NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 1. Nature of Business and Summary of Significant Accounting Policies
Nature of business: Daktronics, Inc. and its subsidiaries are engaged principally in the design, market, and manufacture of a wide range of integrated electronic display systems and related products which are sold in a variety of markets throughout the world and the rendering of related maintenance and professional services. Our products are designed primarily to inform and entertain people through the communication of content.
Fiscal year: We operate 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 years ended May 1, 2021 and April 27, 2019 contained operating results for 52 weeks, while the fiscal year ended May 2, 2020 contained operating results for 53 weeks.
Principles of consolidation: The consolidated financial statements include Daktronics, Inc. and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.
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 affiliates' 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 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.
During the fourth quarter of fiscal 2020, we participated in a Series A investment in X Display Company ("XDC"). XDC creates and owns leading intellectual property (IP) and capabilities in microLED mass transfer technology. This investment will support XDC’s further development in microLED capabilities and applications. MicroLED technologies support Daktronics’ line of narrow pixel pitch LED displays and will enable solutions to move into the realm of less than 1-millimeter pixel spacing. During the fourth quarter of fiscal 2021, we invested an additional $5,000, which resulted in a 16.4 percent ownership in XDC. XDC is accounted for under the equity method of accounting.
The aggregate amount of investments accounted for under the equity method was $19,887 and $17,257 at May 1, 2021 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 consolidated statements of operations. For fiscal years 2021, 2020, and 2019, our share of the losses of our affiliates was $2,370, $741, and $844, respectively. We purchased services for research and development activities from our equity method investments. The total of these related party transactions for fiscal 2021 was $460, which was included in the "Product design and development" line item in in our condensed consolidated statement of operations, and $470 of this remains unpaid and is included in the "Accounts payable" line item in our condensed consolidated balance sheet. The total of these related party transactions for fiscal 2020 and 2019 was $1,113 and $0, respectively.
Summarized financial information for equity method investments consist of the following:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
7,534
|
|
|
$
|
10,593
|
|
|
$
|
192
|
|
Non-current assets
|
|
|
4,637
|
|
|
|
4,266
|
|
|
|
2,626
|
|
Current liabilities
|
|
|
2,807
|
|
|
|
2,755
|
|
|
|
839
|
|
Non-current liabilities
|
|
|
1,793
|
|
|
|
4,086
|
|
|
|
2,599
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(13,436
|
)
|
|
|
(1,383
|
)
|
|
|
(2,168
|
)
|
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities; the disclosure of contingent assets and liabilities at the date of the financial statements; the reported amounts of revenues and expenses during the reporting period; and our ability to continue as a going concern. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the estimated total costs on uniquely configured contracts and estimated costs to be incurred for product warranties and income taxes. Estimation processes are also used in inventory valuation, the allowance for doubtful accounts, share-based compensation, goodwill impairment, and extended warranty and product maintenance agreements. Changes in estimates are reflected in the periods in which they become known.
Cash and cash equivalents: All highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents and consist primarily of government repurchase agreements, savings accounts and money market accounts that are carried at cost, which approximates fair value. We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We have not experienced any losses in such accounts.
Restricted cash: Restricted cash consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the totals of the same amounts shown in the consolidated statement of cash flows:
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Cash and cash equivalents
|
|
$
|
77,590
|
|
|
$
|
40,398
|
|
|
$
|
35,383
|
|
Restricted cash
|
|
|
2,812
|
|
|
|
14
|
|
|
|
359
|
|
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows
|
|
$
|
80,402
|
|
|
$
|
40,412
|
|
|
$
|
35,742
|
|
Inventories: In accordance with ASC 330, Inventory, our inventories are stated at the lower of cost (first-in, first-out method) and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Cost is measured as the price of the components and allocated expenses for production or betterment of the inventory item. When we estimate net realizable value to be lower than cost, any necessary adjustments are charged to cost of sales in that period. In determining net realizable value, we review various factors such as current inventory levels, forecasted demand, costs of completion, and technological obsolescence.
Allowance for doubtful accounts: We make estimates regarding the collectability of our accounts receivable, long-term receivables, contract assets and other receivables. In evaluating the adequacy of our allowance for doubtful accounts, we analyze specific balances, customer creditworthiness, changes in customer payment cycles, and current economic trends. If the financial condition of any customer were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances may be required. We charge off receivables at such time it is determined collection will not occur in accordance with ASC 310, Receivables.
Revenue recognition: Our accounting policies and estimates are in accordance with ASC 606, Revenue from Contracts with Customers, and are as follows:
Contracts are identified and follow the revenue recognition policies when all of the following occur: we have evidence that all parties to the contract have approved the contract and are committed to perform their respective obligations, we can identify each party’s rights regarding the goods or services to be transferred, we can identify the payment terms for the goods or services to be transferred, the contract has commercial substance, and it is probable we will collect substantially all of the consideration to which we would be entitled in exchange for the goods or services.
Pre-contract costs are generally expensed as incurred, unless they are directly associated with an anticipated contract and recoverability from that contract is probable. Pre-contract costs directly associated with anticipated contracts expected to be recoverable include $492 and $1,582 as of May 1, 2021 and May 2, 2020, respectively. These are included in the "Inventories" line item in our consolidated balance sheets.
At contract inception, we identify performance obligations by reviewing the agreement for material distinct goods and services. Goods and services are distinct when the customer can benefit from them on its own and our promises to transfer these items are identifiable from other promises within the contract. When we are contracted to provide a single promise (an integrated system), we often treat it as a single performance obligation if we are providing goods and services with the same pattern of transfer that are highly integrated or interdependent, that are modified or customized by other goods or services promised, or that provide a combined outcome for which the customer has contracted. When less interdependency or integration is necessary, or when the customer can benefit from distinct items, we separate the contract into multiple performance obligations. We account for extended warranties and other services ("service-type warranties") that represent a distinct service as a separate performance obligation.
Our contracts can contain multiple components of transaction price. We evaluate each contract for these components and include fixed consideration, variable consideration, financing components, and non-cash consideration and exclude consideration payable to a customer and sales taxes in the transaction price. When we are responsible for site installations which include subcontracted work, we maintain the contractual responsibilities and risks and include the consideration for these services in the transaction price. When our contract contains variable consideration, including return rights, discounts, claims, unpriced change orders, and liquidated damages, we estimate the transaction price using the expected value (i.e., the sum of the probability-weighted amount) or the most likely amount method, whichever is expected to better predict revenue for that contract situation. We also constrain the revenue to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We consider the following factors in determining revenue associated with variable consideration: (a) the contract or other evidence providing the legal basis, (b) additional costs caused by unforeseen circumstances, (c) evidence supporting the claim, and (d) historical evidence and patterns of customers. We adjust the contract price for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer goods and services to a customer will exceed one year from the time the customer pays and represents financing. If the payment structures exceed a year but are structured to account for risks with a contract or correspond to payments on milestones or are scheduled for performance, we do not adjust the contract price for a financing component. See "Note 6. Receivables" for amounts recorded in long-term receivables.
When separate performance obligations are identified, we allocate the transaction price to the individual performance obligation based on the best method we judge as faithfully depicting the value of the performance obligation. Many of our contracts are bundled, and we do not have separate selling prices for each performance obligation; therefore, for these contracts, we primarily use the cost plus a margin approach to allocate the relative transaction price to identified performance obligations, as it is the best representative of our pricing methods.
Revenue is recognized when we satisfy a performance obligation. We receive payments from customers based on a billing schedule as established in our contracts. Billing schedules include down payments and progress billings over time; set milestone payments that are specific to the project are scheduled for performance-based payments or are set time-based payment(s). Variability in contract assets and contract liabilities relates to the timing of billings and revenue recognition, which can vary significantly depending on contractual payment terms, build and installation schedules and the related timing differences in transfer of control. Balances are also impacted by the seasonality in our business.
Significant judgments and estimates are used in our revenue policies. Throughout the revenue cycle, we evaluate contractual evidence, monitor our performance, evaluate variable consideration changes, update estimated costs to complete cost-to-cost projects, and obtain evidence of deliveries or other control change evidence for appropriate and consistent revenue recognition. We maintain internal policies and procedures to provide guidance for those involved in recording revenue. We monitor for changes in our business sales practices and customer interactions to capture the appropriate types of performance obligations and adjust for any change in control terms and conditions.
Our material performance obligation types include:
Unique configuration contracts: audio-visual communication systems uniquely configured (custom) or integrated for a customer's particular location and system configuration may include all or a combination of the following: engineering services, project management services, video display(s), control solution(s), installation and integration services, scoring and messaging equipment, training, other on-site services, spare parts, software licenses, and assurance-type warranties.
We may have multiple performance obligations in these types of contracts; however, a majority are treated as a combined single performance obligation. In our judgment, this accounting treatment is most appropriate because the substantial part of our promise to customers is to provide significant integration services and incorporate individual goods and services into a combined output or system. Often times, the system is customized or significantly modified to the customer's desired configurations and location, and the interrelated goods and services provide utility to the customer as a package.
Revenue for uniquely configured (custom) or integrated systems is recognized over time using the cost incurred input method. Over time revenue recognition is appropriate because we have no alternative use for the uniquely configured system and have an enforceable right to payment for work performed. The cost incurred input method measures costs incurred to date compared to estimated total costs for each contract. This method is the most faithful depiction of our performance because it measures the value of the contract transferred to the customer. Costs to perform include direct and indirect costs for contract design, production, integration, installation, and assurance-type warranty reserve. Direct costs include materials and components; manufacturing, project management and engineering labor; and subcontracting expenses. Indirect costs include allocated charges for such items as facilities and equipment depreciation and general overhead. Provisions of estimated losses on uncompleted contracts are made in the period when such losses are capable of being estimated.
Contract modifications to existing contracts with customers are evaluated in accordance with the five-step revenue model. We treat contract modifications as a separate contract and new performance obligations when the additional goods or services are distinct and do not add to the unique configuration or are outside the integrated system and when the consideration reflects standalone selling prices. If the additional goods or services offered under the modification enhance the uniquely configured or integrated systems, revenue is allocated to the existing contracts' performance obligation. Modifications may cause changes in the timing of revenue recognition depending on the allocation to various performance obligations.
The time between contract order and project completion is typically less than 12 months but may extend longer depending on the amount of custom work and customers’ delivery needs.
Limited configuration (standard systems) and after-sale parts contracts: Limited configured (standard systems) or after-sale parts contracts with limited or no configuration or limited integration are recognized as distinct individual performance obligations when material. When not distinct, we combine into one performance obligation the goods and/or services with each other until the bundle of goods or services is distinct. For standard display purchases made in large quantities, we account for each piece of equipment separately as a distinct performance obligation from which a customer derives benefit. Immaterial goods or services in the context of the contract are included with the display system performance obligation. Standard systems and equipment with limited configurations or integrations may include all or a combination (when immaterial) of the following performance obligations: engineering services, project management services, video display(s), control solution(s), installation and integration services, scoring, messaging and audio equipment, training, spare parts, software licenses, assurance-type warranties, and after-sale parts.
Revenue is recognized at a point in time when control passes, or over time as services are performed. When fulfilling limited configuration performance obligations, we are typically able to redirect the video displays or scoring, messaging, or audio equipment to another customer without incurring significant economic losses. Therefore, we have an alternative use for the performance obligation and recognize revenue upon our substantial completion and at the point in time we estimate control has transferred to the customer. When limited configured single performance obligations are more service-type (i.e., installation and integration services), we recognize revenue over time using the cost-to-cost input method, which is the most faithful depiction of the customer obtaining control and benefits from the work performed.
Services and other: Services sold on a stand-alone basis or after the initial system sale include performance obligations such as event support, control room design, on-site training, equipment service, service-type warranties, technical support, software sold as a service, and other immaterial revenue streams. These are contracted with a customer generally per service event or service type on a stand-alone basis. Services, service type warranties, and other are recognized as net sales when the services are performed, and control is transferred to the customer at a point in time when title or control passes or over time as services are performed and for time-based "stand ready to perform" type obligations. We use professional judgment to determine control transfer. If we have the right to consideration from a customer that directly corresponds with the value of our performance (where we bill a fixed amount for each hour of service provided), we recognize revenue related to the work completed.
Software: Revenues from software license fees on sales, other than uniquely configured type contracts, are recognized when delivery of the product has occurred. Subscription-based licenses include the right for a customer to use our licenses and receive related support for a specified term, and revenue is recognized pro-rata over the term of the engagement.
Shipping and handling costs: Shipping and handling costs collected from our customers in connection with our sales are recorded as revenue. We record shipping and handling costs as a component of cost of sales at the time the product is shipped.
Warranty: We offer a standard parts coverage warranty for periods varying from one to five years for most of our products. We also offer additional types of warranties to include on-site labor, routine maintenance and event support. In addition, the terms of warranties on some installations can vary from one to 10 years. The specific terms and conditions of these warranties vary primarily depending on the type of product sold. We estimate the costs which may be incurred under the contractual warranty obligations (assurance type warranty) and record a liability in the amount of such estimated costs at the time the revenue is recognized. Factors affecting our estimate of the cost of our warranty obligations include historical experience and expectations of future conditions. We continually assess the adequacy of our recorded warranty accruals and, to the extent we experience any changes in warranty claim activity or costs associated with servicing those claims, our accrued warranty obligation is adjusted accordingly. For service-type warranty contracts, we allocate revenue to this performance obligation, recognize the revenue over time, and recognize costs as incurred.
Long-term receivables and advertising rights: We occasionally sell and install our products at facilities in exchange for the rights to sell or to retain future advertising revenues. For these transactions, we recognize revenue equal to the amount of the present value of the future advertising payments if enough advertising is sold to obtain normal margins on the contract, and we record the related receivable in long-term receivables. We recognize imputed interest as earned.
Property and equipment: In accordance with ASC 360, Property, Plant, and Equipment, property and equipment are stated at cost and depreciated principally on the straight-line method over the following estimated useful lives:
|
|
Years
|
|
Buildings and improvements
|
|
5 - 40
|
|
Machinery and equipment
|
|
5 - 7
|
|
Office furniture and equipment
|
|
3 - 5
|
|
Computer software and hardware
|
|
3 - 5
|
|
Equipment held for rental
|
|
2 - 7
|
|
Demonstration equipment
|
|
3 - 5
|
|
Transportation equipment
|
|
5 - 7
|
|
Leasehold improvements are depreciated over the lesser of the useful life of the asset or the term of the lease.
Property and equipment held for sale: In accordance with ASC 360, Property, Plant, and Equipment, property and equipment held for sale are reported separately when we have a plan to dispose of the asset by sale, it is probable we will find a buyer in the near future, and a change in plan is unlikely. The value is stated at the lower of carrying value or fair value, and no depreciation is charged.
Impairment of Long-Lived Assets: In accordance with ASC 360, Property, Plant, and Equipment, we assess long-lived tangible assets and definite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset's estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset's estimated fair value. We recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset.
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.
Goodwill and Other Intangible Assets: We account for goodwill and other intangible assets with indefinite lives in accordance with ASC 350, Goodwill and Other. Under these provisions, goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates an impairment or a decline in value may have occurred. Such circumstances could include, but are not limited to, a worsening trend of orders and sales without a corresponding way to preserve future cash flows or a significant decline in our stock price. In conducting our impairment testing, we utilize a step 0 analysis which allows us to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount. If the carrying value exceeds the fair value, we measure the amount of impairment loss, if any.
If a quantitative analysis is performed, we utilize an income approach to estimate the fair value of each reporting unit. We selected this method because we believe it most appropriately measures our income producing assets. We considered using the market approach and cost approach, but concluded they were not appropriate in valuing our reporting units given the lack of relevant and available market comparisons. The income approach is based on the projected cash flows, which are discounted to their present value using discount rates which consider the timing and risk of the forecasted cash flows. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit's expected long-term operating cash performance. This approach also mitigates the impact of the cyclical trends occurring in the industry. Fair value is estimated using internally developed forecasts and assumptions. The discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics. Other significant assumptions include terminal value margin rates, future capital expenditures, and changes in future working capital requirements. We also compare and reconcile our overall fair value to our market capitalization. Although there are inherent uncertainties related to the assumptions used and to our application of these assumptions to this analysis, we believe the income approach provides a reasonable estimate of the fair value of our reporting units. The foregoing assumptions to a large degree were consistent with our long-term performance, with limited exceptions. We believe our future investments for capital expenditures as a percent of revenue will remain similar to the historical rates as a percentage of sales in future years. Our investments are expected to relate to equipment replacements and new product line manufacturing equipment needs and to keep our information technology infrastructure robust. These assumptions could deviate materially from actual results.
Goodwill was not impaired in any reporting unit based on the outcome of the fiscal 2021 annual impairment test which utilized a quantitative assessment.
Foreign currency translation: We follow the provisions of ASC 830, Foreign Currency Matters. Our foreign subsidiaries use the local currency of their respective countries as their functional currency. The assets and liabilities of foreign operations are translated at the exchange rates in effect at the balance sheet date. The operating results of foreign operations are translated at weighted average exchange rates. The related translation gains or losses are reported as a separate component of shareholders’ equity in accumulated other comprehensive loss.
Income taxes: We account for income taxes in accordance with ASC 740, Income Taxes. We record a tax provision for anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using currently enacted tax rates and statutory tax rates applicable to the years in which we expect these temporary differences will affect taxable income. These assets and liabilities are analyzed regularly, and we assess the likelihood that deferred tax assets will be recoverable from future taxable income. When necessary, a valuation allowance is established if it is more likely than not the deferred tax asset will not be realized. We report the net deferred tax asset and liability as a long-term asset or liability. Net deferred assets or liabilities are calculated by combining them based on their jurisdiction.
In addition, because we operate in multiple income tax jurisdictions both within the United States and internationally, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our financial condition and operating results. See "Note 12. Income Taxes" for further information.
Comprehensive income (loss): We follow the provisions of ASC 220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components, and disclose these components in the consolidated statements of comprehensive income. Comprehensive (loss) income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For us, comprehensive income represents net income adjusted for cumulative foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities. The foreign currency translation adjustment included in the comprehensive income calculation has not been tax affected, as the investments in foreign affiliates are deemed to be permanent.
Product design and development: We follow the provisions of ASC 730, Research and Development, which states all expenses related to product design and development are charged to operations as incurred. Our product design and development activities include the enhancement of existing products and technologies and the development of new products and technologies.
Advertising costs: In accordance with ASC 720-35, Advertising Costs, we expense advertising costs as incurred. Advertising expenses were $843, $2,184 and $2,969 for the fiscal years 2021, 2020 and 2019, respectively.
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 shares of common stock or resulted in the issuance of shares of common stock which share in our earnings.
The following is a reconciliation of the net income (loss) and common share amounts used in the calculation of basic and diluted EPS for the fiscal years ended May 1, 2021, May 2, 2020 and April 27, 2019:
|
|
Net income (loss)
|
|
|
Shares
|
|
|
Per share income (loss)
|
|
For the year ended May 1, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
10,926
|
|
|
|
44,989
|
|
|
$
|
0.24
|
|
Dilution associated with stock compensation plans
|
|
|
—
|
|
|
|
213
|
|
|
|
—
|
|
Diluted earnings per share
|
|
$
|
10,926
|
|
|
|
45,202
|
|
|
$
|
0.24
|
|
For the year ended May 2, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
491
|
|
|
|
45,031
|
|
|
$
|
0.01
|
|
Dilution associated with stock compensation plans
|
|
|
—
|
|
|
|
285
|
|
|
|
—
|
|
Diluted earnings per share
|
|
$
|
491
|
|
|
|
45,316
|
|
|
$
|
0.01
|
|
For the year ended April 27, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(958
|
)
|
|
|
44,926
|
|
|
$
|
(0.02
|
)
|
Dilution associated with stock compensation plans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Diluted loss per share
|
|
$
|
(958
|
)
|
|
|
44,926
|
|
|
$
|
(0.02
|
)
|
Options outstanding to purchase 2,262, 2,198 and 2,304 shares of common stock with a weighted average exercise price of $9.11, $9.95 and $9.99 for the fiscal years ended May 1, 2021, May 2, 2020 and April 27, 2019, respectively, were not included in the computation of diluted earnings (loss) per share because the effects would be anti-dilutive.
Share-based compensation: We account for share-based compensation in accordance with ASC 718, Compensation-Stock Compensation. Under the fair value recognition provisions of ASC 718, we measure share-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is the vesting period. See "Note 10. Shareholders' Equity and Share-Based Compensation" for additional information and the assumptions we use to calculate the fair value of share-based employee compensation.
Other Business Developments - Coronavirus Pandemic
During fiscal 2021, we continued to see impacts of the global spread of the coronavirus pandemic ("COVID-19") and related restrictions, which created and continues to create significant volatility, uncertainty and global economic disruption. We have taken proactive steps to solidify our financial position and mitigate any adverse consequences. Our orders and sales decline indicate the impacts of the pandemic. To align our expenses to the change in the market, we reduced investments in capital assets, reduced executive pay and board member compensation for fiscal 2021, and instituted initiatives to reduce other costs in the business. On April 1, 2020, our board of directors voted to suspend stock repurchases under our share repurchase program and to suspend dividends for the foreseeable future. In addition, throughout fiscal 2021, we temporarily furloughed employees to manage our cost structure to align with decreased demand.
A special voluntary retirement and voluntary exit incentive program ("Offering") and two reductions in force ("RIF") were instituted in fiscal 2021 to adjust our capacity and reduce on-going expenses due to the reduced revenue and uncertainties created by the COVID-19 pandemic. During the first quarter of fiscal 2021, 60 employees agreed to participate in the Offering and completed employment. The approximate cost of this Offering was $931 during the first quarter of fiscal 2021. Under the RIF, the employment of 108 employees was terminated with severance totaling $1,426 during the first quarter of fiscal 2021, and the employment of 150 employees was terminated with severance totaling $2,742 during the second quarter of fiscal 2021.
We received governmental wage subsidies from various governmental programs related to COVID-19 implications of $1,757 during the fiscal year 2021 and recorded it as a reduction of compensation expense, which is mostly included in the "Costs of sales" line item in our consolidated statements of operations. We also have elected to defer payments of the employer portion of social security taxes during the payroll tax deferral period, which ended on December 31, 2020. As of May 1, 2021, the total amount of such deferral was $5,122, which is included in the "Accrued expenses" and in the "Other long-term obligations" line items in our condensed consolidated balance sheet. Per the terms of the deferral program, 50 percent of the deferred amount is due on December 31, 2021, with the remaining 50 percent due on December 31, 2022.
Recent Accounting Pronouncements
Accounting Standards Adopted
In February 2016, the Financial Accounting Standards Board ("FASB") issued 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 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 consolidated balance sheets. See "Note 9. Leases" for more information.
In January 2017, the Financial Accounting Standards Board ("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. 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 2016-03, Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement and recognition of credit impairment for certain financial assets. ASU 2016-03 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, ASU 2016-03 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. We adopted ASU 2016-03 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
|
|
|
3,318
|
|
Deductions (1)
|
|
|
(2,204
|
)
|
Balance as of May 1, 2021
|
|
$
|
3,942
|
|
(1) Includes account collections and write offs
Accounting Standards Not Yet Adopted
There are no significant ASU's issued that we have not yet adopted as of May 1, 2021.
Note 2. 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:
|
|
Fiscal Year 2021
|
|
|
|
Commercial
|
|
|
Live Events
|
|
|
High School Park and Recreation
|
|
|
Transportation
|
|
|
International
|
|
|
Total
|
|
Type of performance obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unique configuration
|
|
$
|
16,535
|
|
|
$
|
104,682
|
|
|
$
|
22,258
|
|
|
$
|
36,398
|
|
|
$
|
22,266
|
|
|
$
|
202,139
|
|
Limited configuration
|
|
|
96,420
|
|
|
|
18,679
|
|
|
|
66,697
|
|
|
|
19,690
|
|
|
|
32,583
|
|
|
|
234,069
|
|
Service and other
|
|
|
14,345
|
|
|
|
19,688
|
|
|
|
2,602
|
|
|
|
2,196
|
|
|
|
6,994
|
|
|
|
45,825
|
|
|
|
$
|
127,300
|
|
|
$
|
143,049
|
|
|
$
|
91,557
|
|
|
$
|
58,284
|
|
|
$
|
61,843
|
|
|
$
|
482,033
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods/services transferred at a point in time
|
|
$
|
98,243
|
|
|
$
|
23,906
|
|
|
$
|
60,859
|
|
|
$
|
20,180
|
|
|
$
|
34,388
|
|
|
$
|
237,576
|
|
Goods/services transferred over time
|
|
|
29,057
|
|
|
|
119,143
|
|
|
|
30,698
|
|
|
|
38,104
|
|
|
|
27,455
|
|
|
|
244,457
|
|
|
|
$
|
127,300
|
|
|
$
|
143,049
|
|
|
$
|
91,557
|
|
|
$
|
58,284
|
|
|
$
|
61,843
|
|
|
$
|
482,033
|
|
|
|
Fiscal Year 2020
|
|
|
|
Commercial
|
|
|
Live Events
|
|
|
High School Park and Recreation
|
|
|
Transportation
|
|
|
International
|
|
|
Total
|
|
Type of performance obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unique configuration
|
|
$
|
35,212
|
|
|
$
|
140,044
|
|
|
$
|
19,176
|
|
|
$
|
43,519
|
|
|
$
|
40,454
|
|
|
$
|
278,405
|
|
Limited configuration
|
|
|
102,847
|
|
|
|
31,897
|
|
|
|
74,266
|
|
|
|
24,588
|
|
|
|
45,626
|
|
|
|
279,224
|
|
Service and other
|
|
|
14,568
|
|
|
|
24,650
|
|
|
|
2,972
|
|
|
|
2,032
|
|
|
|
7,081
|
|
|
|
51,303
|
|
|
|
$
|
152,627
|
|
|
$
|
196,591
|
|
|
$
|
96,414
|
|
|
$
|
70,139
|
|
|
$
|
93,161
|
|
|
$
|
608,932
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods/services transferred at a point in time
|
|
$
|
105,096
|
|
|
$
|
39,521
|
|
|
$
|
68,582
|
|
|
$
|
25,157
|
|
|
$
|
47,345
|
|
|
$
|
285,701
|
|
Goods/services transferred over time
|
|
|
47,531
|
|
|
|
157,070
|
|
|
|
27,832
|
|
|
|
44,982
|
|
|
|
45,816
|
|
|
|
323,231
|
|
|
|
$
|
152,627
|
|
|
$
|
196,591
|
|
|
$
|
96,414
|
|
|
$
|
70,139
|
|
|
$
|
93,161
|
|
|
$
|
608,932
|
|
|
|
Fiscal Year 2019
|
|
|
|
Commercial
|
|
|
Live Events
|
|
|
High School Park and Recreation
|
|
|
Transportation
|
|
|
International
|
|
|
Total
|
|
Type of performance obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unique configuration
|
|
$
|
25,171
|
|
|
$
|
119,569
|
|
|
$
|
21,792
|
|
|
$
|
38,490
|
|
|
$
|
44,989
|
|
|
$
|
250,011
|
|
Limited configuration
|
|
|
108,921
|
|
|
|
30,107
|
|
|
|
66,825
|
|
|
|
23,799
|
|
|
|
42,134
|
|
|
|
271,786
|
|
Service and other
|
|
|
14,741
|
|
|
|
21,276
|
|
|
|
2,570
|
|
|
|
2,102
|
|
|
|
7,218
|
|
|
|
47,907
|
|
|
|
$
|
148,833
|
|
|
$
|
170,952
|
|
|
$
|
91,187
|
|
|
$
|
64,391
|
|
|
$
|
94,341
|
|
|
$
|
569,704
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods/services transferred at a point in time
|
|
$
|
111,617
|
|
|
$
|
35,313
|
|
|
$
|
60,763
|
|
|
$
|
24,500
|
|
|
$
|
44,758
|
|
|
$
|
276,951
|
|
Goods/services transferred over time
|
|
|
37,216
|
|
|
|
135,639
|
|
|
|
30,424
|
|
|
|
39,891
|
|
|
|
49,583
|
|
|
|
292,753
|
|
|
|
$
|
148,833
|
|
|
$
|
170,952
|
|
|
$
|
91,187
|
|
|
$
|
64,391
|
|
|
$
|
94,341
|
|
|
$
|
569,704
|
|
See "Note 3. 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 balances and changes in our contract assets and liabilities:
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
Contract assets
|
|
$
|
32,799
|
|
|
$
|
35,467
|
|
Contract liabilities - current
|
|
|
64,495
|
|
|
|
50,897
|
|
Contract liabilities - non-current
|
|
|
10,720
|
|
|
|
10,707
|
|
The changes in our contract assets and contract liabilities from May 2, 2020 to May 1, 2021 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 fiscal 2021.
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". Changes in unearned service-type warranty contracts, net were as follows:
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
Balance at beginning of year
|
|
$
|
24,490
|
|
|
$
|
24,939
|
|
New contracts sold
|
|
|
35,623
|
|
|
|
41,169
|
|
Less: reductions for revenue recognized
|
|
|
(36,723
|
)
|
|
|
(41,167
|
)
|
Foreign currency translation and other
|
|
|
1,200
|
|
|
|
(451
|
)
|
Balance at end of year
|
|
$
|
24,590
|
|
|
$
|
24,490
|
|
As of May 1, 2021 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 consolidated balance sheets.
During fiscal 2021, we recognized revenue of $46,533 related to our contract liabilities as of May 2, 2020.
Remaining performance obligations
As of May 1, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations was $303,535. We expect approximately $269,792 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 May 1, 2021 are $250,736 and $52,799, 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 3. 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. 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. Our CODM evaluates segment performance to the GAAP measure of gross profit.
Our Commercial business unit primarily consists of sales of our integrated video display systems, digital billboards, Galaxy® and Fuelight™ product lines, and dynamic messaging systems to resellers (primarily sign companies), out-of-home ("OOH") companies, national retailers, quick-serve restaurants, casinos, shopping centers, cruise ships, commercial building owners, and petroleum retailers. Our Live Events business unit primarily consists of sales of integrated scoring and video display systems to college and professional sports facilities and convention centers and sales of our mobile display technology to video rental organizations and other live events type venues. Our High School Park and Recreation business unit primarily consists of sales of scoring systems, Galaxy® displays and video display systems to primary and secondary education facilities and resellers (primarily sign companies). Our Transportation business unit primarily consists of sales of intelligent transportation systems dynamic messaging signs for road management, mass transit, and aviation applications and other electronic signage for advertising and way-finding needs, which includes our Vanguard® and Galaxy® product lines and other intelligent transportation systems dynamic message signs, to governmental transportation departments, transportation industry contractors, airlines and other transportation related customers. Our International business unit consists of sales of all product lines outside the United States and Canada. In our International business unit, we focus on product lines related to integrated scoring and video display systems for sports and commercial applications, OOH advertising products, architectural lighting, and transportation related products for sale outside of the United States and Canada to the related type of company, including sports and commercial business facilities, OOH companies, and governmental transportation agencies.
Assets are not allocated to the segments. Depreciation and amortization are allocated to each segment based on various financial measures; however, some depreciation and amortization are corporate in nature and remain unallocated. Our segments follow the same accounting policies as those described in "Note 1. Nature of Business and Summary of Significant Accounting Policies." Some expenses or services are not directly allocable to a sale or segment or the resources and related expenses are shared across business segment areas. These expenses are allocated using estimates and allocation methodologies based on some financial measures and professional judgment. Shared or unabsorbed manufacturing costs are allocated to the business unit benefiting most from that manufacturing location's production capabilities. Shared or unabsorbed costs of domestic field sales and services infrastructure, including most field administrative staff, are allocated to the Commercial, Live Events, High School Park and Recreation, and Transportation business units based on cost of sales. Shared manufacturing, buildings and utilities, and procurement costs are allocated based on payroll dollars, square footage and various other financial measures in the segment analysis.
We do not maintain information on sales by products; therefore, disclosure of such information is not practical.
The following table sets forth certain financial information for each of our five reporting segments for the periods indicated:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
127,300
|
|
|
$
|
152,627
|
|
|
$
|
148,833
|
|
Live Events
|
|
|
143,049
|
|
|
|
196,591
|
|
|
|
170,952
|
|
High School Park and Recreation
|
|
|
91,557
|
|
|
|
96,414
|
|
|
|
91,187
|
|
Transportation
|
|
|
58,284
|
|
|
|
70,139
|
|
|
|
64,391
|
|
International
|
|
|
61,843
|
|
|
|
93,161
|
|
|
|
94,341
|
|
Total company net sales
|
|
|
482,033
|
|
|
|
608,932
|
|
|
|
569,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
33,072
|
|
|
|
29,246
|
|
|
|
31,785
|
|
Live Events
|
|
|
24,397
|
|
|
|
39,518
|
|
|
|
32,164
|
|
High School Park and Recreation
|
|
|
31,472
|
|
|
|
28,874
|
|
|
|
26,858
|
|
Transportation
|
|
|
20,329
|
|
|
|
23,910
|
|
|
|
22,525
|
|
International
|
|
|
11,313
|
|
|
|
17,152
|
|
|
|
16,962
|
|
|
|
|
120,583
|
|
|
|
138,700
|
|
|
|
130,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
48,649
|
|
|
|
65,902
|
|
|
|
64,648
|
|
General and administrative
|
|
|
27,980
|
|
|
|
35,193
|
|
|
|
34,817
|
|
Product design and development
|
|
|
26,846
|
|
|
|
37,772
|
|
|
|
35,557
|
|
|
|
|
103,475
|
|
|
|
138,867
|
|
|
|
135,022
|
|
Operating income (loss)
|
|
|
17,108
|
|
|
|
(167
|
)
|
|
|
(4,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
230
|
|
|
|
805
|
|
|
|
1,031
|
|
Interest expense
|
|
|
(295
|
)
|
|
|
(106
|
)
|
|
|
(160
|
)
|
Other (expense) income, net
|
|
|
(2,983
|
)
|
|
|
(541
|
)
|
|
|
(1,087
|
)
|
Income (loss) before income taxes
|
|
$
|
14,060
|
|
|
$
|
(9
|
)
|
|
$
|
(4,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
3,037
|
|
|
$
|
3,682
|
|
|
$
|
4,795
|
|
Live Events
|
|
|
5,798
|
|
|
|
5,605
|
|
|
|
5,194
|
|
High School Park and Recreation
|
|
|
1,942
|
|
|
|
2,025
|
|
|
|
1,965
|
|
Transportation
|
|
|
979
|
|
|
|
1,029
|
|
|
|
1,102
|
|
International
|
|
|
2,887
|
|
|
|
2,460
|
|
|
|
2,829
|
|
Unallocated corporate depreciation
|
|
|
2,434
|
|
|
|
2,917
|
|
|
|
2,750
|
|
|
|
$
|
17,077
|
|
|
$
|
17,718
|
|
|
$
|
18,635
|
|
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:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
413,211
|
|
|
$
|
504,931
|
|
|
$
|
460,099
|
|
Outside United States
|
|
|
68,822
|
|
|
|
104,001
|
|
|
|
109,605
|
|
|
|
$
|
482,033
|
|
|
$
|
608,932
|
|
|
$
|
569,704
|
|
Property and equipment, net of accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
50,130
|
|
|
$
|
58,422
|
|
|
$
|
59,192
|
|
Outside United States
|
|
|
8,552
|
|
|
|
9,062
|
|
|
|
6,122
|
|
|
|
$
|
58,682
|
|
|
$
|
67,484
|
|
|
$
|
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 4. Goodwill and Intangible Assets
We account for goodwill and intangible assets in accordance with ASC 350, Goodwill and Other.
Goodwill
The changes in the carrying amount of goodwill related to each reportable segment for the fiscal year ended May 1, 2021 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
|
|
|
47
|
|
|
|
320
|
|
|
|
46
|
|
|
|
258
|
|
|
|
671
|
|
Balance as of May 1, 2021:
|
|
$
|
2,313
|
|
|
$
|
3,464
|
|
|
$
|
84
|
|
|
$
|
2,553
|
|
|
$
|
8,414
|
|
We perform an analysis of goodwill on an annual basis and test 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 and concluded no goodwill impairment existed for fiscal years 2021, 2020, and 2019.
Intangible Assets
The following table summarizes intangible assets, net, as of May 1, 2021 and May 2, 2020:
|
|
May 1, 2021
|
|
|
|
Weighted Average Life (in years)
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
Registered trademarks
|
|
19.4
|
|
|
$
|
738
|
|
|
$
|
246
|
|
|
$
|
492
|
|
Software
|
|
|
3.0
|
|
|
|
6,606
|
|
|
|
6,412
|
|
|
|
194
|
|
Customer relationships
|
|
|
10.0
|
|
|
|
2,984
|
|
|
|
1,588
|
|
|
|
1,396
|
|
Other
|
|
|
1.5
|
|
|
|
132
|
|
|
|
131
|
|
|
|
1
|
|
Total amortized intangible assets
|
|
|
6.1
|
|
|
$
|
10,460
|
|
|
$
|
8,377
|
|
|
$
|
2,083
|
|
|
|
May 2, 2020
|
|
|
|
Weighted Average Life (in years)
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
Registered trademarks
|
|
19.4
|
|
|
$
|
663
|
|
|
$
|
183
|
|
|
$
|
480
|
|
Software
|
|
|
3.0
|
|
|
|
6,247
|
|
|
|
4,890
|
|
|
|
1,357
|
|
Customer relationships
|
|
|
10.0
|
|
|
|
2,641
|
|
|
|
1,135
|
|
|
|
1,506
|
|
Other
|
|
|
1.5
|
|
|
|
120
|
|
|
|
109
|
|
|
|
11
|
|
Total amortized intangible assets
|
|
|
6.0
|
|
|
$
|
9,671
|
|
|
$
|
6,317
|
|
|
$
|
3,354
|
|
In the fiscal years 2021, 2020, and 2019, amortization expense was $1,502, $1,498, and $2,157, respectively. Amortization expenses are included primarily in product design and development and selling expense in the consolidated statements of operations. Intangible assets are written off when fully amortized.
As of May 1, 2021, amortization expenses for future periods were estimated to be as follows:
Fiscal years ending
|
|
Amount
|
|
2022
|
|
$
|
512
|
|
2023
|
|
|
316
|
|
2024
|
|
|
316
|
|
2025
|
|
|
316
|
|
2026
|
|
|
281
|
|
Thereafter
|
|
|
342
|
|
Total expected amortization expense
|
|
$
|
2,083
|
|
Note 5. Selected Financial Statement Data
Inventories consisted of the following:
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
Raw materials
|
|
$
|
29,913
|
|
|
$
|
35,306
|
|
Work-in-process
|
|
|
9,948
|
|
|
|
12,102
|
|
Finished goods
|
|
|
34,495
|
|
|
|
39,395
|
|
|
|
$
|
74,356
|
|
|
$
|
86,803
|
|
Property and equipment, net consisted of the following:
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
Land
|
|
$
|
1,924
|
|
|
$
|
2,183
|
|
Buildings
|
|
|
69,608
|
|
|
|
68,804
|
|
Machinery and equipment
|
|
|
98,451
|
|
|
|
104,157
|
|
Office furniture and equipment
|
|
|
4,103
|
|
|
|
6,151
|
|
Computer software and hardware
|
|
|
44,851
|
|
|
|
53,441
|
|
Equipment held for rental
|
|
|
—
|
|
|
|
287
|
|
Demonstration equipment
|
|
|
7,186
|
|
|
|
8,473
|
|
Transportation equipment
|
|
|
7,264
|
|
|
|
7,944
|
|
|
|
|
233,387
|
|
|
|
251,440
|
|
Less accumulated depreciation
|
|
|
174,705
|
|
|
|
183,956
|
|
|
|
$
|
58,682
|
|
|
$
|
67,484
|
|
Our depreciation expense was $15,575, $16,230, and $16,564 for the fiscal years 2021, 2020, and 2019, respectively.
In the fiscal years 2021, 2020, and 2019, the pretax impairment charges for property and equipment were immaterial.
Accrued expenses consisted of the following:
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
Compensation
|
|
$
|
13,079
|
|
|
$
|
15,967
|
|
Taxes, other than income taxes
|
|
|
5,888
|
|
|
|
3,597
|
|
Accrued employee benefits
|
|
|
2,174
|
|
|
|
2,243
|
|
Operating lease liabilities
|
|
|
1,881
|
|
|
|
2,416
|
|
Short-term accrued expenses
|
|
|
7,455
|
|
|
|
9,270
|
|
Claims liabilities
|
|
|
—
|
|
|
|
2,562
|
|
Acquisition-related contingency consideration
|
|
|
195
|
|
|
|
571
|
|
|
|
$
|
30,672
|
|
|
$
|
36,626
|
|
Other (expense) income, net consisted of the following:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Foreign currency transaction (losses) gains
|
|
$
|
(675
|
)
|
|
$
|
207
|
|
|
$
|
(262
|
)
|
Equity in losses of affiliates
|
|
|
(2,370
|
)
|
|
|
(741
|
)
|
|
|
(844
|
)
|
Other
|
|
|
62
|
|
|
|
(7
|
)
|
|
|
19
|
|
|
|
$
|
(2,983
|
)
|
|
$
|
(541
|
)
|
|
$
|
(1,087
|
)
|
Note 6. 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 $3,942 and $2,828 at May 1, 2021 and May 2, 2020, respectively. Included in accounts receivable as of May 1, 2021 and May 2, 2020 was $660 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 $3,097 and $4,633 as of May 1, 2021 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 November 2025. The face value of long-term receivables was $3,438 as of May 1, 2021 and $5,166 as of May 2, 2020.
Note 7. Financing Agreements
On March 11, 2021, we entered into an amendment to clarify the potential upcoming change from LIBOR (the London Interbank Offered Rate) to SOFR (the Secured Overnight Financing Rate) and to modify the expiration date of a specific letter of credit to up to seven years from the issuance date. On November 15, 2019, we entered into an amendment to extend the maturity date of our credit agreement and a related revolving bank note from November 15, 2019 to November 15, 2022 and to modify certain other terms and financial covenants. On August 28, 2020, we entered into the third amendment to our credit agreement and a security agreement creating a security interest on certain assets. The third amendment adds a liquidity covenant and revises other financial covenants. The revolving amount of the agreement and note remains at $35,000, including up to $20,000 for commercial and standby letters of credit. The credit agreement and amendments require us to be in compliance with certain financial ratios, including a covenant to maintain the ratio of interest-bearing debt to earnings before income taxes, depreciation, and amortization of less than 2.5, and other covenants and contain customary events of default, including the failure to comply with covenants, the failure to pay or discharge material judgments and taxes, bankruptcy, the failure to pay loans and fees, and experiencing a change of control. The occurrence of an event of default by us would permit the lenders to terminate their commitments and accelerate repayment of the loans, foreclose on the collateral for the loans, and require collateralization of outstanding letters of credit. As of May 1, 2021, there were no advances under the loan portion of the line of credit, and the balance of the letters of credit outstanding was approximately $3,811. As of May 1, 2021, $31,189 of the credit facility was available for borrowing.
We are sometimes required to obtain bank guarantees or other financial instruments for display installations. If we are unable to meet the terms of the arrangement, our customer would draw on the banking arrangement, and the bank would subrogate its loss to Daktronics. As of May 1, 2021, we had $2,561 of such instruments outstanding.
As of May 1, 2021, we were in compliance with all applicable bank loan covenants.
Note 8. 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 fiscal 2021 and 2019, we had no repurchases of shares of our outstanding common stock. During fiscal 2020, we repurchased 1,039 shares of common stock at a total cost of $5,636. As of May 1, 2021, 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 9. 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, South Dakota has a purchase option. We do not have any financing leases.
We determine if an arrangement is a lease at the inception of the lease. 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 the commencement date based on the present value of lease payments over the lease term. As we are generally not able to determine the rate implicit in our leases, we use the incremental borrowing rate based on the information available at the 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. During fiscal 2021, the amount of the operating lease cost included in cost of sales and operating expenses in the consolidated statements of operations was $2,241 and $977, respectively, as compared to $2,325 and $1,116, respectively, in fiscal year 2020. Operating lease cost includes short-term leases, which are immaterial.
As of May 1, 2021, the weighted average remaining lease term and discount rate related to operating leases was 4.7 years and 3.3 percent as compared to 5.0 years and 3.4 percent as of May 2, 2020.
Supplemental unaudited cash flow information related to operating leases include:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
2,752
|
|
|
$
|
3,340
|
|
Future minimum operating lease payments as of, and subsequent to, May 1, 2021 under ASC 842 are as follows:
|
|
Operating Leases(1)
|
|
Fiscal years ending
|
|
|
|
|
2022
|
|
$
|
2,061
|
|
2023
|
|
|
1,282
|
|
2024
|
|
|
1,168
|
|
2025
|
|
|
958
|
|
2026
|
|
|
800
|
|
Thereafter
|
|
|
667
|
|
Total lease payments
|
|
|
6,936
|
|
Less imputed interest
|
|
|
(530
|
)
|
Total lease liabilities
|
|
$
|
6,406
|
|
(1) Includes $3,879 to extend the term of the lease for our Sioux Falls, South Dakota manufacturing facility.
Note 10. Shareholders' Equity and Share-Based Compensation
Common stock: Our 120,000 authorized shares consist of 115,000 shares of common stock and 5,000 shares of “undesignated stock.” Our Board of Directors has the power to authorize and issue any or all of the shares of undesignated stock without shareholder approval, including the authority to establish the rights and preferences of the undesignated stock.
Each outstanding share of our common stock includes one preferred share purchase right. Each right entitles the registered holder of our common stock to purchase from us one one-thousandth of one share of our Series A Junior Participating Preferred Stock at an initial exercise price of $25 per right, subject to adjustment and the terms of the shareholder rights agreement under which the dividend was declared and paid. The rights become exercisable immediately after the earlier of (i) 10 business days following a public announcement that a person or group has acquired beneficial ownership of 20 percent or more of our outstanding common shares (subject to certain exceptions) or (ii) 10 business days following the commencement or announcement of an intention to make a tender offer or exchange offer for our common shares, the consummation of which would result in the beneficial ownership by a person or group of 20 percent or more of our outstanding common shares. The rights expire on November 19, 2021, which date may be extended by our Board of Directors subject to certain additional conditions.
Stock incentive plans: During fiscal 2021, we established the Daktronics, Inc. 2020 Stock Incentive Plan (“2020 Plan”) and ceased granting options under the 2015 Stock Incentive Plan ("2015 Plan"). The 2020 Plan provides for the issuance of stock-based awards, including stock options, restricted stock, restricted stock units and deferred stock, to employees, directors and consultants. Stock options issued to employees under the 2015 Plan and 2020 Plan generally have a 10-year life, an exercise price equal to the market value on the grant date and a five-year annual vesting period. Stock options granted to independent directors under these plans have a seven-year life and an exercise price equal to the fair market value on the date of grant. Stock options granted to independent directors vest in one year, provided that the directors remain on the Board. The restricted stock granted to independent directors vests in one year, provided that the directors remain on the Board. Restricted stock units are granted to employees and have a five-year annual vesting period. As with stock options, restricted stock and restricted stock unit ownership cannot be transferred during the vesting period.
At May 1, 2021, the aggregate number of shares available for future grants under the 2020 Plan for stock options and restricted stock awards was 2,868 shares. Shares of common stock subject to all stock awards granted under the 2020 Plan are counted as one share of stock for each share of stock subject to the award. Although the 2015 Plan remains in effect for options outstanding that were granted under the 2015 Plan until the earlier of the exercise of the options or their expiration or termination without being exercised, no new options can be granted under the 2015 Plan.
Restricted stock and restricted stock units: We issue restricted stock to our non-employee directors and restricted stock units to employees. Restricted stock issued to non-employee directors are participating securities and receive dividends prior to vesting. Unvested restricted stock will terminate and be forfeited upon termination of employment or service. The fair value of restricted stock and our restricted stock unit awards are measured on the grant date based on the market value of our common stock. The related compensation expense as calculated under ASC 718, net of estimated forfeitures, is recognized over the applicable vesting period. Unrecognized compensation expense related to the restricted stock and restricted stock unit awards was approximately $1,787 at May 1, 2021, which is expected to be recognized over a weighted-average period of 2.6 years. The total fair value of restricted stock vested was $1,293, $1,415, and $1,530 in fiscal years 2021, 2020, and 2019, respectively.
A summary of non-vested restricted stock and restricted stock units for fiscal years 2021, 2020, and 2019 is as follows:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
|
|
Number of Nonvested Shares
|
|
|
Weighted Average Grant Date Fair Value Per Share
|
|
|
Number of Nonvested Shares
|
|
|
Weighted Average Grant Date Fair Value Per Share
|
|
|
Number of Nonvested Shares
|
|
|
Weighted Average Grant Date Fair Value Per Share
|
|
Outstanding at beginning of year
|
|
|
449
|
|
|
$
|
7.16
|
|
|
|
444
|
|
|
$
|
7.58
|
|
|
|
437
|
|
|
$
|
8.48
|
|
Granted
|
|
|
223
|
|
|
|
3.92
|
|
|
|
186
|
|
|
|
7.03
|
|
|
|
181
|
|
|
|
6.79
|
|
Vested
|
|
|
(176
|
)
|
|
|
7.27
|
|
|
|
(173
|
)
|
|
|
8.10
|
|
|
|
(169
|
)
|
|
|
9.05
|
|
Forfeited
|
|
|
(16
|
)
|
|
|
7.00
|
|
|
|
(8
|
)
|
|
|
7.37
|
|
|
|
(5
|
)
|
|
|
7.74
|
|
Outstanding at end of year
|
|
|
480
|
|
|
$
|
5.62
|
|
|
|
449
|
|
|
$
|
7.16
|
|
|
|
444
|
|
|
$
|
7.58
|
|
Stock Options: We issue incentive stock options to our employees and non-qualified stock options to our independent directors. A summary of stock option activity under our 2015 Plan and 2020 Plan during the fiscal year ended May 1, 2021 is as follows:
|
|
Stock Options
|
|
|
Weighted Average Exercise Price Per Share
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding at May 2, 2020
|
|
|
2,121
|
|
|
$
|
9.96
|
|
|
|
4.38
|
|
|
$
|
—
|
|
Granted
|
|
|
412
|
|
|
|
4.11
|
|
|
|
—
|
|
|
|
—
|
|
Canceled or forfeited
|
|
|
(306
|
)
|
|
|
12.48
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at May 1, 2021
|
|
|
2,227
|
|
|
$
|
8.53
|
|
|
|
4.83
|
|
|
$
|
843.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares vested and expected to vest
|
|
|
2,190
|
|
|
$
|
8.58
|
|
|
|
4.76
|
|
|
$
|
792.00
|
|
Exercisable at May 1, 2021
|
|
|
1,478
|
|
|
$
|
9.83
|
|
|
|
3.00
|
|
|
$
|
—
|
|
The aggregate intrinsic value of stock options represents the difference between the exercise price of stock options and the fair market value of the underlying common stock for all in-the-money options. We define in-the-money options at May 1, 2021 as options having exercise prices lower than the $6.17 per share market price of our common stock on that date. There were no shares exercisable that were in-the-money options at May 1, 2021. The total intrinsic value of options exercised during fiscal years 2021, 2020, and 2019 was $0, $0, and $98, respectively. The total fair value of stock options vested was $451, $566, and $667 for fiscal years 2021, 2020, and 2019, respectively.
We estimate the fair value of stock options granted using the Black-Scholes option valuation model. We recognize the fair value of the stock options on a straight-line basis as compensation expense. All options are recognized over the requisite service periods of the awards, which are generally the vesting periods.
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. ASC 718 requires us to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards expected to vest. The following factors are the significant assumptions used in the computation of the fair value of options:
Expected life. The expected life of options granted represents the period of time they are expected to be outstanding. We estimate the expected life of options granted based on historical exercise patterns, which we believe are representative of future behavior. We have examined our historical pattern of option exercises in an effort to determine if there were any discernible patterns of activity based on certain demographic characteristics. Demographic characteristics tested included age, salary level, job level and geographic location. We have determined there were no meaningful differences in option exercise activity based on the demographic characteristics tested.
Expected volatility. We estimate the volatility of our common stock at the date of grant based on historical volatility consistent with ASC 718 and Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 107, Share-Based Payments.
Risk-free interest rate. The rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a term similar to the expected life of the options.
Dividend yield. We use an expected dividend yield consistent with our historical dividend yield pattern.
The following table provides the weighted-average fair value of options granted and the related assumptions used in the Black-Scholes model:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Fair value of options granted
|
|
$
|
1.71
|
|
|
$
|
1.99
|
|
|
$
|
2.16
|
|
Risk-free interest rate
|
|
|
43.00
|
%
|
|
|
1.51
|
%
|
|
|
2.83
|
%
|
Expected dividend rate
|
|
|
—
|
%
|
|
|
3.50
|
%
|
|
|
3.37
|
%
|
Expected volatility
|
|
|
40.53
|
%
|
|
|
37.55
|
%
|
|
|
38.58
|
%
|
Expected life of option (in years)
|
|
|
6.94
|
|
|
|
6.94
|
|
|
|
6.83
|
|
Employee stock purchase plan: We have an employee stock purchase plan (“ESPP”), which enables employees after six months of continuous employment to elect, in advance and semi-annually, to contribute up to 15 percent of their compensation, subject to certain limitations, toward the purchase of our common stock at a purchase price equal to 85 percent of the lower of the fair market value of the common stock on the first or last day of the participation period. The ESPP requires participants to hold any shares purchased under the ESPP for a minimum period of one year after the date of purchase. Compensation expense recognized on shares issued under our ESPP is based on the value of a traded option to purchase shares of our stock at a 15 percent discount to the stock price. The total number of shares reserved under the ESPP is 4,000. The number of shares of common stock issued under the ESPP totaled 170, 453, and 241 shares in fiscal 2021, 2020, and 2019, respectively. The number of shares of common stock reserved for future employee purchases under the ESPP totaled 809 shares at May 1, 2021. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code of 1986 (the "Code").
Total share-based compensation expense: As of May 1, 2021, there was $2,832 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize the cost over a weighted-average period of 3.1 years.
The following table presents a summary of the share-based compensation expense by equity type as follows:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Stock options
|
|
$
|
450
|
|
|
$
|
492
|
|
|
$
|
593
|
|
Restricted stock and stock units
|
|
|
1,203
|
|
|
|
1,341
|
|
|
|
1,446
|
|
Employee stock purchase plans
|
|
|
414
|
|
|
|
432
|
|
|
|
440
|
|
|
|
$
|
2,067
|
|
|
$
|
2,265
|
|
|
$
|
2,479
|
|
A summary of the share-based compensation expense for stock options, restricted stock, restricted stock units and shares issued under the ESPP for fiscal years 2021, 2020, and 2019 is as follows:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Cost of sales
|
|
$
|
472
|
|
|
$
|
514
|
|
|
$
|
578
|
|
Selling
|
|
|
484
|
|
|
|
572
|
|
|
|
625
|
|
General and administrative
|
|
|
678
|
|
|
|
717
|
|
|
|
772
|
|
Product design and development
|
|
|
433
|
|
|
|
462
|
|
|
|
504
|
|
|
|
$
|
2,067
|
|
|
$
|
2,265
|
|
|
$
|
2,479
|
|
We received $0 in cash from option exercises under all share-based payment arrangements for the fiscal year ended May 1, 2021. The tax (expense) benefit related to non-qualified options and restricted stock units under all share-based payment arrangements totaled ($70), ($92), and ($52) for fiscal years 2021, 2020, and 2019, respectively.
Note 11. Retirement Benefits
We sponsor a 401(k) savings plan providing benefits for substantially all United States-based employees of Daktronics, Inc. and its subsidiaries, subject to certain Internal Revenue Service ("IRS") limits. We made matching cash contributions equal to 50 percent of the employee's qualifying contribution up to six percent of such employee's compensation; however, we eliminated our matching contribution as one of our cost savings initiatives for fiscal 2021. These benefits were reinstated for fiscal 2022. Employees are eligible to participate in the 401(k) savings plan upon completion of three months of continuous service if they have attained the age of 21. We contributed $0, $2,917 and $2,754 for matches to the plan for fiscal years 2021, 2020, and 2019, respectively.
Note 12. Income Taxes
The following tables reflect the significant components of our income tax provision. The pretax income attributable to domestic and foreign operations was as follows:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Domestic
|
|
$
|
10,413
|
|
|
$
|
(4,187
|
)
|
|
$
|
(8,402
|
)
|
Foreign
|
|
|
3,647
|
|
|
|
4,178
|
|
|
|
3,458
|
|
Income (loss) before income taxes
|
|
$
|
14,060
|
|
|
$
|
(9
|
)
|
|
$
|
(4,944
|
)
|
Income tax expense (benefit) consisted of the following:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
507
|
|
|
$
|
625
|
|
|
$
|
(2,142
|
)
|
State
|
|
|
422
|
|
|
|
297
|
|
|
|
384
|
|
Foreign
|
|
|
891
|
|
|
|
761
|
|
|
|
1,151
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,216
|
|
|
|
(2,028
|
)
|
|
|
(2,725
|
)
|
State
|
|
|
59
|
|
|
|
(321
|
)
|
|
|
(390
|
)
|
Foreign
|
|
|
39
|
|
|
|
166
|
|
|
|
(264
|
)
|
|
|
$
|
3,134
|
|
|
$
|
(500
|
)
|
|
$
|
(3,986
|
)
|
The reconciliation of the provision (benefit) for income taxes and the amount computed by applying the federal statutory rate to income (loss) before income taxes is as follows:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Computed income tax expense (benefit) at federal statutory rates
|
|
$
|
2,953
|
|
|
$
|
(2
|
)
|
|
$
|
(1,038
|
)
|
Change in uncertain tax positions
|
|
|
(34
|
)
|
|
|
4
|
|
|
|
(2,600
|
)
|
Research and development tax credit
|
|
|
(1,047
|
)
|
|
|
(1,621
|
)
|
|
|
(1,278
|
)
|
Other, net
|
|
|
403
|
|
|
|
(241
|
)
|
|
|
587
|
|
Change in valuation allowances
|
|
|
402
|
|
|
|
482
|
|
|
|
(471
|
)
|
GILTI
|
|
|
(156
|
)
|
|
|
149
|
|
|
|
391
|
|
Base Erosion Anti-Abuse Tax (BEAT)
|
|
|
(285
|
)
|
|
|
301
|
|
|
|
—
|
|
Stock compensation
|
|
|
355
|
|
|
|
318
|
|
|
|
308
|
|
Meals and entertainment
|
|
|
49
|
|
|
|
305
|
|
|
|
248
|
|
Dividends paid to retirement plan
|
|
|
—
|
|
|
|
(111
|
)
|
|
|
(158
|
)
|
State taxes, net of federal benefit
|
|
|
494
|
|
|
|
(84
|
)
|
|
|
25
|
|
|
|
$
|
3,134
|
|
|
$
|
(500
|
)
|
|
$
|
(3,986
|
)
|
The effective income tax rate for fiscal 2021 was impacted due to tax benefits from permanent tax credits and prior year provision to return adjustments offset by valuation allowances as well as other various permanent tax adjustments and state taxes.
During fiscal 2020, our effective income tax rate was impacted due to the tax benefit of permanent tax credits reduced by a valuation allowance placed on equity investments in proportion to a small pre-tax book loss which results in an abnormal looking tax rate.
During fiscal 2019, our effective income tax rate was impacted due to a tax benefit of a book loss plus permanent credits and deductions, the release of unrecognized tax benefits, and the reversal of a valuation allowance related to foreign net operating loss carryforwards.
The components of the net deferred tax assets were as follows:
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued warranty obligations
|
|
$
|
6,293
|
|
|
$
|
6,202
|
|
Vacation accrual
|
|
|
1,222
|
|
|
|
1,753
|
|
Deferred maintenance revenue
|
|
|
398
|
|
|
|
987
|
|
Allowance for excess and obsolete inventory
|
|
|
1,776
|
|
|
|
1,318
|
|
Legal reserve
|
|
|
—
|
|
|
|
503
|
|
Equity compensation
|
|
|
324
|
|
|
|
396
|
|
Allowance for doubtful accounts
|
|
|
829
|
|
|
|
546
|
|
Inventory capitalization
|
|
|
583
|
|
|
|
822
|
|
Accrued compensation and benefits
|
|
|
1,707
|
|
|
|
539
|
|
Unrealized loss on foreign currency exchange
|
|
|
85
|
|
|
|
—
|
|
Net operating loss carry forwards
|
|
|
856
|
|
|
|
919
|
|
Research and development tax credit carry forwards
|
|
|
516
|
|
|
|
1,975
|
|
Lease accounting - lease liability
|
|
|
1,572
|
|
|
|
2,099
|
|
Other
|
|
|
1,513
|
|
|
|
1,035
|
|
Total deferred tax assets
|
|
|
17,674
|
|
|
|
19,094
|
|
Valuation allowance
|
|
|
(1,732
|
)
|
|
|
(1,189
|
)
|
Net deferred tax assets
|
|
|
15,942
|
|
|
|
17,905
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(2,373
|
)
|
|
|
(2,141
|
)
|
Lease accounting - right of use asset
|
|
|
(1,580
|
)
|
|
|
(2,103
|
)
|
Prepaid expenses
|
|
|
(337
|
)
|
|
|
(440
|
)
|
Intangible assets
|
|
|
(69
|
)
|
|
|
(317
|
)
|
Unrealized gain on foreign currency exchange
|
|
|
—
|
|
|
|
(17
|
)
|
Other
|
|
|
(49
|
)
|
|
|
(68
|
)
|
Total deferred tax liabilities
|
|
|
(4,408
|
)
|
|
|
(5,086
|
)
|
Net deferred tax asset
|
|
$
|
11,534
|
|
|
$
|
12,819
|
|
The classification of the net deferred tax assets in the accompanying consolidated balance sheets is:
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
Non-current assets
|
|
$
|
11,944
|
|
|
$
|
13,271
|
|
Non-current liabilities
|
|
|
(410
|
)
|
|
|
(452
|
)
|
|
|
$
|
11,534
|
|
|
$
|
12,819
|
|
The summary of changes in the amounts related to unrecognized uncertain tax benefits are:
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
Balance at beginning of year
|
|
$
|
582
|
|
|
$
|
578
|
|
Gross increases related to prior period tax positions
|
|
|
21
|
|
|
|
17
|
|
Gross decreases related to prior period tax positions
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Gross increases related to current period tax positions
|
|
|
84
|
|
|
|
148
|
|
Lapse of statute of limitations
|
|
|
(138
|
)
|
|
|
(159
|
)
|
Balance at end of year
|
|
$
|
548
|
|
|
$
|
582
|
|
All of our unrecognized tax benefits would have an impact on the effective tax rate if recognized. It is reasonably possible that the amount of unrecognized tax benefits could change due to one or more of the following events occurring in the next 12 months: expiring statutes, audit activity, tax payments, or competent authority proceedings. A statute of limitations relating to $150 of the unrecognized tax benefits (including interest) expires in the next 12 months. The benefit will be recognized if the statute lapses with no further action taken by regulators. Additionally, we recognized the release of $138 in unrecognized tax benefits related to the lapse of a statute of limitations in fiscal 2021.
Interest and penalties incurred associated with uncertain tax positions are included in the "Income tax expense" line item in our consolidated statements of operations. Accrued interest and penalties are included in the related tax liability line item in our consolidated balance sheets of $38 and $30 as of May 1, 2021 and May 2, 2020, respectively.
As of May 1, 2021, we had foreign net operating loss (“NOL”) carryforwards of approximately $4,457 primarily related to our operations in Belgium and Ireland, which have indefinite lives. A deferred tax asset has been recorded for all NOL carryforwards totaling approximately $856. However, due to uncertainty in future taxable income, a valuation allowance totaling approximately $595 was been recorded. If sufficient evidence of our ability to generate future taxable income in the jurisdictions in which we currently maintain a valuation allowance causes us to determine that our deferred tax assets are more likely than not realizable, we would release our valuation allowance, which would result in an income tax benefit being recorded in our consolidated statements of operations.
Additional tax information:
We are subject to U.S. federal income tax as well as income taxes of multiple state and foreign jurisdictions. Fiscal years 2018, 2019 and 2020 remain open to federal tax examinations, and fiscal years 2017, 2018, 2019 and 2020 remain open for 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 2010. 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 consolidated statement of operations.
As of May 1, 2021, we had no deferred tax liability recognized relating to our investment in foreign subsidiaries where the earnings have been indefinitely reinvested. The Tax Act of 2017 generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, and, as a result, the accumulated undistributed earnings would be subject only to other taxes, such as withholding taxes and state income taxes, on the distribution of such earnings. No additional withholding or income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time deemed repatriation tax, as it is our intention for these amounts to continue to be indefinitely reinvested in foreign operations in all of our non-U.S. jurisdictions.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the COVID-19 global pandemic. The CARES Act includes provisions such as: a deferral of the employer portion of certain payroll taxes, refundable payroll tax credits, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, technical corrections to tax depreciation methods for qualified improvement property, and permitting NOL incurred in tax years 2018, 2019, and 2020 (our fiscal years 2019, 2020, and 2021) to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Subsequently to the CARES Act, the Consolidated Appropriations Act (“CAA”) of 2021 was signed into law on December 27, 2020 expanding and extending rules pertaining to payroll tax credits outlined in the CARES Act. Additionally, the American Rescue Plan Act of 2021 (“ARPA”) signed into law on March 11, 2021, further extended the payroll tax credits with slight modifications. We continue to evaluate the specific rules, guidance, and procedures allowed by the provisions of the CARES Act, CAA and ARPA. Some of these provisions do not apply to our income tax results; however, we are currently participating in the payment deferral of the employer portion of certain payroll taxes.
Note 13. Cash Flow Information
The changes in operating assets and liabilities consisted of the following:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
(Increase) decrease:
|
|
|
|
|
|
|
|
|
|
|
|
|
Account receivable
|
|
$
|
4,864
|
|
|
$
|
(7,461
|
)
|
|
$
|
10,856
|
|
Long-term receivables
|
|
|
1,737
|
|
|
|
(1,173
|
)
|
|
|
329
|
|
Inventories
|
|
|
13,900
|
|
|
|
(8,347
|
)
|
|
|
(4,076
|
)
|
Contract assets
|
|
|
3,080
|
|
|
|
(1,931
|
)
|
|
|
(3,040
|
)
|
Prepaid expenses and other current assets
|
|
|
2,450
|
|
|
|
(1,403
|
)
|
|
|
472
|
|
Income taxes receivables
|
|
|
(148
|
)
|
|
|
533
|
|
|
|
4,250
|
|
Investment in affiliates and other assets
|
|
|
744
|
|
|
|
(3,137
|
)
|
|
|
48
|
|
Increase (decrease):
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(7,081
|
)
|
|
|
2,377
|
|
|
|
(2,747
|
)
|
Contract liabilities
|
|
|
12,628
|
|
|
|
4,548
|
|
|
|
10,774
|
|
Accrued expenses
|
|
|
(2,936
|
)
|
|
|
6,745
|
|
|
|
4,631
|
|
Warranty obligations
|
|
|
696
|
|
|
|
273
|
|
|
|
(4,393
|
)
|
Long-term warranty obligations
|
|
|
(367
|
)
|
|
|
883
|
|
|
|
(1,079
|
)
|
Income taxes payable
|
|
|
(173
|
)
|
|
|
390
|
|
|
|
(3,023
|
)
|
Long-term marketing obligations and other payables
|
|
|
2,337
|
|
|
|
(387
|
)
|
|
|
(1,116
|
)
|
|
|
$
|
31,731
|
|
|
$
|
(8,090
|
)
|
|
$
|
11,886
|
|
Supplemental disclosures of cash flow information consisted of the following:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Cash payments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
264
|
|
|
$
|
46
|
|
|
$
|
177
|
|
Income taxes, net of refunds
|
|
|
2,557
|
|
|
|
977
|
|
|
|
(1,934
|
)
|
Supplemental schedule of non-cash investing and financing activities consisted of the following:
|
|
Year Ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
April 27, 2019
|
|
Demonstration equipment transferred to inventory
|
|
$
|
56
|
|
|
$
|
10
|
|
|
$
|
97
|
|
Purchases of property and equipment included in accounts payable
|
|
|
667
|
|
|
|
1,951
|
|
|
|
1,106
|
|
Contributions of common stock under the ESPP
|
|
|
565
|
|
|
|
2,311
|
|
|
|
1,650
|
|
Note 14. Fair Value Measurement
ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy within ASC 820 distinguishes between the following three Levels of inputs which may be utilized when measuring fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included within Level 1 for the assets or liabilities, either directly or indirectly (for example, quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated input).
Level 3 - Unobservable inputs supported by little or no market activity based on our own assumptions used to measure assets and liabilities.
The fair values for fixed-rate long-term receivables are estimated using a discounted cash flow analysis based on interest rates currently being offered for contracts with similar terms to customers with similar credit quality. The carrying amounts reported in our consolidated balance sheets for long-term receivables approximate fair value and have been categorized as a Level 2 fair value measurement. Fair values for fixed-rate long-term marketing obligations are estimated using a discounted cash flow calculation applying interest rates currently being offered for debt with similar terms and underlying collateral. The total carrying value of long-term marketing obligations as reported in our consolidated balance sheets within other long-term obligations approximates fair value and has been categorized as a Level 2 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 May 1, 2021 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 May 1, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
77,590
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
77,590
|
|
Restricted cash
|
|
|
2,812
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,812
|
|
Derivatives - asset position
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
Derivatives - liability position
|
|
|
—
|
|
|
|
(261
|
)
|
|
|
—
|
|
|
|
(261
|
)
|
Acquisition-related contingent consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
(363
|
)
|
|
|
(363
|
)
|
|
|
$
|
80,402
|
|
|
$
|
(257
|
)
|
|
$
|
(363
|
)
|
|
$
|
79,782
|
|
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 fiscal year ended May 1, 2021 is as follows:
Acquisition-related contingent consideration as of May 2, 2020
|
|
$
|
761
|
|
Additions
|
|
|
183
|
|
Settlements
|
|
|
(600
|
)
|
Interest
|
|
|
19
|
|
Acquisition-related contingent consideration as of May 1, 2021
|
|
$
|
363
|
|
The following methods and assumptions were used to estimate the fair value of each class of financial instrument. There have been no changes in the valuation techniques used by us to value our financial instruments.
Cash and cash equivalents: Consists of cash on hand in bank deposits and highly liquid investments, primarily money market accounts. The fair value was measured using quoted market prices in active markets. The carrying amount approximates fair value.
Restricted cash: Consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees. The fair value of restricted cash was measured using quoted market prices in active markets. The carrying amount approximates fair value.
Certificates of deposit: Consists of time deposit accounts with original maturities of less than three years and various yields. The fair value of these securities was measured based on valuations observed in less active markets than Level 1 investments from a third-party financial institution. The carrying amount approximates fair value.
Derivatives – currency forward contracts: Consists of currency forward contracts trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on a valuation from a third-party bank. See "Note 15. Derivative Financial Instruments" for more information regarding our derivatives.
Contingent liabilities: Consists of the fair value of liabilities measured on expected future payments relating to business acquisitions if conditions are met. The contingent liabilities were calculated by estimating the discounted present value of expected future payments as of the acquisition date and subsequently at the end of each reporting period. The fair value measurement is based on significant unobservable inputs as of May 1, 2021 and May 2, 2020. The contingent liabilities are presented in the "Accrued expenses" line items in our consolidated balance sheets.
Non-recurring measurements: The fair value measurement standard also applies to certain non-financial assets and liabilities measured at fair value on a nonrecurring basis. Certain long-lived assets such as goodwill, intangible assets and property and equipment are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.
Other measurements using fair value: Some of our financial instruments, such as accounts receivable, long-term receivables, prepaid expense and other assets, contract assets and liabilities, accounts payable, warranty obligations, and other long-term obligations are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to their short-term nature.
Note 15. 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 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 May 1, 2021 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 consolidated statements of operations.
The foreign currency exchange contracts in aggregated notional amounts in place to exchange U.S. dollars at May 1, 2021 and May 2, 2020 were as follows:
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
|
U.S. Dollars
|
|
|
Foreign Currency
|
|
|
U.S. Dollars
|
|
|
Foreign Currency
|
|
Foreign Currency Exchange Forward Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars/Australian Dollars
|
|
|
2,410
|
|
|
|
3,464
|
|
|
|
2,235
|
|
|
|
3,323
|
|
U.S. Dollars/Canadian Dollars
|
|
|
—
|
|
|
|
—
|
|
|
|
452
|
|
|
|
648
|
|
U.S. Dollars/British Pounds
|
|
|
418
|
|
|
|
300
|
|
|
|
3,160
|
|
|
|
2,424
|
|
U.S. Dollars/Euros
|
|
|
—
|
|
|
|
—
|
|
|
|
1,881
|
|
|
|
1,689
|
|
As of May 1, 2021, there was an asset and liability of $4 and $261, 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 May 1, 2021, all contracts mature within eight months.
Note 16. Commitments and Contingencies
Litigation: We are a party to legal proceedings and claims which arise during the ordinary course of business. We review our legal proceedings and claims, regulatory reviews and inspections, and other legal matters on an ongoing basis and follow appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued if such disclosure is necessary for our financial statements to not be misleading. We do not record an accrual when the likelihood of loss being incurred is probable, but the amount cannot be reasonably estimated, or when the loss is believed to be only reasonably possible or remote, although disclosures will be made for material matters as required by ASC 450-20, Contingencies - Loss Contingencies. Our assessment of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter following all appeals.
As of May 2, 2020, we recorded a $2,072 reserve for the probable and reasonably estimated cost to settle a patent litigation claim, which was included in the "Accrued expenses" line item in our condensed consolidated balance sheets and "Cost of Sales" in consolidated statement of operations. During fiscal 2021, an appellate court ruled in our favor on this matter. Since we no longer estimate we have a probable loss, we recorded a credit to the "Cost of sales" line item in our condensed consolidated statement of operations and removed the liability from our condensed consolidated balance sheet during fiscal 2021.
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: See "Note 1. Nature of Business and Summary of Significant Accounting Policies" for more information regarding warranties.
Changes in our warranty obligation for the fiscal years ended May 1, 2021 and May 2, 2020 consisted of the following:
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
Beginning accrued warranty obligations
|
|
$
|
25,624
|
|
|
$
|
24,470
|
|
Warranties issued during the period
|
|
|
8,539
|
|
|
|
10,629
|
|
Settlements made during the period
|
|
|
(5,718
|
)
|
|
|
(9,209
|
)
|
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations
|
|
|
(2,485
|
)
|
|
|
(266
|
)
|
Ending accrued warranty obligations
|
|
$
|
25,960
|
|
|
$
|
25,624
|
|
Performance guarantees: We have entered into standby letters of credit, bank guarantees and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily construction-type contracts. As of May 1, 2021, we had outstanding letters of credit, bank guarantees and surety bonds in the amount of $3,811, $2,561 and $59,221, 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 May 1, 2021, 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 May 1, 2021, we were obligated under the following unconditional purchase commitments:
Fiscal years ending
|
|
Amount
|
|
2022
|
|
$
|
3,102
|
|
2023
|
|
|
1,825
|
|
2024
|
|
|
148
|
|
2025
|
|
|
113
|
|
2026
|
|
|
40
|
|
|
|
$
|
5,228
|
|