NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share data)
(unaudited)
Note 1. Basis of Presentation
Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) are the world's industry leader in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("GAAP") requires management to make estimates and assumptions affecting the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The balance sheet at April 27, 2019, has been derived from the audited financial statements at that date, but it does not include all the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with our financial statements and notes thereto for the year ended April 27, 2019, which are contained in our Annual Report on Form 10-K previously filed with the Securities and Exchange Commission ("SEC"). The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.
Daktronics, Inc. operates on a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13-week periods following the beginning of each fiscal year. In each 53-week year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13-week period. The fiscal year ended April 27, 2019 consisted of 52 weeks. Fiscal 2020 will be a 53-week year; therefore, the quarter ended August 3, 2019 contains operating results for 14 weeks while the quarter ended July 28, 2018 contains operating results for 13 weeks.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the totals of the same amounts shown in the condensed consolidated statement of cash flows:
|
|
|
|
|
|
|
|
|
|
August 3,
2019
|
|
July 28,
2018
|
Cash and cash equivalents
|
$
|
20,762
|
|
|
$
|
15,915
|
|
Restricted cash
|
339
|
|
|
26
|
|
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows
|
$
|
21,101
|
|
|
$
|
15,941
|
|
Recent Accounting Pronouncements
There have been no material changes to our significant accounting policies and estimates as described in our Annual Report on Form 10-K for the fiscal year ended April 27, 2019, other than described in the Accounting Standards Adopted section below.
Accounting Standards Adopted
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (that is, lessees and lessors). ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. ASU 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 (Leases) and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which provide (i) narrow amendments to clarify how to apply certain aspects of the new lease standard, (ii) entities with an additional transition method to adopt the new standard, and (iii) lessors with a practical expedient for separating components of a contract.
We adopted ASU 2016-02 and its related guidance during the first quarter of fiscal 2020 for all agreements existing as of April 28, 2019. We elected the "comparatives under Accounting Standards Codification ("ASC") 840 option" as a transitional method, which allows us to initially apply the new lease requirements at the effective date. Comparative periods were not adjusted and will continue to be reported in accordance with prior lease guidance under ASC 840. We elected the package of practical expedients, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the short-term lease recognition whereby we will not recognize operating leases related assets or liabilities for leases with a lease term of less than one year. We have also elected the practical expedient to not separate lease and non-lease components in the lease payments for all asset classes. This adoption did not have an impact on our condensed consolidated statements of operations, shareholders' equity and cash flows, and there was no adjustment to retained earnings. As of April 28, 2019, we recognized a right of use asset for operating leases of $11,101 and a current and non-current lease liability for operating leases of $2,745 and $8,356, respectively. The right of use operating assets are included in the "Investment in affiliates and other assets" line item, the current lease liabilities are included in the "Accrued expenses" line item, and the non-current lease liabilities are included in the "Other long-term obligations" line item in our condensed consolidated balance sheet. See "Note 12. Leases" for more information.
Accounting Standards Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual periods beginning after December 15, 2019 and will require adoption on a prospective basis. We are currently evaluating the effect that adopting ASU 2017-04 will have on our condensed consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement and recognition of credit impairment for certain financial assets. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, and will require adoption on a modified retrospective basis. We are currently evaluating the effect that adopting ASU 2016-13 will have on our condensed consolidated financial statements and related disclosures.
Note 2. Investments in Affiliates
Investments in affiliates over which we have significant influence are accounted for under the equity method of accounting in accordance with the provisions of ASC 323, Investments – Equity Method and Joint Ventures. Investments in affiliates over which we do not have the ability to exert significant influence over the affiliate's operating and financing activities are accounted for under the cost method of accounting in accordance with the provisions of ASC 321, Investments – Equity Securities. We have evaluated our relationships with our affiliates and have determined that these entities are not variable interest entities.
The aggregate amount of investments accounted for under the equity method was $3,538 and $3,657 at August 3, 2019 and April 27, 2019, respectively. The equity method requires us to report our share of losses up to our equity investment amount. Cash paid for investments in affiliates and loans to affiliates are included in the "Purchases of and loans to equity investment" line item in our condensed consolidated statements of cash flows. Our proportional share of the respective affiliates' earnings or losses is included in the "Other income (expense), net" line item in our condensed consolidated statements of operations. For the three months ended August 3, 2019 and July 28, 2018, our share of the losses of our affiliates was $118 and $134, respectively.
The aggregate amount of investments without readily determinable fair values was $42 at August 3, 2019 and April 27, 2019, respectively. There have not been any identified events or changes in circumstances that may have a significant adverse effect on their fair value, and it is not practical to estimate their fair value. We record equity investments without readily determinable fair values at cost, less any impairment, adjusted for observable price changes. During the three months ended August 3, 2019, we did not record any changes in the measurement of such investments.
Note 3. Earnings Per Share ("EPS")
We follow the provisions of ASC 260, Earnings Per Share, where basic EPS is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution which may occur if securities or other obligations to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock which share in our earnings.
The following is a reconciliation of the net income and common share amounts used in the calculation of basic and diluted EPS for the three months ended August 3, 2019 and July 28, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
Shares
|
|
Per share income
|
For the three months ended August 3, 2019
|
|
|
|
|
|
Basic earnings per share
|
$
|
7,030
|
|
|
45,089
|
|
|
$
|
0.16
|
|
Dilution associated with stock compensation plans
|
—
|
|
|
172
|
|
|
—
|
|
Diluted earnings per share
|
$
|
7,030
|
|
|
45,261
|
|
|
$
|
0.16
|
|
For the three months ended July 28, 2018
|
|
|
|
|
|
Basic earnings per share
|
$
|
4,574
|
|
|
44,638
|
|
|
$
|
0.10
|
|
Dilution associated with stock compensation plans
|
—
|
|
|
193
|
|
|
—
|
|
Diluted earnings per share
|
$
|
4,574
|
|
|
44,831
|
|
|
$
|
0.10
|
|
Options outstanding to purchase 2,197 shares of common stock with a weighted average exercise price of $10.03 for the three months ended August 3, 2019 and 1,798 shares of common stock with a weighted average exercise price of $10.46 for the three months ended July 28, 2018 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.
Note 4. Revenue Recognition
Disaggregation of revenue
In accordance with ASC 606-10-50, we disaggregate revenue from contracts with customers by the type of performance obligation and the timing of revenue recognition. We determine that disaggregating revenue in these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors and to enable users of financial statements to understand the relationship to each reportable segment.
The following table presents our disaggregation of revenue by segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 3, 2019
|
|
Commercial
|
|
Live Events
|
|
High School Park and Recreation
|
|
Transportation
|
|
International
|
|
Total
|
Type of performance obligation
|
|
|
|
|
|
|
|
|
|
|
|
Unique configuration
|
$
|
12,965
|
|
|
$
|
45,587
|
|
|
$
|
6,030
|
|
|
$
|
11,897
|
|
|
$
|
15,678
|
|
|
$
|
92,157
|
|
Limited configuration
|
27,235
|
|
|
7,713
|
|
|
23,800
|
|
|
6,587
|
|
|
9,930
|
|
|
75,265
|
|
Service and other
|
3,835
|
|
|
6,006
|
|
|
635
|
|
|
534
|
|
|
1,824
|
|
|
12,834
|
|
|
$
|
44,035
|
|
|
$
|
59,306
|
|
|
$
|
30,465
|
|
|
$
|
19,018
|
|
|
$
|
27,432
|
|
|
$
|
180,256
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
Goods/services transferred at a point in time
|
$
|
27,703
|
|
|
$
|
9,120
|
|
|
$
|
22,599
|
|
|
$
|
6,697
|
|
|
$
|
10,188
|
|
|
$
|
76,307
|
|
Goods/services transferred over time
|
16,332
|
|
|
50,186
|
|
|
7,866
|
|
|
12,321
|
|
|
17,244
|
|
|
103,949
|
|
|
$
|
44,035
|
|
|
$
|
59,306
|
|
|
$
|
30,465
|
|
|
$
|
19,018
|
|
|
$
|
27,432
|
|
|
$
|
180,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 28, 2018
|
|
Commercial
|
|
Live Events
|
|
High School Park and Recreation
|
|
Transportation
|
|
International
|
|
Total
|
Type of performance obligation
|
|
|
|
|
|
|
|
|
|
|
|
Unique configuration
|
$
|
3,049
|
|
|
$
|
38,921
|
|
|
$
|
8,943
|
|
|
$
|
9,618
|
|
|
$
|
16,216
|
|
|
$
|
76,747
|
|
Limited configuration
|
23,867
|
|
|
5,818
|
|
|
18,547
|
|
|
7,083
|
|
|
10,778
|
|
|
66,093
|
|
Service and other
|
3,653
|
|
|
4,733
|
|
|
630
|
|
|
456
|
|
|
1,876
|
|
|
11,348
|
|
|
$
|
30,569
|
|
|
$
|
49,472
|
|
|
$
|
28,120
|
|
|
$
|
17,157
|
|
|
$
|
28,870
|
|
|
$
|
154,188
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
Goods/services transferred at a point in time
|
$
|
24,583
|
|
|
$
|
6,802
|
|
|
$
|
16,998
|
|
|
$
|
7,232
|
|
|
$
|
11,536
|
|
|
$
|
67,151
|
|
Goods/services transferred over time
|
5,986
|
|
|
42,670
|
|
|
11,122
|
|
|
9,925
|
|
|
17,334
|
|
|
87,037
|
|
|
$
|
30,569
|
|
|
$
|
49,472
|
|
|
$
|
28,120
|
|
|
$
|
17,157
|
|
|
$
|
28,870
|
|
|
$
|
154,188
|
|
See "Note 5. Segment Reporting" for a disaggregation of revenue by geography.
Contract balances
Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed under the contract terms. Contract liabilities represent amounts billed to the clients in excess of revenue recognized to date.
The following table reflects the changes in our contract assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 3, 2019
|
|
April 27, 2019
|
|
Dollar Change
|
|
Percent Change
|
Contract assets
|
$
|
42,809
|
|
|
$
|
33,704
|
|
|
$
|
9,105
|
|
|
27.0
|
%
|
Contract liabilities - current
|
53,421
|
|
|
47,178
|
|
|
6,243
|
|
|
13.2
|
|
Contract liabilities - noncurrent
|
10,140
|
|
|
10,053
|
|
|
87
|
|
|
0.9
|
|
The changes in our contract assets and contract liabilities from April 27, 2019 to August 3, 2019 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the seasonality of the sports markets. We had no material impairments of contract assets for the three months ended August 3, 2019.
As of April 27, 2019, we had six contracts in progress that were identified as loss contracts, for which we recorded a provision for losses of $2,353 and had four remaining contracts with loss estimates of $531 as of August 3, 2019. These were included in the "Accrued expenses" line item in our condensed consolidated balance sheets.
During the three months ended August 3, 2019, we recognized revenue of $31,259 related to our contract liabilities as of April 27, 2019.
Remaining performance obligations
As of August 3, 2019, the aggregate amount of the transaction price allocated to the remaining performance obligations was $263,406. We expect approximately $226,999 of our remaining performance obligations to be recognized over the next 12 months with the remainder recognized thereafter. Remaining performance obligations related to product and service agreements are $206,990 and $56,416, respectively. Although remaining performance obligations reflect business that is considered to be legally binding, cancellations, deferrals or scope adjustments may occur. Any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals are reflected or excluded in the remaining performance obligation balance, as appropriate.
Note 5. Segment Reporting
We organize and manage our business by the following five segments which meet the definition of reportable segments under ASC 280-10, Segment Reporting: Commercial, Live Events, High School Park and Recreation, Transportation, and International. These segments are based on the customer type or geography and are the same as our business units. We evaluate segment performance based on operating results through contribution margin, which is comprised of gross profit less selling expense. We exclude general and
administration expense, product design and development expense, non-operating income and expense, and income tax expense in the segment analysis. Separate financial information is available and regularly evaluated by our chief operating decision-maker (CODM), who is our president and chief executive officer, in making resource allocation decisions for our segments.
The following table sets forth certain financial information for each of our five reporting segments for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
August 3,
2019
|
|
July 28,
2018
|
|
Net sales:
|
|
|
|
|
Commercial
|
$
|
44,035
|
|
|
$
|
30,569
|
|
|
Live Events
|
59,306
|
|
|
49,472
|
|
|
High School Park and Recreation
|
30,465
|
|
|
28,120
|
|
|
Transportation
|
19,018
|
|
|
17,157
|
|
|
International
|
27,432
|
|
|
28,870
|
|
|
|
180,256
|
|
|
154,188
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
Commercial
|
9,218
|
|
|
6,894
|
|
|
Live Events
|
12,737
|
|
|
10,233
|
|
|
High School Park and Recreation
|
10,187
|
|
|
9,502
|
|
|
Transportation
|
6,754
|
|
|
5,451
|
|
|
International
|
6,609
|
|
|
6,167
|
|
|
|
45,505
|
|
|
38,247
|
|
|
|
|
|
|
|
Contribution margin: (1)
|
|
|
|
|
Commercial
|
4,084
|
|
|
2,474
|
|
|
Live Events
|
8,872
|
|
|
6,985
|
|
|
High School Park and Recreation
|
6,592
|
|
|
6,552
|
|
|
Transportation
|
5,452
|
|
|
4,295
|
|
|
International
|
2,208
|
|
|
1,563
|
|
|
|
27,208
|
|
|
21,869
|
|
|
|
|
|
|
|
Non-allocated operating expenses:
|
|
|
|
|
General and administrative
|
9,093
|
|
|
8,537
|
|
|
Product design and development
|
10,500
|
|
|
9,292
|
|
|
Operating income
|
7,615
|
|
|
4,040
|
|
|
|
|
|
|
|
Nonoperating income (expense):
|
|
|
|
|
Interest income
|
269
|
|
|
197
|
|
|
Interest expense
|
(35
|
)
|
|
(39
|
)
|
|
Other income (expense), net
|
193
|
|
|
(154
|
)
|
|
|
|
|
|
|
Income before income taxes
|
8,042
|
|
|
4,044
|
|
|
Income tax expense (benefit)
|
1,012
|
|
|
(530
|
)
|
|
Net income
|
$
|
7,030
|
|
|
$
|
4,574
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
Commercial
|
$
|
974
|
|
|
$
|
1,178
|
|
|
Live Events
|
1,398
|
|
|
1,172
|
|
|
High School Park and Recreation
|
512
|
|
|
443
|
|
|
Transportation
|
264
|
|
|
274
|
|
|
International
|
524
|
|
|
700
|
|
|
Unallocated corporate depreciation
|
711
|
|
|
721
|
|
|
|
$
|
4,383
|
|
|
$
|
4,488
|
|
|
(1) Contribution margin consists of gross profit less selling expense.
No single geographic area comprises a material amount of our net sales or property and equipment, net of accumulated depreciation, other than the United States. The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
August 3,
2019
|
|
July 28,
2018
|
|
Net sales:
|
|
|
|
|
United States
|
$
|
149,460
|
|
|
$
|
121,325
|
|
|
Outside United States
|
30,796
|
|
|
32,863
|
|
|
|
$
|
180,256
|
|
|
$
|
154,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 3,
2019
|
|
April 27,
2019
|
|
Property and equipment, net of accumulated depreciation:
|
|
|
|
|
United States
|
$
|
59,446
|
|
|
$
|
59,192
|
|
|
Outside United States
|
7,261
|
|
|
6,122
|
|
|
|
$
|
66,707
|
|
|
$
|
65,314
|
|
|
We have numerous customers worldwide for sales of our products and services, and no customer accounted for 10% or more of net sales; therefore, we are not economically dependent on a limited number of customers for the sale of our products and services.
We have numerous raw material and component suppliers, and no supplier accounts for 10% or more of our cost of sales; however, we have a number of single-source suppliers that could limit our supply or cause delays in obtaining raw material and components needed in manufacturing.
Note 6. Marketable Securities
We have a cash management program which provides for the investment of cash balances not used in current operations. We classify our investments in marketable securities as available-for-sale in accordance with the provisions of ASC 320, Investments – Debt and Equity Securities. Marketable securities classified as available-for-sale are reported at fair value with unrealized gains or losses, net of tax, reported in accumulated other comprehensive loss in the condensed consolidated balance sheets. As it relates to fixed income marketable securities, it is not likely we will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of August 3, 2019, we anticipate we will recover the entire amortized cost basis of such fixed income securities, and we have determined no other-than-temporary impairments associated with credit losses were required to be recognized. The cost of securities sold is based on the specific identification method. Where quoted market prices are not available, we use the market price of similar types of securities traded in the market to estimate fair value.
As of August 3, 2019 and April 27, 2019, our available-for-sale securities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Unrealized Losses
|
|
Fair Value
|
Balance as of August 3, 2019
|
|
|
|
|
|
Certificates of deposit
|
$
|
3,464
|
|
|
$
|
—
|
|
|
$
|
3,464
|
|
U.S. Government securities
|
1,000
|
|
|
—
|
|
|
1,000
|
|
U.S. Government sponsored entities
|
5,913
|
|
|
(2
|
)
|
|
5,911
|
|
Municipal bonds
|
1,503
|
|
|
—
|
|
|
1,503
|
|
|
$
|
11,880
|
|
|
$
|
(2
|
)
|
|
$
|
11,878
|
|
Balance as of April 27, 2019
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
$
|
3,464
|
|
|
$
|
—
|
|
|
$
|
3,464
|
|
U.S. Government securities
|
10,779
|
|
|
(5
|
)
|
|
10,774
|
|
U.S. Government sponsored entities
|
10,510
|
|
|
(28
|
)
|
|
10,482
|
|
Municipal bonds
|
1,626
|
|
|
(2
|
)
|
|
1,624
|
|
|
$
|
26,379
|
|
|
$
|
(35
|
)
|
|
$
|
26,344
|
|
Realized gains or losses on investments are recorded in our condensed consolidated statements of operations as "Other income (expense), net." Upon the sale of a security classified as available-for-sale, the security’s specific unrealized gain (loss) is reclassified out of
accumulated other comprehensive loss into earnings based on the specific identification method. In the three months ended August 3, 2019 and July 28, 2018, the reclassifications from accumulated other comprehensive loss to net earnings were immaterial.
All available-for-sale securities are classified as current assets, as they are readily available to support our current operating needs. The contractual maturities of available-for-sale debt securities as of August 3, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
1-5 Years
|
|
Total
|
Certificates of deposit
|
$
|
2,234
|
|
|
$
|
1,230
|
|
|
$
|
3,464
|
|
U.S. Government securities
|
1,000
|
|
|
—
|
|
|
1,000
|
|
U.S. Government sponsored entities
|
3,661
|
|
|
2,250
|
|
|
5,911
|
|
Municipal bonds
|
1,503
|
|
|
—
|
|
|
1,503
|
|
|
$
|
8,398
|
|
|
$
|
3,480
|
|
|
$
|
11,878
|
|
Note 7. Business Combinations
AJT Systems, Inc. Acquisition
We acquired the net assets of AJT Systems, Inc. ("AJT"), a Florida-based company, on June 21, 2018. The results of its operations have been included in our condensed consolidated financial statements since the date of acquisition. We have not made pro forma disclosures about our acquisition of AJT because the results of its operations are not material to our condensed consolidated financial statements.
AJT is a developer of real-time live to air graphics rendering and video server systems for the broadcast TV industry. This acquisition will allow our organization to grow and strengthen our solution offerings to the market. This acquisition was primarily funded with cash on hand and with payments made over a three-year period.
Note 8. Goodwill
The changes in the carrying amount of goodwill related to each reportable segment for the three months ended August 3, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live Events
|
|
Commercial
|
|
Transportation
|
|
International
|
|
Total
|
Balance as of April 27, 2019
|
$
|
2,276
|
|
|
$
|
3,218
|
|
|
$
|
49
|
|
|
$
|
2,346
|
|
|
$
|
7,889
|
|
Foreign currency translation
|
8
|
|
|
53
|
|
|
8
|
|
|
(18
|
)
|
|
51
|
|
Balance as of August 3, 2019
|
$
|
2,284
|
|
|
$
|
3,271
|
|
|
$
|
57
|
|
|
$
|
2,328
|
|
|
$
|
7,940
|
|
We perform an analysis of goodwill on an annual basis, and it is tested for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. We perform our annual analysis during our third quarter of each fiscal year, based on the goodwill amount as of the first business day of our third fiscal quarter.
In conducting our impairment testing, we compare the fair value of each of our business units to the related carrying value of the allocated assets. We utilize the income approach based on discounted projected cash flows to estimate the fair value of each unit. The projected cash flows use many estimates including market conditions and expected market demand; our ability to grow or maintain market share and gross profit; and our expected expenditures for capital and operating expenses. Assets shared or not directly attributed to a reportable segment's activities are allocated to the reportable segment based on sales and other measures.
We performed our annual impairment test on October 29, 2018 and concluded no goodwill impairment existed. We plan to complete our annual analysis as of the first business day of our third quarter of fiscal 2020, which will begin on November 4, 2019.
Note 9. Selected Financial Statement Data
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
August 3,
2019
|
|
April 27,
2019
|
Raw materials
|
$
|
36,239
|
|
|
$
|
30,789
|
|
Work-in-process
|
9,291
|
|
|
8,239
|
|
Finished goods
|
39,928
|
|
|
39,804
|
|
|
$
|
85,458
|
|
|
$
|
78,832
|
|
Property and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
August 3,
2019
|
|
April 27,
2019
|
Land
|
$
|
1,754
|
|
|
$
|
1,738
|
|
Buildings
|
66,731
|
|
|
66,403
|
|
Machinery and equipment
|
99,055
|
|
|
96,486
|
|
Office furniture and equipment
|
6,145
|
|
|
6,195
|
|
Computer software and hardware
|
53,611
|
|
|
55,460
|
|
Equipment held for rental
|
287
|
|
|
287
|
|
Demonstration equipment
|
7,172
|
|
|
7,422
|
|
Transportation equipment
|
7,943
|
|
|
7,715
|
|
|
242,698
|
|
|
241,706
|
|
Less accumulated depreciation
|
175,991
|
|
|
176,392
|
|
|
$
|
66,707
|
|
|
$
|
65,314
|
|
Note 10. Receivables
We invoice customers based on a billing schedule as established in our contracts. We sometimes have the ability to file a contractor’s lien against the product installed as collateral and to file claims against surety bonds to protect our interest in receivables. Foreign sales are at times secured by irrevocable letters of credit or bank guarantees. Accounts receivable are reported net of an allowance for doubtful accounts of $2,292 and $2,208 at August 3, 2019 and April 27, 2019, respectively. Included in accounts receivable as of August 3, 2019 and April 27, 2019 was $828 and $440, respectively, of retainage on construction-type contracts, all of which is expected to be collected within one year.
In some contracts with customers, we agreed to installment payments exceeding 12 months. The present value of these contracts and leases are recorded as a receivable as the revenue is recognized in accordance with GAAP, and profit is recognized to the extent the present value is in excess of cost. We generally retain a security interest in the equipment or in the cash flow generated by the equipment until the contract is paid. The present value of long-term contracts and lease receivables, including accrued interest and current maturities, was $6,160 and $3,514 as of August 3, 2019 and April 27, 2019, respectively. Contract and lease receivables bearing annual interest rates of 5.0 to 9.0 percent are due in varying annual installments through 2024. The face amount of long-term receivables was $5,501 as of August 3, 2019 and $3,271 as of April 27, 2019.
Note 11. Share Repurchase Program
On June 17, 2016, our Board of Directors approved a stock repurchase program under which we may purchase up to $40,000 of the Company's outstanding shares of common stock. Under this program, we may repurchase shares from time to time in open market transactions and in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The repurchase program does not require the repurchase of a specific number of shares and may be terminated at any time.
During the three months ended July 28, 2018, we had no repurchases of shares of our outstanding common stock. During the three months ended August 3, 2019, we repurchased 187 shares of common stock at a total cost of $1,187. As of August 3, 2019, we had $36,988 of remaining capacity under our current share repurchase program.
Note 12. Leases
We lease facilities and various equipment to manufacture products and provide employee collaboration space and tools. These are all classified as operating leases and have initial lease terms ranging from one to five years. These operating leases do not contain material
residual value guarantees or material restrictive covenants. Our lease in Sioux Falls, SD has a purchase option. We do not have any financing leases.
We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use the incremental borrowing rate based on the information available at commencement date in determining the present value of future lease payments. The operating lease right-of-use asset includes any prepaid lease payments and initial direct costs and excludes any lease incentives and impairments. Some of our leases include options to extend the term, which is only included in the right-of-use assets and lease liability calculation when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, and we have elected to account for all asset classes as a single lease component. Our operating leases also typically require payment of real estate taxes, insurance, and common area maintenance. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components. Our total variable lease costs are immaterial.
Operating lease cost is recognized on a straight-line basis over the lease term, and short-term lease cost is recognized when paid. Both are recognized in cost of sales and operating expenses in the condensed consolidated statements of operations. The lease cost were as follows:
|
|
|
|
|
|
|
|
Three Months Ended August 3, 2019
|
Operating lease cost(1)
|
|
$
|
852
|
|
(1) Includes short-term leases, which are immaterial.
The weighted average remaining lease term and discount rate related to operating leases include:
|
|
|
|
|
|
|
August 3, 2019
|
Weighted average remaining lease term
|
|
5.4 years
|
|
Weighted average discount rate
|
|
3.5
|
%
|
Supplemental unaudited cash flow information related to operating leases include:
|
|
|
|
|
|
|
|
Three Months Ended August 3, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
|
$
|
816
|
|
Future minimum operating lease payments as of, and subsequent to, August 3, 2019 under ASC 842 are as follows:
|
|
|
|
|
|
|
|
Operating Leases(1)
|
Fiscal years ending
|
|
|
2020
|
|
$
|
2,264
|
|
2021
|
|
2,649
|
|
2022
|
|
1,924
|
|
2023
|
|
1,133
|
|
2024
|
|
1,035
|
|
Thereafter
|
|
2,377
|
|
Total lease payments
|
|
11,382
|
|
Less imputed interest
|
|
(1,008
|
)
|
Total lease liabilities
|
|
$
|
10,374
|
|
(1) Includes $3,879 to extend the term of our Sioux Falls, South Dakota manufacturing facility.
Note 13. Commitments and Contingencies
Litigation: We are a party to legal proceedings and claims which arise during the ordinary course of business. For unresolved legal proceedings or claims, we do not believe there is a reasonable probability that any material loss will be incurred. Accordingly, no material
accrual or disclosure of a potential range of loss has been made related to these matters. We do not expect the ultimate liability of these unresolved legal proceedings or claims to have a material effect on our financial position, liquidity or capital resources.
Warranties: Changes in our warranty obligation for the three months ended August 3, 2019 consisted of the following:
|
|
|
|
|
|
|
|
August 3, 2019
|
Beginning accrued warranty obligations
|
|
$
|
24,470
|
|
Warranties issued during the period
|
|
3,545
|
|
Settlements made during the period
|
|
(2,510
|
)
|
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations
|
|
(55
|
)
|
Ending accrued warranty obligations
|
|
$
|
25,450
|
|
Performance guarantees: We have entered into standby letters of credit and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily construction-type contracts. As of August 3, 2019, we had outstanding letters of credit and surety bonds in the amount of $17,248 and $21,758, respectively. Performance guarantees are issued to certain customers to guarantee the operation and installation of the equipment and our ability to complete a contract. These performance guarantees have various terms but are generally one year. We enter into written agreements with our customers, and those agreements often contain indemnification provisions that require us to make the customer whole if certain acts or omissions by us cause the customer financial loss. We make efforts to negotiate reasonable caps and limitations on the recovery of such damages. As of August 3, 2019, we were not aware of any indemnification claim from a customer.
Purchase commitments: From time to time, we commit to purchase inventory, advertising, cloud-based information systems, information technology maintenance and support services, and various other products and services over periods that extend beyond one year. As of August 3, 2019, we were obligated under the following unconditional purchase commitments:
|
|
|
|
|
|
Fiscal years ending
|
|
Amount
|
2020
|
|
$
|
3,254
|
|
2021
|
|
4,485
|
|
2022
|
|
2,692
|
|
2023
|
|
1,820
|
|
2024
|
|
113
|
|
Thereafter
|
|
153
|
|
|
|
$
|
12,517
|
|
Note 14. Income Taxes
We calculate the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Due to various factors and operating in multiple state and foreign jurisdictions, our effective tax rate is subject to fluctuation. We recorded an effective tax rate of 12.6 percent for the three months ended August 3, 2019 and an effective tax rate benefit of 13.1 percent for the three months ended July 28, 2018. The changes in the effective tax rates are primarily driven by the benefit of research and development tax credits and foreign tax credits proportionate to pre-tax book income for each period.
We are subject to U.S. federal income tax as well as income taxes of multiple state and foreign jurisdictions. Fiscal years 2016, 2017, 2018 and 2019 remain open to federal tax examinations, and fiscal years 2015, 2016, 2017, 2018 and 2019 remain open for various state income tax examinations. Certain subsidiaries are also subject to income tax in several foreign jurisdictions which have open tax years varying by jurisdiction beginning in fiscal 2009. In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense in our condensed consolidated statement of operations.
As of August 3, 2019, undistributed earnings of our foreign subsidiaries were considered to be reinvested indefinitely. Additionally, we had $727 of unrecognized tax benefits which would reduce our effective tax rate if recognized.
Note 15. Fair Value Measurement
The following table sets forth by Level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis at August 3, 2019 and April 27, 2019 according to the valuation techniques we used to determine their fair values. There have been no transfers of assets or liabilities among the fair value hierarchies presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Balance as of August 3, 2019
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
20,762
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,762
|
|
Restricted cash
|
339
|
|
|
—
|
|
|
—
|
|
|
339
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
—
|
|
|
3,464
|
|
|
—
|
|
|
3,464
|
|
U.S. Government securities
|
1,000
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
U.S. Government sponsored entities
|
—
|
|
|
5,911
|
|
|
—
|
|
|
5,911
|
|
Municipal bonds
|
—
|
|
|
1,503
|
|
|
—
|
|
|
1,503
|
|
Derivatives - asset position
|
—
|
|
|
334
|
|
|
—
|
|
|
334
|
|
Derivatives - liability position
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
(10
|
)
|
Acquisition-related contingency consideration
|
—
|
|
|
—
|
|
|
(1,554
|
)
|
|
(1,554
|
)
|
|
$
|
22,101
|
|
|
$
|
11,202
|
|
|
$
|
(1,554
|
)
|
|
$
|
31,749
|
|
Balance as of April 27, 2019
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
35,383
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35,383
|
|
Restricted cash
|
359
|
|
|
—
|
|
|
—
|
|
|
359
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
—
|
|
|
3,464
|
|
|
—
|
|
|
3,464
|
|
U.S. Government securities
|
10,774
|
|
|
—
|
|
|
—
|
|
|
10,774
|
|
U.S. Government sponsored entities
|
—
|
|
|
10,482
|
|
|
—
|
|
|
10,482
|
|
Municipal bonds
|
—
|
|
|
1,624
|
|
|
—
|
|
|
1,624
|
|
Derivatives - asset position
|
—
|
|
|
91
|
|
|
—
|
|
|
91
|
|
Derivatives - liability position
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Acquisition-related contingency consideration
|
—
|
|
|
—
|
|
|
(3,065
|
)
|
|
(3,065
|
)
|
|
$
|
46,516
|
|
|
$
|
15,657
|
|
|
$
|
(3,065
|
)
|
|
$
|
59,108
|
|
A roll forward of the Level 3 contingent liabilities, both short- and long-term, for the three months ended August 3, 2019 is as follows:
|
|
|
|
|
|
Acquisition-related contingency consideration as of April 27, 2019
|
|
$
|
3,065
|
|
Additions
|
|
25
|
|
Settlements
|
|
(1,591
|
)
|
Interest
|
|
18
|
|
Foreign currency translation
|
|
37
|
|
Acquisition-related contingency consideration as of August 3, 2019
|
|
$
|
1,554
|
|
There have been no changes in the valuation techniques used by us to value our financial instruments since the end of fiscal 2019. For additional information, see our Annual Report on Form 10-K for the fiscal year ended April 27, 2019 for the methods and assumptions used to estimate the fair value of each class of financial instrument.
Note 16. Derivative Financial Instruments
We utilize derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on those transactions denominated in currencies other than our functional currency, which is the U.S. dollar. We enter into currency forward contracts to manage these economic risks. We account for all derivatives in the condensed consolidated balance sheets within accounts receivable or accounts payable measured at fair value, and changes in fair values are recognized in earnings unless specific hedge accounting criteria are met for cash flow or net investment hedges. As of August 3, 2019 and April 27, 2019, we had not designated any of our derivative instruments as accounting hedges, and thus we recorded the changes in fair value in the "Other income (expense), net" line item in the condensed consolidated statements of operations.
The foreign currency exchange contracts in aggregated notional amounts in place to exchange U.S. dollars at August 3, 2019 and April 27, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 3, 2019
|
|
April 27, 2019
|
|
U.S. Dollars
|
|
Foreign
Currency
|
|
U.S.
Dollars
|
|
Foreign
Currency
|
Foreign Currency Exchange Forward Contracts:
|
|
|
|
|
|
|
|
U.S. Dollars/Australian Dollars
|
1,524
|
|
|
2,165
|
|
|
2,688
|
|
|
3,772
|
|
U.S. Dollars/Canadian Dollars
|
619
|
|
|
821
|
|
|
625
|
|
|
821
|
|
U.S. Dollars/British Pounds
|
4,747
|
|
|
3,639
|
|
|
3,547
|
|
|
2,680
|
|
U.S. Dollars/Swiss Franc
|
—
|
|
|
—
|
|
|
927
|
|
|
925
|
|
U.S. Dollars/Malaysian Ringgit
|
60
|
|
|
246
|
|
|
60
|
|
|
246
|
|
As of August 3, 2019, there was an asset and liability of $334 and $10, respectively, and as of April 27, 2019, there was an asset and liability of $91 and $4, respectively, representing the fair value of foreign currency exchange forward contracts, which were determined using Level 2 inputs from a third-party bank. As of August 3, 2019, all contracts mature within 20 months.