NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
Note 1. Basis of Presentation and Summary of Critical Accounting Policies
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions affecting the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The balance sheet at
April 30, 2016
has been derived from the audited financial statements at that date, but it does not include all of the information and footnotes required by GAAP for complete financial statements.
These financial statements should be read in conjunction with our financial statements and notes thereto for the year ended
April 30, 2016
, which are contained in our Annual Report on Form 10-K previously filed with the Securities and Exchange Commission. The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.
Daktronics, Inc. operates on a 52 to 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.
An immaterial reclassification has been made to conform fiscal 2016 to the fiscal 2017 classifications of the statements of cash flows for comparative purposes due to retrospectively adopting Accounting Standards Update ("ASU") 2016-09,
Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting
in the first quarter of fiscal 2017.
Investments in affiliates over which we have significant influence are accounted for under the equity method of accounting. Investments in affiliates over which we do not have the ability to exert significant influence over the affiliate's operating and financing activities are accounted for under the cost method of accounting. We have evaluated our relationships with our affiliates and have determined that these entities are not variable interest entities.
During the third quarter of fiscal 2017, we determined that through increased ownership levels during the quarter, we had significant influence over one of our affiliates. The aggregate amount of investments accounted for under the equity method was
$2,464
and
$0
at
January 28, 2017
and
April 30, 2016
, respectively. The equity method requires us to report our share of losses up to our equity investment amount, including any financial support made or committed to. When the equity investment is reduced to zero, we recognize losses to the extent of and as an adjustment to the other investments in the affiliate in order of seniority or priority in liquidation. Any investments in affiliates is included in Investing activities acquisitions line in our consolidated statements of cash flows. Our proportional share of the respective affiliate’s earnings or losses is included in other income (expense) in our consolidated statements of operations. As of the
nine months ended
January 28, 2017
, our share of affiliates losses was
$79
.
The aggregate amount of investments accounted for under the cost method was $
42
and
$1,211
at
January 28, 2017
and
April 30, 2016
, respectively. There have not been any identified events or changes in circumstances that may have a significant adverse effect on their fair value and it is not practical to estimate their fair value.
Recent Accounting Pronouncements
Accounting Standards Adopted
In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-09,
which is intended to simplify certain aspects of the accounting for share-based payment award transactions, including income tax effects when awards vest or settle, repurchase of employees’ shares to satisfy statutory tax withholding obligations, an option to account for forfeitures as they occur, and classification of certain amounts on the statements of cash flows. ASU 2016-09 is effective for annual and interim reporting periods beginning after December 15, 2016. Early adoption is permitted, and we adopted it during the first quarter of fiscal 2017. We have elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. Provisions related to income taxes have been adopted prospectively. Provisions related to the statements of cash flows have been adopted retrospectively but did not have a material impact on our statements of cash flows.
In March 2016, the FASB issued ASU 2016-07,
Investments - Equity Method and Joint Ventures (Topic 323) Simplifying the Transition to the Equity Method of Accounting.
ASU 2016-07 eliminates the requirement that when an investment, initially accounted for under a method other than the equity method of accounting, subsequently qualifies for use of the equity method, an investor must retrospectively apply the equity method in prior periods in which it held the investment. This requires an investor to determine the fair value of the investee’s underlying assets and liabilities retrospectively at each investment date and revise all prior periods as if the equity method had always been applied. The new guidance requires the investor to apply the equity method prospectively from the date the investment qualifies for the equity method. The investor will add the carrying value of the existing investment to the cost of the additional investment to determine the initial cost basis of the equity method investment. ASU 2016-07 was adopted by the Company effective the beginning of our third quarter of fiscal 2017 and did not have a material impact on our consolidated results of operations, cash flows, or financial position.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
, which changes the measurement principle of inventory from the lower of cost or market to the lower of cost and net realizable value. The guidance will require prospective application at the beginning of our first quarter of fiscal 2018, but it permits adoption in an earlier period. ASU 2015-11 was adopted by the Company effective May 1, 2016 and did not have a material impact on our consolidated results of operations, cash flows, or financial position.
In April 2015, the FASB issued ASU 2015-05,
Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement
. This ASU clarifies existing GAAP guidance about a customer’s accounting for fees paid in a cloud computing arrangement ("CCA") with or without a software license. Examples of CCAs include software as a service, platform as a service, infrastructure as a service, and other similar hosting arrangements. Under ASU 2015-05, fees paid by a customer in a CCA for a software license are within the scope of the internal-use software guidance if certain criteria are met. If the criteria are not met, the fees paid are accounted for as a prepaid service contract and expensed. We have historically accounted for all fees in a CCA as a prepaid service contract. We adopted ASU 2015-05 in the first quarter of fiscal 2017 when it became effective, using the prospective method. We did not pay any fees in a CCA in the current period that met the criteria to be in the scope of the internal-use software guidance, and ASU 2015-05 had no impact on our consolidated results of operations, cash flows, or financial position.
New Accounting Standards Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04,
Intangibles-Goodwill and Other (Topic 350),
which simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual, or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual periods beginning after December 15, 2019, and will require adoption on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the effect that adopting this new accounting guidance will have on our consolidated results of operations, cash flows, and financial position.
In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other than Inventory
, which is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current U.S. GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party, which is an exception to the principle of comprehensive recognition of current and deferred income taxes in U.S. GAAP. This update eliminates the exception by requiring entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the effect that adopting this new accounting guidance will have on our consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments
, which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statements of cash flows. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, and will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating the effect that adopting this new accounting guidance will have on our consolidated cash flows and related disclosures.
In February 2016, the 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 of greater than 12 months regardless of their classification. The new standard 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. The new guidance is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect that adopting this new accounting guidance will have on our consolidated results of operations, cash flows, and financial position.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers.
ASU 2014-09 is a comprehensive revenue recognition model that requires a company to recognize revenue from the transfer of goods or services to customers in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. The FASB has also issued ASUs 2016-08, 2016-10, and 2016-12 to clarify guidance with respect to principal versus agent considerations, the identification of performance obligations and licensing and certain narrow areas and adds practical expedients. ASU 2014-09 is effective for fiscal years and interim periods beginning after December 15, 2017 (as stated in ASU 2015-14, which was issued in August 2015 and defers the effective date), and is now effective for the Company's fiscal 2019. We are evaluating the effect that adopting ASU 2014-09, as clarified, will have on our consolidated results of operations, cash flows, financial position, and related disclosures.
Note 2. Earnings Per Share ("EPS")
Basic EPS is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution which may occur if securities or other obligations to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock which share in our earnings.
The following is a reconciliation of the net (loss) income and common share amounts used in the calculation of basic and diluted EPS for the
three and nine
months ended
January 28, 2017
and
January 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
Shares
|
|
Per share (loss) income
|
For the three months ended January 28, 2017
|
|
|
|
|
|
Basic (loss) earnings per share
|
$
|
(5,127
|
)
|
|
44,102
|
|
|
$
|
(0.12
|
)
|
Dilution associated with stock compensation plans
|
—
|
|
|
—
|
|
|
—
|
|
Diluted (loss) earnings per share
|
$
|
(5,127
|
)
|
|
44,102
|
|
|
$
|
(0.12
|
)
|
For the three months ended January 30, 2016
|
|
|
|
|
|
Basic (loss) earnings per share
|
$
|
(1,953
|
)
|
|
44,021
|
|
|
$
|
(0.04
|
)
|
Dilution associated with stock compensation plans
|
—
|
|
|
—
|
|
|
—
|
|
Diluted (loss) earnings per share
|
$
|
(1,953
|
)
|
|
44,021
|
|
|
$
|
(0.04
|
)
|
For the nine months ended January 28, 2017
|
|
|
|
|
|
Basic earnings per share
|
$
|
9,433
|
|
|
44,071
|
|
|
$
|
0.21
|
|
Dilution associated with stock compensation plans
|
—
|
|
|
135
|
|
|
—
|
|
Diluted earnings per share
|
$
|
9,433
|
|
|
44,206
|
|
|
$
|
0.21
|
|
For the nine months ended January 30, 2016
|
|
|
|
|
|
Basic earnings per share
|
$
|
4,991
|
|
|
43,933
|
|
|
$
|
0.11
|
|
Dilution associated with stock compensation plans
|
—
|
|
|
424
|
|
|
—
|
|
Diluted earnings per share
|
$
|
4,991
|
|
|
44,357
|
|
|
$
|
0.11
|
|
Options outstanding to purchase
1,354
shares of common stock with a weighted average exercise price of
$13.86
for the three months ended January 28, 2017
and
2,166
shares of common stock with a weighted average exercise price of
$14.63
for the three months ended January 30, 2016
were not included in the computation of diluted (loss) earnings per share because the effects would be anti-dilutive.
Options outstanding to purchase
2,380
shares of common stock with a weighted average exercise price of
$13.27
for the
nine months ended
January 28, 2017
and
2,180
shares of common stock with a weighted average exercise price of
$15.01
for the
nine months ended
January 30, 2016
were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.
Note 3. Share Repurchase Program
On
June 17, 2016
, our Board of Directors approved a stock repurchase program under which Daktronics, Inc. may purchase up to
$40,000
of its outstanding shares of common stock. Under this program, we may repurchase shares from time to time in open market transactions and in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The repurchase program does not require the repurchase of a specific number of shares and may be terminated at any time. During the first quarter of fiscal 2017, we repurchased
284
shares of common stock at a total cost of
$1,825
, and there have been no other purchases during fiscal 2017. We may repurchase up to an additional
$38,175
of common stock under the current Board authorization.
Note 4. Segment Disclosure
We have organized our business into
five
segments which meet the definition of reportable segments under Accounting Standards Codification ("ASC") 280-10,
Segment Reporting
: Commercial, Live Events, High School Park and Recreation, Transportation, and International. These segments are based on the type of customer or geography and are the same as our business units.
Our Commercial business unit primarily consists of sales of our video display systems, digital billboards, and Galaxy
®
and Fuelight
™
product lines to resellers (primarily sign companies), Out-of-Home ("OOH") companies, national retailers, quick-serve restaurants, casinos 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. Our Transportation business unit primarily consists of sales of our Vanguard
®
and Galaxy
®
product lines to governmental transportation departments, 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, and European transportation related products.
Our segment reporting presents results through contribution margin, which is comprised of gross profit less selling costs. Segment profit excludes general and administration expense, product development expense, interest income and expense, non-operating income and income tax expense. 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. In general, our segments follow the same accounting policies as those described in Note 1 of our Annual Report on Form 10-K for the fiscal year ended
April 30, 2016
. 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.
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 operating segments for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
January 28,
2017
|
|
January 30,
2016
|
|
January 28,
2017
|
|
January 30,
2016
|
Net sales:
|
|
|
|
|
|
|
|
Commercial
|
$
|
36,165
|
|
|
$
|
29,385
|
|
|
$
|
112,342
|
|
|
$
|
112,661
|
|
Live Events
|
41,036
|
|
|
51,067
|
|
|
157,032
|
|
|
149,750
|
|
High School Park and Recreation
|
12,653
|
|
|
10,940
|
|
|
68,977
|
|
|
54,152
|
|
Transportation
|
9,130
|
|
|
11,698
|
|
|
39,517
|
|
|
38,759
|
|
International
|
16,735
|
|
|
20,726
|
|
|
64,989
|
|
|
76,383
|
|
|
115,719
|
|
|
123,816
|
|
|
442,857
|
|
|
431,705
|
|
|
|
|
|
|
|
|
|
Contribution margin:
|
|
|
|
|
|
|
|
Commercial
|
3,138
|
|
|
696
|
|
|
13,471
|
|
|
10,802
|
|
Live Events
|
3,211
|
|
|
4,046
|
|
|
20,744
|
|
|
17,031
|
|
High School Park and Recreation
|
617
|
|
|
143
|
|
|
14,366
|
|
|
7,703
|
|
Transportation
|
1,373
|
|
|
2,694
|
|
|
9,505
|
|
|
9,057
|
|
International
|
299
|
|
|
666
|
|
|
2,777
|
|
|
5,577
|
|
|
8,638
|
|
|
8,245
|
|
|
60,863
|
|
|
50,170
|
|
|
|
|
|
|
|
|
|
Non-allocated operating expenses:
|
|
|
|
|
|
|
|
General and administrative
|
8,599
|
|
|
7,908
|
|
|
26,007
|
|
|
24,194
|
|
Product design and development
|
6,973
|
|
|
5,883
|
|
|
21,142
|
|
|
19,826
|
|
Operating (loss) income
|
(6,934
|
)
|
|
(5,546
|
)
|
|
13,714
|
|
|
6,150
|
|
|
|
|
|
|
|
|
|
Nonoperating income (expense):
|
|
|
|
|
|
|
|
Interest income
|
183
|
|
|
230
|
|
|
559
|
|
|
794
|
|
Interest expense
|
(56
|
)
|
|
(113
|
)
|
|
(174
|
)
|
|
(203
|
)
|
Other (expense) income, net
|
(305
|
)
|
|
7
|
|
|
(250
|
)
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
(7,112
|
)
|
|
(5,422
|
)
|
|
13,849
|
|
|
6,074
|
|
Income tax (benefit) expense
|
(1,985
|
)
|
|
(3,469
|
)
|
|
4,416
|
|
|
1,083
|
|
Net (loss) income
|
$
|
(5,127
|
)
|
|
$
|
(1,953
|
)
|
|
$
|
9,433
|
|
|
$
|
4,991
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization, and impairment:
|
|
|
|
|
|
|
|
Commercial
|
$
|
1,616
|
|
|
$
|
1,208
|
|
|
$
|
4,777
|
|
|
$
|
3,599
|
|
Live Events
|
1,245
|
|
|
1,258
|
|
|
3,798
|
|
|
3,676
|
|
High School Park and Recreation
|
421
|
|
|
436
|
|
|
1,310
|
|
|
1,294
|
|
Transportation
|
311
|
|
|
344
|
|
|
957
|
|
|
1,012
|
|
International
|
423
|
|
|
310
|
|
|
1,914
|
|
|
908
|
|
Unallocated corporate depreciation
|
683
|
|
|
692
|
|
|
2,015
|
|
|
2,073
|
|
|
$
|
4,699
|
|
|
$
|
4,248
|
|
|
$
|
14,771
|
|
|
$
|
12,562
|
|
No single geographic area comprises a material amount of our net sales or property and equipment, net of accumulated depreciation, other than the United States. The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
January 28,
2017
|
|
January 30,
2016
|
|
January 28,
2017
|
|
January 30,
2016
|
Net sales:
|
|
|
|
|
|
|
|
United States
|
$
|
94,174
|
|
|
$
|
101,200
|
|
|
$
|
363,766
|
|
|
$
|
347,278
|
|
Outside U.S.
|
21,545
|
|
|
22,616
|
|
|
79,091
|
|
|
84,427
|
|
|
$
|
115,719
|
|
|
$
|
123,816
|
|
|
$
|
442,857
|
|
|
$
|
431,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28,
2017
|
|
April 30,
2016
|
|
|
|
|
Property and equipment, net of accumulated depreciation:
|
|
|
|
|
|
|
|
|
United States
|
$
|
62,676
|
|
|
$
|
68,233
|
|
|
|
|
|
|
Outside U.S.
|
4,275
|
|
|
4,930
|
|
|
|
|
|
|
$
|
66,951
|
|
|
$
|
73,163
|
|
|
|
|
|
|
We have numerous customers worldwide for sales of our products and services; therefore, we are not economically dependent on a limited number of customers for the sale of our products and services except with respect to our dependence on two major digital billboard customers in our Commercial business unit.
Note 5. Marketable Securities
We have a cash management program which provides for the investment of cash balances not used in current operations. We classify our investments in marketable securities as available-for-sale in accordance with the provisions of ASC 320,
Investments – Debt and Equity Securities.
Marketable securities classified as available-for-sale are reported at fair value with unrealized gains or losses, net of tax, reported in
accumulated other comprehensive loss
. As it relates to fixed income marketable securities, it is not likely we will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of
January 28, 2017
, we anticipate we will recover the entire amortized cost basis of such fixed income securities, and we have determined no other-than-temporary impairments associated with credit losses were required to be recognized. The cost of securities sold is based on the specific identification method. Where quoted market prices are not available, we use the market price of similar types of securities traded in the market to estimate fair value.
As of
January 28, 2017
and
April 30, 2016
, our available-for-sale securities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
Balance as of January 28, 2017
|
|
|
|
|
|
|
|
Certificates of deposit
|
$
|
13,076
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,076
|
|
U.S. Government securities
|
400
|
|
|
—
|
|
|
—
|
|
|
400
|
|
U.S. Government sponsored entities
|
7,666
|
|
|
—
|
|
|
(22
|
)
|
|
7,644
|
|
Municipal obligations
|
6,915
|
|
|
—
|
|
|
(1
|
)
|
|
6,914
|
|
|
$
|
28,057
|
|
|
$
|
—
|
|
|
$
|
(23
|
)
|
|
$
|
28,034
|
|
Balance as of April 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
$
|
14,927
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,927
|
|
U.S. Government sponsored entities
|
8,523
|
|
|
—
|
|
|
(1
|
)
|
|
8,522
|
|
Municipal obligations
|
1,221
|
|
|
2
|
|
|
—
|
|
|
1,223
|
|
|
$
|
24,671
|
|
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
$
|
24,672
|
|
Realized gains or losses on investments are recorded in our consolidated statements of operations as other income (expense), net. Upon the sale of a security classified as available-for-sale, the security’s specific unrealized gain (loss) is reclassified out of "
accumulated other comprehensive loss
” into earnings based on the specific identification method. In the
nine months ended
January 28, 2017
and
January 30, 2016
, the reclassifications from
accumulated other comprehensive loss
to earnings were immaterial.
All available-for-sale securities are classified as current assets, as they are readily available to support our current operating needs. The contractual maturities of available-for-sale debt securities as of
January 28, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
1-5 Years
|
|
Total
|
Certificates of deposit
|
$
|
6,626
|
|
|
$
|
6,450
|
|
|
$
|
13,076
|
|
U.S. Government securities
|
400
|
|
|
—
|
|
|
400
|
|
U.S. Government sponsored agencies
|
—
|
|
|
7,643
|
|
|
7,643
|
|
Municipal obligations
|
1,453
|
|
|
5,462
|
|
|
6,915
|
|
|
$
|
8,479
|
|
|
$
|
19,555
|
|
|
$
|
28,034
|
|
Note 6. Business Combinations
Data Display Acquisition
We acquired
100
percent ownership in Data Display, a European transportation display company, on August 11, 2014 for an undisclosed amount. The results of its operations have been included in our consolidated financial statements since the date of acquisition. We have not made pro forma disclosures because the results of its operations are not material to our consolidated financial statements.
Data Display is a European based company focused on the design and manufacture of transportation displays. This acquisition allows our organization to better service transportation customers world-wide and broaden our leadership position on a global scale. This acquisition included a manufacturing plant in Ireland to manufacture transportation displays. This acquisition was funded with cash on hand.
During the first quarter of fiscal 2016, the purchase price allocation for the Data Display acquisition was completed, the fair values of the consideration were paid and the contingent consideration was finalized. The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill of
$1,463
which primarily related to the value of an assembled workforce and is not deductible for tax purposes. Included in the purchase price allocation were acquired identifiable intangibles valued at
$480
representing trademarks and technology with a useful life of
20
years and customer relationships valued at
$84
with a useful life of
18
years. Also included in the purchase was
$1,433
of property and equipment,
$437
of investment in affiliates,
$2,624
of inventory,
$3,063
of accounts receivable, and
$1,892
of other current assets, which was offset by current operating liabilities of
$3,695
and long-term obligations of
$950
.
ADFLOW Acquisition
We acquired
100 percent
ownership in ADFLOW Networks, Inc. ("ADFLOW"), a Canadian company, on March 15, 2016 for an undisclosed amount. The results of its operations have been included in our consolidated financial statements since the date of acquisition. We have not made pro forma disclosures because the results of its operations are not material to our consolidated financial statements.
ADFLOW is a Canadian based company focused on digital media solutions. This acquisition will allow our organization to grow and strengthen our solution offering in Digital Media Networks (DMN). We believe this will broaden our value proposition for our customers and deliver new offerings to the market. This acquisition was funded with cash on hand.
We updated the preliminary fair value measurements of assets acquired and liabilities assumed as of the acquisition date using independent appraisals and other analysis. We are in the process of finalizing the working capital adjustments. The excess of the purchase price over the estimated net tangible and intangible assets was recorded as goodwill of
$2,520
which primarily related to the value of an assembled workforce and is not deductible for tax purposes. Included in the preliminary purchase price allocation were acquired identifiable intangibles valued at
$3,176
representing software and trademarks and customer relationships valued at
$2,692
. Based on the preliminary fair value measurements, also included in the purchase price was
$58
of property and equipment,
$230
of inventory,
$1,283
of accounts receivable, and
$616
of other current assets, which were offset by current operating liabilities of
$935
and long-term obligations of
$1,424
.
The purchase price includes deferred payments of
$1,833
to be made over
three
years unless certain conditions in the business are not met. We have included the payment obligation in other long-term obligations in our consolidated balance sheet.
ADFLOW contributed net sales of
$7,322
during the
nine months ended
January 28, 2017
.
Note 7. Goodwill
The changes in the carrying amount of goodwill related to each reportable segment for the
nine months ended
January 28, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live Events
|
|
Commercial
|
|
Transportation
|
|
International
|
|
Total
|
Balance as of April 30, 2016
|
$
|
2,304
|
|
|
$
|
3,350
|
|
|
$
|
75
|
|
|
$
|
2,387
|
|
|
$
|
8,116
|
|
Acquisition, net of cash required
|
—
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
19
|
|
Foreign currency translation
|
(16
|
)
|
|
(108
|
)
|
|
(16
|
)
|
|
(129
|
)
|
|
(269
|
)
|
Balance as of January 28, 2017
|
$
|
2,288
|
|
|
$
|
3,261
|
|
|
$
|
59
|
|
|
$
|
2,258
|
|
|
$
|
7,866
|
|
We perform an analysis of goodwill on an annual basis, and it is tested for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. We performed our annual analysis based on the goodwill amount as of the first business day of our third quarter in fiscal 2017, which was October 30, 2016. The result of the analysis indicated no goodwill impairment existed as of that date.
Note 8. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
January 28,
2017
|
|
April 30,
2016
|
Raw materials
|
$
|
23,749
|
|
|
$
|
28,184
|
|
Work-in-process
|
7,362
|
|
|
6,158
|
|
Finished goods
|
30,811
|
|
|
35,485
|
|
|
$
|
61,922
|
|
|
$
|
69,827
|
|
Note 9. Receivables
Accounts receivable are reported net of an allowance for doubtful accounts of
$2,512
and
$2,797
at
January 28, 2017
and
April 30, 2016
, respectively. Included in accounts receivable as of
January 28, 2017
and
April 30, 2016
was
$1,302
and
$437
, respectively, of retainage on construction-type contracts, all of which is expected to be collected within one year.
In connection with certain sales transactions, we have entered into sales contracts with installment payments exceeding six months and sales-type leases. The present value of these contracts and leases is recorded as a receivable as the revenue is recognized in accordance with U.S. GAAP, and profit is recognized to the extent the present value is in excess of cost. We generally retain a security interest in the equipment or in the cash flow generated by the equipment until the contract is paid. The present value of long-term contracts and lease receivables, including accrued interest and current maturities, was
$5,105
and
$7,038
as of
January 28, 2017
and
April 30, 2016
, respectively. Contract and lease receivables bearing annual interest rates ranging from
4.8
to
10.0
percent are due in varying annual installments through
August 2024
. The face amount of long-term receivables was
$5,635
and
$7,236
as of
January 28, 2017
and
April 30, 2016
, respectively.
Note 10. 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
January 28, 2017
and
April 30, 2016
, we did not believe there was a reasonable probability any material loss for these various claims or legal actions, including reviews, inspections or other legal proceedings, if any, would be incurred. Accordingly, no accrual or disclosure of a potential range of loss has been made related to these matters. In the opinion of management, the ultimate liability of all unresolved legal proceedings is not expected to have a material effect on our financial position, liquidity or capital resources.
Warranties:
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 the product sold. We estimate the costs which may be incurred under the warranty obligations 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.
During fiscal 2016, we discovered a warranty issue caused by a mechanical device failure within a module for displays primarily in our OOH applications built prior to fiscal 2013. The device failure causes a visual defect in the display. Over the past eighteen months, we have deployed preventative maintenance to sites impacted and repaired the defective devices in our repair center. When certain site locations have exceeded an acceptable failure rate, we have refurbished the display to meet customers’ expectations under contractual obligations. We increased our accrued warranty obligations by
$1,145
during the
nine months ended
January 28, 2017
,
$9,174
during fiscal 2016, and
$1,168
during fiscal 2015 for probable and reasonably estimable costs to remediate this issue. As of
January 28, 2017
, we had
$3,880
remaining in accrued warranty obligations for the estimate of probable future claims related to this issue. Because failure rates are unpredictable, the final outcome of this matter is dependent on many factors that are difficult to predict. Accordingly, it is possible that the ultimate cost to resolve this matter may increase and be materially different from the amount of the current estimate and accrual.
Changes in our warranty obligation
for the nine months ended January 28, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
Amount
|
Beginning accrued warranty obligations
|
|
|
$
|
30,496
|
|
Warranties issued during the period
|
|
|
7,533
|
|
Settlements made during the period
|
|
|
(13,161
|
)
|
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations
|
|
|
4,619
|
|
Ending accrued warranty obligations
|
|
|
$
|
29,487
|
|
Performance guarantees:
We have entered into standby letters of credit and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily construction-type contracts. As of
January 28, 2017
, we had outstanding letters of credit and surety bonds in the amount of
$12,051
and
$31,147
, 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, which are generally one year.
Leases:
We lease vehicles, office space and equipment for various global sales and service locations, including manufacturing space in the United States and China. Some of these leases, including the lease for manufacturing facilities in Sioux Falls, South Dakota, include provisions for extensions or purchase. The lease for the facilities in Sioux Falls, South Dakota can be extended for an additional five years past its current term, which ends March 31, 2022, and it contains an option to purchase the property subject to the lease from March 31, 2017 to March 31, 2022 for
$9,000
, which approximates fair value. If the lease is extended, the purchase option increases to
$9,090
for the year ending March 31, 2023 and
$9,180
for the year ending March 31, 2024. Rental expense for operating leases was
$2,358
and
$2,259
for the nine months ended January 28, 2017
and
January 30, 2016
, respectively.
Future minimum payments under noncancelable operating leases, excluding executory costs such as management and maintenance fees, with initial or remaining terms of one year or more consisted of the following at
January 28, 2017
:
|
|
|
|
|
|
Fiscal years ending
|
|
Amount
|
2017
|
|
$
|
734
|
|
2018
|
|
2,677
|
|
2019
|
|
2,014
|
|
2020
|
|
1,728
|
|
2021
|
|
1,543
|
|
Thereafter
|
|
1,719
|
|
|
|
$
|
10,415
|
|
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
January 28, 2017
, we were obligated under the following conditional and unconditional purchase commitments, which included
$400
in conditional purchase commitments:
|
|
|
|
|
|
Fiscal years ending
|
|
Amount
|
2017
|
|
$
|
1,226
|
|
2018
|
|
2,756
|
|
2019
|
|
990
|
|
2020
|
|
213
|
|
2021
|
|
213
|
|
Thereafter
|
|
493
|
|
|
|
$
|
5,891
|
|
Note 11. Income Taxes
We are subject to U.S. Federal income tax as well as income taxes of multiple state jurisdictions. As a result of the completion of examinations by the Internal Revenue Service on prior years and the expiration of statutes of limitations, our fiscal years 2014, 2015, and 2016 are the remaining years open under statutes of limitations. Certain subsidiaries are also subject to income tax in several foreign jurisdictions which have open tax years varying by jurisdiction beginning in fiscal 2005.
As of
January 28, 2017
, we had
$3,063
of unrecognized tax benefits which would reduce our effective tax rate if recognized.
Note 12. 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 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
January 28, 2017
and
April 30, 2016
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 January 28, 2017
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
48,377
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48,377
|
|
Restricted cash
|
206
|
|
|
—
|
|
|
—
|
|
|
206
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
—
|
|
|
13,076
|
|
|
—
|
|
|
13,076
|
|
U.S. Government securities
|
400
|
|
|
—
|
|
|
—
|
|
|
400
|
|
U.S. Government sponsored entities
|
—
|
|
|
7,644
|
|
|
—
|
|
|
7,644
|
|
Municipal obligations
|
—
|
|
|
6,914
|
|
|
—
|
|
|
6,914
|
|
Derivatives - asset position
|
—
|
|
|
72
|
|
|
—
|
|
|
72
|
|
Derivatives - liability position
|
—
|
|
|
(206
|
)
|
|
—
|
|
|
(206
|
)
|
Contingent liability
|
—
|
|
|
—
|
|
|
(1,920
|
)
|
|
(1,920
|
)
|
|
$
|
48,983
|
|
|
$
|
27,500
|
|
|
$
|
(1,920
|
)
|
|
$
|
74,563
|
|
Balance as of April 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
28,328
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,328
|
|
Restricted cash
|
198
|
|
|
—
|
|
|
—
|
|
|
198
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
—
|
|
|
14,927
|
|
|
—
|
|
|
14,927
|
|
U.S. Government sponsored entities
|
—
|
|
|
8,522
|
|
|
—
|
|
|
8,522
|
|
Municipal obligations
|
—
|
|
|
1,223
|
|
|
—
|
|
|
1,223
|
|
Derivatives - asset position
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Derivatives - liability position
|
—
|
|
|
(453
|
)
|
|
—
|
|
|
(453
|
)
|
Contingent liability
|
—
|
|
|
—
|
|
|
(1,955
|
)
|
|
(1,955
|
)
|
|
$
|
28,526
|
|
|
$
|
24,219
|
|
|
$
|
(1,955
|
)
|
|
$
|
50,790
|
|
A roll forward of the Level 3 contingent liability, both short and long-term, for the
nine months ended
January 28, 2017
is as follows:
|
|
|
|
|
|
Contingent liability as of April 30, 2016
|
|
$
|
1,955
|
|
Interest
|
|
42
|
|
Foreign currency translation
|
|
(77
|
)
|
Contingent liability as of January 28, 2017
|
|
$
|
1,920
|
|
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.
U.S. Government securities
:
Consists of U.S. Government treasury bills, notes, and bonds with original maturities of less than three years and various yields. The fair value of these securities was measured using quoted market prices in active markets.
U.S. Government sponsored entities
: Consists of Fannie Mae and Federal Home Loan Bank investment grade debt securities 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 valuations observed in less active markets than Level 1 investments. The contractual maturities of these investments vary from one month to three years.
Municipal obligations
: Consist of investment grade municipal bonds trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The contractual maturities of these investments vary from two to three years. The fair value of these bonds was measured based on valuations observed in less active markets than Level 1 investments.
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 13. Derivative Financial Instruments
" included elsewhere in this Quarterly Report on Form 10-Q for more information regarding our derivatives.
Contingent liability
: Consists of a liability measured on payments owed for a business combination if certain conditions in the business performance are met. We have included the payment obligation in other long-term obligations in our consolidated balance sheet.
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, plant and equipment are measured at fair value in connection with business combinations or when an impairment is recognized and the related assets are written down to fair value. We did not have any business combinations during the
nine months ended
January 28, 2017
and used Level 3 inputs to value the assets and liabilities for business combinations during fiscal
2016
. See "
Note 6. Business Combinations
" included elsewhere in this Quarterly Report on Form 10-Q for more information. We used Level 3 inputs to measure and record a technology and customer list intangible asset impairment of
$830
during the second quarter of fiscal 2017.
Other measurements using fair value
: We measure fixed rate long-term receivables using a discounted cash flow analysis using Level 2 inputs such as current interest rates relating to the credit quality of the customer. In addition, we measure fixed rate long-term marketing obligations, which are included in other long-term obligations on our consolidated balance sheet, using a discounted cash flow analysis using Level 2 inputs such as the current interest rate environment for debt as related to our credit quality. The total long-term receivables and long-term marketing obligations approximate fair value.
Note 13. 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 on the balance sheet 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
January 28, 2017
and
April 30, 2016
, we had not designated any of our derivative instruments as accounting hedges, and thus we recorded the changes in fair value in other income (expense), net.
The foreign currency exchange contracts in aggregated notional amounts in place to exchange U.S. dollars at
January 28, 2017
and
April 30, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
April 30, 2016
|
|
U.S. Dollars
|
|
Foreign
Currency
|
|
U.S.
Dollars
|
|
Foreign
Currency
|
Foreign Currency Exchange Forward Contracts:
|
|
|
|
|
|
|
|
U.S. Dollars/Australian Dollars
|
6,734
|
|
|
9,062
|
|
|
7,216
|
|
|
10,027
|
|
U.S. Dollars/Japanese Yen
|
198
|
|
|
22,345
|
|
|
—
|
|
|
—
|
|
U.S. Dollars/Canadian Dollars
|
557
|
|
|
740
|
|
|
563
|
|
|
771
|
|
U.S. Dollars/British Pounds
|
4,836
|
|
|
3,866
|
|
|
1,795
|
|
|
1,263
|
|
U.S. Dollars/Singapore Dollars
|
581
|
|
|
844
|
|
|
261
|
|
|
356
|
|
U.S. Dollars/Euros
|
1,621
|
|
|
1,510
|
|
|
147
|
|
|
132
|
|
As of
January 28, 2017
, there was a net asset and liability of
$72
and
$206
, respectively and as of
April 30, 2016
, there was a net liability of
$453
representing the fair value of foreign currency exchange forward contracts, which were determined using Level 2 inputs from a third-party bank.
Note 14. Subsequent Events
On
March 2, 2017
, our Board of Directors declared a regular quarterly dividend of
$0.07
per share on our common stock payable on
March 24, 2017
to holders of record of our common stock on
March 13, 2017
.