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 disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The balance sheet at May 2, 2020, has been derived from the audited financial statements at that date, but it does not include all the information and disclosures 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 May 2, 2020, 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 May 1, 2021 will consist of 52 weeks and the fiscal year ended May 2, 2020 was a 53-week year; therefore, the three months ended August 1, 2020 contains operating results for 13 weeks while the three months ended August 3, 2019 contains operating results for 14 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 1,
2020
|
|
August 3,
2019
|
Cash and cash equivalents
|
$
|
44,609
|
|
|
$
|
20,762
|
|
Restricted cash
|
96
|
|
|
339
|
|
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows
|
$
|
44,705
|
|
|
$
|
21,101
|
|
Other Business Developments - Coronavirus Pandemic
During the first quarter of fiscal 2021, we continued to see the global spread of the coronavirus pandemic ("COVID-19"), which grew to create significant volatility, uncertainty and global economic disruption. As disclosed in our Current Report on Form 8-K filed on April 1, 2020, we are taking proactive steps to solidify our financial position and mitigate any adverse consequences. These steps include preserving liquidity by drawing down $15,000 of our existing line of credit, which is included in the "Other long-term obligations" line item in our condensed consolidated balance sheets. In addition, we are pursuing other sources of financing, reducing investments in capital assets, reducing executive pay and board member compensation, and instituting initiatives to reduce other costs in the business. Our board of directors voted to suspend stock repurchases under our share repurchase program and to suspend dividends for the foreseeable future. We believe these measures are necessary to help preserve our ability to borrow for liquidity needs and help us be well positioned when the pandemic passes and economies begin to recover.
During fiscal 2020, we offered special voluntary retirement and voluntary exit incentive program ("Offering") and during the first quarter of fiscal 2021, we conducted a reduction in force ("RIF") to adjust our capacity and reduce on-going expenses due to the uncertainties created by the COVID-19 pandemic. Under the Offering, employees had until June 2020 to choose to participate. During the first quarter of fiscal 2021, 60 employees agreed to participate and completed employment in June 2020. The approximate cost of this Offering was $931. Under the RIF, employment was terminated with 108 employees with severance totaling $1,426.
Various government programs have been announced which provide financial relief for affected businesses that suffered reductions in revenue resulting from the COVID-19 pandemic including the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada, the Australian JobKeeper subsidy in Australia, the Temporary COVID-19 Wage Subsidy in Ireland, and the Job Retention Program in the United Kingdom. During the first quarter of fiscal 2021, we received $812 in total governmental wage subsidies and recorded such as a reduction of compensation expense, which is mostly included in the "Costs of sales" line item in our condensed consolidated statements of operations.
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 May 2, 2020, other than described in the Accounting Standards Adopted section below.
Accounting Standards Adopted
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 adopted ASU 2017-04 during the first quarter of fiscal 2021 and the adoption did not have an impact on our condensed consolidated financial statements.
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 improves financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Under the new guidance, the ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. 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 adopted ASU 2016-13 and its related guidance during the first quarter of fiscal 2021 and the adoption did not have a material impact on our condensed consolidated financial statements.
We estimate an allowance for doubtful accounts using a loss rate method. We measure all expected credit losses for financial assets held
at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.
A reconciliation of the beginning and ending allowance for doubtful accounts is as follows:
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts:
|
Balance as of May 2, 2020
|
|
$
|
2,828
|
|
Charged to costs and expenses
|
|
735
|
|
Deductions (1)
|
|
(241
|
)
|
Balance as of August 1, 2020
|
|
$
|
3,322
|
|
(1) Includes accounts determined to be uncollectible and charged against reserves.
Accounting Standards Not Yet Adopted
There are no significant ASU's issued not yet adopted as of August 1, 2020.
Note 2. Investments in Affiliates
Investments in affiliates over which we have significant influence are accounted for under the equity method of accounting, recording the investment at cost and then subsequently adjusting to account for our share of the affiliates profit or losses, in accordance with the provisions of Accounting Standards Codification ("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, recording the investment at cost and then subsequently adjusting for any changes in ownership or dividends, 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. 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. Equity method investments as a whole are assessed for other-than-temporary impairments whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable.
The aggregate amount of investments accounted for under the equity method was $16,728 and $17,257 at August 1, 2020 and May 2, 2020, respectively. Our proportional share of the respective affiliates' earnings or losses is included in the "Other (expense) income, net" line item in our condensed consolidated statements of operations. For the three months ended August 1, 2020 and August 3, 2019, our share of the losses of our affiliates was $529 and $118, respectively.
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 1, 2020 and August 3, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
Shares
|
|
Per share income
|
For the three months ended August 1, 2020
|
|
|
|
|
|
Basic earnings per share
|
$
|
7,467
|
|
|
44,654
|
|
|
$
|
0.17
|
|
Dilution associated with stock compensation plans
|
—
|
|
|
97
|
|
|
—
|
|
Diluted earnings per share
|
$
|
7,467
|
|
|
44,751
|
|
|
$
|
0.17
|
|
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
|
|
Options outstanding to purchase 2,119 shares of common stock with a weighted average exercise price of $9.96 for the three months ended August 1, 2020 and 2,197 shares of common stock with a weighted average exercise price of $10.03 for the three months ended August 3, 2019 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 1, 2020
|
|
Commercial
|
|
Live Events
|
|
High School Park and Recreation
|
|
Transportation
|
|
International
|
|
Total
|
Type of performance obligation
|
|
|
|
|
|
|
|
|
|
|
|
Unique configuration
|
$
|
8,727
|
|
|
$
|
41,975
|
|
|
$
|
7,668
|
|
|
$
|
7,724
|
|
|
$
|
4,012
|
|
|
$
|
70,106
|
|
Limited configuration
|
22,555
|
|
|
5,419
|
|
|
20,688
|
|
|
6,266
|
|
|
8,653
|
|
|
63,581
|
|
Service and other
|
3,224
|
|
|
4,080
|
|
|
587
|
|
|
508
|
|
|
1,558
|
|
|
9,957
|
|
|
$
|
34,506
|
|
|
$
|
51,474
|
|
|
$
|
28,943
|
|
|
$
|
14,498
|
|
|
$
|
14,223
|
|
|
$
|
143,644
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
Goods/services transferred at a point in time
|
$
|
22,892
|
|
|
$
|
6,214
|
|
|
$
|
19,368
|
|
|
$
|
6,374
|
|
|
$
|
9,179
|
|
|
$
|
64,027
|
|
Goods/services transferred over time
|
11,614
|
|
|
45,260
|
|
|
9,575
|
|
|
8,124
|
|
|
5,044
|
|
|
79,617
|
|
|
$
|
34,506
|
|
|
$
|
51,474
|
|
|
$
|
28,943
|
|
|
$
|
14,498
|
|
|
$
|
14,223
|
|
|
$
|
143,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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 according to 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 1, 2020
|
|
May 2, 2020
|
|
Dollar Change
|
|
Percent Change
|
Contract assets
|
$
|
33,261
|
|
|
$
|
35,467
|
|
|
$
|
(2,206
|
)
|
|
(6.2
|
)%
|
Contract liabilities - current
|
50,159
|
|
|
50,897
|
|
|
(738
|
)
|
|
(1.4
|
)
|
Contract liabilities - noncurrent
|
10,715
|
|
|
10,707
|
|
|
8
|
|
|
0.1
|
|
The changes in our contract assets and contract liabilities from May 2, 2020 to August 1, 2020 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 1, 2020.
For service-type warranty contracts, we allocate revenue to this performance obligation, recognize the revenue over time, and recognize costs as incurred. Earned and unearned revenues for these contracts are included in the "Contract assets" and "Contract liabilities" line items in our condensed consolidated balance sheets. Changes in unearned service-type warranty contracts, net were as follows:
|
|
|
|
|
|
|
|
August 1, 2020
|
Balance at beginning of period
|
|
$
|
24,490
|
|
New contracts sold
|
|
8,188
|
|
Less: reductions for revenue recognized
|
|
(9,115
|
)
|
Foreign currency translation and other
|
|
250
|
|
Balance at end of period
|
|
$
|
23,813
|
|
As of August 1, 2020 and May 2, 2020, our contracts in progress that were identified as loss contracts were immaterial. For these contracts, the provision for losses are included in the "Accrued expenses" line item in our condensed consolidated balance sheets.
During the three months ended August 1, 2020, we recognized revenue of $30,358 related to our contract liabilities as of May 2, 2020.
Remaining performance obligations
As of August 1, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations was $245,756. We expect approximately $204,878 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 at August 1, 2020 are $191,717 and $54,039, 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 1,
2020
|
|
August 3,
2019
|
Net sales:
|
|
|
|
Commercial
|
$
|
34,506
|
|
|
$
|
44,035
|
|
Live Events
|
51,474
|
|
|
59,306
|
|
High School Park and Recreation
|
28,943
|
|
|
30,465
|
|
Transportation
|
14,498
|
|
|
19,018
|
|
International
|
14,223
|
|
|
27,432
|
|
|
143,644
|
|
|
180,256
|
|
|
|
|
|
Gross profit:
|
|
|
|
Commercial
|
7,742
|
|
|
9,218
|
|
Live Events
|
9,354
|
|
|
12,737
|
|
High School Park and Recreation
|
10,476
|
|
|
10,187
|
|
Transportation
|
5,143
|
|
|
6,754
|
|
International
|
3,046
|
|
|
6,609
|
|
|
35,761
|
|
|
45,505
|
|
|
|
|
|
Contribution margin: (1)
|
|
|
|
Commercial
|
4,441
|
|
|
4,084
|
|
Live Events
|
7,138
|
|
|
8,872
|
|
High School Park and Recreation
|
7,915
|
|
|
6,592
|
|
Transportation
|
4,381
|
|
|
5,452
|
|
International
|
330
|
|
|
2,208
|
|
|
24,205
|
|
|
27,208
|
|
|
|
|
|
Non-allocated operating expenses:
|
|
|
|
General and administrative
|
7,124
|
|
|
9,093
|
|
Product design and development
|
7,532
|
|
|
10,500
|
|
Operating income
|
9,549
|
|
|
7,615
|
|
|
|
|
|
Nonoperating income (expense):
|
|
|
|
Interest income
|
85
|
|
|
269
|
|
Interest expense
|
(73
|
)
|
|
(35
|
)
|
Other (expense) income, net
|
(627
|
)
|
|
193
|
|
|
|
|
|
Income before income taxes
|
8,934
|
|
|
8,042
|
|
Income tax expense
|
1,467
|
|
|
1,012
|
|
Net income
|
$
|
7,467
|
|
|
$
|
7,030
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
Commercial
|
$
|
772
|
|
|
$
|
974
|
|
Live Events
|
1,451
|
|
|
1,398
|
|
High School Park and Recreation
|
496
|
|
|
512
|
|
Transportation
|
237
|
|
|
264
|
|
International
|
693
|
|
|
524
|
|
Unallocated corporate depreciation
|
688
|
|
|
711
|
|
|
$
|
4,337
|
|
|
$
|
4,383
|
|
(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 1,
2020
|
|
August 3,
2019
|
Net sales:
|
|
|
|
United States
|
$
|
128,069
|
|
|
$
|
149,460
|
|
Outside United States
|
15,575
|
|
|
30,796
|
|
|
$
|
143,644
|
|
|
$
|
180,256
|
|
|
|
|
|
|
|
|
|
|
August 1,
2020
|
|
May 2,
2020
|
Property and equipment, net of accumulated depreciation:
|
|
|
|
United States
|
$
|
56,822
|
|
|
$
|
58,422
|
|
Outside United States
|
9,237
|
|
|
9,062
|
|
|
$
|
66,059
|
|
|
$
|
67,484
|
|
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 1, 2020, 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 1, 2020 and May 2, 2020, our available-for-sale securities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Unrealized Losses
|
|
Fair Value
|
Balance as of August 1, 2020
|
|
|
|
|
|
Certificates of deposit
|
$
|
1,230
|
|
|
$
|
—
|
|
|
$
|
1,230
|
|
|
$
|
1,230
|
|
|
$
|
—
|
|
|
$
|
1,230
|
|
Balance as of May 2, 2020
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
$
|
1,230
|
|
|
$
|
—
|
|
|
$
|
1,230
|
|
|
$
|
1,230
|
|
|
$
|
—
|
|
|
$
|
1,230
|
|
Realized gains or losses on investments are recorded in our condensed consolidated statements of operations as "Other (expense) income, 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 1, 2020 and August 3, 2019, 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 1, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
Total
|
Certificates of deposit
|
$
|
1,230
|
|
|
$
|
1,230
|
|
|
$
|
1,230
|
|
|
$
|
1,230
|
|
Note 7. Goodwill
The changes in the carrying amount of goodwill related to each reportable segment for the three months ended August 1, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live Events
|
|
Commercial
|
|
Transportation
|
|
International
|
|
Total
|
Balance as of May 2, 2020
|
$
|
2,266
|
|
|
$
|
3,144
|
|
|
$
|
38
|
|
|
$
|
2,295
|
|
|
$
|
7,743
|
|
Foreign currency translation
|
13
|
|
|
91
|
|
|
13
|
|
|
188
|
|
|
305
|
|
Balance as of August 1, 2020
|
$
|
2,279
|
|
|
$
|
3,235
|
|
|
$
|
51
|
|
|
$
|
2,483
|
|
|
$
|
8,048
|
|
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. Our annual analysis is performed during our third quarter of each fiscal year, based on the goodwill amount as of the first business day of our third fiscal quarter. We performed our annual impairment test on November 4, 2019 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 2021, which will begin on November 2, 2020.
In March 2020, we began to see the impacts from the COVID-19 pandemic that could have a negative impact on our forecasted revenue and profitability and stock price declines. This, along with other market conditions, led us to perform an interim goodwill impairment analysis in the fourth quarter of fiscal 2020. After evaluating our results, events and circumstances, we determined no goodwill impairment was necessary. Although the COVID-19 pandemic continues to cause uncertainty, in the first quarter of fiscal 2021, we considered if any new events had occurred or if circumstances had changed such that it was more likely than not that the fair value of any of our reporting units was below its carrying amount, and we did not identify any further impairment indicators; therefore, we did not perform an additional interim impairment analysis.
Note 8. Selected Financial Statement Data
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
August 1,
2020
|
|
May 2,
2020
|
Raw materials
|
$
|
33,076
|
|
|
$
|
35,306
|
|
Work-in-process
|
9,943
|
|
|
12,102
|
|
Finished goods
|
38,416
|
|
|
39,395
|
|
|
$
|
81,435
|
|
|
$
|
86,803
|
|
Property and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
August 1,
2020
|
|
May 2,
2020
|
Land
|
$
|
2,183
|
|
|
$
|
2,183
|
|
Buildings
|
69,967
|
|
|
68,804
|
|
Machinery and equipment
|
105,188
|
|
|
104,157
|
|
Office furniture and equipment
|
6,174
|
|
|
6,151
|
|
Computer software and hardware
|
53,691
|
|
|
53,441
|
|
Equipment held for rental
|
287
|
|
|
287
|
|
Demonstration equipment
|
8,368
|
|
|
8,473
|
|
Transportation equipment
|
7,783
|
|
|
7,944
|
|
|
253,641
|
|
|
251,440
|
|
Less accumulated depreciation
|
187,582
|
|
|
183,956
|
|
|
$
|
66,059
|
|
|
$
|
67,484
|
|
Note 9. 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 $3,322 and $2,828 at August 1, 2020 and May 2, 2020, respectively. Included in accounts receivable as of August 1, 2020 and May 2, 2020 was $741 and $687, respectively, of retainage on construction-type contracts, all of which is expected to be collected within one year.
In some contracts with customers, we agree to installment payments exceeding 12 months. The present value of these contracts is 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, including accrued interest and current maturities, was $4,045 and $4,633 as of August 1, 2020 and May 2, 2020, respectively. Contract receivables bearing annual interest rates of 5.0 to 9.0 percent are due in varying annual installments through 2024. The face value of long-term receivables was $4,327 as of August 1, 2020 and $5,166 as of May 2, 2020.
We evaluated our receivable and contract assets as of August 1, 2020 and reserved for anticipated losses. Due to the uncertainty created by the COVID-19 pandemic, this loss may materially change from this estimate.
Note 10. 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 August 1, 2020, 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 1, 2020, we had $32,539 of remaining capacity under our current share repurchase program.
As part of our COVID-19 response, on April 1, 2020, our Board of Directors voted to suspend stock repurchases under our share repurchase program for the foreseeable future.
Note 11. Commitments and Contingencies
Litigation: We are a party to legal proceedings and claims which arise during the ordinary course of business.
As of August 1, 2020 and May 2, 2020, $2,118 and $2,072, respectively, were included in the "Accrued expenses" line item in our condensed consolidated balance sheets for a probable and reasonably estimated cost to settle a patent litigation claim.
For other unresolved legal proceedings or claims, we do not believe there is a reasonable probability that any material loss would 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 1, 2020 consisted of the following:
|
|
|
|
|
|
|
|
August 1, 2020
|
Beginning accrued warranty obligations
|
|
$
|
25,624
|
|
Warranties issued during the period
|
|
2,800
|
|
Settlements made during the period
|
|
(1,056
|
)
|
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations
|
|
(308
|
)
|
Ending accrued warranty obligations
|
|
$
|
27,060
|
|
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 1, 2020, we had outstanding letters of credit and surety bonds in the amount of $14,788 and $35,079, 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 1, 2020, 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 1, 2020, we were obligated under the following unconditional purchase commitments:
|
|
|
|
|
|
Fiscal years ending
|
|
Amount
|
2021
|
|
$
|
2,831
|
|
2022
|
|
2,750
|
|
2023
|
|
1,755
|
|
2024
|
|
148
|
|
2025
|
|
113
|
|
Thereafter
|
|
40
|
|
|
|
$
|
7,637
|
|
Note 12. 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.
Our effective tax rate for the three months ended August 1, 2020 was 16.4 percent as compared to 12.6 percent for the three months ended August 3, 2019. The quarterly effective tax rate was primarily driven by the benefit of estimated tax credits proportionate to estimated pre-tax earnings similar to the previous period.
We are subject to U.S. federal income tax as well as income taxes of multiple state and foreign jurisdictions. Fiscal years 2017, 2018, 2019 and 2020 remain open to federal tax examinations, and fiscal years 2016, 2017, 2018, 2019 and 2020 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 1, 2020, undistributed earnings of our foreign subsidiaries are considered to be reinvested indefinitely. Additionally, we had $723 of unrecognized tax benefits which would reduce our effective tax rate if recognized.
Note 13. 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 1, 2020 and May 2, 2020 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 1, 2020
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
44,609
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
44,609
|
|
Restricted cash
|
96
|
|
|
—
|
|
|
—
|
|
|
96
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
—
|
|
|
1,230
|
|
|
—
|
|
|
1,230
|
|
Derivatives - asset position
|
—
|
|
|
36
|
|
|
—
|
|
|
36
|
|
Derivatives - liability position
|
—
|
|
|
(242
|
)
|
|
—
|
|
|
(242
|
)
|
Acquisition-related contingent consideration
|
—
|
|
|
—
|
|
|
(401
|
)
|
|
(401
|
)
|
|
$
|
44,705
|
|
|
$
|
1,024
|
|
|
$
|
(401
|
)
|
|
$
|
45,328
|
|
Balance as of May 2, 2020
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
40,398
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
40,398
|
|
Restricted cash
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
—
|
|
|
1,230
|
|
|
—
|
|
|
1,230
|
|
Derivatives - asset position
|
—
|
|
|
261
|
|
|
—
|
|
|
261
|
|
Derivatives - liability position
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
(17
|
)
|
Acquisition-related contingent consideration
|
—
|
|
|
—
|
|
|
(761
|
)
|
|
(761
|
)
|
|
$
|
40,412
|
|
|
$
|
1,474
|
|
|
$
|
(761
|
)
|
|
$
|
41,125
|
|
A roll forward of the Level 3 contingent liabilities, both short- and long-term, for the three months ended August 1, 2020 is as follows:
|
|
|
|
|
|
Acquisition-related contingent consideration as of May 2, 2020
|
|
$
|
761
|
|
Additions
|
|
33
|
|
Settlements
|
|
(400
|
)
|
Interest
|
|
7
|
|
Acquisition-related contingent consideration as of August 1, 2020
|
|
$
|
401
|
|
There have been no changes in the valuation techniques used by us to value our financial instruments since the end of fiscal 2020. For additional information, see our Annual Report on Form 10-K for the fiscal year ended May 2, 2020 for the methods and assumptions used to estimate the fair value of each class of financial instrument.
Note 14. 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 1, 2020 and May 2, 2020, we had not designated any of our derivative instruments as accounting hedges, and thus we recorded the changes in fair value in the "Other (expense) income, 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 1, 2020 and May 2, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2020
|
|
May 2, 2020
|
|
U.S. Dollars
|
|
Foreign
Currency
|
|
U.S.
Dollars
|
|
Foreign
Currency
|
Foreign Currency Exchange Forward Contracts:
|
|
|
|
|
|
|
|
U.S. Dollars/Australian Dollars
|
5,406
|
|
|
7,839
|
|
|
2,235
|
|
|
3,323
|
|
U.S. Dollars/Canadian Dollars
|
—
|
|
|
—
|
|
|
452
|
|
|
648
|
|
U.S. Dollars/British Pounds
|
2,149
|
|
|
1,650
|
|
|
3,160
|
|
|
2,424
|
|
U.S. Dollars/Euros
|
—
|
|
|
—
|
|
|
1,881
|
|
|
1,689
|
|
As of August 1, 2020, there was an asset and liability of $36 and $242, respectively; and as of May 2, 2020, there was an asset and liability of $261 and $17, 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 1, 2020, all contracts mature within 17 months.
Note 15. Subsequent Events
On August 28, 2020, we entered into the third amendment to our credit agreement and a security agreement over certain assets. The third amendment adds a liquidity covenant and revises other financial covenants.