Document

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

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 26, 2019
 
or
o 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)
 
(Zip Code)

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

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, 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 o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
 
Emerging growth company o
 
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 February 18, 2019 was 45,012,524.



DAKTRONICS, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended January 26, 2019

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)

 
 
January 26,
2019
 
April 28,
2018
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
33,281

 
$
29,727

Restricted cash
 
26

 
28

Marketable securities
 
37,596

 
34,522

Accounts receivable, net
 
77,743

 
77,387

Inventories
 
72,187

 
75,335

Contract assets
 
26,542

 
30,968

Current maturities of long-term receivables
 
1,998

 
1,752

Prepaid expenses and other current assets
 
7,566

 
9,029

Income tax receivables
 
5,772

 
5,385

Property and equipment and other assets available for sale
 
1,893

 
—

Total current assets
 
264,604

 
264,133

 
 
 
 
 
Property and equipment, net
 
65,765

 
68,059

Long-term receivables, less current maturities
 
1,247

 
1,641

Goodwill
 
7,968

 
8,264

Intangibles, net
 
5,429

 
3,682

Investment in affiliates and other assets
 
5,422

 
5,091

Deferred income taxes
 
8,317

 
7,930

Total non-current assets
 
94,148

 
94,667

TOTAL ASSETS
 
$
358,752

 
$
358,800

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 

Accounts payable
 
$
35,117

 
$
48,845

Contract liabilities
 
48,745

 
39,379

Accrued expenses
 
30,784

 
27,445

Warranty obligations
 
11,283

 
13,891

Current portion of other long-term obligations
 
1,199

 
1,088

Income taxes payable
 
1,894

 
660

Total current liabilities
 
129,022

 
131,308

 
 
 
 
 
Long-term warranty obligations
 
15,370

 
16,062

Long-term contract liabilities
 
9,814

 
7,475

Other long-term obligations, less current portion
 
1,955

 
2,285

Long-term income taxes payable
 
843

 
3,440

Deferred income taxes
 
597

 
614

Total long-term liabilities
 
28,579

 
29,876

 
 
 
 
 

1
Table of contents


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

 
 
January 26,
2019
 
April 28,
2018
SHAREHOLDERS' EQUITY:
 
 

 
 

Common Stock, no par value, authorized 115,000,000 shares; 45,317,267 and 44,779,534 shares issued and outstanding at January 26, 2019 and April 28, 2018, respectively
 
57,699

 
54,731

Additional paid-in capital
 
41,949

 
40,328

Retained earnings
 
107,563

 
107,105

Treasury Stock, at cost, 303,957 shares at January 26, 2019 and April 28, 2018, respectively
 
(1,834
)
 
(1,834
)
Accumulated other comprehensive loss
 
(4,226
)
 
(2,714
)
TOTAL SHAREHOLDERS' EQUITY
 
201,151

 
197,616

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
358,752

 
$
358,800

 
 
 
 
 
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
 
Nine Months Ended
 
January 26,
2019
 
January 27,
2018
 
January 26,
2019
 
January 27,
2018
Net sales
$
115,069

 
$
130,316

 
$
441,949

 
$
472,353

Cost of sales
90,200

 
101,749

 
336,076

 
356,536

Gross profit
24,869

 
28,567

 
105,873

 
115,817

 
 
 
 
 
 
 
 
Operating expenses:
 

 
 

 
 

 
 

Selling
15,537

 
15,271

 
48,040

 
45,560

General and administrative
8,574

 
8,335

 
25,685

 
26,138

Product design and development
8,280

 
8,299

 
26,611

 
26,294

 
32,391

 
31,905

 
100,336

 
97,992

Operating (loss) income
(7,522
)
 
(3,338
)
 
5,537

 
17,825

 
 
 
 
 
 
 
 
Nonoperating income (expense):
 

 
 

 
 

 
 

Interest income
328

 
158

 
713

 
520

Interest expense
(45
)
 
(40
)
 
(86
)
 
(173
)
Other (expense) income, net
(203
)
 
(487
)
 
(423
)
 
(429
)
 
 
 
 
 
 
 
 
(Loss) income before income taxes
(7,442
)
 
(3,707
)
 
5,741

 
17,743

Income tax (benefit) expense
(4,123
)
 
2,482

 
(4,120
)
 
8,371

Net (loss) income
$
(3,319
)
 
$
(6,189
)
 
$
9,861

 
$
9,372

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 

 
 

 
 

 
 

Basic
45,018

 
44,518

 
44,834

 
44,403

Diluted
45,018

 
44,518

 
45,139

 
44,798

 
 
 
 
 
 
 
 
(Loss) earnings per share:
 

 
 

 
 

 
 

Basic
$
(0.07
)
 
$
(0.14
)
 
$
0.22

 
$
0.21

Diluted
$
(0.07
)
 
$
(0.14
)
 
$
0.22

 
$
0.21

 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.
 
 
 

 
 

 
 


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Table of contents


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

 
 
Three Months Ended
 
Nine Months Ended
 
 
January 26, 2019
 
January 27,
2018
 
January 26,
2019
 
January 27,
2018
 
 
 
 
 
 
 
 
 
Net (loss) income
 
$
(3,319
)
 
$
(6,189
)
 
$
9,861

 
$
9,372

 
 
 
 
 
 
 
 
 
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Cumulative translation adjustments
 
134

 
1,228

 
(1,560
)
 
2,289

Unrealized gain (loss) on available-for-sale securities, net of tax
 
55

 
(50
)
 
48

 
(83
)
Total other comprehensive (loss) income, net of tax
 
189

 
1,178

 
(1,512
)
 
2,206

Comprehensive (loss) income
 
$
(3,130
)
 
$
(5,011
)
 
$
8,349

 
$
11,578

 
 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.
 
 
 
 
 
 
 
 


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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 April 28, 2018
$
54,731

 
$
40,328

 
$
107,105

 
$
(1,834
)
 
$
(2,714
)
 
$
197,616

Net income
—

 
—

 
4,574

 
—

 
—

 
4,574

Cumulative translation adjustments
—

 
—

 
—

 
—

 
(1,139
)
 
(1,139
)
Unrealized (loss) gain on available-for-sale securities, net of tax
—

 
—

 
—

 
—

 
(13
)
 
(13
)
Share-based compensation
—

 
651

 
—

 
—

 
—

 
651

Exercise of stock options
57

 
—

 
—

 
—

 
—

 
57

Employee savings plan activity
820

 
—

 
—

 
—

 
—

 
820

Dividends declared ($0.07 per share)
—

 
—

 
(3,121
)
 
—

 
—

 
(3,121
)
Balance as of July 28, 2018
55,608

 
40,979

 
108,558

 
(1,834
)
 
(3,866
)
 
199,445

Net income
—

 
—

 
8,606

 
—

 
—

 
8,606

Cumulative translation adjustments
—

 
—

 
—

 
—

 
(555
)
 
(555
)
Unrealized (loss) gain on available-for-sale securities, net of tax
—

 
—

 
—

 
—

 
6

 
6

Share-based compensation
—

 
612

 
—

 
—

 
—

 
612

Tax payments related to RSU issuances
—

 
(246
)
 
—

 
—

 
—

 
(246
)
Dividends declared ($0.07 per share)
—

 
—

 
(3,131
)
 
—

 
—

 
(3,131
)
Balance as of October 27, 2018
55,608

 
41,345

 
114,033

 
(1,834
)
 
(4,415
)
 
204,737

Net loss
—

 
—

 
(3,319
)
 
—

 
—

 
(3,319
)
Cumulative translation adjustments
—

 
—

 
—

 
—

 
134

 
134

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

 
—

 
—

 
—

 
55

 
55

Share-based compensation
—

 
604

 
—

 
—

 
—

 
604

Exercise of stock options
1,261

 
—

 
—

 
—

 
—

 
1,261

Employee savings plan activity
830

 
—

 
—

 
—

 
—

 
830

Dividends declared ($0.07 per share)
—

 
—

 
(3,151
)
 
—

 
—

 
(3,151
)
Balance as of January 26, 2019
$
57,699

 
$
41,949

 
$
107,563

 
$
(1,834
)
 
$
(4,226
)
 
$
201,151

 
 
 
 
 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.



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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 29, 2017
$
52,530

 
$
38,004

 
$
113,967

 
$
(1,834
)
 
$
(4,381
)
 
$
198,286

Net income
—

 
—

 
8,429

 
—

 
—

 
8,429

Cumulative translation adjustments
—

 
—

 
—

 
—

 
1,081

 
1,081

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

 
—

 
—

 
—

 
(7
)
 
(7
)
Share-based compensation
—

 
673

 
—

 
—

 
—

 
673

Exercise of stock options
211

 
—

 
—

 
—

 
—

 
211

Employee savings plan activity
820

 
—

 
—

 
—

 
—

 
820

Dividends declared ($0.07 per share)
—

 
—

 
(3,094
)
 
—

 
—

 
(3,094
)
Balance as of July 29, 2017
53,561

 
38,677

 
119,302

 
(1,834
)
 
(3,307
)
 
206,399

Net income
—

 
—

 
7,132

 
—

 
—

 
7,132

Cumulative translation adjustments
—

 
—

 
—

 
—

 
(20
)
 
(20
)
Unrealized (loss) gain on available-for-sale securities, net of tax
—

 
—

 
—

 
—

 
(26
)
 
(26
)
Share-based compensation
—

 
668

 
—

 
—

 
—

 
668

Exercise of stock options
301

 
—

 
—

 
—

 
—

 
301

Tax payments related to RSU issuances
—

 
(311
)
 
—

 
—

 
—

 
(311
)
Dividends declared ($0.07 per share)
—

 
—

 
(3,104
)
 
—

 
—

 
(3,104
)
Balance as of October 28, 2017
53,862

 
39,034

 
123,330

 
(1,834
)
 
(3,353
)
 
211,039

Net loss
—

 
—

 
(6,189
)
 
—

 
—

 
(6,189
)
Cumulative translation adjustments
—

 
—

 
—

 
—

 
1,228

 
1,228

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

 
—

 
—

 
—

 
(50
)
 
(50
)
Share-based compensation
—

 
637

 
—

 
—

 
—

 
637

Exercise of stock options
2

 
—

 
—

 
—

 
—

 
2

Employee savings plan activity
861

 
—

 
—

 
—

 
—

 
861

Dividends declared ($0.07 per share)
—

 
—

 
(3,113
)
 
—

 
—

 
(3,113
)
Balance as of January 27, 2018
$
54,725

 
$
39,671

 
$
114,028

 
$
(1,834
)
 
$
(2,175
)
 
$
204,415

 
 
 
 
 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.



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Table of contents


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

 
Nine Months Ended
 
January 26,
2019
 
January 27,
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
9,861

 
$
9,372

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
14,054

 
13,335

Gain on sale of property, equipment and other assets
(130
)
 
(1,211
)
Share-based compensation
1,867

 
1,978

Contingent consideration adjustment
(956
)
 
—

Equity in loss of affiliate
392

 
401

Provision for doubtful accounts
180

 
(55
)
Deferred income taxes, net
(445
)
 
3,429

Change in operating assets and liabilities
7,364

 
(296
)
Net cash provided by operating activities
32,187

 
26,953

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchases of property and equipment
(14,081
)
 
(10,865
)
Proceeds from sales of property, equipment and other assets
255

 
2,107

Purchases of marketable securities
(25,337
)
 
(5,211
)
Proceeds from sales or maturities of marketable securities
22,341

 
13,751

Purchases of equity investment
(854
)
 
(1,027
)
Acquisitions, net of cash acquired
(2,250
)
 
—

Net cash used in investing activities
(19,926
)
 
(1,245
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Proceeds from exercise of stock options
1,318

 
514

Principal payments on long-term obligations
(440
)
 
(1,036
)
Dividends paid
(9,403
)
 
(9,311
)
Tax payments related to RSU issuances
(246
)
 
(311
)
Net cash used in financing activities
(8,771
)
 
(10,144
)
 
 
 
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
62

 
667

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
3,552

 
16,231

 
 
 
 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
 

 
 

Beginning of period
29,755

 
32,839

End of period
$
33,307

 
$
49,070

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash payments for:
 

 
 

Interest
$
114

 
$
161

Income taxes, net of refunds
(1,868
)
 
7,449

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 

 
 

Demonstration equipment transferred to inventory
$
97

 
$
72

Purchase of property and equipment included in accounts payable
454

 
1,163

Contributions of common stock under the ESPP
1,650

 
1,681

 
 
 
 
See notes to condensed consolidated financial statements.
 

 
 


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Table of contents


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

Note 1. Basis of Presentation

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

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

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.  The balance sheet at April 28, 2018, has been derived from the audited financial statements at that date, but it does not include all the information and footnotes required by GAAP for complete financial statements.  These financial statements should be read in conjunction with our financial statements and notes thereto for the year ended April 28, 2018, 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.

Certain prior year amounts in the condensed consolidated balance sheet have been reclassified to conform to the current year's presentation due to the adoption of Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). Billings in excess of costs and estimated earnings, customer deposits, and deferred revenue are combined to present contract liabilities. Costs and estimated earnings in excess of billings now represent contract assets. These reclassifications had no effect on reported net income, comprehensive income, cash flows, total assets or total liabilities.

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 nine months ended January 26, 2019 and January 27, 2018, contained operating results for 39 weeks.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheet that sum to the total of the same amounts shown in the condensed consolidated statement of cash flows:
 
January 26,
2019
 
January 27,
2018
Cash and cash equivalents
$
33,281

 
$
49,042

Restricted cash
26

 
28

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows
$
33,307

 
$
49,070


Recent Accounting Pronouncements

New Accounting Standards Adopted

In October 2016, the Financial Accounting Standards Board ("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 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 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. We adopted ASU 2016-16 during the first quarter of fiscal 2019. The adoption of ASU 2016-16 did not have an impact on our condensed consolidated financial statements.


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In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Subsequently, the FASB also issued ASUs 2016-08, 2016-10, 2016-12, and 2016-20 to give further guidance to revenue recognition matters. ASU 2014-09 and related guidance supersedes revenue recognition requirements under FASB Accounting Standards Codification ("ASC") Topic 605 and related industry specific revenue recognition guidance. This new standard defines a comprehensive revenue recognition model, requiring 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. It defines a five-step process to achieve this core principle that allows companies to use more judgment and make more estimates than under current guidance. In addition, it requires additional disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts and provides guidance on transition requirements.

We adopted ASU 2014-09 and its related guidance under the modified retrospective method during the first quarter of fiscal 2019 by applying the guidance to all open contracts at the adoption date. We completed an evaluation of our revenue arrangements under the new standard and determined that the adoption did not materially change the timing or amount of revenue recognized, primarily based upon our assessment of "point in time" and "over time" revenue recognition. No adjustment to beginning retained earnings was recorded and we have made additional disclosures related to revenue from contracts with customers as required by the new standard upon adoption. See "Note 4. Revenue Recognition" for more information.

New Accounting Standards Not Yet Adopted

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate under the U.S. Tax Cuts and Jobs Act (the "Tax Act"). ASU 2018-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted that can be made on a prospective or retrospective basis. We are currently evaluating the effect that adopting ASU 2018-02 will have on our condensed consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual periods beginning after December 15, 2019 and will require adoption on a prospective basis. We are currently evaluating the effect that adopting ASU 2017-04 will have on our condensed consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement and recognition of credit impairment for certain financial assets. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, and will require adoption on a modified retrospective basis. We are currently evaluating the effect that adopting ASU 2016-13 will have on our condensed consolidated financial statements and related disclosures.

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 greater than 12 months regardless of their classification. ASU 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 (Leases) and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which provide (i) narrow amendments to clarify how to apply certain aspects of the new lease standard, (ii) entities with an additional transition method to adopt the new standard, and (iii) lessors with a practical expedient for separating components of a contract. All ASUs are effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and will require adoption on a modified retrospective basis.

We plan to adopt this new standard in the first quarter of fiscal 2020.  We are still reviewing the new standard and recent updates published by FASB.  Our preliminary assumptions suggest we will likely adopt certain practical expedients, including the lookback option, and not change historical conclusions related to (1) contracts that contain leases, (2) existing lease classification, and (3) initial direct costs.  Based on our current estimates, we expect to recognize right of use assets and lessee lease liabilities of approximately $5,600 with respect to operating leases. We are continuing to evaluate the effect that adopting these ASUs will have on our condensed consolidated financial statements and related disclosures, but at this time do not think the adoption will have a material impact on our financial statements.


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Note 2. Investments in Affiliates

Investments in affiliates over which we have significant influence are accounted for under the equity method of accounting in accordance with the provisions of ASC 323, Investments – Equity Method and Joint Ventures. Investments in affiliates over which we do not have the ability to exert significant influence over the affiliate's operating and financing activities are accounted for under the provisions of ASC 321, Investments – Equity Securities. We have evaluated our relationships with our affiliates and have determined that these entities are not variable interest entities.

The aggregate amount of investments accounted for under the equity method was $4,108 and $3,647 at January 26, 2019 and April 28, 2018, respectively. The equity method requires us to report our share of losses up to our equity investment amount. Cash paid for investments in affiliates is included in the "Purchases of equity investment" line item in our condensed consolidated statements of cash flows. Our proportional share of the respective affiliates' earnings or losses is included in the "Other (expense) income, net" line item in our condensed consolidated statements of operations. For the nine months ended January 26, 2019 and January 27, 2018, our share of the losses of our affiliates was $392 and $401, respectively.

The aggregate amount of investments without readily determinable fair values was $42 at January 26, 2019 and April 28, 2018, respectively. There have not been any identified events or changes in circumstances that may have a significant adverse effect on their fair value, and it is not practical to estimate their fair value. We record equity investments without readily determinable fair values at cost, less any impairment, adjusted for observable price changes. During the nine months ended January 26, 2019, we did not record any changes in the measurement of such investments.

Note 3. 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 26, 2019 and January 27, 2018: 
 
 Net (loss) income
 
 Shares
 
 Per share (loss) income
For the three months ended January 26, 2019
 
 
 
 
 
Basic (loss) earnings per share
$
(3,319
)
 
45,018

 
$
(0.07
)
    Dilution associated with stock compensation plans
—

 
—

 
—

Diluted (loss) earnings per share
$
(3,319
)
 
45,018

 
$
(0.07
)
For the three months ended January 27, 2018
 
 
 
 
 
Basic (loss) earnings per share
$
(6,189
)
 
44,518

 
$
(0.14
)
    Dilution associated with stock compensation plans
—

 
—

 
—

Diluted (loss) earnings per share
$
(6,189
)
 
44,518

 
$
(0.14
)
For the nine months ended January 26, 2019
 
 
 
 
 
Basic earnings per share
$
9,861

 
44,834

 
$
0.22

    Dilution associated with stock compensation plans
—

 
305

 
—

Diluted earnings per share
$
9,861

 
45,139

 
$
0.22

For the nine months ended January 27, 2018
 
 
 
 
 
Basic earnings per share
$
9,372

 
44,403

 
$
0.21

    Dilution associated with stock compensation plans
—

 
395

 
—

Diluted earnings per share
$
9,372

 
44,798

 
$
0.21

 
Options outstanding to purchase 2,308 shares of common stock with a weighted average exercise price of $9.98 for the three months ended January 26, 2019 and 1,203 shares of common stock with a weighted average exercise price of $11.45 for the three months ended January 27, 2018 were not included in the computation of diluted (loss) earnings per share because the effects would be anti-dilutive.

Options outstanding to purchase 2,328 shares of common stock with a weighted average exercise price of $9.98 for the nine months ended January 26, 2019 and 1,281 shares of common stock with a weighted average exercise price of $12.55 for the nine months ended January 27, 2018 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

Note 4. Revenue Recognition

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Our accounting policies and estimates as a result of adopting ASU 2014-09, Revenue from Contracts with Customers (Topic 606), are as follows:

Contracts are identified and follow the revenue recognition policies when: we have evidence all parties to the contract have approved the contract and are committed to perform their respective obligations, we can identify each party’s rights regarding the goods or services to be transferred, we can identify the payment terms for the goods or services to be transferred, the contract has commercial substance, and it is probable we will collect substantially all of the consideration to which we would be entitled in exchange for the goods or services.

Precontract costs are generally expensed as incurred, unless they are directly associated with an anticipated contract and recoverability from that contract is probable. Precontract costs directly associated with anticipated contracts expected to be recoverable include $478 and $217 as of January 26, 2019 and April 28, 2018, respectively. These are included in the "Inventories" line item in our condensed consolidated balance sheet.

At contract inception, we identify performance obligations by reviewing the agreement for material distinct goods and services. Goods and services are distinct when the customer can benefit from them on their own and our promises to transfer these items are identifiable from other promises within the contract. When we are contracted to provide a single promise (an integrated system), we often treat it as a single performance obligation as we are providing goods and services with the same pattern of transfer, that are highly integrated or interdependent, that are modified or customized by other goods or services promised, or that provide a combined outcome for which the customer has contracted. When less interdependency or integration is necessary, or the customer can benefit from distinct items, we separate the contract into multiple performance obligations. We account for those warranties that extend beyond typical terms and include other services ("service-type warranty") as a separate performance obligation.

Our contracts can contain multiple components of transaction price. We evaluate each contract for these components and include fixed consideration, variable consideration, financing components, and non-cash consideration and exclude consideration payable to a customer and sales taxes in the transaction price. When we are responsible for site installations which includes subcontracted work, we maintain the responsibility and risks and consider ourselves the principal and include the consideration for these services in the transaction price. When our contract contains variable consideration, including return rights, discounts, claims, unpriced change orders, and liquidated damages, we estimate the transaction price using the expected value (i.e., the sum of the probability-weighted amount) or the most likely amount method, whichever is expected to better predict revenue for that contract situation. We also constrain the revenue to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We consider the following factors in determining revenue associated with variable consideration: (a) the contract or other evidence providing legal basis, (b) additional costs caused by unforeseen circumstances, (c) evidence supporting the claim, and (d) historical evidence and patterns of customers. We adjust the contract price for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer goods and services to a customer will exceed one year from the time the customer pays and represents financing. If the payment structures exceed a year but are structured to account for risks with a contract or correspond to payments on milestones or are scheduled for performance, we do not adjust the contract price for a financing component. See "Note 11. Receivables" for amounts recorded in long-term receivables.

When separate performance obligations are identified, we allocate the transaction price to the individual performance obligation based on the best evidence and method we judge as faithfully depicting the value of the performance obligation. We allocate revenue to each performance obligation on the relative standalone selling price basis, when the standalone selling price is available. Many of our contracts are bundled and we do not have separate selling prices for each performance obligation, therefore, we primarily use the cost plus a margin approach to allocate the relative transaction price to identified performance obligations as it is the best representative of our pricing methods.

Revenue is recognized when we satisfy a performance obligation. We receive payments from customers based on a billing schedule as established in our contracts. Billing schedules include down payments and progress billings over time, set milestone payments specific to the project, are scheduled for performance-based payments, or are set time-based payment(s). Variability in contract assets and contract liabilities relates to the timing of billings and revenue recognition, which can vary significantly depending on contractual payment terms and build and installation schedules and the related timing differences in transfer of control. Balances are also impacted by the seasonality in our business.

Significant judgments and estimates are used in our revenue policies. Throughout the revenue cycle, we evaluate contractual evidence, monitor our performance, evaluate variable consideration changes, update estimated costs to complete cost-to-cost projects, and obtain evidence of deliveries or other control change evidence for appropriate and consistent revenue recognition. We maintain internal policies and procedures to provide guidance for those involved in recording revenue. We monitor for changes in our business sales practices and customer interactions to capture the appropriate types of performance obligations and adjust for any change in control terms and conditions.

Our material performance obligation types include:

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Unique configuration contracts: audio-visual communication systems uniquely configured (custom) or integrated for a customer's particular location and system configuration may include all or a combination of the following: engineering services, project management services, video display(s), control solution(s), installation and integration services, scoring and messaging equipment, training, other on-site services, spare parts, software licenses, and assurance-type warranties.

We account for these types of contracts as a combined single performance obligation with no segmentation between types of products and services. In our judgment, this accounting treatment is most appropriate because the substantial part of our promise to customers is to provide significant integration services and incorporates individual goods and services into a combined output or system. Often times, the system is customized or significantly modified to the customers' desired configurations and location, and the interrelated goods and services provide utility to the customers as a package.

Revenue for uniquely configured (custom) or integrated systems is recognized over time using the cost incurred input method. Over time revenue recognition is appropriate because we have no alternative use for the uniquely configured system and have an enforceable right to payment for work performed. The cost incurred input method measures cost incurred to date compared to estimated total costs for each contract. This method is the most faithful depiction of our performance because it measures the value of the contract transferred to the customer. Costs to perform include direct and indirect costs for contract design, production, integration, installation, and assurance-type warranty reserve. Direct costs include material and components; manufacturing, project management and engineering labor; and subcontracting expenses. Indirect costs include allocated charges for such items as facilities and equipment depreciation and general overhead. Provisions of estimated losses on uncompleted contracts are made in the period when such losses are capable of being estimated.

Contract modifications to existing contracts with customers are evaluated in accordance with the five-step revenue model. We treat contract modifications as a separate contract and new performance obligations when the additional goods or services are distinct and do not add to the unique configuration or are outside the integrated system and when the consideration reflects standalone selling prices. If the additional goods or services offered under the modification enhance the uniquely configured or integrated systems, revenue is allocated to the existing contracts' performance obligation. Modifications may cause changes in the timing of revenue recognition depending on the allocation to various performance obligations.

The time between contract order and project completion is typically less than 12 months but may extend longer depending on the amount of custom work and customers’ delivery needs.

Limited configuration (standard systems) and after-sale parts contracts: Limited configured (standard systems) or after-sale parts contracts with limited or no configuration or limited integration are recognized as distinct individual performance obligations when material. When not distinct, we combine into one performance obligation the goods and/or services with each other until the bundle of goods or services are distinct. For standard display purchases made in large quantities, we account for each piece of equipment separately as a distinct performance obligation from which a customer derives benefit. Immaterial goods or services in the context of the contract are included with the display system performance obligation. Standard systems and equipment with limited configurations or integrations may include all or a combination (when immaterial) of the following performance obligations: engineering services, project management services, video display(s), control solution(s), installation and integration services, scoring, messaging and audio equipment, training, spare parts, software licenses, assurance-type warranties, and after-sale parts.

Revenue is recognized at a point in time when title or control passes, or over time as services are performed. When fulfilling limited configuration performance obligations, we are typically able to redirect the video displays or scoring, messaging, or audio equipment to another customer without incurring significant economic losses. Therefore, we have alternative use for the performance obligation and recognize revenue upon our substantial completion and at the point in time we estimate control has transferred to the customer. When limited configured single performance obligations are more service-type (i.e., installation and integration services), we recognize revenue over time using the cost-to-cost input method, which is the most faithful depiction of the customer obtaining control and benefits from the work performed.

Services and other: Services sold on a stand-alone basis or after the initial system sale include performance obligations such as event support, control room design, on-site training, equipment service, service-type warranties, technical support, software sold as a service, and other immaterial revenue streams. These are contracted with a customer generally per service event or service type on a stand-alone basis. Services and other are recognized as net sales when the services are performed, and control is transferred to the customer at a point in time when title or control passes or over time as services are performed and for time-based "stand ready to perform" type obligations. We use professional judgment to determine control transfer. If we have the right to consideration from a customer that directly corresponds with the value of our performance (where we bill a fixed amount for each hour of service provided), we recognize revenue related to the work completed.


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Software
Revenues from software license fees on sales, other than uniquely configured type contracts, are recognized when delivery of the product has occurred. Subscription-based licenses include the right for a customer to use our licenses and receive related support for a specified term, and revenue is recognized pro-rata over the term of the engagement.

Shipping and handling costs
Shipping and handling costs collected from our customers in connection with our sales are recorded as revenue. We record shipping and handling costs as a component of cost of sales at the time the product is shipped.

Warranty
Our warranty offerings are described in "Note 12. Commitments and Contingencies."

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. As noted in the segment information footnote, we are organized in five business segments: Commercial, Live Events, High School Park and Recreation, Transportation, and International.

The following table presents our disaggregation of revenue by segments:

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Three Months Ended January 26, 2019
 
Commercial
 
Live Events
 
High School Park and Recreation
 
Transportation
 
International
 
Total
Type of performance obligation
 
 
 
 
 
 
 
 
 
 
 
Unique configuration
$
5,942

 
$
18,491

 
$
3,053

 
$
10,095

 
$
6,798

 
$
44,379

Limited configuration
27,353

 
5,958

 
11,036

 
4,692

 
8,649

 
57,688

Service and other
3,864

 
5,546

 
709

 
603

 
2,280

 
13,002

 
$
37,159

 
$
29,995

 
$
14,798

 
$
15,390

 
$
17,727

 
$
115,069

Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
Goods/services transferred at a point in time
$
28,105

 
$
7,436

 
$
9,874

 
$
4,911

 
$
9,702

 
$
60,028

Goods/services transferred over time
9,054

 
22,559

 
4,924

 
10,479

 
8,025

 
55,041

 
$
37,159

 
$
29,995

 
$
14,798

 
$
15,390

 
$
17,727

 
$
115,069

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended January 26, 2019
 
Commercial
 
Live Events
 
High School Park and Recreation
 
Transportation
 
International
 
Total
Type of performance obligation
 
 
 
 
 
 
 
 
 
 
 
Unique configuration
$
20,417

 
$
95,695

 
$
18,667

 
$
30,140

 
$
33,790

 
$
198,709

Limited configuration
82,605

 
23,243

 
53,964

 
18,970

 
29,278

 
208,060

Service and other
10,775

 
15,628

 
1,867

 
1,514

 
5,396

 
35,180

 
$
113,797

 
$
134,566

 
$
74,498

 
$
50,624

 
$
68,464

 
$
441,949

Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
Goods/services transferred at a point in time
$
84,584

 
$
26,796

 
$
48,932

 
$
19,410

 
$
31,364

 
$
211,086

Goods/services transferred over time
29,213

 
107,770

 
25,566

 
31,214

 
37,100

 
230,863

 
$
113,797

 
$
134,566

 
$
74,498

 
$
50,624

 
$
68,464

 
$
441,949

 
 
 
 
 
 
 
 
 
 
 
 

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

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

The following table reflects the changes in our contract assets and liabilities:
 
January 26, 2019
 
April 28, 2018
 
Dollar Change
 
Percent Change
Contract assets
$
26,542

 
$
30,968

 
$
(4,426
)
 
(14.3
)%
Contract liabilities - current
48,745

 
39,379

 
9,366

 
23.8

Contract liabilities - noncurrent
9,814

 
7,475

 
2,339

 
31.3


The changes in our contract assets and contract liabilities from April 28, 2018 to January 26, 2019 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the seasonality of the sports markets. We had no material impairments of contract assets for the year.

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As of January 26, 2019 and April 28, 2018, we had three contracts in progress that were identified as loss contracts and a provision for losses of $1,465 and $87, respectively. These were included in the "Accrued expenses" line item in our condensed consolidated balance sheets.

During the nine months ended January 26, 2019, we recognized revenue of $34,268 related to our contract liabilities as of April 28, 2018.

Remaining performance obligations
As of January 26, 2019, the aggregate amount of the transaction price allocated to the remaining performance obligations was $222,155. We expect approximately $185,993 of our remaining performance obligations to be recognized over the next 12 months with the remainder recognized thereafter. Remaining performance obligations related to product and service agreements are $167,890 and $54,265, 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 have organized and manage our business by 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), the 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
 
Nine Months Ended
 
January 26,
2019
 
January 27,
2018
 
January 26,
2019
 
January 27,
2018
Net sales:
 
 
 
 
 
 
 
    Commercial
$
37,159

 
$
35,483

 
$
113,797

 
$
102,723

    Live Events
29,995

 
45,167

 
134,566

 
191,432

    High School Park and Recreation
14,798

 
11,463

 
74,498

 
69,602

    Transportation
15,390

 
11,189

 
50,624

 
46,577

    International
17,727

 
27,014

 
68,464

 
62,019

 
115,069

 
130,316

 
441,949

 
472,353

 
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
    Commercial
8,942

 
7,546

 
27,593

 
21,085

    Live Events
3,950

 
9,747

 
26,495

 
43,056

    High School Park and Recreation
2,736

 
2,768

 
21,997

 
23,672

    Transportation
5,880

 
3,570

 
17,471

 
16,696

    International
3,361

 
4,936

 
12,317

 
11,308

 
24,869

 
28,567

 
105,873

 
115,817

 
 
 
 
 
 
 
 
Contribution margin: (1)
 
 
 
 
 
 
 
    Commercial
4,460

 
3,131

 
13,984

 
7,307

    Live Events
347

 
5,904

 
16,250

 
32,494

    High School Park and Recreation
(384
)
 
42

 
12,874

 
15,599

    Transportation
4,959

 
2,625

 
14,245

 
13,612

    International
(50
)
 
1,594

 
480

 
1,245

 
9,332

 
13,296

 
57,833

 
70,257

 
 
 
 
 
 
 
 
Non-allocated operating expenses:
 
 
 
 
 
 
 
    General and administrative
8,574

 
8,335

 
25,685

 
26,138

    Product design and development
8,280

 
8,299

 
26,611

 
26,294

Operating (loss) income
(7,522
)
 
(3,338
)
 
5,537

 
17,825

 
 
 
 
 
 
 
 
Nonoperating income (expense):
 
 
 
 
 
 
 
    Interest income
328

 
158

 
713

 
520

    Interest expense
(45
)
 
(40
)
 
(86
)
 
(173
)
Other (expense) income, net
(203
)
 
(487
)
 
(423
)
 
(429
)
 
 
 
 
 
 
 
 
(Loss) income before income taxes
(7,442
)
 
(3,707
)
 
5,741

 
17,743

Income tax (benefit) expense
(4,123
)
 
2,482

 
(4,120
)
 
8,371

Net (loss) income
$
(3,319
)
 
$
(6,189
)
 
$
9,861

 
$
9,372

 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
    Commercial
$
1,206

 
$
1,550

 
$
3,620

 
$
4,628

    Live Events
1,332

 
1,192

 
3,838

 
3,626

    High School Park and Recreation
503

 
401

 
1,463

 
1,245

    Transportation
279

 
281

 
830

 
860

    International
766

 
284

 
2,189

 
835

    Unallocated corporate depreciation
668

 
725

 
2,114

 
2,141

 
$
4,754

 
$
4,433

 
$
14,054

 
$
13,335

(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
 
Nine Months Ended
 
January 26,
2019
 
January 27,
2018
 
January 26,
2019
 
January 27,
2018
Net sales:
 
 
 
 
 
 
 
United States
$
94,418

 
$
98,989

 
$
361,679

 
$
398,894

Outside United States
20,651

 
31,327

 
80,270

 
73,459

 
$
115,069

 
$
130,316

 
$
441,949

 
$
472,353

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
January 26,
2019
 
April 28,
2018
 
 
 
 
Property and equipment, net of accumulated depreciation:
 
 
 
 
 
 


United States
$
59,665

 
$
61,206

 
 
 


Outside United States
6,100

 
6,853

 
 
 
 
 
$
65,765

 
$
68,059

 
 
 


 
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 on 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 January 26, 2019, we anticipate we will recover the entire amortized cost basis of such fixed income securities, and we have determined no other-than-temporary impairments associated with credit losses were required to be recognized. The cost of securities sold is based on the specific identification method. Where quoted market prices are not available, we use the market price of similar types of securities traded in the market to estimate fair value.  

As of January 26, 2019 and April 28, 2018, our available-for-sale securities consisted of the following:
 
Amortized Cost
 
Unrealized Losses
 
Fair Value
Balance as of January 26, 2019
 
 
 
 
 
Certificates of deposit
$
3,959

 
$
—

 
$
3,959

U.S. Government securities
15,493

 
(11
)
 
15,482

U.S. Government sponsored entities
14,929

 
(65
)
 
14,864

Municipal bonds
3,297

 
(6
)
 
3,291

 
$
37,678

 
$
(82
)
 
$
37,596

Balance as of April 28, 2018
 

 
 

 
 

Certificates of deposit
$
8,669

 
$
—

 
$
8,669

U.S. Government securities
999

 
(7
)
 
992

U.S. Government sponsored entities
20,072

 
(123
)
 
19,949

Municipal bonds
4,936

 
(24
)
 
4,912

 
$
34,676

 
$
(154
)
 
$
34,522


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

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accumulated other comprehensive loss into earnings based on the specific identification method. In the nine months ended January 26, 2019 and January 27, 2018, the reclassifications from accumulated other comprehensive loss to net earnings were immaterial.

All available-for-sale securities are classified as current assets, as they are readily available to support our current operating needs. The contractual maturities of available-for-sale debt securities as of January 26, 2019 were as follows:
 
Less than 12 months
 
1-5 Years
 
Total
Certificates of deposit
$
1,985

 
$
1,974

 
$
3,959

U.S. Government securities
14,488

 
994

 
15,482

U.S. Government sponsored entities
11,646

 
3,218

 
14,864

Municipal bonds
3,134

 
157

 
3,291

 
$
31,253

 
$
6,343

 
$
37,596


Note 7. Business Combinations

AJT Systems, Inc. Acquisition

We acquired the net assets of AJT Systems, Inc. ("AJT"), a Florida-based company, on June 21, 2018. The results of its operations have been included in our condensed consolidated financial statements since the date of acquisition. We have not made pro forma disclosures because the results of its operations are not material to our condensed consolidated financial statements.

AJT is a developer of real-time live to air graphics rendering and video server systems for the broadcast TV industry. This acquisition will allow our organization to grow and strengthen our solution offerings to the market. This acquisition was primarily funded with cash on hand.

Note 8. Sale of Non-Digital Division Assets

In September 2017, we sold our non-digital division assets, primarily consisting of inventory, non-digital manufacturing equipment, patented and unpatented technology and know-how, customer lists, and backlog, net of warranty obligations and accounts payable with a net book value of $517. We recorded a gain of $1,267 on the disposal, which is included in cost of sales in the International business unit during the second quarter of fiscal 2018. No gain was recorded in the three or nine months ended January 26, 2019.

Note 9. Goodwill

The changes in the carrying amount of goodwill related to each reportable segment for the nine months ended January 26, 2019 were as follows: 
 
Live Events
 
Commercial
 
Transportation
 
International
 
Total
Balance as of April 28, 2018
$
2,295

 
$
3,344

 
$
67

 
$
2,558

 
$
8,264

Foreign currency translation
(14
)
 
(99
)
 
(14
)
 
(169
)
 
(296
)
Balance as of January 26, 2019
$
2,281

 
$
3,245

 
$
53

 
$
2,389

 
$
7,968

 
We perform an analysis of goodwill on an annual basis, and it is tested for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. We perform our annual analysis during our third quarter of each fiscal year, based on the goodwill amount as of the first business day of our third fiscal quarter.

In conducting our impairment testing, we compare the fair value of each of our business units to the related carrying value of the allocated assets. We utilize the income approach based on discounted projected cash flows to estimate the fair value of each unit. The projected cash flows use many estimates including market conditions, expected market demand and our ability to grow or maintain market share, gross profit, and expected expenditures for capital and operating expenses. Assets shared or not directly attributed to a reportable segment's activities are allocated to the reportable segment based on sales and other measures.

We performed our annual impairment test on October 29, 2018 and concluded no goodwill impairment existed.


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Note 10. Selected Financial Statement Data

Inventories consisted of the following: 
 
January 26,
2019
 
April 28,
2018
Raw materials
$
27,028

 
$
30,570

Work-in-process
10,743

 
8,645

Finished goods
34,416

 
36,120

 
$
72,187

 
$
75,335


Property and equipment, net consisted of the following:
 
January 26,
2019
 
April 28,
2018
Land
$
1,738

 
$
2,161

Buildings
66,170

 
67,773

Machinery and equipment
98,409

 
93,439

Office furniture and equipment
6,079

 
5,878

Computer software and hardware
55,000

 
53,004

Equipment held for rental
287

 
287

Demonstration equipment
7,331

 
7,035

Transportation equipment
7,724

 
7,632

 
242,738

 
237,209

Less accumulated depreciation
176,973

 
169,150

 
$
65,765

 
$
68,059

 
Note 11. Receivables

Accounts receivable are reported net of an allowance for doubtful accounts of $2,387 and $2,151 at January 26, 2019 and April 28, 2018, respectively. Included in accounts receivable as of January 26, 2019 and April 28, 2018 was $928 and $964, 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 12 months and sales-type leases.  The present value of these contracts and leases are recorded as a receivable as the revenue is recognized in accordance with GAAP, and profit is recognized to the extent the present value is in excess of cost.  We generally retain a security interest in the equipment or in the cash flow generated by the equipment until the contract is paid.  The present value of long-term contracts and lease receivables, including accrued interest and current maturities, was $3,245 and $3,393 as of January 26, 2019 and April 28, 2018, respectively.  Contract and lease receivables bearing annual interest rates of 4.8 to 9.0 percent are due in varying annual installments through August 2024.  The face amount of long-term receivables was $3,440 as of January 26, 2019 and $3,733 as of April 28, 2018.

Note 12. 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 condensed 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 April 28, 2018, we recorded a liability and related other receivable of $1,904 for a net claim from a customer against work performed by one of our subcontractors during installation which damaged our customer's property. The amount recorded was for probable and reasonably estimated cost to remediate the damage. During the third quarter of fiscal 2019, this claim settled and was fully covered by insurance.


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As of January 26, 2019 and April 28, 2018, a customer was withholding $2,224 of payment claiming we did not perform to the customer's specifications. We believe we have performed to the agreed-upon written specifications, have strong contractual documentation to support our position, and customer with wherewithal to pay. We believe that we will ultimately prevail in collections. Although our assessment of the loss is remote, a number of factors could change the outcome.
 
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:  We offer a standard parts coverage warranty for periods varying from one to five years for most of our products.  We also offer additional types of warranties to include on-site labor, routine maintenance and event support.  In addition, the terms of warranties on some installations can vary from one to 10 years.  The specific terms and conditions of these warranties vary primarily depending on the type of product sold.  We estimate the costs which may be incurred under the contractual warranty obligations (assurance type warranty) and record a liability in the amount of such estimated costs at the time the revenue is recognized.  Factors affecting our estimate of the cost of our warranty obligations include historical experience and expectations of future conditions.  We continually assess the adequacy of our recorded warranty accruals and, to the extent we experience any changes in warranty claim activity or costs associated with servicing those claims, our accrued warranty obligation is adjusted accordingly. For service-type warranty contracts, we allocate revenue to this performance obligation and recognize the revenue over time and costs as incurred.

We disclosed a warranty issue in Note 18 of our Annual Report on Form 10-K for the fiscal year ended April 28, 2018 regarding a mechanical device failure within a module for displays. During the nine months ended January 26, 2019 and January 27, 2018, we recognized warranty expense and estimated equipment service agreement losses for probable and reasonably estimated costs to remediate this issue of $1,610 and $4,034, respectively. As of January 26, 2019, we had $828 remaining accrued for equipment service agreement obligations for the estimate of probable future claims related to this issue. Our contractual warranty arrangements have expired for products with this issue and we do not expect material changes to the equipment service agreement accrual.

Changes in our warranty obligation for the nine months ended January 26, 2019 consisted of the following:
 
 
January 26, 2019
Beginning accrued warranty obligations
 
$
29,953

      Warranties issued during the period
 
6,642

      Settlements made during the period
 
(12,571
)
      Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations
 
2,629

Ending accrued warranty obligations
 
$
26,653

 
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 26, 2019, we had outstanding letters of credit and surety bonds in the amount of $14,795 and $6,587, respectively.  Performance guarantees are issued to certain customers to guarantee the operation and installation of the equipment and our ability to complete a contract.  These performance guarantees have various terms but are generally one year.

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. This lease 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 $2,551 and $2,568 for the nine months ended January 26, 2019 and January 27, 2018, 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 26, 2019:

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Fiscal years ending
 
Amount
2019
 
$
826

2020
 
2,966

2021
 
2,482

2022
 
1,607

2023
 
249

Thereafter
 
294

 
 
$
8,424


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 26, 2019, we were obligated under the following conditional and unconditional purchase commitments, which included $150 in conditional purchase commitments:
Fiscal years ending
 
Amount
2019
 
$
2,422

2020
 
5,368

2021
 
3,728

2022
 
1,851

2023
 
1,820

Thereafter
 
266