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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 25, 2020

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)

Florida59-1277135
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
11780 US Highway 1, Suite 600
Palm Beach Gardens, FL33408
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (561) 627-7171

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common stock, par value $0.33 1/3 per shareDYNew York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files). Yes x No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting company
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

There were [31,634,581] shares of common stock with a par value of $0.33 1/3 outstanding at [May 18, 2020].



Dycom Industries, Inc.
Table of Contents
PART I - FINANCIAL INFORMATION
PART II - OTHER INFORMATION
SIGNATURES

2

Table of Contents
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.
3

Table of Contents

DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)
 April 25, 2020January 25, 2020
ASSETS
 Current assets:   
 Cash and equivalents $643,876  $54,560  
 Accounts receivable, net (Note 5)870,791  817,245  
 Contract assets 275,001  253,005  
 Inventories 92,622  98,324  
 Income tax receivable   3,168  
 Other current assets 48,585  31,991  
 Total current assets 1,930,875  1,258,293  
 Property and equipment, net 350,452  376,610  
 Operating lease right-of-use assets 71,680  69,596  
 Goodwill 272,485  325,749  
 Intangible assets, net 134,702  139,945  
 Other assets 52,670  47,438  
 Total non-current assets 881,989  959,338  
 Total assets $2,812,864  $2,217,631  
LIABILITIES AND STOCKHOLDERS’ EQUITY  
 Current liabilities:   
 Accounts payable $194,417  $119,612  
 Current portion of debt 22,500  22,500  
 Contract liabilities 24,566  16,332  
 Accrued insurance claims 41,977  38,881  
 Operating lease liabilities 29,392  26,581  
 Income taxes payable 8,694  344  
 Other accrued liabilities 106,748  98,775  
 Total current liabilities 428,294  323,025  
 Long-term debt1,363,857  844,401  
 Accrued insurance claims - non-current 66,913  56,026  
 Operating lease liabilities - non-current42,964  43,606  
 Deferred tax liabilities, net - non-current 66,041  75,527  
 Other liabilities 10,901  6,442  
 Total liabilities 1,978,970  1,349,027  
 COMMITMENTS AND CONTINGENCIES, Note 19
 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: 31,632,661 and 31,583,938 issued and outstanding, respectively
10,544  10,528  
 Additional paid-in capital 28,352  30,158  
 Accumulated other comprehensive loss (1,812) (1,781) 
 Retained earnings 796,810  829,699  
 Total stockholders’ equity 833,894  868,604  
 Total liabilities and stockholders’ equity $2,812,864  $2,217,631  
See notes to the condensed consolidated financial statements.

4

Table of Contents
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share amounts)
(Unaudited)
For the Three Months Ended
 April 25, 2020April 27, 2019
Contract revenues $814,322  $833,743  
Costs of earned revenues, excluding depreciation and amortization 680,206  701,767  
General and administrative65,887  58,622  
Depreciation and amortization 45,871  46,341  
Goodwill impairment charge53,264    
 Total 845,228  806,730  
Interest expense, net (12,457) (12,233) 
Gain on debt extinguishment 12,504    
Other income, net 1,118  5,698  
(Loss) income before income taxes (29,741) 20,478  
Provision for income taxes 2,677  6,199  
 Net (loss) income $(32,418) $14,279  
(Loss) Earnings per common share:
 Basic (loss) earnings per common share $(1.03) $0.45  
 Diluted (loss) earnings per common share $(1.03) $0.45  
 Shares used in computing (loss) earnings per common share:
 Basic31,603,498  31,451,809  
 Diluted31,603,498  31,786,459  
See notes to the condensed consolidated financial statements.

5

Table of Contents
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
For the Three Months Ended
April 25, 2020April 27, 2019
 Net (loss) income$(32,418) $14,279  
 Foreign currency translation losses, net of tax (31) (14) 
 Comprehensive (loss) income$(32,449) $14,265  
See notes to the condensed consolidated financial statements.

6

Table of Contents
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Dollars in thousands, except share amounts)
(Unaudited)
For the Three Months Ended
Common StockAdditional
Paid-in Capital
Accumulated Other
Comprehensive
Loss
Retained
Earnings
Total
Equity
 SharesAmount
Balances as of January 25, 202031,583,938  $10,528  $30,158  $(1,781) $829,699  $868,604  
Cumulative effect from implementation of ASU 2016-13—  —  —  —  (471) (471) 
Stock options exercised15,425  5  237  —  —  242  
Stock-based compensation1,428  1  2,321  —  —  2,322  
Issuance of restricted stock, net of tax withholdings31,870  10  (336) —  —  (326) 
Equity component of the settlement of 0.75% convertible senior notes due 2021, net of taxes—  —  (3,971) —  —  (3,971) 
Purchase of warrants—  —  (398) —  —  (398) 
Settlement of convertible note hedges related to extinguishment of convertible debt—  —  341  —  —  341  
Other comprehensive loss—  —  —  (31) —  (31) 
Net (loss) income—  —  —  —  (32,418) (32,418) 
Balances as of April 25, 202031,632,661  $10,544  $28,352  $(1,812) $796,810  $833,894  
For the Three Months Ended
Common StockAdditional
Paid-in Capital
Accumulated Other
Comprehensive
Loss
Retained
Earnings
Total
Equity
SharesAmount
Balances as of January 26, 201931,430,031  $10,477  $22,489  $(1,282) $772,484  $804,168  
Stock options exercised9,850  3  103  —  —  106  
Stock-based compensation1,528  1  3,478  —  —  3,479  
Issuance of restricted stock, net of tax withholdings37,442  12  (853) —  —  (841) 
Other comprehensive loss—  —  (14) (14) 
Net income—  —  —  —  14,279  14,279  
Balances as of April 27, 201931,478,851  $10,493  $25,217  $(1,296) $786,763  $821,177  
See notes to the condensed consolidated financial statements.

7

Table of Contents
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For the Three Months Ended
April 25, 2020April 27, 2019
Cash flows from operating activities:
Net (loss) income$(32,418) $14,279  
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization45,871  46,341  
Non-cash lease expense7,921  7,390  
Deferred income tax (benefit) provision(8,710) 5,579  
Stock-based compensation2,322  3,479  
Provision for bad debt (recovery), net118  (10,311) 
Gain on sale of fixed assets(1,788) (6,738) 
Gain on debt extinguishment(12,504)   
Amortization of debt discount4,341  4,932  
Amortization of debt issuance costs and other951  985  
Goodwill impairment charge53,264    
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable, net(54,134) (76,297) 
Contract assets, net(13,763) (84,031) 
Other current assets and inventories(11,337) (16,994) 
Other assets2,019  37,323  
Income taxes receivable/payable11,518  730  
Accounts payable80,319  18,300  
Accrued liabilities, insurance claims, operating lease liabilities, and other liabilities11,171  (1,089) 
Net cash provided by (used in) operating activities85,161  (56,122) 
Cash flows from investing activities:
Capital expenditures(20,701) (45,768) 
Proceeds from sale of assets2,400  7,362  
Net cash used in investing activities(18,301) (38,406) 
Cash flows from financing activities:
Proceeds from borrowings on senior credit agreement, including term loans675,000    
Principal payments on senior credit agreement, including term loans(5,625)   
Extinguishment of 0.75% senior notes(167,003)   
Redemption discount on convertible debt, net of costs20,040    
Settlement of convertible note hedges related to extinguished convertible debt341    
Purchase of warrants(397)   
Exercise of stock options242  106  
Restricted stock tax withholdings(326) (841) 
Net cash provided by (used in) financing activities522,272  (735) 
Net increase (decrease) in cash and equivalents and restricted cash589,132  (95,263) 
Cash, cash equivalents and restricted cash at beginning of period59,869  134,151  
Cash, cash equivalents and restricted cash at end of period$649,001  $38,888  

8

Table of Contents
Supplemental disclosure of other cash flow activities and non-cash investing and financing activities:
Cash paid for interest$8,510  $7,474  
Cash paid for taxes, net$52  $814  
Purchases of capital assets included in accounts payable or other accrued liabilities at period end$2,933  $8,054  
See notes to the condensed consolidated financial statements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Dycom Industries, Inc. (“Dycom” or the “Company”) is a leading provider of specialty contracting services throughout the United States. These services include program management; planning; engineering and design; aerial, underground, and wireless construction; maintenance; and fulfillment services for telecommunications providers. Additionally, Dycom provides underground facility locating services for various utilities, including telecommunications providers, and other construction and maintenance services for electric and gas utilities. Dycom supplies the labor, tools, and equipment necessary to provide these services to its customers.

The Company uses a 52/53 week fiscal year ending on the last Saturday in January. Fiscal 2020 consisted of 52 weeks of operations and fiscal year ending January 30, 2021 consists of 53 weeks of operation.

The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries, all of which are wholly-owned, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report and the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for fiscal 2020, filed with the SEC on March 2, 2020. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods presented have been included. This includes all normal and recurring adjustments and elimination of intercompany accounts and transactions. Operating results for the interim period are not necessarily indicative of the results expected for any subsequent interim or annual period.

Segment Information. The Company operates in one reportable segment. Its services are provided by its operating segments on a decentralized basis. Each operating segment consists of a subsidiary (or in certain instances, the combination of two or more subsidiaries), the results of which are regularly reviewed by the Company’s Chief Executive Officer, the chief operating decision maker. All of the Company’s operating segments have been aggregated into one reportable segment based on their similar economic characteristics, nature of services and production processes, type of customers, and service distribution methods.

The economy of the United States has been severely impacted by the nation’s response to the COVID-19 pandemic. Measures taken include travel restrictions, social distancing requirements, quarantines, and shelter in place orders. As a result, businesses have been closed and certain business activities curtailed or modified. During the COVID-19 pandemic, our services have generally been considered essential in nature and have not been materially interrupted. As the situation continues to evolve, we are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it impacts our customers, subcontractors, suppliers, vendors and employees, in addition to how the COVID-19 pandemic impacts our ability to provide services to our customers. We believe the ultimate impact of the COVID-19 pandemic on our operating results, cash flows and financial condition is likely to be determined by factors which are uncertain, unpredictable and outside of our control. The situation surrounding COVID-19 remains fluid, and if disruptions do arise, they could materially adversely impact our business.

2. Significant Accounting Policies and Estimates

There have been no material changes to the Company’s significant accounting policies and critical accounting estimates described in the Company’s Annual Report on Form 10-K for fiscal 2020.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. These estimates are based on our historical experience and management’s understanding of current facts and circumstances. At the time they are made, we believe that such estimates are fair when considered in conjunction with the Company’s consolidated financial position and results of operations taken as a whole. However, actual results could differ materially from those estimates.

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3. Accounting Standards

Recently issued accounting pronouncements are disclosed in the Company’s Annual Report on Form 10-K for fiscal 2020. As of the date of this Quarterly Report on Form 10-Q, there have been no changes in the expected dates of adoption or estimated effects on the Company’s condensed consolidated financial statements of recently issued accounting pronouncements from those disclosed in the Company’s Annual Report on Form 10-K for fiscal 2020. Further, there have been no additional accounting standards issued as of the date of this Quarterly Report on Form 10-Q that are applicable to the consolidated financial statements of the Company. Accounting standards adopted during the three months ended April 25, 2020 are disclosed in this Quarterly Report on Form 10-Q.

Recently Adopted Accounting Standards

Financial Instruments. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”) as modified by subsequently issued ASUs 2018-19, 2019-04, 2019-05, 2019-11, and 2020-02. This ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which could result in earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for financial instruments at the time the financial asset is originated or acquired. The financial instruments include accounts receivable and contract assets. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current GAAP, which generally require that a loss be incurred before it is recognized. The new standard also applies to receivables arising from revenue transactions such as contract assets and accounts receivables. On January 26, 2020, the first day of fiscal 2021, we adopted ASU 2016-13. The standard was adopted utilizing a modified retrospective approach and the adoption did not have a material impact on our condensed consolidated financial statements as credit losses are not expected to be significant based on historical trends and the financial condition of our customers.

Goodwill. In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment testing. An entity will no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. On January 26, 2020, the first day of fiscal 2021, we adopted ASU 2017-04 and there was no effect on the Company’s condensed consolidated financial statements as a result of adoption. See Note 9, Goodwill and Intangible Assets, for disclosure of events during the three months ended April 25, 2020.

Intangibles. In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We adopted the provisions of this ASU in the first quarter of fiscal 2021 on a prospective basis. Adoption of the new standard did not have a material impact on our condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

All other new accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.


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4. Computation of Earnings per Common Share

The following table sets forth the computation of basic and diluted earnings per common share (dollars in thousands, except per share amounts):
 For the Three Months Ended
 April 25, 2020April 27, 2019
Net (loss) income available to common stockholders (numerator)$(32,418) $14,279  
Weighted-average number of common shares (denominator)31,603,498  31,451,809  
Basic (loss) earnings per common share$(1.03) $0.45  
Weighted-average number of common shares31,603,498  31,451,809  
Potential shares of common stock arising from stock options, and unvested restricted share units (1)
  334,650  
Potential shares of common stock issuable on conversion of 0.75% convertible senior notes due 2021 (2)
    
Total shares-diluted (denominator)31,603,498  31,786,459  
Diluted (loss) earnings per common share$(1.03) $0.45  
Anti-dilutive weighted shares excluded from the calculation of earnings per common share:
Stock-based awards(1)
608,279  266,371  
0.75% convertible senior notes due 2021(2) (3)
3,024,082  5,005,734  
Warrants(2) (3)
3,024,082  5,005,734  
Total 6,656,443  10,277,839  

(1) For the three months ended April 25, 2020, all common stock equivalents related to stock options and unvested restricted share units were excluded from the diluted loss per share calculation as their effect would be anti-dilutive due to the Company’s net loss for the period.

(2) Under the treasury stock method, our 0.75% convertible senior notes (“Notes”) will have a dilutive impact on earnings per common share if our average stock price for the period exceeds the $96.89 per share conversion price. Our average stock price did not exceed the per share conversion price during the three months ended April 25, 2020 and April 27, 2019; therefore, there was no dilutive impact on earnings per common share for this period. The warrants associated with our Notes will have a dilutive impact on earnings per common share if our average stock price for the period exceeds the $130.43 per share warrant strike price. As our average stock price did not exceed the strike price for the warrants for any of the periods presented, the underlying common shares were anti-dilutive as reflected in the table above.

(3) In connection with the purchase of $167 million of the Notes during the three months ended April 25, 2020 and $25 million in fiscal 2020, we unwound convertible note hedge transactions and warrants proportionately to the number of Notes, which decreased the number of excluded shares from 5.006 million to 3.024 million for the three months ended April 25, 2020.

In connection with the offering 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. Prior to conversion, the convertible note hedge is not included for purposes of the calculation of earnings per common share as its effect would be anti-dilutive. Upon conversion, the convertible note hedge is expected to offset the dilutive effect of the convertible senior notes when the average stock price for the period is above $96.89 per share. See Note 13, Debt, for additional information related to our convertible senior notes, warrant transactions, and hedge transactions.

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5. Accounts Receivable, Contract Assets, and Contract Liabilities

The following provides further details on the balance sheet accounts of accounts receivable, net; contract assets; and contract liabilities.

Accounts Receivable
 
Accounts receivable, net, classified as current, consisted of the following (dollars in thousands):
April 25, 2020January 25, 2020
Trade accounts receivable$384,383  $355,805  
Unbilled accounts receivable479,706  453,353  
Retainage11,868  12,669  
Total875,957  821,827  
Less: allowance for doubtful accounts(5,166) (4,582) 
Accounts receivable, net$870,791  $817,245  
 
We maintain an allowance for doubtful accounts for estimated losses on uncollected balances. Approximately $16.8 million of the allowance for doubtful accounts as of January 26, 2019 was classified as non-current. The allowance for doubtful accounts changed as follows (dollars in thousands):
For the Three Months Ended
April 25, 2020April 27, 2019
Cumulative effect from implementation of ASU 2016-13$471  $—  
Allowance for doubtful accounts at beginning of period4,582  17,702  
Provision for bad debt (recovery)118  (10,311) 
Amounts recovered (charged) against the allowance(5) (6,019) 
Allowance for doubtful accounts at end of period$5,166  $1,372  

Contract Assets and Contract Liabilities

Net contract assets consisted of the following (dollars in thousands):
April 25, 2020January 25, 2020
Contract assets$275,001  $253,005  
Contract liabilities 24,566  16,332  
Contract assets, net$250,435  $236,673  

Net contract assets were $250.4 million and $236.7 million as of April 25, 2020 and January 25, 2020, respectively. The increase primarily resulted from services performed under contracts consisting of multiple tasks which will be billed as the tasks are completed. During the three months ended April 25, 2020, we performed services and recognized $8.5 million of contract revenues related to contract liabilities that existed at January 25, 2020. See Note 6, Other Current Assets and Other Assets, for information on our long-term contract assets.

Customer Credit Concentration

Customers whose combined amounts of accounts receivable and contract assets, net, exceeded 10% of total combined accounts receivable and contract assets, net, as of April 25, 2020 or January 25, 2020 were as follows (dollars in millions):
April 25, 2020January 25, 2020
Amount% of TotalAmount% of Total
Verizon Communications Inc.$471.2  41.9%$440.2  41.8%
CenturyLink, Inc.$204.6  18.2%$175.8  16.7%
Comcast Corporation$130.0  11.6%$114.0  10.8%
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We believe that none of the customers above were experiencing financial difficulties that would materially impact the collectability of the Company’s total accounts receivable and contract assets, net, as of April 25, 2020 or January 25, 2020. On April 14, 2020, Frontier Communications filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York, to implement a prearranged debt restructuring plan. As of April 25, 2020, the Company had outstanding receivables and contract assets in aggregate of approximately $16.7 million with Frontier Communications. The Company has been identified as a critical vendor and expects to continue to provide service to Frontier Communications pursuant to existing contractual obligations and be paid in full for pre-petition and post-petition receivables and contract assets.

6. Other Current Assets and Other Assets
 
Other current assets consisted of the following (dollars in thousands):
April 25, 2020January 25, 2020
Prepaid expenses$30,351  $12,769  
Deposits and other current assets16,862  17,447  
Restricted cash1,372  1,556  
Receivables on equipment sales  219  
Other current assets$48,585  $31,991  

Other assets consisted of the following (dollars in thousands):
April 25, 2020January 25, 2020
Long-term contract assets$21,282  $22,653  
Deferred financing costs6,643  7,133  
Restricted cash3,753  3,753  
Insurance recoveries/receivables for accrued insurance claims12,639  4,864  
Other non-current deposits and assets8,353  9,035  
Other assets$52,670  $47,438  

Long-term contract assets represent payments made to customers pursuant to long-term agreements and are recognized as a reduction of contract revenues over the period for which the related services are provided to the customers.

See Note 10, Accrued Insurance Claims, for information on our Insurance recoveries/receivables.

7. Cash, Cash Equivalents and Restricted Cash
 
Amounts of cash, cash equivalents and restricted cash reported in the condensed consolidated statement of cash flows consisted of the following (dollars in thousands):
April 25, 2020January 25, 2020
Cash and cash equivalents$643,876  $54,560  
Restricted cash included in:
Other current assets1,372  1,556  
Other assets3,753  3,753  
Cash, cash equivalents and restricted cash$649,001  $59,869  

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8. Property and Equipment
 
Property and equipment consisted of the following (dollars in thousands):
Estimated Useful Lives (Years)April 25, 2020January 25, 2020
 Land $4,024  $4,024  
 Buildings
10-35
12,946  12,934  
 Leasehold improvements
1-10
17,126  17,151  
 Vehicles
1-5
626,795  626,307  
 Computer hardware and software
1-7
152,406  149,600  
 Office furniture and equipment
1-10
13,611  13,557  
 Equipment and machinery
1-10
314,329  312,244  
 Total 1,141,237  1,135,817  
 Less: accumulated depreciation (790,785) (759,207) 
 Property and equipment, net $350,452  $376,610  

Depreciation expense was $40.6 million and $41.0 million for the three months ended April 25, 2020 and April 27, 2019, respectively.

9. Goodwill and Intangible Assets

Goodwill

Goodwill consisted of the following balances as of April 25, 2020 and January 25, 2020 and changed by $53.3 million during the three months ended April 25, 2020 as the result of a goodwill impairment charge (dollars in thousands):
April 25, 2020January 25, 2020
Goodwill, gross$521,516  $521,516  
Accumulated impairment losses(249,031) (195,767) 
Total$272,485  $325,749  

The Company’s goodwill resides in multiple reporting units and primarily consists of expected synergies, together with the expansion of the Company’s geographic presence and strengthening of its customer base from acquisitions. Goodwill and other indefinite-lived intangible assets are assessed annually for impairment, or more frequently if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value. The profitability of individual reporting units may suffer periodically due to downturns in customer demand, increased costs of providing services, and the level of overall economic activity. The Company’s customers may reduce capital expenditures and defer or cancel pending projects due to changes in technology, a slowing or uncertain economy, merger or acquisition activity, a decision to allocate resources to other areas of their business, or other reasons. The profitability of reporting units may also suffer if actual costs of providing services exceed the costs anticipated when the Company enters into contracts. Additionally, adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of the Company’s reporting units. The cyclical nature of the Company’s business, the high level of competition existing within its industry, and the concentration of its revenues from a limited number of customers may also cause results to vary. These factors may affect individual reporting units disproportionately, relative to the Company as a whole. As a result, the performance of one or more of the reporting units could decline, resulting in an impairment of goodwill or intangible assets.

The Company performs its annual goodwill assessment as of the first day of the fourth fiscal quarter of each fiscal year. As a result of the Company’s fiscal 2020 period assessment, the Company determined that the fair values of each of the reporting units and the indefinite-lived intangible asset were in excess of their carrying values and no impairment had occurred. Goodwill and indefinite lived intangible assets are required to be tested for impairment between annual tests if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value.

During the three months ended April 25, 2020, the economy of the United States was severely impacted by the nation’s response to a pandemic caused by a novel strain of coronavirus (“COVID-19”). Measures taken include travel restrictions, social distancing requirements, quarantines, and shelter in place orders. As a result, businesses have been closed and certain
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business activities curtailed or modified. During the COVID-19 pandemic, our services have generally been considered essential in nature and have not been materially interrupted. However, certain customers of one of the Company’s reporting units (“Broadband”) have decided to restrict our technicians from entering third party premises. Furthermore, customers have modified their protocols to increase the self-installation of customer premise equipment by their subscribers.

Broadband generates a substantial portion of its revenue and operating results from installation services inside third party premises. The events following the onset of COVID-19 are expected to result in a prolonged downturn in customer demand for installation services from Broadband. This is expected to have a direct, adverse impact on its revenue, operating results and cash flows. These indicators represented a triggering event that warranted impairment testing of Broadband during the three months ended April 25, 2020.

The Broadband reporting unit includes the operations of Broadband Installation Services, Prince Telecom and certain other operations and generated revenue of less than 4% of the consolidated contract revenue of Dycom in fiscal 2020. The Broadband reporting unit did not incur losses in fiscal 2020.

The fiscal 2021 interim impairment analysis for Broadband utilized the same valuation techniques used in the Company’s annual fiscal 2020 impairment analysis. The key assumptions used to determine the fair value of the Company’s reporting units during this interim impairment analysis were: (a) expected cash flow for a period of seven years; (b) terminal value based upon terminal growth rates; and (c) a discount rate based on the Company’s best estimate of the weighted average cost of capital adjusted for risks associated with Broadband. Recent operating performance, along with key assumptions for specific customer and industry opportunities, were used during the fiscal 2021 interim impairment analysis. The terminal growth rate used in the fiscal 2021 interim assessment was 1.5% as compared to 3.0% in the fiscal 2020 assessment reflecting lower long-term demand levels. The discount rate used in the fiscal 2021 interim assessment was 12% compared to 10% in the fiscal 2020 assessment reflecting increased risk associated with the outlook of Broadband.

The combination of lower expected operating results and cash flows from the reduction in revenue, as well as changes in valuation assumptions in the fiscal 2021 interim analysis resulted in a substantial decline in the fair value of the Broadband reporting unit. In accordance with ASU 2017-04, the Company compared the estimated fair value of Broadband to its carrying amount. As a result, the Company recognized an impairment charge of $53.3 million which is the amount by which the carrying amount exceeded the reporting unit’s fair value. After the impairment charge, Broadband had $10.1 million of remaining goodwill as of April 25, 2020. The goodwill impairment charge did not affect the Company’s compliance with its financial covenants and conditions under its revolving credit agreement.

The Company determined that there were no events or changes in circumstances for the other reporting units or indefinite lived intangible asset during the three months ended April 25, 2020 that would indicate a potential reduction in their fair value below their carrying amounts. As of April 25, 2020, the Company continues to believe the remaining goodwill and the indefinite-lived intangible asset are recoverable for all of its reporting units.




Intangible Assets

Our intangible assets consisted of the following (dollars in thousands):
April 25, 2020January 25, 2020
Weighted Average Remaining Useful Lives (Years)Gross Carrying AmountAccumulated AmortizationIntangible Assets, NetGross Carrying AmountAccumulated AmortizationIntangible Assets, Net
Customer relationships10.4$312,017  $183,540  $128,477  $312,017  $178,411  $133,606  
Trade names, finite7.910,350  8,837  1,513  10,350  8,732  1,618  
Trade name, indefinite4,700    4,700  4,700    4,700  
Non-compete agreements0.8200  188  12  200  179  21  
$327,267  $192,565  $134,702  $327,267  $187,322  $139,945  

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Amortization of our customer relationship intangibles is recognized on an accelerated basis as a function of the expected economic benefit. Amortization of our other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life. Amortization expense for finite-lived intangible assets was $5.2 million and $5.3 million for the three months ended April 25, 2020 and April 27, 2019, respectively.

As of April 25, 2020, we believe that the carrying amounts of our 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.

10. Accrued Insurance Claims
 
For claims within our insurance program, we retain the risk of loss, up to certain limits, for matters related to automobile liability, general liability (including damages associated with underground facility locating services), workers’ compensation, and employee group health. With regard to workers’ compensation losses occurring in the 12 month policy period ended in January 2020, we retained the risk of loss up to $1.0 million on a per occurrence basis. This retention amount is unchanged for the 12 month policy period ending in January 2021. This retention amount is applicable to all of the states in which we operate, except with respect to workers’ compensation insurance in two states in which we participate in state-sponsored insurance funds. With regard to automobile liability and general liability losses the retention amount is unchanged for the first $5.0 million of insurance coverage (“primary liability insurance”) for the 12 month policy period ending in January 2021. Aggregate stop-loss coverage for primary insurance claims, including workers’ compensation claims, is $85.8 million for the 12 month policy period ending January 2021.

With regard to automobile liability and general liability losses between $5.0 million and $10.0 million, aggregate stop-loss coverage is $11.5 million for the 12 month period ending January 2021. Losses greater than $10.0 million are covered by insurance.

We are party to a stop-loss agreement for losses under our employee group health plan. For calendar year 2020, we retain the risk of loss, on an annual basis, up to the first $450,000 of claims per participant, as well as an annual aggregate amount for all participants of $475,000. Amounts for total accrued insurance claims and insurance recoveries/receivables are as follows (dollars in thousands):
April 25, 2020January 25, 2020
Accrued insurance claims - current$41,977  $38,881  
Accrued insurance claims - non-current66,913  56,026  
Accrued insurance claims$108,890  $94,907  
Insurance recoveries/receivables:
Current (included in Other current assets)$  $  
Non-current (included in Other assets)12,639  4,864  
Insurance recoveries/receivables$12,639  $4,864  

Insurance recoveries/receivables represent the amount of accrued insurance claims that are covered by insurance as the amounts exceed the Company’s loss retention. During the three months ended April 25, 2020, total insurance recoveries/receivables increased approximately $7.8 million primarily due to additional claims that exceeded our loss retention. Accrued insurance claims increased by a corresponding amount.

11. Leases

We lease the majority of our office facilities as well as certain equipment, all of which are accounted for as operating leases. These leases have remaining terms ranging from less than 1 year to approximately 10 years. Some leases include options to extend the lease for up to 5 years and others include options to terminate.

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The following table summarizes the components of lease cost recognized in the condensed consolidated statements of operations for the three months ended April 25, 2020 and April 27, 2019 (dollars in thousands):
For the Three Months EndedFor the Three Months Ended
April 25, 2020April 27, 2019
Lease cost under long-term operating leases$8,813  $8,331  
Lease cost under short-term operating leases8,833  8,406  
Variable lease cost under short-term and long-term operating leases(1)
1,132  1,210  
Total lease cost$18,778  $17,947  

(1) Variable lease cost primarily includes insurance, maintenance, and other operating expenses related to our leased office facilities.

Our operating lease liabilities related to long-term operating leases were $72.4 million as of April 25, 2020 and $70.2 million as of January 25, 2020. Supplemental balance sheet information related to these liabilities is as follows:
April 25, 2020January 25, 2020
Weighted average remaining lease term3.4 years3.3 years
Weighted average discount rate5.1 %5.2 %

Supplemental cash flow information related to our long-term operating lease liabilities as of April 25, 2020 and April 27, 2019 is as follows (dollars in thousands):
For the Three Months EndedFor the Three Months Ended
April 25, 2020