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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 2020
 
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___.
Commission File Number: 0-23246

daklogo.jpg

Daktronics, Inc.
(Exact Name of Registrant as Specified in its Charter)

South Dakota
 
 
46-0306862
(State or Other Jurisdiction of
Incorporation or Organization)
 
 
(I.R.S. Employer Identification No.)
 
 
 
 
201 Daktronics Drive
Brookings,
SD
 57006
(Address of Principal Executive Offices)

(605) 692-0200
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, No Par Value
DAKT
NASDAQ Global Select Market
Preferred Stock Purchase Rights
DAKT
NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x  No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer

 
Accelerated filer
x
Non-accelerated filer

 
Smaller reporting company
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

The number of shares of the registrant’s common stock outstanding as of August 24, 2020 was 44,615,015.




DAKTRONICS, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended August 1, 2020

Table of Contents

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 







Table of contents


PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)

 
 
August 1,
2020
 
May 2,
2020
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
44,609

 
$
40,398

Restricted cash
 
96

 
14

Marketable securities
 
1,230

 
1,230

Accounts receivable, net
 
88,608

 
72,577

Inventories
 
81,435

 
86,803

Contract assets
 
33,261

 
35,467

Current maturities of long-term receivables
 
3,306

 
3,519

Prepaid expenses and other current assets
 
7,595

 
9,629

Income tax receivables
 
260

 
548

Property and equipment and other assets available for sale
 
1,966

 
1,817

Total current assets
 
262,366

 
252,002

 
 
 
 
 
Property and equipment, net
 
66,059

 
67,484

Long-term receivables, less current maturities
 
739

 
1,114

Goodwill
 
8,048

 
7,743

Intangibles, net
 
3,070

 
3,354

Investment in affiliates and other assets
 
26,526

 
27,683

Deferred income taxes
 
13,312

 
13,271

TOTAL ASSETS
 
$
380,120

 
$
372,651

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 

Accounts payable
 
$
48,255

 
$
47,834

Contract liabilities
 
50,159

 
50,897

Accrued expenses
 
33,941

 
36,626

Warranty obligations
 
10,648

 
9,764

Income taxes payable
 
1,107

 
844

Total current liabilities
 
144,110

 
145,965

 
 
 
 
 
Long-term warranty obligations
 
16,412

 
15,860

Long-term contract liabilities
 
10,715

 
10,707

Other long-term obligations
 
21,469

 
22,105

Long-term income taxes payable
 
723

 
582

Deferred income taxes
 
469

 
452

Total long-term liabilities
 
49,788

 
49,706

 
 
 
 
 

1

Table of contents


DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)
(in thousands, except per share data)
(unaudited)

 
 
August 1,
2020
 
May 2,
2020
SHAREHOLDERS' EQUITY:
 
 

 
 

Common Stock, no par value, authorized 115,000,000 shares; 45,913,210 and 45,913,209 shares issued at August 1, 2020 and May 2, 2020, respectively
 
60,010

 
60,010

Additional paid-in capital
 
45,192

 
44,627

Retained earnings
 
92,557

 
85,090

Treasury Stock, at cost, 1,343,281 and 1,343,281 shares at August 1, 2020 and May 2, 2020, respectively
 
(7,297
)
 
(7,470
)
Accumulated other comprehensive loss
 
(4,240
)
 
(5,277
)
TOTAL SHAREHOLDERS' EQUITY
 
186,222

 
176,980

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
380,120

 
$
372,651

 
 
 
 
 
See notes to condensed consolidated financial statements.
 
 

 
 


2

Table of contents


DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

 
Three Months Ended
 
August 1,
2020
 
August 3,
2019
Net sales
$
143,644

 
$
180,256

Cost of sales
107,883

 
134,751

Gross profit
35,761

 
45,505

 
 
 
 
Operating expenses:
 

 
 

Selling
11,556

 
18,297

General and administrative
7,124

 
9,093

Product design and development
7,532

 
10,500

 
26,212

 
37,890

Operating income
9,549

 
7,615

 
 
 
 
Nonoperating (expense) income:
 

 
 

Interest income
85

 
269

Interest expense
(73
)
 
(35
)
Other (expense) income, net
(627
)
 
193

 
 
 
 
Income before income taxes
8,934

 
8,042

Income tax expense
1,467

 
1,012

Net income
$
7,467

 
$
7,030

 
 
 
 
Weighted average shares outstanding:
 

 
 

Basic
44,654

 
45,089

Diluted
44,751

 
45,261

 
 
 
 
Earnings per share:
 

 
 

Basic
$
0.17

 
$
0.16

Diluted
$
0.17

 
$
0.16

 
 
 
 
See notes to condensed consolidated financial statements.
 
 
 


3

Table of contents


DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)

 
 
Three Months Ended
 
 
August 1, 2020
 
August 3,
2019
 
 
 
 
 
Net income
 
$
7,467

 
$
7,030

 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
Cumulative translation adjustments
 
1,037

 
(526
)
Unrealized gain (loss) on available-for-sale securities, net of tax
 

 
41

Total other comprehensive income (loss), net of tax
 
1,037

 
(485
)
Comprehensive income
 
$
8,504

 
$
6,545

 
 
 
 
 
See notes to condensed consolidated financial statements.
 
 
 
 


4

Table of contents


DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)

 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Total
Balance as of May 2, 2020
$
60,010

 
$
44,627

 
$
85,090

 
$
(7,470
)
 
$
(5,277
)
 
$
176,980

Net income

 

 
7,467

 

 

 
7,467

Cumulative translation adjustments

 

 

 

 
1,037

 
1,037

Share-based compensation

 
539

 

 

 

 
539

Treasury stock reissued

 
26

 

 
173

 

 
199

Balance as of August 1, 2020
$
60,010

 
$
45,192

 
$
92,557

 
$
(7,297
)
 
$
(4,240
)
 
$
186,222

See notes to condensed consolidated financial statements.



5

Table of contents


DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(continued)
(in thousands)
(unaudited)

 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Total
Balance as of April 27, 2019
$
57,699

 
$
42,561

 
$
93,593

 
$
(1,834
)
 
$
(4,356
)
 
$
187,663

Net income

 

 
7,030

 

 

 
7,030

Cumulative translation adjustments

 

 

 

 
(526
)
 
(526
)
Unrealized gain (loss) on available-for-sale securities, net of tax

 

 

 

 
41

 
41

Share-based compensation

 
643

 

 

 

 
643

Employee savings plan activity
779

 

 

 

 

 
779

Dividends declared ($0.05 per share)

 

 
(2,250
)
 

 

 
(2,250
)
Treasury stock purchase

 

 

 
(1,187
)
 

 
(1,187
)
Balance as of August 3, 2019
$
58,478

 
$
43,204

 
$
98,373

 
$
(3,021
)
 
$
(4,841
)
 
$
192,193

See notes to condensed consolidated financial statements.



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DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 
Three Months Ended
 
August 1,
2020
 
August 3,
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
7,467

 
$
7,030

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
4,337

 
4,383

Loss on sale of property, equipment and other assets
(53
)
 
(26
)
Share-based compensation
539

 
643

Equity in loss of affiliates
529

 
118

Provision for doubtful accounts
1

 
5

Deferred income taxes, net
(4
)
 
(40
)
Change in operating assets and liabilities
(4,271
)
 
(30,331
)
Net cash provided by (used in) operating activities
8,545

 
(18,218
)
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchases of property and equipment
(3,155
)
 
(5,856
)
Proceeds from sales of property, equipment and other assets
86

 
73

Proceeds from sales or maturities of marketable securities

 
14,510

Purchases of and loans to equity investment
(492
)
 
(455
)
Net cash (used in) provided by investing activities
(3,561
)
 
8,272

 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Principal payments on long-term obligations
(210
)
 
(1,221
)
Dividends paid

 
(2,250
)
Payments for common shares repurchased


 
(1,187
)
Net cash used in financing activities
(210
)
 
(4,658
)
 
 
 
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(481
)
 
(37
)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
4,293

 
(14,641
)
 
 
 
 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
 

 
 

Beginning of period
40,412

 
35,742

End of period
$
44,705

 
$
21,101

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid (received) for:
 

 
 

Interest
$
43

 
$
33

Income taxes, net of refunds
786

 
491

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 

 
 

Purchases of property and equipment included in accounts payable
969

 
786

Contributions of common stock under the ESPP

 
779

See notes to condensed consolidated financial statements.
 

 
 


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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share data)
(unaudited)

Note 1. Basis of Presentation

Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) are the world's industry leader in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position, results of operations and cash flows for the periods presented.  The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("GAAP") requires management to make estimates and assumptions affecting the reported amounts therein.  Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.  The balance sheet at May 2, 2020, has been derived from the audited financial statements at that date, but it does not include all the information and disclosures required by GAAP for complete financial statements.  These financial statements should be read in conjunction with our financial statements and notes thereto for the year ended May 2, 2020, which are contained in our Annual Report on Form 10-K previously filed with the Securities and Exchange Commission ("SEC").  The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.

Daktronics, Inc. operates on a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13-week periods following the beginning of each fiscal year. In each 53-week year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13-week period. The fiscal year ended May 1, 2021 will consist of 52 weeks and the fiscal year ended May 2, 2020 was a 53-week year; therefore, the three months ended August 1, 2020 contains operating results for 13 weeks while the three months ended August 3, 2019 contains operating results for 14 weeks.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the totals of the same amounts shown in the condensed consolidated statement of cash flows:
 
August 1,
2020
 
August 3,
2019
Cash and cash equivalents
$
44,609

 
$
20,762

Restricted cash
96

 
339

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows
$
44,705

 
$
21,101



Other Business Developments - Coronavirus Pandemic

During the first quarter of fiscal 2021, we continued to see the global spread of the coronavirus pandemic ("COVID-19"), which grew to create significant volatility, uncertainty and global economic disruption. As disclosed in our Current Report on Form 8-K filed on April 1, 2020, we are taking proactive steps to solidify our financial position and mitigate any adverse consequences. These steps include preserving liquidity by drawing down $15,000 of our existing line of credit, which is included in the "Other long-term obligations" line item in our condensed consolidated balance sheets. In addition, we are pursuing other sources of financing, reducing investments in capital assets, reducing executive pay and board member compensation, and instituting initiatives to reduce other costs in the business. Our board of directors voted to suspend stock repurchases under our share repurchase program and to suspend dividends for the foreseeable future. We believe these measures are necessary to help preserve our ability to borrow for liquidity needs and help us be well positioned when the pandemic passes and economies begin to recover.

During fiscal 2020, we offered special voluntary retirement and voluntary exit incentive program ("Offering") and during the first quarter of fiscal 2021, we conducted a reduction in force ("RIF") to adjust our capacity and reduce on-going expenses due to the uncertainties created by the COVID-19 pandemic. Under the Offering, employees had until June 2020 to choose to participate. During the first quarter of fiscal 2021, 60 employees agreed to participate and completed employment in June 2020. The approximate cost of this Offering was $931. Under the RIF, employment was terminated with 108 employees with severance totaling $1,426.


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Various government programs have been announced which provide financial relief for affected businesses that suffered reductions in revenue resulting from the COVID-19 pandemic including the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada, the Australian JobKeeper subsidy in Australia, the Temporary COVID-19 Wage Subsidy in Ireland, and the Job Retention Program in the United Kingdom. During the first quarter of fiscal 2021, we received $812 in total governmental wage subsidies and recorded such as a reduction of compensation expense, which is mostly included in the "Costs of sales" line item in our condensed consolidated statements of operations.

Recent Accounting Pronouncements

There have been no material changes to our significant accounting policies and estimates as described in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020, other than described in the Accounting Standards Adopted section below.

Accounting Standards Adopted

In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04, Intangibles-Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual periods beginning after December 15, 2019 and will require adoption on a prospective basis. We adopted ASU 2017-04 during the first quarter of fiscal 2021 and the adoption did not have an impact on our condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement and recognition of credit impairment for certain financial assets. ASU 2016-13 improves financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Under the new guidance, the ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, and will require adoption on a modified retrospective basis. We adopted ASU 2016-13 and its related guidance during the first quarter of fiscal 2021 and the adoption did not have a material impact on our condensed consolidated financial statements.

We estimate an allowance for doubtful accounts using a loss rate method. We measure all expected credit losses for financial assets held
at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.

A reconciliation of the beginning and ending allowance for doubtful accounts is as follows:
 
 
Allowance for Doubtful Accounts:
Balance as of May 2, 2020
 
$
2,828

Charged to costs and expenses
 
735

Deductions (1)
 
(241
)
Balance as of August 1, 2020
 
$
3,322

(1) Includes accounts determined to be uncollectible and charged against reserves.

Accounting Standards Not Yet Adopted

There are no significant ASU's issued not yet adopted as of August 1, 2020.

Note 2. Investments in Affiliates

Investments in affiliates over which we have significant influence are accounted for under the equity method of accounting, recording the investment at cost and then subsequently adjusting to account for our share of the affiliates profit or losses, in accordance with the provisions of Accounting Standards Codification ("ASC") 323, Investments – Equity Method and Joint Ventures. Investments in affiliates over which we do not have the ability to exert significant influence over the affiliate's operating and financing activities are accounted for under the cost method of accounting, recording the investment at cost and then subsequently adjusting for any changes in ownership or dividends, in accordance with the provisions of ASC 321, Investments – Equity Securities. We have evaluated our relationships with our affiliates and have determined that these entities are not variable interest entities. Cash paid for investments in affiliates and loans to affiliates are included in the "Purchases of and loans to equity investment" line item in our condensed consolidated statements of cash

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flows. Equity method investments as a whole are assessed for other-than-temporary impairments whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable.

The aggregate amount of investments accounted for under the equity method was $16,728 and $17,257 at August 1, 2020 and May 2, 2020, respectively. Our proportional share of the respective affiliates' earnings or losses is included in the "Other (expense) income, net" line item in our condensed consolidated statements of operations. For the three months ended August 1, 2020 and August 3, 2019, our share of the losses of our affiliates was $529 and $118, respectively.

Note 3. Earnings Per Share ("EPS")

We follow the provisions of ASC 260, Earnings Per Share, where basic EPS is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution which may occur if securities or other obligations to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock which share in our earnings.

The following is a reconciliation of the net income and common share amounts used in the calculation of basic and diluted EPS for the three months ended August 1, 2020 and August 3, 2019
 
 Net income
 
 Shares
 
 Per share income
For the three months ended August 1, 2020
 
 
 
 
 
Basic earnings per share
$
7,467

 
44,654

 
$
0.17

    Dilution associated with stock compensation plans

 
97

 

Diluted earnings per share
$
7,467

 
44,751

 
$
0.17

For the three months ended August 3, 2019
 
 
 
 
 
Basic earnings per share
$
7,030

 
45,089

 
$
0.16

    Dilution associated with stock compensation plans

 
172

 

Diluted earnings per share
$
7,030

 
45,261

 
$
0.16


 
Options outstanding to purchase 2,119 shares of common stock with a weighted average exercise price of $9.96 for the three months ended August 1, 2020 and 2,197 shares of common stock with a weighted average exercise price of $10.03 for the three months ended August 3, 2019 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

Note 4. Revenue Recognition

Disaggregation of revenue
In accordance with ASC 606-10-50, we disaggregate revenue from contracts with customers by the type of performance obligation and the timing of revenue recognition. We determine that disaggregating revenue in these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors and to enable users of financial statements to understand the relationship to each reportable segment.

The following table presents our disaggregation of revenue by segments:

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Three Months Ended August 1, 2020
 
Commercial
 
Live Events
 
High School Park and Recreation
 
Transportation
 
International
 
Total
Type of performance obligation
 
 
 
 
 
 
 
 
 
 
 
Unique configuration
$
8,727

 
$
41,975

 
$
7,668

 
$
7,724

 
$
4,012

 
$
70,106

Limited configuration
22,555

 
5,419

 
20,688

 
6,266

 
8,653

 
63,581

Service and other
3,224

 
4,080

 
587

 
508

 
1,558

 
9,957

 
$
34,506

 
$
51,474

 
$
28,943

 
$
14,498

 
$
14,223

 
$
143,644

Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
Goods/services transferred at a point in time
$
22,892

 
$
6,214

 
$
19,368

 
$
6,374

 
$
9,179

 
$
64,027

Goods/services transferred over time
11,614

 
45,260

 
9,575

 
8,124

 
5,044

 
79,617

 
$
34,506

 
$
51,474

 
$
28,943

 
$
14,498

 
$
14,223

 
$
143,644



 
Three Months Ended August 3, 2019
 
Commercial
 
Live Events
 
High School Park and Recreation
 
Transportation
 
International
 
Total
Type of performance obligation
 
 
 
 
 
 
 
 
 
 
 
Unique configuration
$
12,965

 
$
45,587

 
$
6,030

 
$
11,897

 
$
15,678

 
$
92,157

Limited configuration
27,235

 
7,713

 
23,800

 
6,587

 
9,930

 
75,265

Service and other
3,835

 
6,006

 
635

 
534

 
1,824

 
12,834

 
$
44,035

 
$
59,306

 
$
30,465

 
$
19,018

 
$
27,432

 
$
180,256

Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
Goods/services transferred at a point in time
$
27,703

 
$
9,120

 
$
22,599

 
$
6,697

 
$
10,188

 
$
76,307

Goods/services transferred over time
16,332

 
50,186

 
7,866

 
12,321

 
17,244

 
103,949

 
$
44,035

 
$
59,306

 
$
30,465

 
$
19,018

 
$
27,432

 
$
180,256



See "Note 5. Segment Reporting" for a disaggregation of revenue by geography.

Contract balances
Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed according to the contract terms. Contract liabilities represent amounts billed to the clients in excess of revenue recognized to date.

The following table reflects the changes in our contract assets and liabilities:
 
August 1, 2020
 
May 2, 2020
 
Dollar Change
 
Percent Change
Contract assets
$
33,261

 
$
35,467

 
$
(2,206
)
 
(6.2
)%
Contract liabilities - current
50,159

 
50,897

 
(738
)
 
(1.4
)
Contract liabilities - noncurrent
10,715

 
10,707

 
8

 
0.1



The changes in our contract assets and contract liabilities from May 2, 2020 to August 1, 2020 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the seasonality of the sports markets. We had no material impairments of contract assets for the three months ended August 1, 2020.


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For service-type warranty contracts, we allocate revenue to this performance obligation, recognize the revenue over time, and recognize costs as incurred. Earned and unearned revenues for these contracts are included in the "Contract assets" and "Contract liabilities" line items in our condensed consolidated balance sheets. Changes in unearned service-type warranty contracts, net were as follows:
 
 
August 1, 2020
Balance at beginning of period
 
$
24,490

New contracts sold
 
8,188

Less: reductions for revenue recognized
 
(9,115
)
Foreign currency translation and other
 
250

Balance at end of period
 
$
23,813



As of August 1, 2020 and May 2, 2020, our contracts in progress that were identified as loss contracts were immaterial. For these contracts, the provision for losses are included in the "Accrued expenses" line item in our condensed consolidated balance sheets.

During the three months ended August 1, 2020, we recognized revenue of $30,358 related to our contract liabilities as of May 2, 2020.

Remaining performance obligations
As of August 1, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations was $245,756. We expect approximately $204,878 of our remaining performance obligations to be recognized over the next 12 months, with the remainder recognized thereafter. Remaining performance obligations related to product and service agreements at August 1, 2020 are $191,717 and $54,039, respectively. Although remaining performance obligations reflect business that is considered to be legally binding, cancellations, deferrals or scope adjustments may occur. Any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals are reflected or excluded in the remaining performance obligation balance, as appropriate.

Note 5. Segment Reporting

We organize and manage our business by the following five segments which meet the definition of reportable segments under ASC 280-10, Segment Reporting: Commercial, Live Events, High School Park and Recreation, Transportation, and International. These segments are based on the customer type or geography and are the same as our business units. We evaluate segment performance based on operating results through contribution margin, which is comprised of gross profit less selling expense. We exclude general and administration expense, product design and development expense, non-operating income and expense, and income tax expense in the segment analysis. Separate financial information is available and regularly evaluated by our chief operating decision-maker (CODM), who is our president and chief executive officer, in making resource allocation decisions for our segments.  

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The following table sets forth certain financial information for each of our five reporting segments for the periods indicated:
 
Three Months Ended
 
August 1,
2020
 
August 3,
2019
Net sales:
 
 
 
    Commercial
$
34,506

 
$
44,035

    Live Events
51,474

 
59,306

    High School Park and Recreation
28,943

 
30,465

    Transportation
14,498

 
19,018

    International
14,223

 
27,432

 
143,644

 
180,256

 
 
 
 
Gross profit:
 
 
 
    Commercial
7,742

 
9,218

    Live Events
9,354

 
12,737

    High School Park and Recreation
10,476

 
10,187

    Transportation
5,143

 
6,754

    International
3,046

 
6,609

 
35,761

 
45,505

 
 
 
 
Contribution margin: (1)
 
 
 
    Commercial
4,441

 
4,084

    Live Events
7,138

 
8,872

    High School Park and Recreation
7,915

 
6,592

    Transportation
4,381

 
5,452

    International
330

 
2,208

 
24,205

 
27,208

 
 
 
 
Non-allocated operating expenses:
 
 
 
    General and administrative
7,124

 
9,093

    Product design and development
7,532

 
10,500

Operating income
9,549

 
7,615

 
 
 
 
Nonoperating income (expense):
 
 
 
    Interest income
85

 
269

    Interest expense
(73
)
 
(35
)
Other (expense) income, net
(627
)
 
193

 
 
 
 
Income before income taxes
8,934

 
8,042

Income tax expense
1,467

 
1,012

Net income
$
7,467

 
$
7,030

 
 
 
 
Depreciation and amortization:
 
 
 
    Commercial
$
772

 
$
974

    Live Events
1,451

 
1,398

    High School Park and Recreation
496

 
512

    Transportation
237

 
264

    International
693

 
524

    Unallocated corporate depreciation
688

 
711

 
$
4,337

 
$
4,383


(1) Contribution margin consists of gross profit less selling expense. 

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No single geographic area comprises a material amount of our net sales or property and equipment, net of accumulated depreciation, other than the United States.  The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere:
 
Three Months Ended
 
August 1,
2020
 
August 3,
2019
Net sales:
 
 
 
United States
$
128,069

 
$
149,460

Outside United States
15,575

 
30,796

 
$
143,644

 
$
180,256

 
 
 
 
 
 
 
 
 
August 1,
2020
 
May 2,
2020
Property and equipment, net of accumulated depreciation:
 
 
 
United States
$
56,822

 
$
58,422

Outside United States
9,237

 
9,062

 
$
66,059

 
$
67,484


 
We have numerous customers worldwide for sales of our products and services, and no customer accounted for 10% or more of net sales; therefore, we are not economically dependent on a limited number of customers for the sale of our products and services. 

We have numerous raw material and component suppliers, and no supplier accounts for 10% or more of our cost of sales; however, we have a number of single-source suppliers that could limit our supply or cause delays in obtaining raw material and components needed in manufacturing.

Note 6. Marketable Securities

We have a cash management program which provides for the investment of cash balances not used in current operations.  We classify our investments in marketable securities as available-for-sale in accordance with the provisions of ASC 320, Investments – Debt and Equity Securities.  Marketable securities classified as available-for-sale are reported at fair value with unrealized gains or losses, net of tax, reported in accumulated other comprehensive loss in the condensed consolidated balance sheets.  As it relates to fixed income marketable securities, it is not likely we will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of August 1, 2020, we anticipate we will recover the entire amortized cost basis of such fixed income securities, and we have determined no other-than-temporary impairments associated with credit losses were required to be recognized. The cost of securities sold is based on the specific identification method. Where quoted market prices are not available, we use the market price of similar types of securities traded in the market to estimate fair value.  

As of August 1, 2020 and May 2, 2020, our available-for-sale securities consisted of the following:
 
Amortized Cost
 
Unrealized Losses
 
Fair Value
Balance as of August 1, 2020
 
 
 
 
 
Certificates of deposit
$
1,230

 
$

 
$
1,230

 
$
1,230

 
$

 
$
1,230

Balance as of May 2, 2020
 

 
 

 
 

Certificates of deposit
$
1,230

 
$

 
$
1,230

 
$
1,230

 
$

 
$
1,230



Realized gains or losses on investments are recorded in our condensed consolidated statements of operations as "Other (expense) income, net." Upon the sale of a security classified as available-for-sale, the security’s specific unrealized gain (loss) is reclassified out of accumulated other comprehensive loss into earnings based on the specific identification method. In the three months ended August 1, 2020 and August 3, 2019, the reclassifications from accumulated other comprehensive loss to net earnings were immaterial.


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All available-for-sale securities are classified as current assets, as they are readily available to support our current operating needs. The contractual maturities of available-for-sale debt securities as of August 1, 2020 were as follows:
 
Less than 12 months
 
Total
Certificates of deposit
$
1,230

 
$
1,230

 
$
1,230

 
$
1,230



Note 7. Goodwill

The changes in the carrying amount of goodwill related to each reportable segment for the three months ended August 1, 2020 were as follows: 
 
Live Events
 
Commercial
 
Transportation
 
International
 
Total
Balance as of May 2, 2020
$
2,266

 
$
3,144

 
$
38

 
$
2,295

 
$
7,743

Foreign currency translation
13

 
91

 
13

 
188

 
305

Balance as of August 1, 2020
$
2,279

 
$
3,235

 
$
51

 
$
2,483

 
$
8,048


 
We perform an analysis of goodwill on an annual basis, and it is tested for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. Our annual analysis is performed during our third quarter of each fiscal year, based on the goodwill amount as of the first business day of our third fiscal quarter. We performed our annual impairment test on November 4, 2019 and concluded no goodwill impairment existed. We plan to complete our annual analysis as of the first business day of our third quarter of fiscal 2021, which will begin on November 2, 2020.

In March 2020, we began to see the impacts from the COVID-19 pandemic that could have a negative impact on our forecasted revenue and profitability and stock price declines. This, along with other market conditions, led us to perform an interim goodwill impairment analysis in the fourth quarter of fiscal 2020. After evaluating our results, events and circumstances, we determined no goodwill impairment was necessary. Although the COVID-19 pandemic continues to cause uncertainty, in the first quarter of fiscal 2021, we considered if any new events had occurred or if circumstances had changed such that it was more likely than not that the fair value of any of our reporting units was below its carrying amount, and we did not identify any further impairment indicators; therefore, we did not perform an additional interim impairment analysis.

Note 8. Selected Financial Statement Data

Inventories consisted of the following: 
 
August 1,
2020
 
May 2,
2020
Raw materials
$
33,076

 
$
35,306

Work-in-process
9,943

 
12,102

Finished goods
38,416

 
39,395

 
$
81,435

 
$
86,803



Property and equipment, net consisted of the following:
 
August 1,
2020
 
May 2,
2020
Land
$
2,183

 
$
2,183

Buildings
69,967

 
68,804

Machinery and equipment
105,188

 
104,157

Office furniture and equipment
6,174

 
6,151

Computer software and hardware
53,691

 
53,441

Equipment held for rental
287

 
287

Demonstration equipment
8,368

 
8,473

Transportation equipment
7,783

 
7,944

 
253,641

 
251,440

Less accumulated depreciation
187,582

 
183,956

 
$
66,059

 
$
67,484


 

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Note 9. Receivables

We invoice customers based on a billing schedule as established in our contracts.  We sometimes have the ability to file a contractor’s lien against the product installed as collateral and to file claims against surety bonds to protect our interest in receivables.  Foreign sales are at times secured by irrevocable letters of credit or bank guarantees. Accounts receivable are reported net of an allowance for doubtful accounts of $3,322 and $2,828 at August 1, 2020 and May 2, 2020, respectively. Included in accounts receivable as of August 1, 2020 and May 2, 2020 was $741 and $687, respectively, of retainage on construction-type contracts, all of which is expected to be collected within one year.

In some contracts with customers, we agree to installment payments exceeding 12 months.  The present value of these contracts is recorded as a receivable as the revenue is recognized in accordance with GAAP, and profit is recognized to the extent the present value is in excess of cost.  We generally retain a security interest in the equipment or in the cash flow generated by the equipment until the contract is paid.  The present value of long-term contracts, including accrued interest and current maturities, was $4,045 and $4,633 as of August 1, 2020 and May 2, 2020, respectively.  Contract receivables bearing annual interest rates of 5.0 to 9.0 percent are due in varying annual installments through 2024.  The face value of long-term receivables was $4,327 as of August 1, 2020 and $5,166 as of May 2, 2020.

We evaluated our receivable and contract assets as of August 1, 2020 and reserved for anticipated losses. Due to the uncertainty created by the COVID-19 pandemic, this loss may materially change from this estimate.

Note 10. Share Repurchase Program

On June 17, 2016, our Board of Directors approved a stock repurchase program under which we may purchase up to $40,000 of the Company's outstanding shares of common stock. Under this program, we may repurchase shares from time to time in open market transactions and in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The repurchase program does not require the repurchase of a specific number of shares and may be terminated at any time.

During the three months ended August 1, 2020, we had no repurchases of shares of our outstanding common stock. During the three months ended August 3, 2019, we repurchased 187 shares of common stock at a total cost of $1,187. As of August 1, 2020, we had $32,539 of remaining capacity under our current share repurchase program.

As part of our COVID-19 response, on April 1, 2020, our Board of Directors voted to suspend stock repurchases under our share repurchase program for the foreseeable future.

Note 11. Commitments and Contingencies

Litigation:  We are a party to legal proceedings and claims which arise during the ordinary course of business.

As of August 1, 2020 and May 2, 2020, $2,118 and $2,072, respectively, were included in the "Accrued expenses" line item in our condensed consolidated balance sheets for a probable and reasonably estimated cost to settle a patent litigation claim.
  
For other unresolved legal proceedings or claims, we do not believe there is a reasonable probability that any material loss would be incurred. Accordingly, no material accrual or disclosure of a potential range of loss has been made related to these matters. We do not expect the ultimate liability of these unresolved legal proceedings or claims to have a material effect on our financial position, liquidity or capital resources.

Warranties:  Changes in our warranty obligation for the three months ended August 1, 2020 consisted of the following:
 
 
August 1, 2020
Beginning accrued warranty obligations
 
$
25,624

      Warranties issued during the period
 
2,800

      Settlements made during the period
 
(1,056
)
      Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations
 
(308
)
Ending accrued warranty obligations
 
$
27,060


 
Performance guarantees:  We have entered into standby letters of credit and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily construction-type contracts.  As of August 1, 2020, we had outstanding letters of credit and surety bonds in the amount of $14,788 and $35,079, respectively.  Performance guarantees are issued to certain customers

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to guarantee the operation and installation of the equipment and our ability to complete a contract.  These performance guarantees have various terms but are generally one year. We enter into written agreements with our customers, and those agreements often contain indemnification provisions that require us to make the customer whole if certain acts or omissions by us cause the customer financial loss.  We make efforts to negotiate reasonable caps and limitations on the recovery of such damages. As of August 1, 2020, we were not aware of any indemnification claim from a customer.

Purchase commitments:  From time to time, we commit to purchase inventory, advertising, cloud-based information systems, information technology maintenance and support services, and various other products and services over periods that extend beyond one year.  As of August 1, 2020, we were obligated under the following unconditional purchase commitments:
Fiscal years ending
 
Amount
2021
 
$
2,831

2022
 
2,750

2023
 
1,755

2024
 
148

2025
 
113

Thereafter
 
40

 
 
$
7,637



Note 12. Income Taxes

We calculate the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Due to various factors and operating in multiple state and foreign jurisdictions, our effective tax rate is subject to fluctuation.

Our effective tax rate for the three months ended August 1, 2020 was 16.4 percent as compared to 12.6 percent for the three months ended August 3, 2019. The quarterly effective tax rate was primarily driven by the benefit of estimated tax credits proportionate to estimated pre-tax earnings similar to the previous period.

We are subject to U.S. federal income tax as well as income taxes of multiple state and foreign jurisdictions. Fiscal years 2017, 2018, 2019 and 2020 remain open to federal tax examinations, and fiscal years 2016, 2017, 2018, 2019 and 2020 remain open for various state income tax examinations.  Certain subsidiaries are also subject to income tax in several foreign jurisdictions which have open tax years varying by jurisdiction beginning in fiscal 2009. In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense in our condensed consolidated statement of operations.

As of August 1, 2020, undistributed earnings of our foreign subsidiaries are considered to be reinvested indefinitely. Additionally, we had $723 of unrecognized tax benefits which would reduce our effective tax rate if recognized.


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Note 13. Fair Value Measurement

The following table sets forth by Level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis at August 1, 2020 and May 2, 2020 according to the valuation techniques we used to determine their fair values. There have been no transfers of assets or liabilities among the fair value hierarchies presented.
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
Balance as of August 1, 2020
 
 
 
 
 
 
 
Cash and cash equivalents
$
44,609

 
$

 
$

 
$
44,609

Restricted cash
96

 

 

 
96

Available-for-sale securities:
 

 
 

 
 
 
 
Certificates of deposit

 
1,230

 

 
1,230

Derivatives - asset position

 
36

 

 
36

Derivatives - liability position

 
(242
)
 

 
(242
)
Acquisition-related contingent consideration

 

 
(401
)
 
(401
)
 
$
44,705

 
$
1,024

 
$
(401
)
 
$
45,328

Balance as of May 2, 2020
 

 
 

 
 
 
 

Cash and cash equivalents
$