes - In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 eliminates the current requirement for an entity to separate deferred income tax liabilities and assets into current and non-current amounts in a classified statement of financial position. To simplify the option to first assess qualitative factors to determine whether itpresentation of deferred income taxes, the amendments in ASU 2015-17 require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. ASU 2015-17 will be effective for the Company in fiscal 2018 and interim reporting periods within that year. Early adoption is necessary to perform the quantitative impairment test. Under that option, an entity no longer would be required to calculate the fair valuepermitted as of the intangible asset unlessbeginning of an interim or annual reporting period. The adoption of this guidance will change the presentation of deferred tax assets and liabilities within the Company’s consolidated balance sheets and is not expected to have a material effect on the Company’s consolidated financial statements.
Business Combinations - In September 2015, the FASB issued Accounting Standards Update No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 replaces the requirement for an acquirer in a business combination to retrospectively adjust provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill when measurement period adjustments are identified. The new guidance requires an acquirer to recognize adjustments in the reporting period in which the adjustment amounts are determined. The acquirer must record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Additionally, the acquirer must present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition date. ASU 2015-16 will be effective for the Company in fiscal 2017 and interim reporting periods within that year. The adoption of the guidance is not expected to have a material effect on the Company’s consolidated financial statements.
Inventory - In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”), which provides guidance on the measurement of inventory that uses the first-in, first-out or average cost method. An entity determines, based on that qualitative assessment, that it is more likely than not that its fairshould measure inventory within the scope of ASU 2015-11 at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less than its carrying amount.reasonably predictable costs of completion, disposal, and transportation. ASU 2012-02 is2015-11 will be effective for annualthe Company in fiscal 2018 and interim impairment tests performed for fiscal years beginning after September 15, 2012reporting periods within that year and early adoption is permitted.applied on a prospective basis. The adoption of this guidance is not expected to have a material effect on the Company'sCompany’s consolidated financial statements.
In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Liabilities (Topic 405): Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). ASU 2013-11 provides guidance on the financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning after December 15, 2013. The Company is currently evaluating the potential impact of ASU 2013-11 on its consolidated financial statements.
2. Computation of Earnings Perper Common Share
The following is a reconciliationtable sets forth the computation of the numerator and denominator of the basic and diluted earnings per common share computation as required by ASC Topic 260, Earnings Per Share.
(dollars in thousands, except per share amounts):
| | | | Fiscal Year Ended | | | | | | | | |
| | 2013 | | 2012 | | 2011 | | Fiscal Year Ended |
| | (Dollars in thousands, except per share amounts) | | 2016 | | 2015 | | 2014 |
| Net income available to common stockholders (numerator) | $ | 35,188 |
| | $ | 39,378 |
| | $ | 16,107 |
| | $ | 128,740 |
| | $ | 84,324 |
| | $ | 39,978 |
|
| | | | | | | | | | | | |
| Weighted-average number of common shares (denominator) | 33,012,595 |
| | 33,653,055 |
| | 35,306,900 |
| | 32,315,636 |
| | 34,045,481 |
| | 33,773,158 |
|
| | | | | | | | | | | | |
| Basic earnings per common share | $ | 1.07 |
| | $ | 1.17 |
| | $ | 0.46 |
| | $ | 3.98 |
| | $ | 2.48 |
| | $ | 1.18 |
|
| | | | | | | | | | | | |
| Weighted-average number of common shares | 33,012,595 |
| | 33,653,055 |
| | 35,306,900 |
|
| 32,315,636 |
|
| 34,045,481 |
| | 33,773,158 |
|
| Potential common stock arising from stock options, and unvested restricted share units | 769,592 |
| | 828,840 |
| | 447,268 |
| |
| Potential shares of common stock arising from stock options, and unvested restricted share units | |
| 800,119 |
|
| 981,207 |
| | 1,043,223 |
|
| Total shares-diluted (denominator) | 33,782,187 |
| | 34,481,895 |
| | 35,754,168 |
| | 33,115,755 |
| | 35,026,688 |
| | 34,816,381 |
|
| | | | | | | | | | | | |
| Diluted earnings per common share | $ | 1.04 |
| | $ | 1.14 |
| | $ | 0.45 |
| | $ | 3.89 |
| | $ | 2.41 |
| | $ | 1.15 |
|
| | | | | | | |
| Anti-dilutive weighted shares excluded from the calculation of earnings per share | 1,204,116 |
| | 1,262,964 |
| | 2,071,254 |
| |
3. AcquisitionsThe weighted-average number of common shares outstanding used in the computation of diluted earnings per common share does not include the effect of the following instruments because their inclusion would have been anti-dilutive:
|
| | | | | | | | | |
| | | Fiscal Year Ended |
| | | 2016 | | 2015 | | 2014 |
| Stock-based awards | | 65,514 |
| | 103,896 |
| | 586,389 |
|
0.75% convertible senior notes due 2021(1) | | 5,005,734 |
| | — |
| | — |
|
Warrants(1) | | 5,005,734 |
| | — |
| | — |
|
| Total anti-dilutive weighted shares excluded from the calculation of earnings per common share |
| 10,076,982 |
|
| 103,896 |
| | 586,389 |
|
On December 3, 2012, Dycom acquired substantially all of the telecommunications infrastructure services subsidiaries (Acquired Subsidiaries) of Quanta Services, Inc. for (1) $275.0 million in cash plus an adjustment of approximately $40.4 million for working capital received in excess of a target amount and approximately $3.7 million for other specified items. The acquisition was funded through a combination of borrowings under a new $400 million credit facility and cash on hand. On December 12, 2012, Dycom's wholly-owned subsidiary, Dycom Investments, Inc., issued $90.0 million of 7.125% senior subordinated notes due 2021 and used the net proceeds to repay approximately $90.0 million of the credit facility borrowings. See Note 10, Debt, for furtheradditional information regardingrelated to the Company's debt financing.Company’s convertible senior notes and warrant transactions.
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 conversion price for the convertible senior notes of $96.89 per share. The Company recognized approximately $6.5 millionwarrants will have a dilutive impact on earnings per common share if the Company’s average stock price for the period exceeds the warrant strike price of pre-tax acquisition costs during $130.43 per share. As the Company’s average stock price for fiscal 20132016 was below the conversion price for this acquisition, which are included within generalthe convertible senior notes and administrative expenses in the Company's consolidated statementsstrike price for the warrants, the underlying common shares were anti-dilutive as reflected above.
In connection with the offering of operations. Additionally,the convertible senior notes, the Company incurred approximatelyentered 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 stock price is above $96.89 per share. See Note 10, $3.4 million in pre-tax integration costs during fiscal 2013Debt, which are also included within general and administrative expenses.for additional information related to the Company’s convertible note hedge.
3. Acquisitions
Fiscal 2016 - During August 2015, the Company acquired TelCom Construction, Inc. and an affiliate (together, “TelCom”). The Acquired Subsidiaries provide specialty contracting services, including engineering, construction, maintenance and installation services to telecommunications providers, and otherpurchase 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 geographical presence within its existing customer base. 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 cash purchase price of $107.5 million, subject to electricworking capital adjustments. The total cash transaction consideration paid was $102.8 million after a preliminary working capital adjustment of $4.7 million. The acquired operations provide wireless construction services in a number of markets, including Texas, Georgia, and gas utilities and others. Principal business facilities are located in Arizona, California, Florida, Georgia, Minnesota, New York, Pennsylvania, and Washington. On a combined basis, the businesses operate in 49 states serving over 300 individual customers.Southern California. The Company believes that the acquisition strengthens its customer base, geographic scope and technical services offerings. In addition, it reinforces the Company's rural engineering and construction capabilities,Company’s wireless construction resources and broadband construction competencies. The Company expectsexpands the acquisition to enhance the efficiency of the Company's operating scale.
Company’s geographical presence within its existing customer base. During the fourth quarter of fiscal 2013,2016, the Company acquired Sage Telecommunications CorpNextGen Telecom Services Group, Inc. (“NextGen”) for $5.6 million, net of Colorado, LLC ("Sage") and certain assets of a towercash acquired. NextGen provides construction and maintenance companyservices for a totaltelecommunications providers in the Northeastern United States.
Fiscal 2015 - During the first quarter of $11.3fiscal 2015, the Company acquired Hewitt Power & Communications, Inc. (“Hewitt”) for $8.0 million,, net of cash acquired, in acquisition payments. The Company recognized approximately $0.2 million of pre-tax acquisition costs during fiscal 2013 for the acquisition of Sage, which are included within general and administrative expenses. Goodwill of $5.0 million resulting from these acquisitions is expected to be deductible for tax purposes. Sageacquired. Hewitt provides telecommunications construction and
project managementspecialty contracting services primarily for cable operatorstelecommunications providers in the WesternSoutheastern United States. These acquisitions were not includedDuring the second quarter of fiscal 2015, the Company acquired the assets of two cable installation contractors for an aggregate purchase price of $1.5 million. During the fourth quarter of fiscal 2015, the Company acquired Moll’s Utility Services, LLC (“Moll’s”) for $6.5 million, net of cash acquired. Moll’s provides specialty contracting services primarily for utilities in the pro forma results below because they were not material toMidwest United States. The Company also acquired the Company.assets of Venture Communications Group, LLC (“Venture”) for $15.6 million during the fourth quarter of fiscal 2015. Venture provides specialty contracting services primarily for telecommunications providers in the Midwest and Southeastern United States.
Fiscal 2014 - During the third quarter of fiscal 2014, the Company acquired a telecommunications specialty construction contractor in Canada for $0.7 million. Additionally, during the fourth quarter of fiscal 2014, the Company acquired Watts Brothers Cable Construction, Inc. (“Watts Brothers”) for $16.4 million. Watts Brothers provides specialty contracting services primarily for telecommunications providers in the Midwest and Southeastern United States.
Fiscal 2016 and 2015 Purchase Price Allocations
The purchase prices of the businesses acquired have been allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their fair values on the respective dates of acquisition. Purchase price in excess of fair value of the separately identifiable assets acquired and the liabilities assumed have been allocated to goodwill. Purchase price allocations are based on information regarding the fair value of assets acquiredTelCom, Moll’s and liabilities assumed as of the dates of acquisition. Management determined the fair values used in the purchase price allocations for intangible assets based on historical data, estimated discounted future cash flows, contract backlog amounts, if applicable, and expected royalty rates for trademarks and trade names among other information. For the Acquired Subsidiaries, the fair values used in the purchase price allocation for intangible assetsVenture were determined with the assistance of an independent valuation specialist. 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. The allocation of the purchase price of the Acquired Subsidiaries was completed during the fourth quarter of fiscal 2013.2016. Purchase price allocations of businesses acquired during the fourth quarter of fiscal 2013Goodman and NextGen acquisitions are preliminary and will be completed during fiscal 20142017 when the valuations for intangible assets and other amounts are finalized. Additional information, which existedThe following table summarizes the aggregate consideration paid for businesses acquired in fiscal 2016 and 2015 and presents the allocation of these amounts to the net tangible and identifiable intangible assets based on their estimated fair values as of the acquisitionrespective dates but at that time was unknown to the Company, may become known to the Company during the remainder of the measurement period, a period not to exceed twelve months from the acquisition date. Adjustments in the purchase price allocations may require a recasting of the amounts allocated to goodwill.
The purchase price of the Acquired Subsidiaries is allocated as follows and reflects the elimination of intercompany balances (dollars in millions):
| | | | | | 2016 | | 2015 |
| Assets | | | | |
| Cash and equivalents | $ | 0.2 |
| |
| Accounts receivable, net | 112.2 |
| |
| Accounts receivable | | $ | 16.8 |
| | $ | 2.9 |
|
| Costs and estimated earnings in excess of billings | 61.5 |
| 34.3 |
| | 0.7 |
|
| Inventories | 9.0 |
| |
| Other current assets | 1.6 |
| |
| Inventories and other current assets | | 11.7 |
| | 1.8 |
|
| Property and equipment | 33.3 |
| 11.5 |
| | 4.3 |
|
| Goodwill | 87.9 |
| 38.4 |
| | 2.3 |
|
| Intangibles - customer relationships | 70.3 |
| |
| Intangibles - backlog | 15.3 |
| |
| Intangibles - trade names | 5.0 |
| |
| Other assets | 2.3 |
| |
| Intangible assets - customer relationships | | 94.6 |
| | 21.8 |
|
| Intangibles assets - trade names and other | | 1.8 |
| | 0.2 |
|
| Total assets | 398.6 |
| 209.1 |
| | 34.0 |
|
| | | | | |
| Liabilities | | | | |
| Accounts payable | 42.1 |
| 23.5 |
| | 1.8 |
|
| Billings in excess of costs and estimated earnings | 10.3 |
| |
| Accrued and other liabilities | 27.1 |
| 28.4 |
| | 0.6 |
|
| Total liabilities | 79.5 |
| 51.9 |
| | 2.4 |
|
| | | | | |
| Net Assets Acquired | $ | 319.1 |
| $ | 157.2 |
| | $ | 31.6 |
|
With respect to the acquisition from Goodman, $22.5 million of the purchase price was placed into an escrow account, $2.5 million of which is available for working capital adjustments and $20.0 million of which is available to the Company for indemnification obligations of the seller. Of the $20.0 million available for indemnification obligations, $10.0 million will be released to the seller upon the occurrence of certain conditions, but in no event earlier than the twelve-month anniversary of the closing date. The remaining $10.0 million will be released to the seller when the seller satisfies certain conditions with respect to a dispute with the state of Texas over a sales tax liability of approximately $31.7 million (the “Sales Tax Liability”). Under the asset purchase agreement, Goodman has retained responsibility for this Sales Tax Liability. Should Goodman not resolve this matter, the state may assert that the Company is a successor to the operations and seek to recover from the Company. In
such event the Company would seek indemnification for recovery from Goodman, including from the funds contained in the escrow account, for any amount the Company pays.
Goodwill of $87.9 million and amortizing intangible assets of $90.6 million related to the acquisition is expected to be deductible for tax purposes. See Note 7, Goodwill and Intangible Assets, for further information on amortization and estimated useful lives of intangible assets acquired. During fiscal 2013, the Company made certain purchase accounting adjustments which increased aggregate goodwill and intangible assets approximately $0.6 million. The increase was primarily based on information obtained about facts and circumstances that existed as of the acquisition date, including the final working capital adjustment, and totaled $3.8 million. The remaining $3.2 million net change was related to the fair values assigned to property and equipment and other assets, including vehicle leases.
The results of operationsResults of businesses acquired have beenduring fiscal 2016, 2015, and 2014 are included in the consolidated financial statements of operations since thefrom their respective dates of acquisition.acquisition and were not considered material to the Company’s consolidated financial statements. For businesses acquired in fiscal 2013 the Acquired Subsidiaries earned2016, these aggregate amounts included contract revenues of $335.4$119.8 million, incurred and intangible amortization expense of $14.3$2.1 million, and their net during fiscal 2016. Net income since the date of acquisition, inclusive of charges allocated for management costs, was not material. See Note 7, Goodwill and Intangible Assets, for information regarding the goodwill and intangible assets of businesses acquired.
The following unaudited pro forma information presents the Company's consolidated results of operations as if the acquisition of the Acquired Subsidiaries had occurred on July 31, 2011, the first day of the Company's 2012 fiscal year. The pro forma results include certain adjustments, including depreciation and amortization expense based on the estimated fair value of the assets acquired, interest and debt amortization expense related to the Company's debt financing of the transaction, elimination of expenses charged by the seller to the businesses which will not continue after the acquisition date, and the income tax impact of these adjustments. Pro forma earnings for fiscal 2012 were adjusted to include $6.5 million of acquisition related costs as the pro forma information presents the consolidated results of operations as if the acquisition had occurred on July 31, 2011. Accordingly, the pro forma earnings for fiscal 2013 were adjusted to exclude these acquisition related costs. Additionally, pro forma earnings in fiscal 2013 and 2012 have been adjusted to reflect the impact of amortization and depreciation as if the acquisition had occurred on July 31, 2011. This includes the impact of amortization expense, including customer relationships and contract backlog which is being recognized on an accelerated basis related to the expected economic benefit, and depreciation expense which is recognized over the estimated useful lives of the related property and equipment. The unaudited pro forma information is not necessarily indicative of the results of operations of the combined companies had the acquisition occurred at the beginning of the periods presented nor is it indicative of future results.
|
| | | | | | | |
| | Fiscal Year Ended |
| | July 27, 2013 | | July 28, 2012 |
| | |
| Pro forma contract revenues | $ | 1,836,605 |
| | $ | 1,724,541 |
|
| Pro forma income before income taxes | $ | 90,039 |
| | $ | 42,094 |
|
| Pro forma net income | $ | 54,439 |
| | $ | 25,675 |
|
| | | | |
| Pro forma earnings per share: | | | |
| Basic | $ | 1.65 |
| | $ | 0.76 |
|
| Diluted | $ | 1.61 |
| | $ | 0.74 |
|
4. Accounts Receivable
Accounts receivable consistsconsisted of the following:following (dollars in thousands):
| | | | July 27,
2013 | | July 28,
2012 | | | | | |
| | (Dollars in thousands) | July 30, 2016 | | July 25, 2015 |
| Contract billings | $ | 239,498 |
| | $ | 136,610 |
| $ | 297,532 |
| | $ | 292,029 |
|
| Retainage and other receivables | 12,833 |
| | 5,448 |
| |
| Retainage | | 32,101 |
| | 24,321 |
|
| Total | 252,331 |
| | 142,058 |
| 329,633 |
| | 316,350 |
|
| Less: allowance for doubtful accounts | (129 | ) | | (270 | ) | (1,603 | ) | | (1,216 | ) |
| Accounts receivable, net | $ | 252,202 |
| | $ | 141,788 |
| $ | 328,030 |
| | $ | 315,134 |
|
As of July 27, 2013, theThe Company expectedgrants credit under normal payment terms, generally without collateral, to its customers. The Company expects to collect all retainage balancesthe outstanding balance of accounts receivable, net (including retainage) within the next twelve months. There were no material accounts receivable amounts representing claims or other similar items subject to uncertainty as of July 30, 2016 or July 25, 2015.
TableDuring the fourth quarter of Contentsfiscal 2016, the Company began participating in a customer-sponsored vendor payment program. Under this program, accounts receivable are collected on an expedited basis pursuant to a non-recourse sale of the receivables to a bank partner of the customer. The program significantly reduces the time required to collect that customer’s receivables. The Company incurs a slight discount fee associated with the collection of the accounts receivable that is reflected as an expense component in other income, net in the consolidated statements of operations. For fiscal 2016, the receivables sold under the program totaled $95.3 million. Cash collected from this arrangement is reflected within cash provided by operating activities in the consolidated statement of cash flows for fiscal 2016. The amount of receivables sold which have not been collected from the bank partner as of July 30, 2016 and the discount fees for fiscal 2016 were immaterial.
The Company maintains an allowance for doubtful accounts for estimated losses on uncollected balances. The allowance for doubtful accounts changed as follows:follows (dollars in thousands):
| | | | Fiscal Year Ended | | | | | |
| | July 27,
2013 | | July 28,
2012 | Fiscal Year Ended |
| | (Dollars in thousands) | 2016 | | 2015 |
| Allowance for doubtful accounts at beginning of period | $ | 270 |
| | $ | 368 |
| $ | 1,216 |
| | $ | 836 |
|
| Bad debt expense, net | 139 |
| | 186 |
| |
| Bad debt expense | | 1,252 |
| | 465 |
|
| Amounts charged against the allowance | (280 | ) | | (284 | ) | (865 | ) | | (85 | ) |
| Allowance for doubtful accounts at end of period | $ | 129 |
| | $ | 270 |
| $ | 1,603 |
| | $ | 1,216 |
|
5. Costs and Estimated Earnings in Excess of Billings
Costs and estimated earnings in excess of billings net, consists of the following:
|
| | | | | | | |
| | July 27,
2013 | | July 28,
2012 |
| | (Dollars in thousands) |
| Costs incurred on contracts in progress | $ | 208,250 |
| | $ | 100,766 |
|
| Estimated to date earnings | 49,150 |
| | 26,555 |
|
| Total costs and estimated earnings | 257,400 |
| | 127,321 |
|
| Less: billings to date | (66,839 | ) | | (1,522 | ) |
| | $ | 190,561 |
| | $ | 125,799 |
|
| Included in the accompanying consolidated balance sheets under the captions: | |
| | |
|
| Costs and estimated earnings in excess of billings | $ | 204,349 |
| | $ | 127,321 |
|
| Billings in excess of costs and estimated earnings | (13,788 | ) | | (1,522 | ) |
| | $ | 190,561 |
| | $ | 125,799 |
|
The above amounts include(“CIEB”) includes revenue for services fromperformed under contracts based both onusing the units-of-delivery method of accounting and the cost-to-cost measuresmeasure of the percentage of completion method. Additionally,method of accounting. Amounts consisted of the amounts above include the impact of amounts acquired on December 3, 2012 related to the Acquired Subsidiaries.following (dollars in thousands):
|
| | | | | | | |
| | July 30, 2016 | | July 25, 2015 |
| Costs incurred on contracts in progress | $ | 307,826 |
| | $ | 240,077 |
|
| Estimated to date earnings | 92,226 |
| | 72,446 |
|
| Total costs and estimated earnings | 400,052 |
| | 312,523 |
|
| Less: billings to date | (42,637 | ) | | (54,689 | ) |
| | $ | 357,415 |
| | $ | 257,834 |
|
| Included in the accompanying consolidated balance sheets under the captions: | |
| | |
|
| Costs and estimated earnings in excess of billings | $ | 376,972 |
| | $ | 274,730 |
|
| Billings in excess of costs and estimated earnings | (19,557 | ) | | (16,896 | ) |
| | $ | 357,415 |
| | $ | 257,834 |
|
As of July 30, 2016, the Company expects that substantially all of its CIEB will be billed to customers and collected in the normal course of business within the next twelve months. Additionally, there were no material CIEB amounts representing claims or other similar items subject to uncertainty as of July 30, 2016 or July 25, 2015.
6. Property and Equipment
Property and equipment consistsconsisted of the following:following (dollars in thousands):
| | | | General Useful Lives | | July 27,
2013 | | July 28,
2012 | | | | | | |
| | (Years) | | (Dollars in thousands) | Estimated Useful Lives
(In years) | | July 30, 2016 | | July 25, 2015 |
| Land | — | | $ | 3,479 |
| | $ | 2,915 |
| — | | $ | 3,475 |
| | $ | 3,475 |
|
| Buildings | 10-35 | | 11,449 |
| | 10,630 |
| 10-35 | | 11,969 |
| | 11,944 |
|
| Leasehold improvements | 1-15 | | 5,154 |
| | 4,674 |
| 1-10 | | 13,753 |
| | 8,491 |
|
| Vehicles | 1-5 | | 258,211 |
| | 220,669 |
| 1-5 | | 404,273 |
| | 316,979 |
|
| Computer hardware and software | 3-10 | | 64,191 |
| | 57,965 |
| 1-7 | | 95,570 |
| | 80,091 |
|
| Office furniture and equipment | 2-7 | | 7,915 |
| | 5,552 |
| 1-10 | | 10,374 |
| | 8,183 |
|
| Equipment and machinery | 1-10 | | 171,742 |
| | 133,467 |
| 1-10 | | 242,079 |
| | 194,943 |
|
| Total | | 522,141 |
| | 435,872 |
| | 781,493 |
| | 624,106 |
|
| Less: accumulated depreciation | | (319,438 | ) | | (277,625 | ) | | (454,823 | ) | | (392,542 | ) |
| Property and equipment, net | | $ | 202,703 |
| | $ | 158,247 |
| | $ | 326,670 |
| | $ | 231,564 |
|
Depreciation expense and repairs and maintenance were as follows:follows (dollars in thousands):
| | | | Fiscal Year Ended | | | | | | | |
| | 2013 | | 2012 | | 2011 | Fiscal Year Ended |
| | (Dollars in thousands) | 2016 | | 2015 | | 2014 |
| Depreciation expense | 64,756 |
| | 56,187 |
| | 55,727 |
| $ | 105,514 |
| | $ | 79,331 |
| | $ | 74,517 |
|
| Repairs and maintenance expense | 19,408 |
| | 15,623 |
| | 15,130 |
| $ | 29,487 |
| | $ | 22,054 |
| | $ | 21,829 |
|
7. Goodwill and Intangible Assets
Goodwill
The Company'sCompany’s goodwill balance was $267.8$310.2 million and $271.7 million as of July 27, 2013 and $174.8 million as of both July 28, 201230, 2016 and July 30, 2011.25, 2015, respectively. The increase in goodwill during fiscal 2016 was primarily from the acquisitions of TelCom and Goodman. Changes in the carrying amount of goodwill for fiscal 2013 are2016 and 2015 were as follows:
follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | Fiscal 2013 Changes | | |
| | As of | | As of | | Impairment | | | | As of |
| | July 30, 2011 | | July 28, 2012 | | Losses | | Acquisitions | | July 27, 2013 |
| | (Dollars in thousands) |
| Goodwill | $ | 370,616 |
| | $ | 370,616 |
| | $ | — |
| | $ | 92,961 |
| | $ | 463,577 |
|
| Accumulated impairment losses | (195,767 | ) | | (195,767 | ) | | — |
| | — |
| | (195,767 | ) |
| | $ | 174,849 |
| | $ | 174,849 |
| | $ | — |
| | $ | 92,961 |
| | $ | 267,810 |
|
|
| | | | | | | | | | | |
| | Goodwill | | Accumulated Impairment Losses | | Total |
| Balance as of July 26, 2014 | $ | 464,855 |
| | $ | (195,767 | ) | | $ | 269,088 |
|
| Purchase price allocation adjustments | 377 |
| | — |
| | 377 |
|
| Goodwill from fiscal 2015 acquisitions | 2,188 |
| | — |
| | 2,188 |
|
| Balance as of July 25, 2015 | 467,420 |
| | (195,767 | ) | | 271,653 |
|
| Purchase price allocation adjustments | 101 |
| | — |
| | 101 |
|
| Goodwill from fiscal 2016 acquisitions | 38,403 |
| | — |
| | 38,403 |
|
| Balance as of July 30, 2016 | $ | 505,924 |
| | $ | (195,767 | ) | | $ | 310,157 |
|
The carrying valuefull amount of goodwill increased as a resultfrom the fiscal 2016 and 2015 acquisitions is expected to be deductible for tax purposes. Goodwill largely consists of expected synergies resulting from the acquisitions, including the expansion of the Company's fiscal 2013 acquisitions. Company’s geographic scope and strengthening of its customer base.
The Company'sCompany’s goodwill resides in multiple reporting units. Goodwill and other indefinite-lived intangible assets are assessed annually for impairment as of the first day of the fourth fiscal quarter of each year, 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 fromdue to downturns in customer demand and other factors resulting from the cyclical nature of the Company's business, the high level of competition existing within the Company's industry, the concentration of the Company's revenues from a limited number of customers, and the level of overall economic activity including, in particular, construction and housing activity. During times of slowing economic conditions, the Company'sThe Company’s customers may reduce capital expenditures and defer or cancel pending projects. Individualprojects during times of slowing economic conditions. 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 may be relatively more impacted by these factors thandisproportionately, relative to the Company as a whole. As a result, demand for the servicesperformance of one or more of the Company's reporting units could decline, resulting in an impairment of goodwill or intangible assets. The reporting units goodwill and other related indefinite-lived intangible assets are assessed annually as of the first day of the fourth fiscal quarter of each year in accordance with ASC Topic 350, Intangibles – Goodwill and Other, in order to determine whether their carrying value exceeds their fair value. 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.
The Company performed its annual impairment assessment as of the first day of the fourth quarter of each of fiscal 2013, 2012 and 2011 and concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit in each of fiscal 2013, 2012 and 2011. During fiscal 2013, the Company performed qualitative assessments on reporting units that comprise less than 30% of its consolidated goodwill balance. The 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. The key valuation assumptions contributing to the fair value estimates of the Company's reporting units were (a) a discount rate based on the Company's best estimate of the weighted average cost of capital adjusted for risks associated with the reporting units; (b) terminal value based on terminal growth rates; and (c) seven expected years of cash flow before the terminal value for each annual test. The table below outlines the key assumptions in each of the Company's fiscal 2013, 2012 and 2011 annual quantitative impairment analyses:
|
| | | | | |
| | 2013 | | 2012 | | 2011 |
| Terminal Growth Rate Range | 1.5% - 2.5% | | 1.5% - 3% | | 1.5% - 3% |
| Discount Rate | 11.5% | | 13.0% | | 13.5% |
The discount rate reflects risks inherent within each reporting unit operating individually, which is greater than the risks inherent in the Company as a whole. The decreases in discount rates in both fiscal 2013 and fiscal 2012 are a result of reduced risk relative to industry conditions and a lower interest rate environment at the time of the analysis. 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 within its industry.
For businesses acquired in fiscal 2013, there were no significant changes in forecast assumptions between the initial valuation date and the annual impairment analysis. As a result, the estimated fair values determined during the fiscal 2013 annual impairment analysis approximated the reporting units' carrying values. Excluding these businesses, if the discount rate applied in the fiscal 2013 impairment analysis had been 100 basis points higher than estimated for each reporting unit and all other assumptions were held constant, the conclusion would remain unchanged and there would be no impairment of goodwill or the indefinite-lived intangible asset.
The UtiliQuest reporting unit, having a goodwill balance of approximately $35.6 million and an indefinite-lived trade name of $4.7 million, has been at lower operating levels as compared to historical levels. The fair value of the UtiliQuest reporting unit exceeds its carrying value by approximately 20%. The UtiliQuest reporting unit provides services to a broad range of customers, including utilities and telecommunication providers. These services are required prior to underground excavation and are influenced by overall economic activity, including construction activity. The goodwill balance of this reporting unit may have an increased likelihood of impairment if a downturn in customer demand were to occur, or if the reporting unit 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 for this reporting unit may result in changes to other valuation assumptions. As of July 27, 2013, the Company believes the goodwill is recoverable for all of its reporting units; however, there can be no assurances that the goodwill will not be impaired in future periods.
Currentevaluates current operating results, including any losses, are evaluated by the Company 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 a significantly different estimateestimates of the fair value of the reporting units and could result in impairments of goodwill or intangible assets at additionalof the reporting units. Additionally,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 performed its annual impairment assessment as of the first day of the fourth quarter of each of fiscal 2016, 2015, and 2014 and concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit for any of the years. Qualitative assessments on reporting units that comprise a substantial portion of the Company’s consolidated goodwill balance and on its indefinite-lived intangible asset were performed. 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 economy and future volatilityfair 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. Under the equity and credit markets could impactincome approach, the key valuation assumptions used in determining the fair value estimates of the Company's reporting units.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 terminal growth rates; and (c) seven expected years of cash flow before the
terminal value. The table below outlines certain assumptions in each of the Company's fiscal 2016, 2015, and 2014 annual quantitative impairment analyses:
|
| | | | | |
| | 2016 | | 2015 | | 2014 |
| Terminal Growth Rate Range | 2.0% - 3.0% | | 1.5% - 2.5% | | 1.5% - 3.0% |
| Discount Rate | 11.5% | | 11.5% | | 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. The fiscal 2016, 2015, and 2014 analyses used the same discount rate and included consideration of market inputs such as the risk-free rate, equity risk premium, industry premium, and cost of debt, among other assumptions. The changes in these inputs from fiscal 2016, 2015 and 2014 had offsetting impacts and the discount rate remained at 11.5%. The Company believes the assumptions used in the impairment analysis each year are reflective of the risks inherent in the business models of the reporting units and within the industry. Under the market approach, the guideline company method develops valuation multiples by comparing the reporting units to similar publicly traded companies. Key valuation assumptions and valuation multiples used in determining the fair value estimates of the 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 were substantially in excess of their carrying values in the fiscal 2016 annual 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 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. Additionally, if the discount rate applied in the fiscal 2016 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. As of July 30, 2016, the Company believes the goodwill is recoverable for all of the reporting units; however, there can providebe no assurances that if such conditions occur, they willgoodwill may not trigger impairments of goodwill or other intangible assetsbe impaired in future periods.
Intangible Assets
The Company'sCompany’s intangible assets consistconsisted of the following:following (dollars in thousands): | | | | Weighted Average Remaining Useful Lives | | July 27,
2013 | | July 28,
2012 | Weighted Average Remaining Useful Lives (In years) | | July 30, 2016 | | July 25, 2015 |
| | (Years) | | (Dollars in thousands) | |
| Carrying amount: | | | | | |
| Gross carrying amount: | | | | | |
| Customer relationships | 12.4 | | $ | 164,497 |
| | $ | 89,145 |
| 12.7 | | $ | 289,955 |
| | $ | 195,375 |
|
| Contract backlog | 2.3 | | 15,285 |
| | — |
| 0.3 | | 4,780 |
| | 8,076 |
|
| Trade names | 5.1 | | 8,200 |
| | 2,860 |
| 7.1 | | 9,800 |
| | 8,200 |
|
| UtiliQuest trade name | — | | 4,700 |
| | 4,700 |
| — | | 4,700 |
| | 4,700 |
|
| Non-compete agreements | 4.3 | | 400 |
| | 150 |
| 2.6 | | 685 |
| | 635 |
|
| | | 193,082 |
| | 96,855 |
| | 309,920 |
| | 216,986 |
|
| Accumulated amortization: | | |
| | |
| | |
| | |
|
| Customer relationships | | 56,219 |
| | 45,852 |
| | 101,012 |
| | 83,772 |
|
| Contract backlog | | 9,433 |
| | — |
| | 4,666 |
| | 7,381 |
|
| Trade names | | 2,071 |
| | 1,182 |
| | 6,034 |
| | 4,650 |
|
| Non-compete agreements | | 84 |
| | 48 |
| | 329 |
| | 257 |
|
| | | | 112,041 |
| | 96,060 |
|
| Net Intangible Assets | | $ | 125,275 |
| | $ | 49,773 |
| | $ | 197,879 |
| | $ | 120,926 |
|
During fiscal 2016, the gross carrying amount of intangible assets for customer relationships, trade names, and non-compete agreements increased $94.6 million, $1.6 million, and $0.2 million, respectively, for businesses acquired during fiscal 2016. During fiscal 2016, certain contract backlog intangible assets and non-compete agreement intangible assets became fully
amortized. As a result, the gross carrying amount and the associated accumulated amortization decreased $3.4 million. This decrease had no effect on the net carrying value of intangible assets.
Amortization of the Company's intangible assets ofCompany’s customer relationshipsrelationship intangibles and contract backlog intangibles is recognized on an accelerated basis related toas a function of the expected economic benefit. As a result, the weighted average remaining useful lives for these intangible assets is not representative of the average period in which the amortization expense will be recognized. Amortization
for the Company'sCompany’s other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life of the intangible asset.
The carrying amount of customer relationships, contract backlog, trade names and non-compete agreements increased $75.4 million, $15.3 million, $5.3 million, and $0.3 million, respectively, during fiscal 2013 as a result of the businesses acquired in fiscal 2013. The acquired customer relationships, contract backlog, trade names, and non-compete agreements have been assigned estimated useful lives of 15 years, 1-4 years (based on remaining contract terms), 5 years, and 5 years, respectively.life. Amortization expense for finite-lived intangible assets was $19.4 million, $16.7 million, and $18.3 million for fiscal 2013, 20122016, 2015, and 2011 was $20.7 million, $6.5 million, and $6.8 million,2014, respectively.
EstimatedAs of July 30, 2016, total amortization expense for existing finite-lived intangible assets for each of the five succeeding fiscal years and thereafter is as follows (including amortization for the newly acquired businesses based on the purchase price allocations as of July 27, 2013)(dollars in thousands):
|
| | |
| Period | | Amount |
| | | (Dollars in thousands) |
| 2014 | | $18,125 |
| 2015 | | $15,035 |
| 2016 | | $14,315 |
| 2017 | | $12,893 |
| 2018 | | $10,705 |
| Thereafter | | $49,502 |
|
| | | | |
| | | Amount |
| 2017 | | $ | 24,374 |
|
| 2018 | | 22,073 |
|
| 2019 | | 19,719 |
|
| 2020 | | 18,810 |
|
| 2021 | | 17,394 |
|
| Thereafter | | 90,809 |
|
| Total | | $ | 193,179 |
|
As of July 27, 2013,30, 2016, the Company believes that the carrying amounts of theits 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.
8. Accrued Insurance Claims
TheFor claims within its insurance program, the Company retains the risk of loss, up to certain limits, for claims relatingmatters related to automobile liability, general liability (including damages associated with underground facility locating services), workers’ compensation, and employee group health, and locate damages.health. With regard to losses occurring in fiscal 20112014 through fiscal 2013,2016, the Company retains the risk of loss up to $1.0$1.0 million on a per occurrence basis for automobile liability, general liability, and workers’ compensation. The Company has maintained this same level of retention for fiscal 2014.2017. These retention amounts are applicable to all of the states in which the Company operates, except with respect to workers’ compensation insurance in threetwo states in which the Company participates in a state-sponsored insurance fund.funds. Aggregate stop lossstop-loss coverage for automobile liability, general liability, and workers’ compensation claims was $84.6 million for fiscal 2016 and is $52.5$103.7 million for fiscal 2013 and $56.3 million for fiscal 2014. Quanta Services, Inc. has retained the risk of loss for insured claims of the Acquired Subsidiaries outstanding, or incurred but not reported, as of the date of acquisition.2017.
For losses under the Company's employee health plan, theThe Company is party to a stop-loss agreement for losses under which itits employee group health plan. For calendar year 2014 and 2015, the Company retained the risk of loss up to the first $250,000 of claims per participant as well as an annual aggregate amount. With regard to losses occurring in calendar year 2016, the Company retains the risk of loss, on an annual basis, ofup to the first $250,000400,000 of claims per participant. In addition, the Company retains the risk of loss for the first $550,000 of claim amounts thatparticipant as well as an annual aggregate across all participants having claims that exceed $250,000.amount.
AccruedThe liability for total accrued insurance claims consistand related processing costs was $89.7 million and $87.3 million as of July 30, 2016 and July 25, 2015, respectively, of which $52.8 million and $51.5 million, respectively, was long-term and reflected in non-current liabilities in the following:consolidated financial statements. Insurance recoveries/receivables related to accrued claims as of July 30, 2016 and July 25, 2015 were $5.7 million and $9.5 million, respectively, of which $5.7 million and $8.9 million, respectively, was included in non-current other assets in the accompanying consolidated balance sheets. As of July 25, 2015 $0.6 million of insurance recoveries/receivables was included in other current assets.
|
| | | | | | | |
| | July 27,
2013 | | July 28,
2012 |
| | (Dollars in thousands) |
| Amounts expected to be paid within one year: | | | |
| Accrued auto, general liability and workers' compensation | $ | 19,328 |
| | $ | 16,514 |
|
| Accrued employee group health | 3,710 |
| | 2,867 |
|
| Accrued damage claims | 6,031 |
| | 5,837 |
|
| | 29,069 |
| | 25,218 |
|
| Amounts expected to be paid beyond one year: | |
| | |
|
| Accrued auto, general liability and workers' compensation | 25,245 |
| | 21,423 |
|
| Accrued damage claims | 2,005 |
| | 2,168 |
|
| | 27,250 |
| | 23,591 |
|
| Total accrued insurance claims | $ | 56,319 |
| | $ | 48,809 |
|
9. Other Accrued Liabilities
Other accrued liabilities consistconsisted of the following:following (dollars in thousands):
|
| | | | | | | |
| | July 27,
2013 | | July 28,
2012 |
| | (Dollars in thousands) |
| Accrued payroll and related taxes | $ | 19,940 |
| | $ | 19,248 |
|
| Accrued employee benefit and incentive plan costs | 15,325 |
| | 12,488 |
|
| Accrued construction costs | 20,883 |
| | 11,515 |
|
| Other current liabilities | 15,043 |
| | 7,675 |
|
| Total other accrued liabilities | $ | 71,191 |
| | $ | 50,926 |
|
Other current liabilities within the above table includes income taxes payable of $2.3 million as of July 27, 2013. |
| | | | | | | |
| | July 30, 2016 | | July 25, 2015 |
| Accrued payroll and related taxes | $ | 23,908 |
| | $ | 18,673 |
|
| Accrued employee benefit and incentive plan costs | 40,943 |
| | 29,528 |
|
| Accrued construction costs | 41,123 |
| | 26,395 |
|
| Other current liabilities | 16,328 |
| | 14,894 |
|
| Total other accrued liabilities | $ | 122,302 |
| | $ | 89,490 |
|
10. Debt
The Company’s outstanding indebtedness consistsconsisted of the following:following (dollars in thousands):
|
| | | | | | | |
| | July 27,
2013 | | July 28,
2012 |
| | (Dollars in thousands) |
| Borrowings on senior Credit Agreement (matures December 2017) | $ | 49,000 |
| | $ | — |
|
| Senior Credit Agreement Term Loan (matures December 2017) | 121,875 |
| | — |
|
| 7.125% senior subordinated notes due 2021 | 277,500 |
| | 187,500 |
|
| Long-term debt premium on 7.125% senior subordinated notes due 2021 | 3,607 |
| | — |
|
| Capital leases | — |
| | 74 |
|
| | 451,982 |
| | 187,574 |
|
| Less: current portion | (7,813 | ) | | (74 | ) |
| Long-term debt | $ | 444,169 |
| | $ | 187,500 |
|
Senior Subordinated Notes Due 2021 |
| | | | | | | |
| | July 30, 2016 | | July 25, 2015 |
| Credit Agreement - Revolving facility (matures April 2020) | $ | — |
| | $ | 95,250 |
|
| Credit Agreement - Term loan facilities (mature April 2020) | 346,250 |
| | 150,000 |
|
0.75% convertible senior notes, net (matures September 2021)(1) | 373,077 |
| | — |
|
7.125% senior subordinated notes, net(1) | — |
| | 272,559 |
|
| Long-term debt premium on 7.125% senior subordinated notes | — |
| | 2,841 |
|
| | 719,327 |
| | 520,650 |
|
| Less: current portion | (13,125 | ) | | (3,750 | ) |
| Long-term debt | $ | 706,202 |
| | $ | 516,900 |
|
On (1) July 28, 2012, Dycom Investments, Inc. (the "Issuer"), a wholly-owned subsidiaryDuring the fourth quarter of fiscal 2016, the Company had outstanding an aggregate principal amountearly adopted ASU 2015-03 which resulted in the classification of $187.5$1.2 million of 7.125%unamortized debt issuance costs related to the Company’s convertible senior notes as a direct deduction of long-term debt in the consolidated balance sheet as of July 30, 2016. In addition, $4.9 million of unamortized debt issuance costs related to the Company’s senior subordinated notes due 2021 that were issued under an indenture dated January 21, 2011 (the "Indenture"). On December 12, 2012, an additional $90.0 million in aggregate principal amount of 7.125% senior subordinated notes due 2021 were issued underoutstanding at July 25, 2015 was reclassified from other non-current assets to long-term debt within the Indenture at 104.25% of the principal amount. The resulting debt premium of $3.8 million is being amortized to interest expense over the remaining term of the notes, and was $3.6 millionconsolidated balance sheet as of July 27, 2013. The net proceeds of this issuance were used to repay a portion of the borrowings under the Company's new credit facility. Holders of all $277.5 million aggregate principal amount of the senior subordinated notes (the "2021 Notes") vote as one series under the Indenture.
The 2021 Notes are guaranteed by Dycom and substantially all of the Company's subsidiaries. The Indenture contains covenants that limit, among other things, the ability of the Company and its subsidiaries to incur additional debt and issue preferred stock, make certain restricted payments, consummate specified asset sales, enter into transactions with affiliates, incur liens, impose restrictions on the ability of the Company's subsidiaries to pay dividends or make payments to the Company and its restricted subsidiaries, merge or consolidate with another person, and dispose of all or substantially all of its assets.
The Company determined that the fair value of the 2021 Notes was approximately $292.4 million, on July 27, 2013, based on quoted market prices, as compared to a $281.1 million carrying value (including debt premium of $3.6 million). As of July 28, 2012, the fair value of the 2021 Notes was $192.0 million as compared to a carrying value of $187.5 million.25, 2015.
Senior Credit Agreement
On December 3, 2012 Dycom Industries, Inc.The Company and certain of its subsidiaries entered intoare party to a new, five-year credit agreement (the "Credit Agreement") with the various lenders.lenders named therein dated as of December 3, 2012 (as amended as of June 17, 2016, May 20, 2016, April 24, 2015 and September 9, 2015), that matures on April 24, 2020 (as amended, the “Credit Agreement”). The Credit Agreement matures in December 2017 and provides for a $125$450.0 million revolving facility, $350.0 million in aggregate term loan (the "Term Loan")facilities, and a $275 million revolving facility. The Credit Agreement contains a sublimit of $150$200.0 million for the issuance of letters of credit. Subject to certain conditions, the Credit Agreement provides forthe Company 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) $150.0 million and (ii) an amount such that, after giving effect to such incremental facility on a pro forma basis (assuming that the amount of the incremental commitments are fully drawn and funded), the consolidated senior secured leverage ratio does not exceed 2.25 to 1.00. The consolidated senior secured leverage ratio is the ratio of the Company’s consolidated senior secured indebtedness to its trailing twelve month consolidated earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as defined by the Credit Agreement. The incremental facilities can be in an aggregate amount not to exceed $100 million. the form of revolving commitments under the Credit Agreement and/or in the form of term loans. Payments 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.
Borrowings under the Credit Agreement can be usedbear interest at rates described below based upon the Company’s consolidated leverage ratio, which is the ratio of the Company’s consolidated total funded debt to refinance certain indebtedness, to provide general working capital, and for other general corporate purposes. The Company used borrowings underits trailing twelve month consolidated EBITDA, as defined by the Credit Agreement in connection withAgreement. In addition, the acquisitionCompany incurs certain fees for unused balances and letters of businesses acquired during fiscal 2013, includingcredit at the Acquired Subsidiaries.rates described below, also based upon the Company’s consolidated 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 | 0.25% - 0.40% |
| Standby Letters of Credit | 1.25% - 2.00% |
| Commercial Letters of Credit | 0.625% - 1.00% |
(1) The Credit Agreement replaced Dycom's prior credit agreement, dated as of June 4, 2010, which was due to expire in June 2015. At the time of termination, there were no outstanding borrowings and all outstanding letters of credit were transferred to the Credit Agreement. Dycom did not incur any material early termination penalties in connection with the termination of the prior credit agreement. The Company recognized $0.3 million in write-off of deferred financing costs during the second quarter of fiscal 2013 in connection with the replacement of the prior credit agreement.
Borrowings under the Credit Agreement (other than Swingline Loans (as defined in the Credit Agreement)) bear interest at a rate equal to either (a) the administrative agent'sagent’s base rate is described in the Credit Agreement as the highest of (i) the administrative agent'sagent’s prime rate, (ii) the Federal Funds Rate plus 0.50%, and (iii) a floating rate of interest equal to one month LIBOR plus 1.00%, or (b) the Eurodollar Rate,rate plus in each case,1.00%, plus an applicable margin based upon Dycom's consolidated leverage ratio. Swingline Loans bear interest at a rate equal tomargin.
Standby letters of credit of approximately $57.6 million and $54.4 million, issued as part of the administrative agent's base rate plus a margin based upon Dycom's consolidated leverage ratio. As of July 27, 2013, borrowings are eligible for a margin of 1.0% for borrowings based on the administrative agent's base rate and 2.0% for borrowings based on the Eurodollar Rate. BorrowingsCompany’s insurance program, were outstanding under the Credit Agreement are guaranteed by substantially allas of Dycom's subsidiariesJuly 30, 2016 and secured by the stock of each wholly-owned, domestic subsidiary (subject to specified exceptions).July 25, 2015, respectively. The Company incursweighted average interest rates and fees for balances under the Credit Agreement for the unutilized commitments at rates that range from as of July 30, 2016 and July 25, 2015 were as follows:
|
| | | |
| | Weighted Average Rate End of Period |
| | July 30, 2016 | | July 25, 2015 |
| Borrowings - Term loan facilities | 2.49% | | 1.94% |
Borrowings - Revolving facility(1) | —% | | 2.02% |
| Standby Letters of Credit | 2.00% | | 1.75% |
| Unused Revolver | 0.40% | | 0.35% |
(1) 0.25% to 0.40% per annum, fees for outstanding standby letters of credit at rates that range from 1.50% to 2.25% per annum and fees for outstanding commercial letters of credit at rates that range from 0.75% to 1.125% per annum, in each case based on the Company's consolidated leverage ratio. As of July 27, 2013, $49.0 million ofThere were no outstanding borrowings (andunder the Term Loan) were based on the Eurodollar Rate at a rate per annumrevolving facility as of 2.19%. Unutilized commitments and outstanding standby letters of credit were at rates per annum of 0.35% and 2.0%, respectively.July 30, 2016.
The Credit Agreement contains affirmative and negative covenants which are customary for similar credit agreements, including, without limitation, limitations on Dycom and its subsidiaries with respecta financial covenant that requires the Company to indebtedness, liens, investments, distributions, mergers and acquisitions, disposition of assets, sale-leaseback transactions, transactions with affiliates and capital expenditures. The Credit Agreement contains financial covenants which require Dycom to (i) maintain a consolidated leverage ratio of not greater than (a) 3.50 to 1.00 for fiscal quarters ending July 27, 2013 through April 26, 2014, (b) 3.25 to 1.00 for fiscal quarters ending July 26, 2014 through April 25, 2015 and (c) 3.00 to 1.00 for fiscal quarters ending July 25, 2015 and each fiscal quarter thereafter, as measured on a trailing four-quarter basis at the end of each fiscal quarter, and (ii) maintain a consolidated interest coverage ratio of not less than 3.00 to 1.00, as measured at the end of each fiscal quarter.
The Term Loan is subject It provides for certain increases to annual amortization payablethis ratio in equal quarterly installments of principal. Contractual maturitiesconnection with permitted acquisitions on the Company's outstanding indebtedness, includingterms and conditions specified in the Term Loan and excluding issue premium, as of July 27, 2013 is as follows:
|
| | |
| Period | | Amount |
| | | (Dollars in thousands) |
| 2014 | | $7,813 |
| 2015 | | $10,938 |
| 2016 | | $14,062 |
| 2017 | | $17,187 |
| 2018 | | $120,875 |
| Thereafter | | $277,500 |
On July 27, 2013 and July 28, 2012, the Company had $46.7 million and $38.5 million, respectively, of outstanding letters of credit issued underCredit Agreement. In addition, the Credit Agreement and prior credit agreement, respectively. The outstanding letters of credit are issued as partcontains a financial covenant that requires the Company to maintain a consolidated interest coverage ratio, which is the ratio of the Company's insurance program.Company’s trailing twelve-month consolidated EBITDA to its consolidated interest expense, as defined by the Credit Agreement, of not less than 3.00 to 1.00, as measured at the end of each fiscal quarter. At July 27, 201330, 2016 and July 28, 2012,25, 2015, the Company was in compliance with the financial covenants of the applicable credit agreementCredit Agreement and had additional borrowing availability in the revolving facility of $179.3$392.4 million and $186.5$300.3 million,, respectively, as determined by the most restrictive covenants.
0.75% Convertible Senior Notes Due 2021
On September 15, 2015, the Company issued $485.0 million principal amount of 0.75% convertible senior notes due September 2021 (the “Notes”) in a private placement. The Company received net proceeds of approximately $471.7 million after deducting the initial purchasers’ discount of approximately $13.3 million. The Company used approximately $60.0 million of the net proceeds to repurchase 805,000 shares of its common stock from the initial purchasers of the Notes in privately negotiated transactions. In addition, the Company used approximately $296.6 million of the net proceeds to fund the redemption of all of its 7.125% senior subordinated notes and approximately $41.1 million for the net cost of convertible note hedge transactions and warrant transactions as further described below. The remainder of the proceeds of approximately $73.9 million is intended for general corporate purposes.
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 agreement.conversion price on such trading day; (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.
In accordance with ASC Topic 470, Debt (“ASC Topic 470”), certain convertible debt instruments that may be settled in cash upon conversion are required to be separately accounted for as 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 $14.7 million of interest expense during fiscal 2016 for the non-cash amortization of the debt discount. The equity component represents the difference between the principal amount of the Notes and the debt discount, both measured at issuance. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.
11. Income TaxesThe Notes consist of the following components (dollars in thousands):
|
| | | |
| | July 30, 2016 |
| Liability component | |
| Principal amount of 0.75% convertible senior notes due September 2021 | $ | 485,000 |
|
| Less: Debt discount | (101,679 | ) |
Less: Debt issuance costs(1) | (10,244 | ) |
| Net carrying amount of Notes | $ | 373,077 |
|
Equity Component(2) | $ | 112,554 |
|
(1) Issuance costs of approximately $15.1 million related to the Notes included the initial purchasers’ discount of approximately $13.3 million and approximately $1.8 million paid to third parties. Approximately $11.5 million of issuance costs of the Notes was allocated to the liability component and recorded as a contra-liability, presented net against the carrying amount for the Notes on the Company’s consolidated balance sheet, of which $10.2 million remains unamortized as of July 30, 2016. Debt issuance costs attributable to the liability component are amortized to interest expense on the effective interest rate method over the term of the Notes. During fiscal 2016, the Company recorded $1.2 million related to the amortization of debt issuance costs of the Notes.
(2) Approximately $3.6 million of issuance costs paid to the initial purchasers of the Notes and third parties was allocated to the equity component and recorded net against the equity component in stockholders’ equity on the consolidated balance sheets.
The Company accounts for income taxes underdetermined that the assetfair value of the Notes as of July 30, 2016 was approximately $458.7 million, based on quoted market prices (level 2), compared to a $373.1 million net carrying amount. The fair value and liability method. This approach requiresnet carrying amount are both reflected net of the recognitiondebt discount of deferred tax assets$101.7 million and liabilitiesdebt issuance costs of $10.2 million as of July 30, 2016.
Convertible Note Hedge and Warrant Transactions
In connection with the offering of the Notes, the Company entered into convertible note hedge transactions with counterparties for the expected future tax consequencespurpose of temporary differences betweenreducing the carrying amounts and the tax basis of assets and liabilities. The Company’s effective income tax rate differspotential dilution to common stockholders from the statutory rate for the tax jurisdictions where it operates primarily as the resultconversion of the impactNotes and offsetting any potential cash payments in excess of non-deductible and non-taxable items and tax credits recognizedthe 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 relationthe indenture, counterparties to pre-tax results. Measurement of certain aspectsthe convertible note hedge will be required to deliver up to 5.006 million shares of the Company’s tax positions arecommon 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 interpretationsa 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 the first quarter of fiscal 2016 and are not expected to be remeasured in subsequent reporting periods.
The Company recorded a deferred tax regulations, federalliability of $43.4 million in connection with the debt discount associated with the Notes and state case lawrecorded a 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 as of July 30, 2016.
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 statutes.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 the first quarter of 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.
11. Income Taxes
The components of the provision (benefit) for income taxes arewere as follows:follows (dollars in thousands):
| | | | Fiscal Year Ended | | | | | | | |
| | 2013 | | 2012 | | 2011 | Fiscal Year Ended |
| | (Dollars in thousands) | 2016 | | 2015 | | 2014 |
| Current: | | | | | | | | | | |
| Federal | $ | 22,173 |
| | $ | 11,263 |
| | $ | (3,116 | ) | $ | 42,096 |
| | $ | 42,516 |
| | $ | 27,161 |
|
| Foreign | 406 |
| | 568 |
| | — |
| 310 |
| | 502 |
| | 416 |
|
| State | 2,702 |
| | 3,478 |
| | 765 |
| 8,399 |
| | 6,998 |
| | 5,087 |
|
| | 25,281 |
| | 15,309 |
| | (2,351 | ) | 50,805 |
| | 50,016 |
| | 32,664 |
|
| Deferred: | | | | | | | | | | |
| Federal | (2,866 | ) | | 9,392 |
| | 14,375 |
| 26,467 |
| | 305 |
| | (5,706 | ) |
| Foreign | 6 |
| | 49 |
| | 107 |
| (296 | ) | | 268 |
| | — |
|
| State | 590 |
| | 433 |
| | 246 |
| 611 |
| | 671 |
| | (617 | ) |
| | (2,270 | ) | | 9,874 |
| | 14,728 |
| 26,782 |
| | 1,244 |
| | (6,323 | ) |
| Total Tax Provision | $ | 23,011 |
| | $ | 25,183 |
| | $ | 12,377 |
| $ | 77,587 |
| | $ | 51,260 |
| | $ | 26,341 |
|
Substantially all of the Company's pre-taxThe Company is subject to federal income is from operationstaxes in the United States.States and the income taxes of multiple state jurisdictions and in Canada. There were immaterial amounts of pre-tax incomeearnings related to foreignCanadian operations for fiscal 2013, 2012,2016, 2015, and 2011.2014. 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 2012 and prior. During fiscal 2016, the Company was notified by the Internal Revenue Service that its federal income tax return for fiscal 2014 was selected for examination. The Company believes its provision for income taxes is adequate; however, any assessment would affect the Company’s results of operations and cash flows. The increase in deferred tax expense and related increase in deferred tax liabilities, net non-current, during fiscal 2016 was primarily related to the extension of bonus depreciation pursuant to the Protecting Americans from Tax Hikes Act of December 2015. Income taxes payable totaled $15.3 million and $8.9 million as of July 30, 2016 and July 25, 2015, respectively. Income taxes receivable totaled $1.4 million and $2.1 million as of July 30, 2016 and July 25, 2015, respectively, and are included in current assets in the consolidated balance sheets.
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 are comprisedconsisted of the following:
following (dollars in thousands):
| | | | July 27, 2013 | | July 28, 2012 | | | | | |
| | (Dollars in thousands) | July 30, 2016 | | July 25, 2015 |
| Deferred tax assets: | | | | | | |
| Insurance and other reserves | $ | 23,089 |
| | $ | 22,014 |
| $ | 33,847 |
| | $ | 31,222 |
|
| Allowance for doubtful accounts and reserves | 427 |
| | 484 |
| 1,013 |
| | 1,047 |
|
| Net operating loss carryforwards | 1,183 |
| | 1,473 |
| 1,151 |
| | 1,443 |
|
| Stock-based compensation | 4,231 |
| | 2,705 |
| 6,424 |
| | 5,149 |
|
| Other | 1,800 |
| | 1,673 |
| 1,363 |
| | 1,303 |
|
| Total deferred tax assets | 30,730 |
| | 28,349 |
| 43,798 |
| | 40,164 |
|
| Valuation allowance | (1,788 | ) | | (1,696 | ) | (358 | ) | | (870 | ) |
| Deferred tax assets, net of valuation allowance | $ | 28,942 |
| | $ | 26,653 |
| $ | 43,440 |
| | $ | 39,294 |
|
| Deferred tax liabilities: | | | | | | |
| Property and equipment | $ | 36,491 |
| | $ | 35,832 |
| $ | 63,926 |
| | $ | 34,702 |
|
| Goodwill and intangibles | 23,498 |
| | 24,039 |
| 32,632 |
| | 29,930 |
|
| Other | 712 |
| | 686 |
| 736 |
| | 1,420 |
|
| Deferred tax liabilities | $ | 60,701 |
| | $ | 60,557 |
| $ | 97,294 |
| | $ | 66,052 |
|
| | | | | | | |
| Net deferred tax liabilities | $ | (31,759 | ) | | $ | (33,904 | ) | $ | 53,854 |
| | $ | 26,758 |
|
The above 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. Prior to fiscal 2009, the Company incurred non-cash impairment charges on an investment for financial statement purposes and recorded a deferred tax asset reflecting the tax benefits of those impairment charges. During the first quarter of fiscal 2010, the investment became impaired for tax purposes and the Company determined that it was more likely than not that the associated tax benefit would not be realized prior to its eventual expiration. Accordingly, the Company recognized a non-cash income tax charge of $1.1 million for aThe valuation allowance of the associated deferred tax asset during fiscal 2010. During fiscal 2012, the Company was ableprimarily relates to utilize approximately $0.3 million of the underlying tax asset. As a result, there is $0.8 million remaining in the valuation allowance related to the investment as of July 27, 2013. As of July 27, 2013, the Company had immaterial state net operating loss carryforwards, which generally begin to expire in fiscal 2022.
The difference between the total tax provision and the amount computed by applying the statutory federal income tax rates to pre-tax income is as follows:
follows (dollars in thousands):
| | | | Fiscal Year Ended | | | | | | | |
| | 2013 | | 2012 | | 2011 | Fiscal Year Ended |
| | (Dollars in thousands) | 2016 | | 2015 | | 2014 |
| Statutory rate applied to pre-tax income | $ | 20,370 |
| | $ | 22,600 |
| | $ | 9,970 |
| $ | 72,214 |
| | $ | 47,454 |
| | $ | 23,212 |
|
| State taxes, net of federal tax benefit | 2,271 |
| | 2,766 |
| | 659 |
| 7,398 |
| | 5,159 |
| | 2,863 |
|
| Non-deductible and non-taxable items | 366 |
| | 208 |
| | 1,517 |
| |
| Non-taxable and non-deductible items, net | | (2,013 | ) | | (1,220 | ) | | 491 |
|
| Change in accruals for uncertain tax positions | 153 |
| | 93 |
| | 53 |
| 113 |
| | (74 | ) | | 53 |
|
| Valuation allowance of deferred tax asset | — |
| | (313 | ) | | — |
| |
| Other items, net | (149 | ) | | (171 | ) | | 178 |
| (125 | ) | | (59 | ) | | (278 | ) |
| Total tax provision | $ | 23,011 |
| | $ | 25,183 |
| | $ | 12,377 |
| $ | 77,587 |
| | $ | 51,260 |
| | $ | 26,341 |
|
As of July 30, 2016 and July 25, 2015, the Company had total unrecognized tax benefits of $2.4 million and $2.3 million, respectively, resulting from uncertain tax positions. The Company’s effective tax rate will be reduced during future periods if it is determined these tax benefits are realizable. The Company files incomehad approximately $1.0 million and $0.9 million accrued for the payment of interest and penalties as of July 30, 2016 and July 25, 2015, respectively. Interest expense related to unrecognized tax returns in the U.S. federal jurisdiction, multiple state jurisdictions and in Canada. With limited exceptions, the Company is no longer subject to U.S. federal and most state and local income tax examinationsbenefits for fiscal years ended 2009 and prior. The Company believes its provision for income taxes is adequate; however, any significant assessment could affect the Company’s results of operations and cash flows. During fiscal 2012 the Company was notified by the Internal Revenue Service ("IRS") that its federal income tax return for a recent period was selected for examination. The IRS completed its examination during the fourth quarter of fiscal 2013. The Company received a "no change" letter as a result of this examination as the IRS did not propose any adjustments.
In the normal course of business, tax positions exist for which the ultimate outcome is uncertain. The Company establishes reserves against some or all of the tax benefit of the Company's tax positions at the time the Company determines that the ultimate outcome becomes uncertain. For purposes of evaluating whether a tax position is uncertain, management presumes the tax position will be examined by the relevant taxing authority; the technical merits of a tax position are derived from authorities in the tax law and their applicability to the facts and circumstances of the tax position; and each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken. A number of years may elapse before a particular uncertain tax position is audited and finally resolved or when a tax assessment is raised. The number of years subject to tax assessments varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a failure to meet the "more likely than not" recognition threshold would be recognized in the Company's income tax expense in the first interim period when the uncertainty disappears, when the matter is effectively settled, or when the applicable statue of limitations expires.immaterial.
A summary of unrecognized tax benefits is as follows:follows (dollars in thousands):
| | | | Fiscal Year Ended | | | | | | | |
| | 2013 | | 2012 | | 2011 | Fiscal Year Ended |
| | (Dollars in thousands) | 2016 | | 2015 | | 2014 |
| Balance at beginning of year | $ | 2,194 |
| | $ | 2,054 |
| | $ | 1,977 |
| $ | 2,327 |
| | $ | 2,401 |
| | $ | 2,348 |
|
| Additions based on tax positions related to the fiscal year | 155 |
| | 154 |
| | 226 |
| 161 |
| | 44 |
| | 137 |
|
| Additions based on tax positions related to prior years | 19 |
| | 6 |
| | 36 |
| |
| Reductions related to the expiration of statues of limitation | (20 | ) | | (20 | ) | | (185 | ) | |
| Additions (reductions) based on tax positions related to prior years | | 86 |
| | (98 | ) | | 10 |
|
| Reductions related to the expiration of statutes of limitation | | (134 | ) | | (20 | ) | | (94 | ) |
| Balance at end of year | $ | 2,348 |
| | $ | 2,194 |
| | $ | 2,054 |
| $ | 2,440 |
| | $ | 2,327 |
| | $ | 2,401 |
|
As of July 27, 2013 and July 28, 2012, the Company had total unrecognized tax benefits of $2.3 million and $2.2 million, respectively, which would reduce the Company’s effective tax rate during future periods if it is subsequently determined that those liabilities were not required. The Company had approximately $0.8 million and $0.6 million, respectively, for the payment of interest and penalties accrued at both July 27, 2013 and July 28, 2012. The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses. Interest expense related to unrecognized tax benefits was immaterial for each of fiscal 2013, 2012, and 2011.
12. Other Income, Net
The components of other income, net, arewere as follows:follows (dollars in thousands):
| | | | Fiscal Year Ended | | | | | | | |
| | 2013 | | 2012 | | 2011 | Fiscal Year Ended |
| | (Dollars in thousands) | 2016 | | 2015 | | 2014 |
| Gain on sale of fixed assets | $ | 4,683 |
| | $ | 15,430 |
| | $ | 10,216 |
| $ | 9,806 |
| | $ | 7,110 |
| | $ | 10,706 |
|
| Miscellaneous (expense) income, net | (94 | ) | | 395 |
| | 880 |
| |
| Miscellaneous income, net of other expense | | 627 |
| | 1,181 |
| | 522 |
|
| Total other income, net | $ | 4,589 |
| | $ | 15,825 |
| | $ | 11,096 |
| $ | 10,433 |
| | $ | 8,291 |
| | $ | 11,228 |
|
Included within miscellaneous expense above is $0.3 million in write-off of deferred financing costs recognized in connection with the replacement of the Company's prior credit agreement in fiscal 2013. See Note 10, Debt, for further information regarding the Company's debt financing.
13. Employee Benefit Plans
The Company sponsors a defined contribution plan that provides retirement benefits to eligible employees who elect to participate.participate (the “Dycom Plan”). Under the plan, participating employees may defer up to 15%75% of their base pre-tax compensation.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.plan and may make discretionary matching contributions from time to time. The Company'sCompany’s contributions were $1.6$4.8 million,, $1.2 $4.0 million,, and $1.0$1.9 million in related to the fiscal 2013, 2012,2016, 2015, and 20112014 periods, respectively.
In addition, in connection with the businesses acquired in fiscal 2013, the Company assumed the obligation to make future contributions under an employee benefit plan in effect for certain hourly employees. Contributions for fiscal 20132015 and 2014 under this plan were $0.8$0.8 million. and $1.2 million, respectively. This plan was merged into the Dycom Plan in the fourth quarter of fiscal 2015.
The Company contributesCertain of the Company’s subsidiaries contribute amounts to several multiemployer defined benefit pension plans under the terms of collective bargaining agreements ("CBA"(“CBA”) that cover certain employees represented by unions.
The risks of participating Contributions are generally based on fixed amounts per hour per employee for employees covered by the plan. Participating in a multiemployer plan areentails 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 inherited byallocated to the remaining participating employers; and
if the Company stops participating in the multiemployer plan or ceases to have an obligation to contribute to the plan, the Company may be required to pay the plan an amount based on the underfunded status of the plan,plan. This payment is referred to as a withdrawal liability.
The information available to the Company about the multiemployer plans in which it participates whether via request to the plan or publicly available, 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"(“ERISA”) as amended by the Multiemployer Pension Plan Amendments Act ("MPPAA"(“MPPAA”). Based upon these plans'the most recently available annual reports, the Company'sCompany’s contribution to each of the plans was less than 5% of each such plansplans’ total contributions. The Pension, Hospitalization and Benefit Plan of the Electrical Industry – Pension Trust Fund ("“the Plan"Plan”) was considered individually significant and is presented separately below. All other plans are presented in the aggregate.aggregate in the following table (dollars in thousands):
| | | | | PPA Zone Status (a) | | Company Contributions (in thousands) | | Expiration Date of CBA | | PPA Zone Status(1) | | Company Contributions | | Expiration Date of CBA |
| Fund | | EIN | | 2012 | | 2011 | | FIP/RP Status (b) | | 2013 | | 2012 | | 2011 | | Surcharge Imposed | | | EIN | | 2015 | | 2014 | | FIP/RP Status(2) | | 2016 | | 2015 | | 2014 | | Surcharge Imposed | |
| The Plan | | 13-6123601 | | Green | | Green | | No | | $ | 2,962 |
| | $2,882 | | $ | 3,811 |
| | No | | 05/05/2016 | | 13-6123601 | | Green | | Green | | No | | $ | 3,057 |
| | $ | 3,852 |
| | $ | 3,044 |
| | No | | 05/05/2016 |
Other Plans (c) | | 243 |
| | — | | — |
| | various | | 622 |
| | 934 |
| | 635 |
| | Various |
| Total Contributions | | $ | 3,205 |
| | $2,882 | | $ | 3,811 |
| | | $ | 3,679 |
| | $ | 4,786 |
| | $ | 3,679 |
| |
(a)(1)The most recent Pension Protection Act (the "PPA"“PPA”) zone status was provided by the Plan for Plan years ending 2012,September 30, 2015 and 2011September 30, 2014, respectively. The zone status is based on information that the Company received fromprovided by the Plan and is certified by the Plan'sPlan’s actuary. Generally, plans in the red zone are less thatthan 65% funded, plans in the yellow zone are between 65% and 80% funded, and plans in the green zone are at least 80% funded.
(b)(2)The "FIR/“FIR/RP Status"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.
(c)As a resultIn the fourth quarter of fiscal 2016, one of the acquisition ofCompany’s subsidiaries, which previously contributed to the Acquired Subsidiaries,Plan, ceased operations. The Company does not expect to incur a withdrawal liability under the Plan because the Company contributes to variousbelieves there is a statutory exemption available under ERISA for multiemployer pension plans forthat primarily cover employees of certain of the Acquired Subsidiaries. Contribution requirements to these multiemployer plans are specified in the applicable collective bargaining agreements,building and are typically assessed onconstruction industry. However, there can be no assurance that the Plan will not make a pay-as-you-go basis based on union employee payrolls, which vary depending on location and union resources neededclaim for withdrawal liability or that, if made, the Company will be successful in connection with certain projects.asserting the statutory exemption as a defense.
The Company has not incurred withdrawal liabilities related to the plans as of July 27, 2013.
14. Capital Stock
DuringRepurchases of Common Stock fiscal 2013-, 2012 and 2011, theThe Company made the following share repurchases under its share repurchase programs:during fiscal 2016, 2015, and 2014:
|
| | | | | | | | | | | |
| Fiscal Year Ended | | Number of Shares Repurchased | | Total Consideration
(Dollars in thousands) | | Average Price Per Share |
| July 30, 2011 | | 5,389,500 |
| | $ | 64,548 |
| | $ | 11.98 |
|
| July 28, 2012 | | 597,700 |
| | $ | 12,960 |
| | $ | 21.68 |
|
| July 27, 2013 | | 1,047,000 |
| | $ | 15,203 |
| | $ | 14.52 |
|
|
| | | | | | | | | | | |
| Period | | Number of Shares Repurchased | | Total Consideration (In thousands) | | Average Price Per Share |
| Fiscal 2014 | | 360,900 |
| | $ | 9,999 |
| | $ | 27.71 |
|
| Fiscal 2015 | | 1,669,924 |
| | $ | 87,146 |
| | $ | 52.19 |
|
| Fiscal 2016 | | 2,511,578 |
| | $ | 169,997 |
| | $ | 67.69 |
|
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 spent during fiscal 2016 was for shares repurchased under authorized share repurchase programs. All shares repurchased during fiscal 2016 have been subsequently canceled. Upon cancellation, the excess over par value is recorded as a reduction in additional paid-in capital until the balance is reduced to zero, with any additional excess recorded to retained earnings. During fiscal 2016, $17.1 million was charged to retained earnings related to the Company’s share repurchases. As of July 27, 2013, approximately $22.830, 2016, $100.0 million of the $40.0 million authorized on March 15, 2012April 26, 2016 remained authorizedavailable for repurchases through September 15, 2013. On August 27, 2013, the Company announced that its Board of Directors had authorized $40.0 million to repurchase shares of the Company's outstanding common stock to be made over the next eighteen monthsOctober 2017 in open market or private transactions. The
Restricted Stock Tax Withholdings - During fiscal 2016, 2015, and 2014, the Company withheld 161,988 shares, 145,395 shares, and 136,604 shares, respectively, totaling $12.6 million, $4.7 million, and $3.8 million, respectively, to meet payroll tax withholdings obligations arising from the vesting of restricted share units. All shares withheld have been canceled. Shares withheld for tax withholdings do not reduce the Company’s total share repurchase authorization replaces the Company's previous repurchase authorization described above. As of September 12, 2013, the full $40.0 million remained authorized for repurchase.authority.
15. Stock-Based Awards
The Company has certain stock-based compensation plans which provide for the grants of equity awards, including stock options, restricted shares, performance shares, restricted share units, performance share units ("Performance RSUs") and stock appreciation rights.
On November 20, 2012, the shareholders of the Company approved the Dycom Industries, Inc. 2012 Long-Term Incentive Plan (the "2012 Plan"). The 2012 Plan authorizes 3,000,000 shares of common stock for equity awards to employees and officers of the Company. No new awards will be made under the Company's previous 2003 Long-Term Incentive Plan. As of July 27, 2013, the number of shares available for grant under the 2012 Plan was 1,837,179.
Compensation expense for stock-based awards is based on the fair value at the measurement date and is included in general and administrative expenses in the consolidated statements of operations. Stock-based compensation expense and the related tax benefit recognized and realized related to stock options and restricted share units during fiscal 2013, 2012,2016, 2015, and 20122014 were as follows:follows (dollars in thousands):
| | | | Fiscal Year Ended | | | | | | | |
| | 2013 | | 2012 | | 2011 | Fiscal Year Ended |
| | (Dollars in thousands) | 2016 | | 2015 | | 2014 |
| Stock-based compensation | $ | 9,902 |
| | $ | 6,952 |
| | $ | 4,409 |
| $ | 16,850 |
| | $ | 13,923 |
| | $ | 12,596 |
|
| Tax benefit recognized in the statement of operations | $ | 3,782 |
| | $ | 2,412 |
| | $ | 1,284 |
| $ | 6,436 |
| | $ | 5,458 |
| | $ | 4,819 |
|
| Cash tax benefit realized from option exercises and stock vestings | | $ | 18,097 |
| | $ | 13,976 |
| | $ | 7,116 |
|
The actual tax benefit realizedDuring fiscal 2016 and 2015, the Company recognized approximately $10.4 million and $8.5 million, respectively, in stock-based compensation expense in connection with certain performance-based target awards related to the fiscal 2016 performance criteria. In addition, during fiscal 2016, the Company recognized approximately $0.6 million in stock-based compensation expense in connection with supplemental shares for the tax deductions from option exercises and stock vestings totaled three$3.4 million, $2.8 million, and $0.7 million-year performance period ending fiscal 2016. The Company did not recognize any stock-based compensation expense in connection with supplemental shares during fiscal 2013, 2012, and 2011, respectively.2015 or 2014.
As of July 27, 2013,30, 2016, the Company had unrecognized compensation expense related to stock options, time-based restricted share units ("RSUs") and target Performance RSUs was $5.2 million, $6.8 million and $8.8 million, respectively. Compensation expense previously recognized with respect to Performance RSUs will be reversed to the extent the performance goals are not met. Unrecognized compensation expense related to stock options, RSUs, and target Performance RSUs (based on the Company’s estimate of performance goal achievement) of $2.9 million, $8.0 million, and $15.4 million, respectively. This expense will be recognized over a weighted-average periodnumber of 2.0years 3.1 yearsof 2.6, 2.7, and 1.2 years,1.4, respectively, which isbased on the weighted average remaining contractual termservice periods for RSUs and Performance RSUs. Thethe awards. As of July 30, 2016, the Company may recognize an additional $7.2$4.3 million in compensation expense related to Performance RSUsin future periods if the maximum amount of restricted share units arePerformance RSUs is earned based on certain performance goalsmeasures being met.
The following table summarizes the significant assumptions and the valuation of stock options and restricted share units granted during fiscal 2013, 2012,2016, 2015, and 2011:
2014 and the significant valuation assumptions:
| | | | Fiscal Year Ended | Fiscal Year Ended |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Weighted average fair value of RSUs granted | $ | 18.52 |
| | $ | 19.49 |
| | $ | 13.60 |
| $ | 72.41 |
| | $ | 31.42 |
| | $ | 27.54 |
|
| Weighted average fair value of Performance RSUs granted | $ | 18.08 |
| | $ | 19.47 |
| | $ | 10.60 |
| $ | 77.86 |
| | $ | 31.03 |
| | $ | 27.66 |
|
| Weighted average fair value of stock options granted | $ | 11.66 |
| | $ | 12.51 |
| | $ | 8.15 |
| $ | 78.20 |
| | $ | 19.48 |
| | $ | 17.43 |
|
| Stock option assumptions: | | | | | | | | | | |
| Risk-free interest rate | 1.6 | % | | 1.8 | % | | 2.3 | % | 2.0 | % | | 2.1 | % | | 2.7 | % |
| Expected life (years) | 9.3 |
| | 9.4 |
| | 6.8 |
| |
| Expected life (in years) | | 7.3 |
| | 8.8 |
| | 8.8 |
|
| Expected volatility | 55.4 | % | | 56.1 | % | | 58.6 | % | 55.0 | % | | 54.5 | % | | 55.1 | % |
| Expected dividends | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
Stock Options
The following table summarizes stock option award activity during fiscal 2013:
|
| | | | | | | | | | | | |
| | Stock Options |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| | | | | | (In years) | | (In thousands) |
| Outstanding as of July 28, 2012 | 3,298,747 |
| | $ | 17.08 |
| | | | |
| Granted | 144,155 |
| | $ | 18.47 |
| | | | |
| Options exercised | (544,162 | ) | | $ | 9.65 |
| | | | |
| Forfeited or canceled | (129,608 | ) | | $ | 24.62 |
| | | | |
| Outstanding as of July 27, 2013 | 2,769,132 |
| | $ | 18.27 |
| | 4.9 | | $ | 26,735 |
|
| | | | | | | | |
| Exercisable options as of July 27, 2013 | 1,878,315 |
| | $ | 20.33 |
| | 3.7 | | $ | 15,549 |
|
|
| | | | | | | | | | | | |
| | Stock Options |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (In years) | | Aggregate Intrinsic Value (In thousands) |
| Outstanding as of July 25, 2015 | 915,323 |
| | $ | 16.86 |
| | | | |
| Granted | 35,863 |
| | $ | 78.20 |
| | | | |
| Options exercised | (212,619 | ) | | $ | 12.91 |
| | | | |
| Canceled | (1,300 | ) | | $ | 13.88 |
| | | | |
| Outstanding as of July 30, 2016 | 737,267 |
| | $ | 20.99 |
| | 5.5 | | $ | 53,862 |
|
| | | | | | | | |
| Exercisable options as of July 30, 2016 | 553,495 |
| | $ | 15.63 |
| | 4.7 | | $ | 43,405 |
|
The total amount of exercisable options as of July 30, 2016 presented above reflectreflects the approximate amount of options expected to vest after giving effect to estimated forfeitures at an insignificant rate. The aggregate intrinsic values for stock options in thepresented above table are based on the Company’s closing stock price of $26.48$94.05 on July 26, 2013.29, 2016. These amounts represent the total intrinsic value that would have been received by the holders of the stock-based awards had the awards been exercised and sold as of that date, before anyexcluding applicable taxes. The total intrinsic value of stock options exercised was $6.0$15.0 million,, $6.4 $24.9 million, and $1.1$8.4 million for fiscal 2013, 2012,2016, 2015, and 2011,2014, respectively. The Company received cash from the exercise of stock options of $5.3$2.7 million,, $6.5 $8.9 million,, and $1.3$14.6 million during fiscal 2013, 2012,2016, 2015, and 2011,2014, respectively.
RSUs and Performance RSUs
RSUs and Performance RSUs are settled in one share of the Company’s common stock upon vesting. RSUs vest ratably over a period of four years and, upon each annual vesting, 50% of the newly vested shares (net of any shares used to satisfy tax withholding obligations) are restricted from sale or transferability ("restricted holdings"). The restrictions on sale or transferability of the restricted holdings will end 90 days after termination of employment of the holder. When the holder has accumulated restricted holdings having a value equal to or greater than the holder’s annual base salary then in effect, future grants will no longer be subject to the restriction on transferability.
The following table summarizes RSU and Performance RSU award activity during fiscal 2013:
2016:
| | | | Restricted Stock | Restricted Stock |
| | RSUs | | Performance RSUs | RSUs | | Performance RSUs |
| | Share Units | | Weighted Average Grant Price | | Aggregate Intrinsic Value | | Share Units | | Weighted Average Grant Price | | Aggregate Intrinsic Value | Share Units | | Weighted Average Grant Price | | Aggregate Intrinsic Value (In thousands) | | Share Units | | Weighted Average Grant Price | | Aggregate Intrinsic Value (In thousands) |
| |
| | | | (In thousands) | | | | | | (In thousands) | |
| Outstanding as of July 28, 2012 | 222,760 |
| | $ | 14.49 |
| | | | 774,264 |
| | $ | 18.76 |
| | | |
| Outstanding as of July 25, 2015 | | 322,008 |
| | $ | 24.46 |
| | | | 945,540 |
| | $ | 26.46 |
| | |
| Granted | 405,713 |
| | $ | 18.52 |
| | | | 831,390 |
| | $ | 18.08 |
| | | 92,429 |
| | $ | 72.41 |
| | | | 238,209 |
| | $ | 77.86 |
| | |
| Share units vested | (91,413 | ) | | $ | 12.79 |
| | | | (137,432 | ) | | $ | 18.23 |
| | | (139,921 | ) | | $ | 23.67 |
| | | | (361,998 | ) | | $ | 25.28 |
| | |
| Forfeited or canceled | (73,742 | ) | | $ | 17.69 |
| | | | (153,084 | ) | | $ | 18.36 |
| | | (23,252 | ) | | $ | 24.28 |
| | | | (195,780 | ) | | $ | 23.40 |
| | |
| Outstanding as of July 27, 2013 | 463,318 |
| | $ | 17.78 |
| | $ | 12,269 |
| | 1,315,138 |
| | $ | 18.44 |
| | $ | 34,825 |
| |
| Outstanding as of July 30, 2016 | | 251,264 |
| | $ | 42.56 |
| | $ | 23,631 |
| | 625,971 |
| | $ | 47.66 |
| | $ | 58,873 |
|
Included in the RSUThe total amount of granted Performance RSUs presented above consists of 170,304 target shares granted during fiscal 2013 was approximately 294,000to officers and employees and 67,905 supplemental shares at a weighted average grant price of $18.54granted to employeesofficers of the Acquired Subsidiaries as ofCompany and its subsidiaries. During fiscal 2016, the date of acquisition. The Performance RSUs in the above table represent the maximum number of awards that could vest, which is two hundred percent of the target awards. Accordingly, the target amountCompany canceled approximately 169,790 supplemental shares of Performance RSUs outstanding as of July 27, 2013 was 657,569. Approximately 265,000 Performance RSUs outstanding as of July 27, 2013 will be canceled during fiscal 201425, 2015, as a result of the fiscal 20132015 performance criteria for attaining supplemental shares not being met. The total amount of Performance RSUs outstanding as of July 30, 2016 consists of 500,681 target shares and 125,290 supplemental shares. Of the supplemental shares outstanding as of July 30, 2016, approximately 11,043 shares will vest and approximately 49,797 will be canceled in fiscal 2017 as a result of the fiscal 2016 performance criteria for attaining supplemental shares being partially met.
The unvested RSUs reflect the approximate amount of units expected to vest after giving effect to estimated forfeitures.forfeitures at an insignificant rate. The total fair value of restricted share units vested during fiscal 2013, 2012,2016, 2015, and 20112014 was $4.2$39.1 million,, $1.9 $15.2 million,, and $1.1$11.7 million,, respectively.
The aggregate intrinsic values presented above for restricted share units are based on the Company’s closing stock price of $26.48$94.05 on July 26, 2013.29, 2016. These amounts represent the total intrinsic value that would have been received by the holders of the stock-based awards had the awards been exercised and sold as of that date, before anyexcluding applicable taxes.
16. Related Party Transactions
The Company leases administrative offices from entities related to officers of certain of the Company’s subsidiaries. The total expense under these arrangements for fiscal 2013, 2012, and 2011 was $1.9 million, $1.5 million, and $1.4 million, respectively. The remaining future minimum lease commitments under these arrangements is approximately $1.4 million, $1.0 million, $1.0 million, $1.0 million, $0.4 million, and $0.7 million during fiscal 2014, 2015, 2016, 2017, 2018, and thereafter, respectively. Additionally, amounts paid for subcontracting services to entities related to officers of certain of the Company’s subsidiaries were $0.7 million and $0.5 million in fiscal 2013 and 2012, respectively. There was a minimal amount paid in independent subcontracting services to entities related to officers of certain of the Company’s subsidiaries in fiscal 2011.
17.16. Concentration of Credit Risk
The Company is subject to concentrations of credit risk relating primarily to its cash and equivalents, trade accounts receivable, and costs and estimated earnings in excess of billings. The Company grants credit under normal payment terms, generally without collateral, to its customers. These customers primarily consist of telephone companies, cable television multiple system operators, wireless carriers, network operators, telecommunication equipment and infrastructure providers, and electric and gas utilities.utilities and others. With respect to a portion of the services provided to these customers, the Company has certain statutory lien rights which may in certain circumstances enhanceassist in the Company’s collection efforts. Adverse changes in overall business and economic factors may impact the Company’s customers and increase credit risks. These risks may be heightenedbecome elevated as a result of economic weakness and market volatility. In the past, some of the Company’s customers have experienced significant financial difficulties and likewise, some may experience financial difficulties in the future. These difficulties expose the Company to increased risks related to the collectability of amounts due for services performed.
The Company’s customer base is highly concentrated, with its top five customers in each of fiscal 2016, 2015, and 2014 accounting for approximately 58.5%69.7%, 59.6%61.1%, and 62.0%58.3% of its total contract revenues, in fiscal 2013, 2012, and 2011, respectively. AT&T Inc. ("AT&T"), CenturyLink, Inc. ("CenturyLink"), Comcast Corporation ("Comcast"), and Verizon Communications, Inc. ("Verizon") represent a significant
portion of the Company’s customer base and each were over Customers whose contract revenues exceeded 10% of total contract revenue during fiscal 2013, 2012,2016, 2015, or 20112014, were as reflected in the following table:follows:
|
| | | | | |
| | Fiscal Year Ended |
| | 2013 | | 2012 | | 2011 |
| AT&T | 15.5% | | 13.7% | | 21.1% |
| CenturyLink | 14.6% | | 13.6% | | 10.8% |
| Comcast | 10.9% | | 12.6% | | 14.3% |
| Verizon | 9.6% | | 11.3% | | 8.9% |
|
| | | | | |
| | Fiscal Year Ended |
| | 2016 | | 2015 | | 2014 |
| AT&T Inc. | 24.4% | | 20.8% | | 19.2% |
| CenturyLink, Inc. | 14.5% | | 14.2% | | 13.8% |
| Comcast Corporation | 13.6% | | 12.9% | | 11.7% |
| Verizon Communications Inc. | 11.0% | | 7.6% | | 8.2% |
Customers whose combined amounts of trade accounts receivable and costs and estimated earnings in excess of billings, net (“CIEB, net”) exceeded 10% of total combined trade receivables and CIEB, net as of July 30, 2016 or July 25, 2015 were as follows (dollars in millions):
|
| | | | | | | | | | | |
| | July 30, 2016 | | July 25, 2015 |
| | Amount | | % of Total | | Amount | | % of Total |
| AT&T Inc. | $ | 138.8 |
| | 20.3% | | $ | 101.7 |
| | 17.7% |
| Comcast Corporation | $ | 95.3 |
| | 13.9% | | $ | 63.0 |
| | 11.0% |
| CenturyLink, Inc. | $ | 79.0 |
| | 11.5% | | $ | 80.1 |
| | 14.0% |
| Windstream Corporation | $ | 79.0 |
| | 11.5% | | $ | 47.8 |
| | 8.3% |
| Verizon Communications Inc. | $ | 69.0 |
| | 10.1% | | $ | 50.8 |
| | 8.9% |
In addition, another customer had $71.5 million, or 10.4% as of July 30, 2016, and $64.5 million, or 11.2% as of July 25, 2015.
The Company believes that none of its significant customers were experiencing financial difficulties that would materially impact the collectability of the Company’s trade accounts receivable and costs in excess of billings as of July 30, 2016. See Note 4, July 27, 2013. Customers representing 10%Accounts Receivable, or moreand Note 5, Costs and Estimated Earnings in Excess of combined amounts ofBillings, for additional information regarding the Company’s trade accounts receivable and costs and estimated earnings in excess of billings as of July 27, 2013 or July 28, 2012 had the following outstanding balances and the related percentage of the Company’s total outstanding balances:billings.
|
| | | | | | | | | | | | | |
| | July 27, 2013 | | July 28, 2012 |
| | Amount | | % of Total | | Amount | | % of Total |
| | | | (Dollars in millions) | | |
| CenturyLink | $ | 62.6 |
| | 13.7 | % | | $ | 47.6 |
| | 17.7 | % |
| Windstream Corporation | $ | 59.4 |
| | 13.0 | % | | $ | 35.4 |
| | 13.2 | % |
| AT&T | $ | 57.4 |
| | 12.6 | % | | $ | 24.7 |
| | 9.2 | % |
| Verizon | $ | 33.4 |
| | 7.3 | % | | $ | 30.5 |
| | 11.3 | % |
18.17. Commitments and Contingencies
In October 2012, a former employee of UtiliQuest,May 2013, CertusView Technologies, LLC ("UtiliQuest"(“CertusView”), a wholly-owned subsidiary of the Company, commenced a lawsuitfiled suit against UtiliQuestS & N Communications, Inc. and S&N Locating Services, LLC (together, “S&N”) in the Superior Court of California (the "California Superior Court"). The lawsuit alleges that UtiliQuest violated the California Labor Code, the California Business & Professions Code and the Labor Code Private Attorneys General Act of 2004 by failing to pay for all hours worked (including overtime) and failing to provide meal breaks and accurate wage statements. The plaintiff seeks unspecified damages and other relief on behalf of himself and a putative class of current and former employees of UtiliQuest who worked as locators in the State of California in the four years preceding the filing date of the lawsuit. In January 2013, UtiliQuest removed the case to the United States District Court for the NorthernEastern District of California (the "District Court") and the plaintiff subsequently filed a Motion to Remand the case back to the California Superior Court.Virginia alleging infringement of certain United States patents. In April 2013, the parties exchanged initial disclosures and in July 2013,January 2015, the District Court granted plaintiff's MotionS&N’s motion for judgment on the pleadings for failure to Remand. An initialclaim patent-eligible subject matter, and entered final judgment on those claims the same day. CertusView filed a Notice of Appeal in February 2015 with the Court of Appeals for the Federal Circuit. In May 2015, the District Court reopened the case management conferenceto allow S&N to proceed with inequitable conduct counterclaims. In July 2015, the Court of Appeals dismissed the appeal in that court pending resolution of proceedings in the District Court. A bench trial in the District Court on the inequitable conduct counterclaims whereby S&N was seeking additional grounds to find the patents unenforceable took place in March 2016 and post-trial briefs were filed with the District Court in April 2016. In August 2013.2016, the District Court ruled against S&N and in favor of CertusView on the inequitable conduct counterclaims and entered final judgment. Subsequent to the judgment being entered, on August 24, 2016, S&N filed a motion requesting the District Court make a finding that the suit was an exceptional case and award S&N recovery of its attorney fees. It is too early to evaluate the likelihood of an outcome to this matter or estimate the amount or range of potential loss, if any. The Companymotion and CertusView intends to vigorously defend itself against this lawsuit.itself.
From time to time, the Company and its subsidiaries are partiesis party to various other claims and legal proceedings. It is the opinion of the Company’s management, based on information available at this time, that such other pending claims or proceedings will not have a material effect on its consolidated financial statements.
As part of the Company’sFor claims within its insurance program, itthe Company retains the risk of loss, up to certain limits, for claimsmatters related to automobile liability, general liability (including damages associated with underground facility locating services), workers’ compensation, and employee group health, and locate damages, and thehealth. The Company has established reserves that it believes to be adequate based on current evaluations and experience with these types of claims. For these claims, the effect on the Company’s financial statements is generally limited to the amount needed to satisfy its insurance deductibles or retentions.
In the normal course of business, tax positions exist for which the ultimate outcome is uncertain. The Company establishes reserves against some or all of the tax benefit of the Company's tax positions at the time the Company determines that it becomes uncertain. For purposes of evaluating whether a tax position is uncertain, management presumes the tax position will be examined by the relevant taxing authority; the technical merits of a tax position are derived from authorities in the tax law and their applicability to the facts and circumstances of the tax position; and each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken. A number of years may elapse before a particular uncertain tax position is audited and finally resolved or when a tax assessment is raised. The number of years subject to tax assessments varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a
failure to meet the "more likely than not" recognition threshold would be recognized in the Company's income tax expense in the first interim period when the uncertainty disappears; when the matter is effectively settled; or when the applicable statute of limitations expires.Commitments
The Company and its subsidiaries have operating leases covering office facilities, vehicles, and equipment that have original noncancelable terms in excess of one year. Certain of these leases contain renewal provisions and generally require the Company to pay insurance, maintenance, and other operating expenses. Total expensesexpense incurred under these operating lease agreements excluding the transactions with related parties presented in Note 16, Related Party Transactions, was $15.3$26.8 million,, $10.6 $18.5 million,, and $9.4$17.7 million for fiscal 2013, 2012,2016, 2015, and 2011,2014, respectively. The Company also incurred rental expense of approximately $19.0$23.0 million,, $9.9 $20.4 million,, and $6.7$20.4 million for fiscal 2016, 2015, and 2014, respectively, related to facilities, vehicles, and equipment which are being leased under original terms that are one year or less. The future minimum obligation under the leases with noncancelable terms in excess of one year excluding transactions with related parties, is as follows:
follows (dollars in thousands):
| | | | Future Minimum Lease Payments | Future Minimum Lease Payments |
| | (Dollars in thousands) | |
| 2014 | $ | 13,447 |
| |
| 2015 | 9,301 |
| |
| 2016 | 6,084 |
| |
| 2017 | 3,105 |
| $ | 19,845 |
|
| 2018 | 1,482 |
| 15,289 |
|
| 2019 | | 10,704 |
|
| 2020 | | 5,425 |
|
| 2021 | | 3,075 |
|
| Thereafter | 1,198 |
| 5,098 |
|
| Total | $ | 34,617 |
| $ | 59,436 |
|
Performance Bonds and Guarantees
- The Company has obligations under performance and other surety contract bonds related to certain of its customer contracts. Performance bonds generally provide the Company’sa customer with the right to obtain payment and/or performance from the issuer of the bond if the Company fails to perform its contractual obligations. As of July 27, 2013,30, 2016 and July 25, 2015, the Company had $446.5$165.8 million and $294.9 million of outstanding performance and other surety contract bonds. No events have occurred in which the customers have exercised their rights under the bonds.bonds, respectively.
The Company has periodically guaranteedguarantees certain obligations of its subsidiaries, including obligations in connection with obtaining state contractor licenses and leasing real property and equipment.
Letters of Credit
- The Company has standby letters of credit issued under its Credit Agreement as part of its insurance program. These standby letters of credit collateralize the Company’s obligations to its insurance carriers in connection with the settlement of potential claims. As of July 27, 201330, 2016 and July 28, 2012,25, 2015, the Company had $46.7$57.6 million and $38.5$54.4 million,, respectively, of outstanding standby letters of credit issued under the Credit Agreement.
19.
18. Quarterly Financial Data (Unaudited)
In the opinion of management, the following unaudited quarterly data from fiscal 20132016 and 20122015 reflect all adjustments (consisting of normal recurring accruals), which are necessary to present a fair presentation of amounts shown for such periods (the sum of the quarterly results may not equal the reported annual amounts due to rounding). The earnings per common share calculation for each quarter is based on the weighted average shares of common stock outstanding plus the dilutive effect of stock options and restricted share units, if any.
|
| | | | | | | | | | | | | | | |
| Fiscal 2013: | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | (Dollars in thousands, except per share amounts) |
| Revenues | $ | 323,286 |
| | $ | 369,326 |
| | $ | 437,367 |
| | $ | 478,632 |
|
| Costs of earned revenues, excluding depreciation and amortization | $ | 257,066 |
| | $ | 301,516 |
| | $ | 357,664 |
| | $ | 384,169 |
|
| Gross profit | $ | 66,220 |
| | $ | 67,810 |
| | $ | 79,703 |
| | $ | 94,463 |
|
| Net income | $ | 11,861 |
| | $ | 1,463 |
| | $ | 7,199 |
| | $ | 14,666 |
|
| Earnings per common share - Basic | $ | 0.36 |
| | $ | 0.04 |
| | $ | 0.22 |
| | $ | 0.44 |
|
| Earnings per common share - Diluted | $ | 0.35 |
| | $ | 0.04 |
| | $ | 0.21 |
| | $ | 0.43 |
|
| | | Fiscal 2012: | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | |
Fiscal 2016(2): | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter(1) |
| | (Dollars in thousands, except per share amounts) | (Dollars in thousands, except per share amounts) |
| Revenues | $ | 319,575 |
| | $ | 267,407 |
| | $ | 296,103 |
| | $ | 318,034 |
| $ | 659,268 |
| | $ | 559,470 |
| | $ | 664,645 |
| | $ | 789,159 |
|
| Costs of earned revenues, excluding depreciation and amortization | $ | 255,187 |
| | $ | 220,239 |
| | $ | 241,386 |
| | $ | 252,137 |
| $ | 506,978 |
| | $ | 450,284 |
| | $ | 520,408 |
| | $ | 605,909 |
|
| Gross profit | $ | 64,388 |
| | $ | 47,168 |
| | $ | 54,717 |
| | $ | 65,897 |
| $ | 152,290 |
| | $ | 109,186 |
| | $ | 144,237 |
| | $ | 183,250 |
|
| Net income | $ | 12,966 |
| | $ | 3,485 |
| | $ | 9,645 |
| | $ | 13,282 |
| $ | 30,824 |
| | $ | 15,473 |
| | $ | 33,083 |
| | $ | 49,360 |
|
| Earnings per common share - Basic | $ | 0.39 |
| | $ | 0.10 |
| | $ | 0.29 |
| | $ | 0.40 |
| $ | 0.94 |
| | $ | 0.47 |
| | $ | 1.02 |
| | $ | 1.57 |
|
| Earnings per common share - Diluted | $ | 0.38 |
| | $ | 0.10 |
| | $ | 0.28 |
| | $ | 0.39 |
| $ | 0.91 |
| | $ | 0.46 |
| | $ | 1.00 |
| | $ | 1.54 |
|
For(1) The Company uses a fiscal 2013,year ending on the quarterly financial data includeslast Saturday in July. As a result, each fiscal year consists of either 52 weeks or 53 weeks of operations (with the resultsadditional week of operations occurring in the Acquired Subsidiaries (acquired on December 3, 2012)fourth quarter). Additionally,Fiscal 2016 consisted of 53 weeks with 14 weeks of operations during the fourth quarter, compared to fiscal 2015 which consisted of fiscal 2013, the Company acquired Sage and certain assets of a tower construction and maintenance company. The results52 weeks with 13 weeks of operations of these businesses acquired are included induring the quarterly financial data above.fourth quarter.
(2) During the secondfirst quarter of fiscal 2013,2016, the Company recognized $6.5incurred a pre-tax charge of approximately $16.3 million for early extinguishment of pre-tax acquisition costsdebt in connection with the Acquired Subsidiaries and also recognized $0.2 million of pre-tax acquisitions costs during the fourth quarter of fiscal 2013 related to Sage.
20. Supplemental Consolidating Financial Statements
As of July 27, 2013, the outstanding aggregate principal amountredemption of the 2021 Notes was $277.5Company’s 7.125% senior subordinated notes. In addition, the Company incurred $14.7 million, comprised of $187.5 million and $90.0 million in principal amountinterest expense during fiscal 2016 for the non-cash amortization of the debt discount associated with the Company’s 0.75% convertible senior notes due September 2021, issued in fiscal 2011 and the second quarter of fiscal 2013, respectively. The 2021 Notes were issued by Dycom Investments, Inc., a wholly-owned subsidiary of the Company.September 2015. See Note 10, Debt,for furtheradditional information regarding the Company'sCompany’s debt financing. The following consolidatingtransactions.
|
| | | | | | | | | | | | | | | |
Fiscal 2015: | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | (Dollars in thousands, except per share amounts) |
| Revenues | $ | 510,389 |
| | $ | 441,081 |
| | $ | 492,363 |
| | $ | 578,479 |
|
| Costs of earned revenues, excluding depreciation and amortization | $ | 403,468 |
| | $ | 355,429 |
| | $ | 388,239 |
| | $ | 446,114 |
|
| Gross profit | $ | 106,921 |
| | $ | 85,652 |
| | $ | 104,124 |
| | $ | 132,365 |
|
| Net income | $ | 20,807 |
| | $ | 9,432 |
| | $ | 20,258 |
| | $ | 33,827 |
|
| Earnings per common share - Basic | $ | 0.61 |
| | $ | 0.28 |
| | $ | 0.59 |
| | $ | 1.00 |
|
| Earnings per common share - Diluted | $ | 0.59 |
| | $ | 0.27 |
| | $ | 0.58 |
| | $ | 0.97 |
|
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
August 31, 2016
To Board of Directors and Shareholders of
Dycom Industries, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, of stockholders’ equity, and of cash flows present fairly, in all material respects, the financial statements present, in separate columns, financial information for (i)position of Dycom Industries, Inc. ("Parent") on a parent only basis, (ii) Dycom Investments, Inc. ("and its subsidiaries at July 30, 2016 and July 25, 2015, and the Issuer"), (iii)results of their operations and their cash flows for each of the guarantor subsidiaries fortwo years in the 2021 Notes on a combined basis, (iv) other non-guarantor subsidiaries on a combined basis, (v)period ended July 30, 2016 in conformity with accounting principles generally accepted in the eliminations and reclassifications necessary to arrive at the information forUnited States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 30, 2016, based on a consolidated basis, and (vi)criteria established in Internal Control - Integrated Framework (2013) issued by the Company on a consolidated basis.Committee of Sponsoring Organizations of the Treadway Commission (COSO). The consolidatingCompany’s management is responsible for these financial statements, are presentedfor maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audit. We conducted our audit in accordance with the equity method. Under this method,standards of the investmentsPublic Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in subsidiaries are recorded at costall material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and adjusted for the Company’s share of subsidiaries’ cumulative results of operations, capital contributions, distributions and other equity changes. Intercompany charges (income) between the Parent and subsidiaries are recognizeddisclosures in the consolidating financial statements, duringassessing the period incurredaccounting principles used and significant estimates made by management, and evaluating the settlementoverall financial statement presentation. Our audit of intercompany balances is reflected ininternal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the consolidating statementrisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of cash flowsinternal control based on the nature ofassessed risk. Our audits also included performing such other procedures as we considered necessary in the underlying transactions.circumstances. We believe that our audits provide a reasonable basis for our opinions.
Each guarantorA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and non-guarantor subsidiary is wholly-owned, directlythe preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or indirectly,timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report over Internal Control over Financial Reporting, management has excluded TelCom Construction, Inc. and an affiliate and Goodman Networks Incorporated from its assessment of internal control over financial reporting as of July 30, 2016 because each was acquired by the IssuerCompany in a purchase business combination during 2016. Total assets and total contract revenues represent 4.9% and 4.5%, respectively, of the Parent. The Notes are fullyrelated consolidated financial statement amounts as of and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and Parent. There are no contractual restrictions limiting transfers of cash from guarantor and non-guarantor subsidiaries to Issuer or Parent, withinfor the meaning of Rule 3-10 of Regulation S-X.
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JULY 27, 2013 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Parent | | Issuer | | Subsidiary Guarantors | | Non- Guarantor Subsidiaries | | Eliminations and Reclassifications | | Dycom Consolidated |
| | (Dollars in thousands) |
| ASSETS | | | | | | | | | | | |
| CURRENT ASSETS: | | | | | | | | | | | |
| Cash and equivalents | $ | — |
| | $ | — |
| | $ | 18,166 |
| | $ | 441 |
| | $ | — |
| | $ | 18,607 |
|
| Accounts receivable, net | — |
| | — |
| | 249,533 |
| | 2,669 |
| | — |
| | 252,202 |
|
| Costs and estimated earnings in excess of billings | — |
| | — |
| | 202,651 |
| | 1,698 |
| | — |
| | 204,349 |
|
| Inventories | — |
| | — |
| | 35,999 |
| | — |
| | — |
| | 35,999 |
|
| Deferred tax assets, net | 2,285 |
| | — |
| | 15,873 |
| | 121 |
| | (1,426 | ) | | 16,853 |
|
| Income taxes receivable | 2,516 |
| | — |
| | — |
| | — |
| | — |
| | 2,516 |
|
| Other current assets | 2,563 |
| | 10 |
| | 7,583 |
| | 452 |
| | — |
| | 10,608 |
|
| Total current assets | 7,364 |
| | 10 |
| | 529,805 |
| | 5,381 |
| | (1,426 | ) | | 541,134 |
|
| | | | | | | | | | | | |
| PROPERTY AND EQUIPMENT, NET | 13,779 |
| | — |
| | 173,254 |
| | 15,670 |
| | — |
| | 202,703 |
|
| GOODWILL | — |
| | — |
| | 267,810 |
| | — |
| | — |
| | 267,810 |
|
| INTANGIBLE ASSETS, NET | — |
| | — |
| | 125,275 |
| | — |
| | — |
| | 125,275 |
|
| DEFERRED TAX ASSETS, NET NON-CURRENT | 691 |
| | — |
| | 4,104 |
| | 66 |
| | (4,861 | ) | | — |
|
| INVESTMENT IN SUBSIDIARIES | 769,639 |
| | 1,472,559 |
| | — |
| | — |
| | (2,242,198 | ) | | — |
|
| INTERCOMPANY RECEIVABLES | — |
| | — |
| | 618,524 |
| | — |
| | (618,524 | ) | | — |
|
| OTHER | 8,739 |
| | 6,331 |
| | 2,133 |
| | 83 |
| | — |
| | 17,286 |
|
| TOTAL NON-CURRENT ASSETS | 792,848 |
| | 1,478,890 |
| | 1,191,100 |
| | 15,819 |
| | (2,865,583 | ) | | 613,074 |
|
| TOTAL ASSETS | $ | 800,212 |
| | $ | 1,478,900 |
| | $ | 1,720,905 |
| | $ | 21,200 |
| | $ | (2,867,009 | ) | | $ | 1,154,208 |
|
| | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | |
| | |
| | |
|
| CURRENT LIABILITIES: | |
| | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | 2,042 |
| | $ | — |
| | $ | 75,012 |
| | $ | 900 |
| | $ | — |
| | $ | 77,954 |
|
| Current portion of debt | 7,813 |
| | — |
| | — |
| | — |
| | — |
| | 7,813 |
|
| Billings in excess of costs and estimated earnings | — |
| | — |
| | 13,788 |
| | — |
| | — |
| | 13,788 |
|
| Accrued insurance claims | 619 |
| | — |
| | 28,342 |
| | 108 |
| | — |
| | 29,069 |
|
| Deferred tax liabilities | — |
| | 155 |
| | 140 |
| | 1,131 |
| | (1,426 | ) | | — |
|
| Other accrued liabilities | 9,151 |
| | 1,321 |
| | 59,374 |
| | 1,345 |
| | — |
| | 71,191 |
|
| Total current liabilities | 19,625 |
| | 1,476 |
| | 176,656 |
| | 3,484 |
| | (1,426 | ) | | 199,815 |
|
| | | | | | | | | | | | |
| LONG-TERM DEBT | 163,062 |
| | 281,107 |
| | — |
| | — |
| | — |
| | 444,169 |
|
| ACCRUED INSURANCE CLAIMS | 726 |
| | — |
| | 26,426 |
| | 98 |
| | — |
| | 27,250 |
|
| DEFERRED TAX LIABILITIES, NET NON-CURRENT | — |
| | 427 |
| | 52,436 |
| | 610 |
| | (4,861 | ) | | 48,612 |
|
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JULY 27, 2013 |
| | | | | | | | | | | | | | | | | | | | | | | |
| INTERCOMPANY PAYABLES | 185,296 |
| | 426,251 |
| | — |
| | 6,977 |
| | (618,524 | ) | | — |
|
| OTHER LIABILITIES | 3,142 |
| | — |
| | 2,855 |
| | 4 |
| | — |
| | 6,001 |
|
| Total liabilities | 371,851 |
| | 709,261 |
| | 258,373 |
| | 11,173 |
| | (624,811 | ) | | 725,847 |
|
| Total stockholders' equity | 428,361 |
| | 769,639 |
| | 1,462,532 |
| | 10,027 |
| | (2,242,198 | ) | | 428,361 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 800,212 |
| | $ | 1,478,900 |
| | $ | 1,720,905 |
| | $ | 21,200 |
| | $ | (2,867,009 | ) | | $ | 1,154,208 |
|
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JULY 28, 2012 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Parent | | Issuer | | Subsidiary Guarantors | | Non- Guarantor Subsidiaries | | Eliminations and Reclassifications | | Dycom Consolidated |
| | (Dollars in thousands) |
| ASSETS | | | | | | | | | | | |
| CURRENT ASSETS: | | | | | | | | | | | |
| Cash and equivalents | $ | — |
| | $ | — |
| | $ | 51,563 |
| | $ | 1,018 |
| | $ | — |
| | $ | 52,581 |
|
| Accounts receivable, net | — |
| | — |
| | 140,426 |
| | 1,362 |
| | — |
| | 141,788 |
|
| Costs and estimated earnings in excess of billings | — |
| | — |
| | 125,869 |
| | 1,452 |
| | — |
| | 127,321 |
|
| Inventories | — |
| | — |
| | 26,274 |
| | — |
| | — |
| | 26,274 |
|
| Deferred tax assets, net | 2,390 |
| | — |
| | 13,566 |
| | 80 |
| | (403 | ) | | 15,633 |
|
| Income taxes receivable | 4,884 |
| | — |
| | — |
| | — |
| | — |
| | 4,884 |
|
| Other current assets | 2,211 |
| | 10 |
| | 5,458 |
| | 787 |
| | — |
| | 8,466 |
|
| Total current assets | 9,485 |
| | 10 |
| | 363,156 |
| | 4,699 |
| | (403 | ) | | 376,947 |
|
| | | | | | | | | | | | |
| PROPERTY AND EQUIPMENT, NET | 9,671 |
| | — |
| | 133,145 |
| | 15,431 |
| | — |
| | 158,247 |
|
| GOODWILL | — |
| | — |
| | 174,849 |
| | — |
| | — |
| | 174,849 |
|
| INTANGIBLE ASSETS, NET | — |
| | — |
| | 49,773 |
| | — |
| | — |
| | 49,773 |
|
| DEFERRED TAX ASSETS, NET NON-CURRENT | — |
| | 65 |
| | 9,341 |
| | 1,085 |
| | (10,491 | ) | | — |
|
| INVESTMENT IN SUBSIDIARIES | 734,451 |
| | 1,425,451 |
| | — |
| | — |
| | (2,159,902 | ) | | — |
|
| INTERCOMPANY RECEIVABLES | — |
| | — |
| | 860,758 |
| | 54 |
| | (860,812 | ) | | — |
|
| OTHER | 6,075 |
| | 4,338 |
| | 1,731 |
| | 233 |
| | — |
| | 12,377 |
|
| TOTAL NON-CURRENT ASSETS | 750,197 |
| | 1,429,854 |
| | 1,229,597 |
| | 16,803 |
| | (3,031,205 | ) | | 395,246 |
|
| TOTAL ASSETS | $ | 759,682 |
| | $ | 1,429,864 |
| | $ | 1,592,753 |
| | $ | 21,502 |
| | $ | (3,031,608 | ) | | $ | 772,193 |
|
| | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | |
| | |
| | |
|
| CURRENT LIABILITIES: | |
| | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | 2,785 |
| | $ | — |
| | $ | 33,441 |
| | $ | 597 |
| | $ | — |
| | $ | 36,823 |
|
| Current portion of debt | — |
| | — |
| | 74 |
| | — |
| | — |
| | 74 |
|
| Billings in excess of costs and estimated earnings | — |
| | — |
| | 1,522 |
| | — |
| | — |
| | 1,522 |
|
| Accrued insurance claims | 588 |
| | — |
| | 24,551 |
| | 79 |
| | — |
| | 25,218 |
|
| Deferred tax liabilities | — |
| | 249 |
| | 84 |
| | 70 |
| | (403 | ) | | — |
|
| Other accrued liabilities | 5,054 |
| | 565 |
| | 43,772 |
| | 1,535 |
| | — |
| | 50,926 |
|
| Total current liabilities | 8,427 |
| | 814 |
| | 103,444 |
| | 2,281 |
| | (403 | ) | | 114,563 |
|
| | | | | | | | | | | | |
| LONG-TERM DEBT | — |
| | 187,500 |
| | — |
| | — |
| | — |
| | 187,500 |
|
| ACCRUED INSURANCE CLAIMS | 708 |
| | — |
| | 22,815 |
| | 68 |
| | — |
| | 23,591 |
|
| DEFERRED TAX LIABILITIES, NET NON-CURRENT | 1,020 |
| | — |
| | 57,140 |
| | 1,868 |
| | (10,491 | ) | | 49,537 |
|
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JULY 28, 2012 |
| | | | | | | | | | | | | | | | | | | | | | | |
| INTERCOMPANY PAYABLES | 353,713 |
| | 507,099 |
| | — |
| | — |
| | (860,812 | ) | | — |
|
| OTHER LIABILITIES | 2,883 |
| | — |
| | 1,185 |
| | 3 |
| | — |
| | 4,071 |
|
| Total liabilities | 366,751 |
| | 695,413 |
| | 184,584 |
| | 4,220 |
| | (871,706 | ) | | 379,262 |
|
| Total stockholders' equity | 392,931 |
| | 734,451 |
| | 1,408,169 |
| | 17,282 |
| | (2,159,902 | ) | | 392,931 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 759,682 |
| | $ | 1,429,864 |
| | $ | 1,592,753 |
| | $ | 21,502 |
| | $ | (3,031,608 | ) | | $ | 772,193 |
|
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED JULY 27, 2013 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Parent | | Issuer | | Subsidiary Guarantors | | Non- Guarantor Subsidiaries | | Eliminations and Reclassifications | | Dycom Consolidated |
| | (Dollars in thousands) |
| REVENUES: | | | | | | | | | | | |
| Contract revenues | $ | — |
| | $ | — |
| | $ | 1,594,363 |
| | $ | 14,249 |
| | $ | — |
| | $ | 1,608,612 |
|
| | | | | | | | | | | | |
| EXPENSES: | |
| | |
| | |
| | |
| | |
| | |
|
| Costs of earned revenues, excluding depreciation and amortization | — |
| | — |
| | 1,288,369 |
| | 12,047 |
| | — |
| | 1,300,416 |
|
| General and administrative | 44,462 |
| | 818 |
| | 89,336 |
| | 11,155 |
| | — |
| | 145,771 |
|
| Depreciation and amortization | 2,920 |
| | — |
| | 77,595 |
| | 4,966 |
| | — |
| | 85,481 |
|
| Intercompany charges (income), net | (53,377 | ) | | — |
| | 54,720 |
| | (1,343 | ) | | — |
| | — |
|
| Total | (5,995 | ) | | 818 |
| | 1,510,020 |
| | 26,825 |
| | — |
| | 1,531,668 |
|
| | | | | | | | | | | | |
| Interest expense, net | (5,675 | ) | | (17,599 | ) | | (60 | ) | | — |
| | — |
| | (23,334 | ) |
| Other income, net | (320 | ) | | — |
| | 4,794 |
| | 115 |
| | — |
| | 4,589 |
|
| | | | | | | | | | | | |
| INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES | — |
| | (18,417 | ) | | 89,077 |
| | (12,461 | ) | | — |
| | 58,199 |
|
| | | | | | | | | | | | |
| PROVISION (BENEFIT) FOR INCOME TAXES | — |
| | (7,281 | ) | | 35,214 |
| | (4,922 | ) | | — |
| | 23,011 |
|
| | | | | | | | | | | | |
| NET INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF SUBSIDIARIES | — |
| | (11,136 | ) | | 53,863 |
| | (7,539 | ) | | — |
| | 35,188 |
|
| | | | | | | | | | | | |
| EQUITY IN EARNINGS OF SUBSIDIARIES | 35,188 |
| | 46,324 |
| | — |
| | — |
| | (81,512 | ) | | — |
|
| | | | | | | | | | | | |
| NET INCOME (LOSS) | $ | 35,188 |
| | $ | 35,188 |
| | $ | 53,863 |
| | $ | (7,539 | ) | | $ | (81,512 | ) | | $ | 35,188 |
|
| | | | | | | | | | | | |
| Foreign currency translation loss | (35 | ) | | (35 | ) | | — |
| | (35 | ) | | 70 |
| | (35 | ) |
| COMPREHENSIVE INCOME (LOSS) | $ | 35,153 |
| | $ | 35,153 |
| | $ | 53,863 |
| | $ | (7,574 | ) | | $ | (81,442 | ) | | $ | 35,153 |
|
/s/ PricewaterhouseCoopers LLP DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED JULY 28, 2012 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Parent | | Issuer | | Subsidiary Guarantors | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Dycom Consolidated |
| | (Dollars in thousands) |
| REVENUES: | | | | | | | | | | | |
| Contract revenues | $ | — |
| | $ | — |
| | $ | 1,186,380 |
| | $ | 14,739 |
| | $ | — |
| | $ | 1,201,119 |
|
| | | | | | | | | | | | |
| EXPENSES: | |
| | |
| | |
| | |
| | |
| | |
|
| Costs of earned revenues, excluding depreciation and amortization | — |
| | — |
| | 957,449 |
| | 11,500 |
| | — |
| | 968,949 |
|
| General and administrative | 28,048 |
| | 574 |
| | 65,185 |
| | 10,217 |
| | — |
| | 104,024 |
|
| Depreciation and amortization | 3,137 |
| | — |
| | 54,735 |
| | 4,833 |
| | (12 | ) | | 62,693 |
|
| Intercompany charges (income), net | (34,212 | ) | | — |
| | 33,749 |
| | 463 |
| | — |
| | — |
|
| Total | (3,027 | ) | | 574 |
| | 1,111,118 |
| | 27,013 |
| | (12 | ) | | 1,135,666 |
|
| | | | | | | | | | | | |
| Interest income (expense), net | (3,049 | ) | | (13,660 | ) | | (8 | ) | | — |
| | — |
| | (16,717 | ) |
| Other income, net | 22 |
| | — |
| | 15,281 |
| | 522 |
| | — |
| | 15,825 |
|
| | | | | | | | | | | | |
| INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES | — |
| | (14,234 | ) | | 90,535 |
| | (11,752 | ) | | 12 |
| | 64,561 |
|
| | | | | | | | | | | | |
| PROVISION (BENEFIT) FOR INCOME TAXES | — |
| | (5,550 | ) | | 35,299 |
| | (4,566 | ) | | — |
| | 25,183 |
|
| | | | | | | | | | | | |
| NET INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF SUBSIDIARIES | — |
| | (8,684 | ) | | 55,236 |
| | (7,186 | ) | | 12 |
| | 39,378 |
|
| | | | | | | | | | | | |
| EQUITY IN EARNINGS OF SUBSIDIARIES | 39,378 |
| | 48,062 |
| | — |
| | — |
| | (87,440 | ) | | — |
|
| | | | | | | | | | | | |
| NET INCOME (LOSS) | $ | 39,378 |
| | $ | 39,378 |
| | $ | 55,236 |
| | $ | (7,186 | ) | | $ | (87,428 | ) | | $ | 39,378 |
|
| | | | | | | | | | | | |
| Foreign currency translation loss | (161 | ) | | (161 | ) | | — |
| | (161 | ) | | 322 |
| | (161 | ) |
| COMPREHENSIVE INCOME (LOSS) | $ | 39,217 |
| | $ | 39,217 |
| | $ | 55,236 |
| | $ | (7,347 | ) | | $ | (87,106 | ) | | $ | 39,217 |
|
Fort Lauderdale, Florida
August 31, 2016
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED JULY 30, 2011 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Parent | | Issuer | | Subsidiary Guarantors | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Dycom Consolidated |
| | (Dollars in thousands) |
| REVENUES: | | | | | | | | | | | |
| Contract revenues | $ | — |
| | $ | — |
| | $ | 1,025,484 |
| | $ | 10,384 |
| | $ | — |
| | $ | 1,035,868 |
|
| | | | | | | | | | | | |
| EXPENSES: | |
| | |
| | |
| | |
| | |
| | |
|
| Costs of earned revenues, excluding depreciation and amortization | — |
| | — |
| | 827,980 |
| | 9,139 |
| | — |
| | 837,119 |
|
| General and administrative | 23,520 |
| | 648 |
| | 62,174 |
| | 8,280 |
| | — |
| | 94,622 |
|
| Depreciation and amortization | 3,192 |
| | — |
| | 54,232 |
| | 5,156 |
| | (47 | ) | | 62,533 |
|
| Intercompany charges (income), net | (29,852 | ) | | — |
| | 29,437 |
| | 415 |
| | — |
| | — |
|
| Total | (3,140 | ) | | 648 |
| | 973,823 |
| | 22,990 |
| | (47 | ) | | 994,274 |
|
| | | | | | | | | | | | |
| Interest income (expense), net | (3,140 | ) | | (12,852 | ) | | 81 |
| | — |
| | — |
| | (15,911 | ) |
| Loss on debt extinguishment | — |
| | (8,295 | ) | | — |
| | — |
| | — |
| | (8,295 | ) |
| Other income, net | — |
| | — |
| | 10,845 |
| | 251 |
| | — |
| | 11,096 |
|
| | | | | | | | | | | | |
| INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES | — |
| — |
| (21,795 | ) | | 62,587 |
| | (12,355 | ) | | 47 |
| | 28,484 |
|
| | | | | | | | | | | | |
| PROVISION (BENEFIT) FOR INCOME TAXES | — |
| | (9,430 | ) | | 27,142 |
| | (5,335 | ) | | — |
| | 12,377 |
|
| | | | | | | | | | | | |
| NET INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF SUBSIDIARIES | — |
| | (12,365 | ) | | 35,445 |
| | (7,020 | ) | | 47 |
| | 16,107 |
|
| | | | | | | | | | | | |
| EQUITY IN EARNINGS OF SUBSIDIARIES | 16,107 |
| | 28,472 |
| | — |
| | — |
| | (44,579 | ) | | — |
|
| | | | | | | |
|
| | | | |
| NET INCOME (LOSS) | $ | 16,107 |
| | $ | 16,107 |
| | $ | 35,445 |
| | $ | (7,020 | ) | | $ | (44,532 | ) | | $ | 16,107 |
|
| | | | | | | | | | | | |
| Foreign currency translation gain | 130 |
| | 130 |
| | — |
| | 130 |
| | (260 | ) | | 130 |
|
| COMPREHENSIVE INCOME (LOSS) | $ | 16,237 |
| | $ | 16,237 |
| | $ | 35,445 |
| | $ | (6,890 | ) | | $ | (44,792 | ) | | $ | 16,237 |
|
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED JULY 27, 2013 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Parent | | Issuer | | Subsidiary Guarantors | | Non- Guarantor Subsidiaries | | Eliminations and Reclassifications | | Dycom Consolidated |
| | (Dollars in thousands) |
| Net cash provided by (used in) operating activities | $ | 6,952 |
| | $ | (9,612 | ) | | $ | 112,176 |
| | $ | (2,772 | ) | | $ | — |
| | $ | 106,744 |
|
| | | | | | | | | | | | |
| Cash flows from investing activities: | | | |
| | |
| | |
| | |
| | |
|
| Cash paid for acquisitions, net of cash acquired | — |
| | — |
| | (330,291 | ) | | — |
| | — |
| | (330,291 | ) |
| Capital expenditures | (8,151 | ) | | — |
| | (51,647 | ) | | (4,852 | ) | | — |
| | (64,650 | ) |
| Proceeds from sale of assets | — |
| | — |
| | 5,770 |
| | 57 |
| | — |
| | 5,827 |
|
| Return of capital from subsidiaries | — |
| | 1,816 |
| | — |
| | — |
| | (1,816 | ) | | — |
|
| Investment in subsidiaries | — |
| | (2,600 | ) | | — |
| | — |
| | 2,600 |
| | — |
|
| Changes in restricted cash | 60 |
| | — |
| | — |
| | — |
| | — |
| | 60 |
|
| Net cash (provided by) used in investing activities | (8,091 | ) | | (784 | ) | | (376,168 | ) | | (4,795 | ) | | 784 |
| | (389,054 | ) |
| | | | | | | | | | | | |
| Cash flows from financing activities: | | | |
| | |
| | |
| | |
| | |
|
| Proceeds from issuance of 7.125% senior subordinated notes due 2021, (including $3.8 million premium on issuance) | — |
| | 93,825 |
| | — |
| | — |
| | — |
| | 93,825 |
|
| Proceeds from Term Loan on Senior Credit Agreement | 125,000 |
| | — |
| | — |
| | — |
| | — |
| | 125,000 |
|
| Proceeds from borrowings on Senior Credit Agreement | 404,500 |
| | — |
| | — |
| | — |
| | — |
| | 404,500 |
|
| Principal payments on Senior Credit Agreement | (358,625 | ) | | — |
| | — |
| | — |
| | — |
| | (358,625 | ) |
| Debt issuance costs | (4,158 | ) | | (2,581 | ) | | — |
| | — |
| | — |
| | (6,739 | ) |
| Repurchases of common stock | (15,203 | ) | | — |
| | — |
| | — |
| | — |
| | (15,203 | ) |
| Exercise of stock options and other | 5,253 |
| | — |
| | — |
| | — |
| | — |
| | 5,253 |
|
| Restricted stock tax withholdings | (884 | ) | | — |
| | — |
| | — |
| | — |
| | (884 | ) |
| Excess tax benefit from share-based awards | 1,283 |
| | — |
| | — |
| | — |
| | — |
| | 1,283 |
|
| Principal payments on capital lease obligations | — |
| | — |
| | (74 | ) | | — |
| | — |
| | (74 | ) |
| Intercompany funding | (156,027 | ) | | (80,848 | ) | | 230,669 |
| | 6,990 |
| | (784 | ) | | — |
|
| Net cash provided by financing activities | 1,139 |
| | 10,396 |
| | 230,595 |
| | 6,990 |
| | (784 | ) | | 248,336 |
|
| | | | | | | | | | | | |
| Net decrease in cash and equivalents | — |
| | — |
| | (33,397 | ) | | (577 | ) | | — |
| | (33,974 | ) |
| | | | | | | | | | | | |
| CASH AND EQUIVALENTS AT BEGINNING OF PERIOD | — |
| | — |
| | 51,563 |
| | 1,018 |
| | — |
| | 52,581 |
|
| | | | | | | | | | | | |
| CASH AND EQUIVALENTS AT END OF PERIOD | $ | — |
| | $ | — |
| | $ | 18,166 |
| | $ | 441 |
| | $ | — |
| | $ | 18,607 |
|
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED JULY 28, 2012 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Parent | | Issuer | | Subsidiary Guarantors | | Non- Guarantor Subsidiaries | | Eliminations and Reclassifications | | Dycom Consolidated |
| | (Dollars in thousands) |
| Net cash provided by (used in) operating activities | $ | 6,755 |
| | $ | (8,774 | ) | | $ | 69,823 |
| | $ | (2,679 | ) | | $ | — |
| | $ | 65,125 |
|
| | | | | | | | | | | | |
| Cash flows from investing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Capital expenditures | (3,685 | ) | | — |
| | (69,362 | ) | | (4,565 | ) | | — |
| | (77,612 | ) |
| Proceeds from sale of assets | — |
| | — |
| | 19,211 |
| | 5,572 |
| | — |
| | 24,783 |
|
| Changes in restricted cash | 926 |
| | — |
| | — |
| | — |
| | — |
| | 926 |
|
| Capital contributions to subsidiaries, net | — |
| | (4,943 | ) | | — |
| | — |
| | 4,943 |
| | — |
|
| Net cash provided by (used in) investing activities | (2,759 | ) | | (4,943 | ) | | (50,151 | ) | | 1,007 |
| | 4,943 |
| | (51,903 | ) |
| | | | | | | | | | | | |
| Cash flows from financing activities: |
|
| | |
| | |
| | |
| | |
| | |
|
| Repurchases of common stock | (12,960 | ) | | — |
| | — |
| | — |
| | — |
| | (12,960 | ) |
| Exercise of stock options and other | 6,490 |
| | — |
| | — |
| | — |
| | — |
| | 6,490 |
|
| Restricted stock tax withholdings | (329 | ) | | — |
| | — |
| | — |
| | — |
| | (329 | ) |
| Excess tax benefit from share-based awards | 1,625 |
| | — |
| | — |
| | — |
| | — |
| | 1,625 |
|
| Principal payments on capital lease obligations | — |
| | — |
| | (233 | ) | | — |
| | — |
| | (233 | ) |
| Intercompany funding | 1,178 |
| | 13,717 |
| | (12,484 | ) | | 2,532 |
| | (4,943 | ) | | — |
|
| Net cash provided by (used in) financing activities | (3,996 | ) | | 13,717 |
| | (12,717 | ) | | 2,532 |
| | (4,943 | ) | | (5,407 | ) |
| | | | | | | | | | | | |
| Net increase in cash and equivalents | — |
| | — |
| | 6,955 |
| | 860 |
| | — |
| | 7,815 |
|
| | | | | | | | | | | | |
| CASH AND EQUIVALENTS AT BEGINNING OF PERIOD | — |
| | — |
| | 44,608 |
| | 158 |
| | — |
| | 44,766 |
|
| | | | | | | | | | | | |
| CASH AND EQUIVALENTS AT END OF PERIOD | $ | — |
| | $ | — |
| | $ | 51,563 |
| | $ | 1,018 |
| | $ | — |
| | $ | 52,581 |
|
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED JULY 30, 2011 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Parent | | Issuer | | Subsidiary Guarantors | | Non- Guarantor Subsidiaries | | Eliminations and Reclassifications | | Dycom Consolidated |
| | (Dollars in thousands) |
| Net cash provided by (used in) operating activities | $ | 7,979 |
| | $ | (12,343 | ) | | $ | 53,611 |
| | $ | (5,390 | ) | | $ | — |
| | $ | 43,857 |
|
| | | | | | | | | | | | |
| Cash flows from investing activities: | | | |
| | |
| | |
| | |
| | |
|
| Capital expenditures | (1,746 | ) | | — |
| | (53,346 | ) | | (6,365 | ) | | — |
| | (61,457 | ) |
| Proceeds from sale of assets | — |
| | — |
| | 11,645 |
| | 660 |
| | — |
| | 12,305 |
|
| Cash paid for acquisitions | — |
| | (27,500 | ) | | (8,951 | ) | | — |
| | — |
| | (36,451 | ) |
| Changes in restricted cash | 25 |
| | — |
| | 200 |
| | — |
| | — |
| | 225 |
|
| Capital contributions to subsidiaries | — |
| | (52,492 | ) | | — |
| | — |
| | 52,492 |
| | — |
|
| Net cash used in investing activities | (1,721 | ) | | (79,992 | ) | | (50,452 | ) | | (5,705 | ) | | 52,492 |
| | (85,378 | ) |
| | | | | | | | | | | | |
| Cash flows from financing activities: | | | |
| | |
| | |
| | |
| | |
|
| Repurchases of common stock | (64,548 | ) | | — |
| | — |
| | — |
| | — |
| | (64,548 | ) |
| Exercise of stock options and other | 1,321 |
| | — |
| | — |
| | — |
| | — |
| | 1,321 |
|
| Restricted stock tax withholdings | (197 | ) | | — |
| | — |
| | — |
| | — |
| | (197 | ) |
| Principal payments on capital lease obligations | — |
| | — |
| | (582 | ) | | — |
| | — |
| | (582 | ) |
| Debt issuance costs | (456 | ) | | (4,721 | ) | | — |
| | — |
| | — |
| | (5,177 | ) |
| Proceeds from issuance of 7.125% senior subordinated notes due 2021 | — |
| | 187,500 |
| | — |
| | — |
| | — |
| | 187,500 |
|
| Purchase of 8.125% senior subordinated notes due 2015 | — |
| | (135,350 | ) | | — |
| | — |
| | — |
| | (135,350 | ) |
| Intercompany funding | 57,622 |
| | 44,906 |
| | (60,827 | ) | | 10,791 |
| | (52,492 | ) | | — |
|
| Net cash provided by (used in) financing activities | (6,258 | ) | | 92,335 |
| | (61,409 | ) | | 10,791 |
| | (52,492 | ) | | (17,033 | ) |
| | | | | | | | | | | | |
| Net decrease in cash and equivalents | — |
| | — |
| | (58,250 | ) | | (304 | ) | | — |
| | (58,554 | ) |
| | | | | | | | | | | | |
| CASH AND EQUIVALENTS AT BEGINNING OF PERIOD | — |
| | — |
| | 102,858 |
| | 462 |
| | — |
| | 103,320 |
|
| | | | | | | | | | | | |
| CASH AND EQUIVALENTS AT END OF PERIOD | $ | — |
| | $ | — |
| | $ | 44,608 |
| | $ | 158 |
| | $ | — |
| | $ | 44,766 |
|
21. Subsequent Events
On August 27, 2013, the Company announced that its Board of Directors had authorized $40.0 million to repurchase shares of the Company's outstanding common stock to be made over the next eighteen months in open market or private transactions. The repurchase authorization replaces the Company's previous repurchase authorization, which was due to expire on September 15, 2013 and of which approximately $22.8 million remained outstanding as of July 27, 2013. As of September 12, 2013, the full $40.0 million remained authorized for repurchase.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dycom Industries, Inc.
Palm Beach Gardens, Florida
We have audited the accompanying consolidated balance sheetsstatements of operations, comprehensive income, stockholders’ equity, and cash flows of Dycom Industries, Inc. and subsidiaries (the "Company"“Company”) as of July 27, 2013 and July 28, 2012, andfor the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the periodyear ended July 27, 2013.26, 2014. These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.audit.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial positionresults of operations and cash flows of Dycom Industries, Inc. and subsidiaries as of July 27, 2013 and July 28, 2012, and the results of their operations and their cash flows for each of the three years in the period ended July 27, 2013,26, 2014, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of July 27, 2013, based on the criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 12, 2013 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
September 12, 20138, 2014
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.Disclosure.
There have been no changes in or disagreements with accountants on accounting and financial disclosures within the meaning of Item 304 orof Regulation S-K.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the Company'sCompany’s management, including the Company'sCompany’s Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company'sCompany’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"“Exchange Act”)) as of July 27, 2013,30, 2016, the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of July 27, 2013,30, 2016, the Company'sCompany’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified by the SEC'sSecurities and Exchange Commission’s rules and forms, and (2) accumulated and communicated to the Company'sCompany’s management, including the Company'sCompany’s Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company'sCompany’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company's most recentCompany’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting. In making our assessment of changes in internal control over financial reporting as of July 27, 2013, we have excluded the telecommunications infrastructure services subsidiaries acquired (the "Acquired Subsidiaries") from Quanta Services, Inc. on December 3, 2012. Additionally, we have excluded Sage Telecommunications Corp of Colorado, LLC ("Sage") acquired during the fourth quarter of fiscal 2013. These businesses acquired during fiscal 2013 represent approximately 34.5% of our total assets at July 27, 2013 and 21.0% of our total contract revenues for the fiscal year endedJuly 27, 2013.
Management’s Report on Internal Control overOver Financial Reporting
Management of Dycom Industries, Inc. and subsidiaries is responsible for establishing and maintaining a system of internal control over financial reporting as defined in Rule 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934. The Company’s internal control system is designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute assurance, with respect to reporting financial information. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.
In accordance with the SEC’sSecurities and Exchange Commission’s published guidance, management'smanagement’s assessment and conclusion on the effectiveness of the Company'sCompany’s internal control over financial reporting as of July 27, 201330, 2016 excludes an assessment of the internal control over financial reporting of the Acquired Subsidiaries,TelCom, acquired on December 3, 2012,in August 2015, and Sage,Goodman, acquired during the fourth quarter of fiscal 2013.in July 2016. These businesses acquired during fiscal 20132016 represent approximately 34.5%4.9% of our total assets at July 27, 201330, 2016 and 21.0%4.5% of our total contract revenues for the fiscal year endedJuly 27, 2013.30, 2016.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of July 27, 2013.30, 2016.
The effectiveness of the Company’s internal control over financial reporting as of July 27, 201330, 2016 has been audited by Deloitte & TouchePricewaterhouseCoopers LLP, the Company’s independent registered certified public accounting firm. Their report, which is set forth in Part II, Item 9A,8, Controls and Procedures,Financial Statements, of this Annual Report on Form 10-K, expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of July 27, 2013.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dycom Industries, Inc.
Palm Beach Gardens, Florida
We have audited the internal control over financial reporting of Dycom Industries, Inc. and subsidiaries (the "Company") as of July 27, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.30, 2016.
As described in Management's Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at (1) the telecommunications infrastructure services subsidiaries acquired from Quanta Services, Inc. on December 3, 2012, and (2) Sage Telecommunications Corp of Colorado, LLC, which was acquired during the fourth quarter of 2013. These businesses acquired during fiscal 2013 constitute 34.5% of total assets and 21.0% of contract revenues of the consolidated financial statement amounts as of and for the year ended July 27, 2013. Accordingly, our audit did not include the internal control over financial reporting at these businesses acquired during 2013.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 27, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended July 27, 2013 of the Company and our report dated September 12, 2013 expressed an unqualified opinion on those financial statements.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
September 12, 2013
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information concerning directors and nominees of the Registrant and other information as required by this item are hereby incorporated by reference from the Company's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A. The information set forth under the caption "Executive“Executive Officers of the Registrant"Registrant” in Part I, Item 1 of this Annual Report on Form 10-K is incorporated herein by reference.
Code of Ethics
The Company has adopted a Code of Ethics for Senior Financial Officers, which is a code of ethics as that term is defined in Item 406(b) of Regulation S-K and which applies to its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller, and other persons performing similar functions. The Code of Ethics for Senior Financial Officers is available on the Company's InternetCompany’s website at www.dycomind.com. If the Company makes any substantive amendments to, or a waiver from, provisions of the Code of Ethics for Senior Financial Officers, it will disclose the nature of such amendment, or waiver, on its website or in a report on Form 8-K. Information on the Company'sCompany’s website is not deemed to be incorporated by reference into this Annual Report on Form 10-K.
Item 11. Executive Compensation.
The information required by Item 11 regarding executive compensation is included under the headings "Compensation“Compensation Discussion and Analysis" "Compensation,” “Compensation Committee Report",” and "Compensation“Compensation Committee Interlocks and Insider Participation"Participation” in the Company'sCompany’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information concerning the ownership of certain of the Registrant'sRegistrant’s beneficial owners and management and related stockholder matters is hereby incorporated by reference from the Company'sCompany’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A.
Item 13. Certain Relationships, Related Transactions and Director Independence.
Information concerning relationships and related transactions is hereby incorporated by reference from the Company'sCompany’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A.
Item 14. Principal Accounting Fees and Services.
Information concerning principal accounting fees and services is hereby incorporated by reference from the Company'sCompany’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as a part of this report:
1. Consolidated financial statements: statements:the consolidated financial statements and the ReportReports of the Independent Registered Certified Public Accounting FirmFirms are listedincluded in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on pages 39 through 81.Form 10-K.
2.Financial statement schedules:schedules
: All schedules have been omitted because they are inapplicable, not required, or the information is included in the above referenced consolidated financial statements or the notes thereto.
3.Exhibits furnished pursuant to the requirements of Form 10-K:
|
| |
| Exhibit Number |
| | |
| 2.1 | Stock Purchase Agreement, dated as of November 19, 2012, among Dycom Industries, Inc., PBG Acquisition III, LLC, Quanta Services, Inc. and Infrasource FI LLC (incorporated by reference to Exhibit 2.1 to Dycom Industries, Inc.'s’s Current Report on Form 8-K filed with the SEC on November 20, 2012). |
| | |
| 3(i) | Restated Articles of Incorporation of Dycom Industries, Inc. (incorporated by reference to Dycom Industries, Inc.’s Form 10-Q filed with the SEC on June 11, 2002). |
| | |
| 3(ii) | Amended and Restated By-laws of Dycom Industries, Inc., as amended on February 24, 2009 (incorporated by reference to Dycom Industries, Inc.’s Form 8-K, filed with the SEC on March 2, 2009). |
| | |
| 4.1 | Indenture, dated as of January 21, 2011,September 15, 2015, among Dycom Investments, Inc., Dycom Industries, Inc. and certain subsidiaries of Dycom Industries, Inc., as guarantors, and U.S. Bank National Association, as trustee (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on January 24, 2011)September 15, 2015). |
| | |
| 4.2 | First Supplemental Indenture, dated asForm of January 28, 2011, among Dycom Investments, Inc., Dycom Industries, Inc. and certain subsidiaries of Dycom Industries, Inc., as guarantors, and U.S. Bank National Association, as trustee.Global 0.75% Convertible Senior Note due 2021 (incorporated by reference to Exhibit 4.1 to Dycom Industries, Inc.'s Current Report on’s Form 8-K filed with the SEC on December 12, 2012). |
| |
4.3 | Second Supplemental Indenture, dated as of December 12, 2012, among Dycom Investments, Inc., Dycom Industries, Inc. and certain subsidiaries of Dycom Industries, Inc., as guarantors, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on December 12, 2012). |
| |
4.4 | Third Supplemental Indenture, dated as of February 26, 2013, among Dycom Investments, Inc., Dycom Industries, Inc. and certain subsidiaries of Dycom Industries, Inc., as guarantors, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.5 to the First Amendment to Dycom Investments, Inc.'s Registration Statement on Form S-4 filed with the SEC on February 26, 2013). |
| |
4.5+ | Fourth Supplemental Indenture, dated as of July 26, 2013, among Dycom Investments, Inc., Dycom Industries, Inc. and certain subsidiaries of Dycom Industries, Inc., as guarantors, and U.S. Bank National Association, as trustee. |
| |
4.6 | Registration Rights Agreement, dated as of December 12, 2012, among Dycom Investments, Inc., Dycom Industries, Inc., certain subsidiaries of Dycom Industries, Inc., and Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the Initial Purchasers (incorporated by reference to Exhibit 4.2 to Dycom Industries, Inc.'s Current Report on Form 8-K filed with the SEC on December 12, 2012)September 15, 2015). |
| | |
| 10.1* | 1998 Incentive Stock Option Plan (incorporated by reference to Dycom Industries, Inc.’s Preliminary Proxy Statement filed with the SEC on September 30, 1999). |
| |
10.2* | 2003 Long-TermLong Term Incentive Plan, amended and restated effective as of September 19, 2011 (incorporated by reference to Dycom Industries, Inc.’s Form 8-K, filed with the SEC on September 23, 2011). |
| | |
10.3*10.2* | Form of Non-Qualified Stock Option Agreement under the 2003 Long-Term Incentive Plan, as amended and restated (incorporated by reference to Dycom Industries, Inc.'s’s Form 10-K, filed with the SEC on September 4, 2012). |
| | |
10.4*10.3* | Form of Incentive Stock Option Agreement under the 2003 Long-Term Incentive Plan, as amended and restated (incorporated by reference to Dycom Industries, Inc.'s’s Form 10-K, filed with the SEC on September 4, 2012). |
| | |
10.5* | Form of Restricted Stock Unit Agreement under the 2003 Long-Term Incentive Plan, as amended and restated (incorporated by reference to Dycom Industries, Inc.'s Form 10-K, filed with the SEC on September 4, 2012). |
| |
10.6* | Form of Performance Unit Agreement under the 2003 Long-Term Incentive Plan, as amended and restated (incorporated by reference to Dycom Industries, Inc.'s Form 10-K, filed with the SEC on September 4, 2012). |
| |
10.7*10.4* | 2012 Long-Term Incentive Plan (incorporated by reference to Dycom Industries, Inc.'s’s Definitive Proxy Statement filed with the SEC on October 11, 2012). |
| | |
10.8*10.5* | Form of Non-Qualified Stock Option Agreement under the 2012 Long-Term Incentive Plan (incorporated by reference to Dycom Industries, Inc.'s’s Form 8-K filed with the SEC on December 20, 2012). |
| | |
|
| |
10.9*10.6* | Form of Incentive Stock Option Agreement under the 2012 Long-Term Incentive Plan (incorporated by reference to Dycom Industries, Inc.'s’s Form 8-K filed with the SEC on December 20, 2012). |
| | |
10.10*10.7* | Form of Restricted Stock Unit Agreement under the 2012 Long-Term Incentive Plan (incorporated by reference to Dycom Industries, Inc.'s’s Form 8-K filed with the SEC on December 20, 2012). |
| | |
10.11*10.8* | Form of Performance Share Unit Agreement under the 2012 Long-Term Incentive Plan (incorporated by reference to Dycom Industries, Inc.'s’s Form 8-K filed with the SEC on December 20, 2012). |
| | |
10.12*10.9* | 2007 Non-Employee Directors Equity Plan, amended and restated effective as of September 19, 2011 (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 23, 2011). |
| | |
10.13*10.10* | Form of Non-Employee Director Non-Qualified Stock Option Agreement, under the 2007 Non-Employee Directors Equity Plan, as amended and restated (incorporated by reference to Dycom Industries, Inc.'s’s Form 10-K, filed with the SEC on September 4, 2012). |
| | |
10.14* |
| |
| 10.11* | Form of Non-Employee Director Restricted Stock Unit Agreement, under the 2007 Non-Employee Directors Equity Plan, as amended and restated (incorporated by reference to Dycom Industries, Inc.'s’s Form 10-K, filed with the SEC on September 4, 2012). |
| | |
10.15*10.12* | Employment Agreement for Richard B. VilsoetSteven E. Nielsen dated as of May 5, 2005 (incorporated by reference to Dycom Industries, Inc.’s Form 10-K filed with the SEC on September 9, 2005). |
| |
10.16* | Employment Agreement for H. Andrew DeFerrari dated as of July 14, 2004April 26, 2016 (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on January 23, 2006)April 27, 2016, as amended by Dycom Industries, Inc.’s Form 8-K/A filed with the SEC on April 27, 2016). |
| | |
10.17* | Amendment to the Employment Agreement of H. Andrew DeFerrari dated as of August 25, 2006 (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on August 31, 2006). |
| |
10.18* | Amendment to the Employment Agreements of H. Andrew DeFerrari and Richard B. Vilsoet dated as of May 28, 2010 (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on May 28, 2010). |
| |
10.19* | Employment Agreement for Steven E. Nielsen dated as of May 1, 2012 (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on May 2, 2012). |
| |
10.20*10.13* | Employment Agreement for Timothy R. Estes dated as of October 4, 2012 (incorporated by reference to Dycom Industries, Inc.'s’s Form 8-K filed with the SEC on October 4, 2012). |
| | |
10.2110.14* | Employment Agreement for Richard B. Vilsoet dated as of July 23, 2015 (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on July 24, 2015). |
| |
| 10.15* | Employment Agreement for H. Andrew DeFerrari dated as of July 23, 2015 (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on July 24, 2015). |
| |
| 10.16* | 2009 Annual Incentive Plan (incorporated by reference to Dycom Industries, Inc.’s Definitive Proxy Statement filed with the SEC on October 30, 2008)17, 2013). |
| | |
10.22*10.17* | Form of Indemnification Agreement for directors and executive officers of Dycom Industries, Inc. (incorporated by reference to Dycom Industries, Inc.’s Form 10-K filed with the SEC on September 3, 2009). |
| | |
10.2310.18 | Credit Agreement, dated as of December 3, 2012, among Dycom Industries, Inc., as the Borrower, the subsidiaries of Dycom Industries, Inc. identified therein, certain lenders named therein, Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Managers, Wells Fargo Bank, National Association, as Syndication Agent, and SuntrustSunTrust Bank, PNC Bank, National Association and Branch Banking and Trust Company, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to Dycom Industries, Inc.'s’s Current Report on Form 8-K filed with the SEC on December 5, 2012). |
| | |
10.24*+10.19 | DescriptionFirst Amendment to Credit Agreement, dated as of Non-Employee Directors' Compensation.April 24, 2015, among Dycom Industries, Inc., as the Borrower, the subsidiaries of Dycom Industries, Inc. identified therein, certain lenders named therein, Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, Bank of America Merrill Lynch and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Managers, Wells Fargo Bank, National Association, as Syndication Agent, and SunTrust Bank, PNC Bank, National Association and Branch Banking and Trust Company, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to Dycom Industries, Inc.’s Current Report on Form 8-K filed with the SEC on April 27, 2015). |
| |
| 10.20 | Second Amendment to Credit Agreement, dated as of September 9, 2015, among Dycom Industries, Inc., as the Borrower, the subsidiaries of Dycom Industries, Inc. identified therein, certain lenders named therein, and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Dycom Industries, Inc.’s Current Report on Form 8-K filed with the SEC on September 10, 2015). |
| |
| 10.21 | Third Amendment to Credit Agreement and Additional Term Loan Agreement, dated as of May 20, 2016, among Dycom Industries, Inc., as the Borrower, the subsidiaries of Dycom Industries, Inc. identified therein, certain lenders named therein, and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Dycom Industries, Inc.’s Current Report on Form 8-K filed with the SEC on May 24, 2016). |
| |
| 10.22 | Fourth Amendment to Credit Agreement, dated as of June 17, 2016, among Dycom Industries, Inc., as the Borrower, the subsidiaries of Dycom Industries, Inc. identified therein, certain lenders named therein, and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Dycom Industries, Inc.’s Current Report on Form 8-K filed with the SEC on June 22, 2016). |
| |
| 10.23 | Base Bond Hedge Confirmation, dated as of September 9, 2015, between Dycom Industries, Inc. and Goldman, Sachs & Co. (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 10.24 | Base Bond Hedge Confirmation, dated as of September 9, 2015, between Dycom Industries, Inc. and Bank of America, N.A. (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 10.25 | Base Bond Hedge Confirmation, dated as of September 9, 2015, between Dycom Industries, Inc. and Wells Fargo Bank, National Association (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 10.26 | Additional Bond Hedge Confirmation, dated as of September 10, 2015, between Dycom Industries, Inc. and Goldman, Sachs & Co. (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 10.27 | Additional Bond Hedge Confirmation, dated as of September 10, 2015, between Dycom Industries, Inc. and Bank of America, N.A. (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 10.28 | Additional Bond Hedge Confirmation, dated as of September 10, 2015, between Dycom Industries, Inc. and Wells Fargo Bank, National Association (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 10.29 | Base Warrant Confirmation, dated as of September 9, 2015, between Dycom Industries, Inc. and Goldman, Sachs & Co. (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 10.30 | Base Warrant Confirmation, dated as of September 9, 2015, between Dycom Industries, Inc. and Bank of America, N.A. (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 10.31 | Base Warrant Confirmation, dated as of September 9, 2015, between Dycom Industries, Inc. and Wells Fargo Bank, National Association (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 10.32 | Additional Warrant Confirmation, dated as of September 10, 2015, between Dycom Industries, Inc. and Goldman, Sachs & Co. (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 10.33 | Additional Warrant Confirmation, dated as of September 10, 2015, between Dycom Industries, Inc. and Bank of America, N.A. (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 10.34 | Additional Warrant Confirmation, dated as of September 10, 2015, between Dycom Industries, Inc. and Wells Fargo Bank, National Association (incorporated by reference to Dycom Industries, Inc.’s Form 8-K filed with the SEC on September 15, 2015). |
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| 12.1 + | Computation of Ratio of Earnings to Fixed Charges. |
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21.1+21.1 + | Principal subsidiaries of Dycom Industries, Inc. |
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23.1+23.1 + | Consent of Independent Registered Public Accounting Firm.PricewaterhouseCoopers LLP, independent registered certified public accounting firm. |
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| 23.2 + | Consent of Deloitte & Touche LLP, independent registered public accounting firm. |
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| 31.1 + | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 31.2 + | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 32.1 + | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 32.2 + | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101+101 +** | The following materials from the Registrant’s Annual Report on Form 10-K for the fiscal year ended July 27, 201330, 2016 formatted in eXtensible Business Reporting Language: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements. |
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| + | Filed herewith |
++ | Furnished herewith |
| * | Indicates a management contract or compensatory plan or arrangement. |
** | Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for the purposes of section 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchanges Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | | |
| | | | DYCOM INDUSTRIES, INC. |
| | | | Registrant |
| | | | |
| Date: | September 12, 2013August 31, 2016 | | /s/ Steven E. Nielsen |
| | | | Name: Steven E. Nielsen
Title: President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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| Name | Position | Date |
| | | |
| /s/ Steven E. Nielsen | President, and Chief Executive Officer and Director | September 12, 2013August 31, 2016 |
| Steven E. Nielsen | (Principal Executive Officer) | |
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| /s/ H. Andrew DeFerrari | Senior Vice President and Chief Financial Officer | September 12, 2013August 31, 2016 |
| H. Andrew DeFerrari | (Principal Financial Officer) | |
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| /s/ Rebecca Brightly Roach | Vice President and Chief Accounting Officer | August 31, 2016 |
| Rebecca Brightly Roach | (Principal Accounting Officer) | |
| | | |
| /s/ Thomas G. Baxter | Director | September 12, 2013August 31, 2016 |
| Thomas G. Baxter | | |
| | | |
/s/ Charles M. Brennan, III | Director | September 12, 2013 |
Charles M. Brennan, III | | |
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/s/ Charles B. Coe | Director | September 12, 2013August 31, 2016 |
| Charles B. Coe | | |
| | | |
| /s/ Stephen C. Coley | Director | September 12, 2013August 31, 2016 |
| Stephen C. Coley | | |
| | | |
| /s/ Dwight B. Duke | Director | September 12, 2013August 31, 2016 |
| Dwight B. Duke | | |
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| /s/ Eitan Gertel | Director | August 31, 2016 |
| Eitan Gertel | | |
| | |
| /s/ Anders Gustafsson | Director | August 31, 2016 |
| Anders Gustafsson | | |
| | | |
| /s/ Patricia L. Higgins | Director | September 12, 2013August 31, 2016 |
| Patricia L. Higgins | | |
| | |
| /s/ Laurie J. Thomsen | Director | August 31, 2016 |
| Laurie J. Thomsen | | |
