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 27, 2018~~August 3, 2019

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

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)

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 ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer x
Non-accelerated filer o~~(Do not check if a smaller reporting company)~~	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~~August 26, ~~2018~~2019 was ~~44,474,202.~~

44,951,204.

DAKTRONICS, INC. AND SUBSIDIARIES

FORM 10-Q

For the Quarter Ended ~~January 27, 2018~~August 3, 2019

Table of Contents



		Page
Part I.	Financial Information	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of ~~January 27, 2018 (unaudited)~~August 3, 2019 and April ~~29, 2017~~27, 2019	1
	Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~January 27,~~August 3, 2019 and July 28, 2018 ~~and January 28, 2017 (unaudited)~~	3
	Condensed Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~January 27,~~August 3, 2019 and July 28, 2018 ~~and January 28, 2017 (unaudited)~~	4
	Condensed Consolidated Statements of ~~Cash Flows~~Shareholders' Equity for the ~~Nine~~Three Months Ended ~~January 27,~~August 3, 2019 and July 28, 2018 ~~and January 28, 2017 (unaudited)~~	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended August 3, 2019 and July 28, 2018	7
	Notes to the Condensed Consolidated Financial Statements	68
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1819
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3028
Item 4.	Controls and Procedures	3128

Part II.	Other Information	3128
Item 1.	Legal Proceedings	3128
Item 1A.	Risk Factors	3228
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3228
Item 3.	Defaults Upon Senior Securities	3229
Item 4.	Mine Safety Disclosures	3329
Item 5.	Other Information	3329
Item 6.	Exhibits	3329

Signatures		3430
Index to Exhibits		3531

Table of contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

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

DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited)					DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited)
	January 27, 2018		April 29, 2017
	(unaudited)					August 3, 2019		April 27, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	49,042	$	32,623		$	20,762	$	35,383
Restricted cash	28		216			339		359
Marketable securities	23,937		32,713			11,878		26,344
Accounts receivable, net	76,104		78,846			96,218		65,487
Inventories, net	70,451		66,486
Costs and estimated earnings in excess of billings	32,449		36,403
Inventories						85,458		78,832
Contract assets						42,809		33,704
Current maturities of long-term receivables	2,199		2,274			3,997		2,300
Prepaid expenses and other assets	7,333		7,553
Prepaid expenses and other current assets						9,558		8,319
Income tax receivables	2,726		611			1,038		1,087
Property and equipment and other assets available for sale						1,844		1,858
Total current assets	264,269		257,725			273,901		253,673

Property and equipment, net						66,707		65,314
Long-term receivables, less current maturities	1,948		2,616			2,163		1,214
Goodwill	8,469		7,812			7,940		7,889
Intangibles, net	4,174		4,705			4,568		4,906
Investment in affiliates and other assets	4,888		4,534			15,361		5,052
Deferred income taxes	7,983		11,292			11,189		11,168
	27,462		30,959
PROPERTY AND EQUIPMENT:
Land	2,172		2,099
Buildings	67,340		65,935
Machinery and equipment	88,143		84,189
Office furniture and equipment	5,799		5,604
Computer software and hardware	51,980		51,523
Equipment held for rental	287		374
Demonstration equipment	7,044		7,109
Transportation equipment	7,647		7,108
Property and equipment, net	230,412		223,941
Less accumulated depreciation	166,117		157,192
	64,295		66,749
TOTAL ASSETS	$	356,026	$	355,433		$	381,829	$	349,216

See notes to consolidated financial statements.
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable						$	57,001	$	44,873
Contract liabilities						53,421		47,178
Accrued expenses						32,850		32,061
Warranty obligations						9,650		9,492
Income taxes payable						771		468
Total current liabilities						153,693		134,072

Long-term warranty obligations						15,800		14,978
Long-term contract liabilities						10,140		10,053
Other long-term obligations						8,732		1,339
Long-term income taxes payable						727		578
Deferred income taxes						544		533
Total long-term liabilities						35,943		27,481

Table of contents

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

January 27,
2018 April 29,
2017
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY ��
CURRENT LIABILITIES:
Accounts payable $ 40,309
$ 51,499
Accrued expenses 27,578
25,033
Warranty obligations 13,291
13,578
Billings in excess of costs and estimated earnings 14,424
10,897
Customer deposits (billed or collected) 10,288
14,498
Deferred revenue (billed or collected) 13,906
12,137
Current portion of other long-term obligations 1,000
1,409
Income taxes payable 532
1,544
Total current liabilities 121,328
130,595

Long-term warranty obligations 15,909
14,321
Long-term deferred revenue (billed or collected) 6,916
5,434
Other long-term obligations 2,795
2,848
Long-term income tax payable 3,679
3,113
Deferred income taxes 984
836
Total long-term liabilities 30,283
26,552
TOTAL LIABILITIES 151,611
157,147

SHAREHOLDERS' EQUITY:

Common Stock, no par value, authorized 120,000,000 shares; 44,778,945 and 44,372,357 shares issued and outstanding at January 27, 2018 and April 29, 2017, respectively 54,725
52,530
Additional paid-in capital 39,671
38,004
Retained earnings 114,028
113,967
Treasury Stock, at cost, 303,957 shares at January 27, 2018 and April 29, 2017, respectively (1,834 ) (1,834 )
Accumulated other comprehensive loss (2,175 ) (4,381 )
TOTAL SHAREHOLDERS' EQUITY 204,415
198,286
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 356,026
$ 355,433

See notes to consolidated financial statements.

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

	August 3, 2019			April 27, 2019
SHAREHOLDERS' EQUITY:
Common Stock, no par value, authorized 115,000,000 shares; 45,442,607 and 45,317,267 shares issued at August 3, 2019 and April 27, 2019, respectively	58,478			57,699
Additional paid-in capital	43,204			42,561
Retained earnings	98,373			93,593
Treasury Stock, at cost, 490,617 and 303,957 shares at August 3, 2019 and April 27, 2019, respectively	(3,021		)	(1,834		)
Accumulated other comprehensive loss	(4,841		)	(4,356		)
TOTAL SHAREHOLDERS' EQUITY	192,193			187,663
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	381,829		$	349,216

See notes to condensed consolidated financial statements.

Table of contents

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

	Three Months Ended
	August 3, 2019			July 28, 2018
Net sales	$	180,256		$	154,188
Cost of sales	134,751			115,941
Gross profit	45,505			38,247

Operating expenses:
Selling	18,297			16,378
General and administrative	9,093			8,537
Product design and development	10,500			9,292
	37,890			34,207
Operating income	7,615			4,040

Nonoperating income (expense):
Interest income	269			197
Interest expense	(35		)	(39		)
Other income (expense), net	193			(154		)

Income before income taxes	8,042			4,044
Income tax expense (benefit)	1,012			(530		)
Net income	$	7,030		$	4,574

Weighted average shares outstanding:
Basic	45,089			44,638
Diluted	45,261			44,831

Earnings per share:
Basic	$	0.16		$	0.10
Diluted	$	0.16		$	0.10

See notes to condensed consolidated financial statements.

Table of contents

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

	Three Months Ended
	August 3, 2019			July 28, 2018

Net income	$	7,030		$	4,574

Other comprehensive loss:
Cumulative translation adjustments	(526		)	(1,139		)
Unrealized gain (loss) on available-for-sale securities, net of tax	41			(13		)
Total other comprehensive loss, net of tax	(485		)	(1,152		)
Comprehensive income	$	6,545		$	3,422

See notes to condensed consolidated financial statements.

Table of contents

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

Three Months Ended Nine Months Ended
January 27,
2018 January 28,
2017 January 27,
2018 January 28,
2017
Net sales $ 130,316
$ 115,719
$ 472,353
$ 442,857
Cost of goods sold 101,749
92,403
356,536
336,166
Gross profit 28,567
23,316
115,817
106,691

Operating expenses:

Selling expense 15,271
14,678
45,560
45,828
General and administrative 8,335
8,599
26,138
26,007
Product design and development 8,299
6,973
26,294
21,142
31,905
30,250
97,992
92,977
Operating (loss) income (3,338 ) (6,934 ) 17,825
13,714

Nonoperating income (expense):

Interest income 158
183
520
559
Interest expense (40 ) (56 ) (173 ) (174 )
Other (expense) income, net (487 ) (305 ) (429 ) (250 )

(Loss) income before income taxes (3,707 ) (7,112 ) 17,743
13,849
Income tax expense (benefit) 2,482
(1,985 ) 8,371
4,416
Net (loss) income $ (6,189 ) $ (5,127 ) $ 9,372
$ 9,433

Weighted average shares outstanding:

Basic 44,518
44,102
44,403
44,071
Diluted 44,518
44,102
44,798
44,206

(Loss) earnings per share:

Basic $ (0.14 ) $ (0.12 ) $ 0.21
$ 0.21
Diluted $ (0.14 ) $ (0.12 ) $ 0.21
$ 0.21

Cash dividends declared per share $ 0.07
$ 0.07
$ 0.21
$ 0.24

See notes to consolidated financial statements.

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 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.

Table of contents

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

Three Months Ended Nine Months Ended
January 27, 2018 January 28,
2017 January 27,
2018 January 28,
2017

Net (loss) income $ (6,189 ) $ (5,127 ) $ 9,372
$ 9,433

Other comprehensive income (loss):
Cumulative translation adjustments 1,228
(47 ) 2,289
(1,487 )
Unrealized loss on available-for-sale securities, net of tax (50 ) (29 ) (83 ) (33 )
Total other comprehensive income (loss), net of tax 1,178
(76 ) 2,206
(1,520 )
Comprehensive (loss) income $ (5,011 ) $ (5,203 ) $ 11,578
$ 7,913

See notes to consolidated financial statements.

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 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 gain (loss) 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

See notes to condensed consolidated financial statements.

Table of contents

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

	Nine Months Ended						Three Months Ended
	January 27, 2018			January 28, 2017			August 3, 2019			July 28, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,372		$	9,433		$	7,030		$	4,574
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	13,335			13,941			4,383			4,488
Impairment of intangible assets	—			830
(Gain) loss on sale of property, equipment and other assets	(1,211		)	23
Loss on sale of property, equipment and other assets							(26		)	(69		)
Share-based compensation	1,978			2,204			643			651
Equity in loss of affiliate	401			78			118			134
Provision for doubtful accounts	(55		)	898			5			(29		)
Deferred income taxes, net	3,429			(286		)	(40		)	(65		)
Change in operating assets and liabilities	(296		)	18,266			(30,331		)	(19,944		)
Net cash provided by operating activities	26,953			45,387
Net cash used in operating activities							(18,218		)	(10,260		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(10,865		)	(6,709		)	(5,856		)	(4,727		)
Proceeds from sale of property, equipment and other assets	2,107			166
Proceeds from sales of property, equipment and other assets							73			106
Purchases of marketable securities	(5,211		)	(18,098		)	—			(1,986		)
Proceeds from sales or maturities of marketable securities	13,751			14,594			14,510			9,181
Purchases of equity investment	(1,027		)	(1,374		)
Net cash used in investing activities	(1,245		)	(11,421		)
Purchases of and loans to equity investment							(455		)	(426		)
Acquisitions, net of cash acquired							—			(2,250		)
Net cash provided by (used in) investing activities							8,272			(102		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable	—			(8		)
Proceeds from exercise of stock options	514			343
Principal payments on long-term obligations	(1,036		)	(912		)	(1,221		)	(458		)
Dividends paid	(9,311		)	(10,566		)	(2,250		)	(3,121		)
Proceeds from exercise of stock options							—			57
Payments for common shares repurchased	—			(1,825		)	(1,187		)	—
Tax payments related to RSU issuances	(311		)	(261		)
Net cash used in financing activities	(10,144		)	(13,229		)	(4,658		)	(3,522		)

EFFECT OF EXCHANGE RATE CHANGES	667			(680		)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	16,231			20,057
EFFECT OF EXCHANGE RATE CHANGES ON CASH							(37		)	70
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH							(14,641		)	(13,814		)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period	32,839			28,526			35,742			29,755
End of period	$	49,070		$	48,583		$	21,101		$	15,941

Supplemental disclosures of cash flow information:
Cash payments for:
Interest	$	161		$	171		$	33		$	59
Income taxes, net of refunds	7,449			114			491			614

Supplemental schedule of non-cash investing and financing activities:
Demonstration equipment transferred to inventory	72			218			$	—		$	58
Purchase of property and equipment included in accounts payable	1,163			397
Purchases of property and equipment included in accounts payable							786			833
Contributions of common stock under the ESPP	1,681			840			779			820
Contingent consideration related to acquisition							—			1,316

See notes to consolidated financial statements.
See notes to condensed consolidated financial statements.

Table of contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share data)

(unaudited)

Note 1. Basis of Presentation ~~and Summary of Critical Accounting Policies~~

Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) isare 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 ~~29, 2017~~27, 2019, has been derived from the audited financial statements at that date, but it does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with our financial statements and notes thereto for the year ended April ~~29, 2017,~~27, 2019, which are contained in our Annual Report on Form 10-K previously filed with the Securities and Exchange ~~Commission.~~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- toor 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~~fiscal year ended ~~January~~April 27, ~~2018 and January 28, 2017 contained~~2019 consisted of 52 weeks. Fiscal 2020 will be a 53-week year; therefore, the quarter ended August 3, 2019 contains operating results for 3914 weeks while the quarter ended July 28, 2018 contains operating results for 13 weeks.

~~Investments in affiliates over which we have significant influence are accounted for under~~The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the ~~equity method~~condensed consolidated balance sheets that sum to the totals of ~~accounting. Investments in affiliates over which we do not have~~ the ability to exert significant influence over the affiliate's operating and financing activities are accounted for under the cost method of accounting. We have evaluated our relationships with our affiliates and have determined that these entities are not variable interest entities.

The aggregate amount of investments accounted for under the equity method was $3,303 and $2,678 at January 27, 2018 and April 29, 2017, 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 includedsame amounts shown in the ~~Purchases of equity investment line item in our~~condensed consolidated ~~statements~~statement of cash flows. Our proportional share of the respective affiliate’s earnings or losses is included in the Other (expense) income, net line item in our consolidated statements of operations. For the nine months ended January 27, 2018, our share of the losses of our affiliates was $401.flows:

The aggregate amount of investments accounted for under the cost method was $42 at January 27, 2018 and April 29, 2017, 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.



	August 3, 2019		July 28, 2018
Cash and cash equivalents	$	20,762	$	15,915
Restricted cash	339		26
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows	$	21,101	$	15,941

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 April 27, 2019, other than described in the Accounting Standards Adopted section below.

Accounting Standards Adopted

In ~~August~~February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2016-15,~~ ~~Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments,~~ which reduces the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. We early adopted ASU 2016-15 during the second quarter of fiscal 2018. Adoption of ASU 2016-15 did not have a material impact on our consolidated financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Restricted Cash,~~ which requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. Accordingly, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented on the statements of cash flows. We early adopted ASU 2016-18 during the second quarter of fiscal 2018 and applied its provisions retrospectively. Other than the change in presentation within the statements of cash flows, the adoption of ASU 2016-18 did not have an impact on our consolidated financial statements.

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~~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. ASU 2018-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect that adopting ASU 2018-02 will have on our 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 consolidated financial statements and related disclosures.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other than Inventory~~, which is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current 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. ASU 2016-16 is effective for us on April 29, 2018. We are currently evaluating the effect that adopting ASU 2016-16 will have on our 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. We are currently evaluating the effect that adopting ASU 2016-13 will have on our 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.

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We adopted ASU 2016-02 and its related guidance during the first quarter of fiscal 2020 for all agreements existing as of April 28, 2019. We elected the "comparatives under Accounting Standards Codification ("ASC") 840 option" as a transitional method, which allows us to initially apply the new lease requirements at the effective date. Comparative periods were not adjusted and will continue to be reported in accordance with prior lease guidance under ASC 840. We elected the package of practical expedients, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the short-term lease recognition whereby we will not recognize operating leases related assets or liabilities for leases with a lease term of less than one year. We have also elected the practical expedient to not separate lease and non-lease components in the lease payments for all asset classes. This adoption did not have an impact on our condensed consolidated statements of operations, shareholders' equity and cash flows, and there was no adjustment to retained earnings. As of April 28, 2019, we recognized a right of use asset for operating leases of $11,101 and a current and non-current lease liability for operating leases of $2,745 and $8,356, respectively. The right of use operating assets are included in the "Investment in affiliates and other assets" line item, the current lease liabilities are included in the "Accrued expenses" line item, and the non-current lease liabilities are included in the "Other long-term obligations" line item in our condensed consolidated balance sheet. See "Note 12. Leases" for more information.

Accounting Standards Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual periods beginning after December 15, ~~2018, with early~~2019 and will require adoption ~~permitted.~~on a prospective basis. We are currently evaluating the effect that adopting ASU ~~2016-02~~2017-04 will have on our condensed consolidated financial statements and related disclosures.

In ~~May 2014,~~June 2016, the FASB issued ASU ~~2014-09,~~2016-13, ~~Revenue from Contracts~~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 ~~Customers (Topic 606).~~early adoption permitted, and will require adoption on a modified retrospective basis. We are currently evaluating the effect that adopting ASU 2014-09 is a comprehensive revenue recognition model that requires a company to recognize revenue from the transfer of goods or services to customers in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. The FASB has also issued ASUs 2016-08, 2016-10, 2016-12, and 2016-20 to clarify guidance with respect to principal versus agent considerations and the identification of performance obligations and licensing, to issue guidance2016-13 will have on ~~certain narrow areas, and to add practical expedients. We will adopt ASU 2014-09~~our condensed consolidated financial statements and related guidance under the modified retrospective method during the first quarter of fiscal 2019. The implementation team has completed its evaluation of the revenue arrangements, analyzed contracts to identify key provisions impacted by Accounting Standards Codification ("ASC") 606, assessed the applicable accounting, and reviewed existing accounting policies and internal controls. We are in the process of implementing appropriate changes to our business processes, systems and controls to support recognition and disclosure under ASC 606. As a result of the evaluation performed to date, we do not anticipate that the adoption will significantly change the timing or amount of revenue recognized, based upon our current assessment of "point in time" and "over time" revenue recognition. Therefore, we do not anticipate that the adoption of ASU 2014-09 will materially impact our consolidated results of operations and financial statements, other than the additional disclosure requirements.disclosures.

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 cost method of accounting 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.

The aggregate amount of investments accounted for under the equity method was $3,538 and $3,657 at August 3, 2019 and April 27, 2019, respectively. The equity method requires us to report our share of losses up to our equity investment amount. Cash paid for investments in affiliates and loans to affiliates are included in the "Purchases of and loans to equity investment" line item in our condensed consolidated statements of cash flows. Our proportional share of the respective affiliates' earnings or losses is included in the "Other income (expense), net" line item in our condensed consolidated statements of operations. For the three months ended August 3, 2019 and July 28, 2018, our share of the losses of our affiliates was $118 and $134, respectively.

The aggregate amount of investments without readily determinable fair values was $42 at August 3, 2019 and April 27, 2019, 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 three months ended August 3, 2019, we did not record any changes in the measurement of such investments.

Note 3. Earnings Per Share ("EPS")

~~Basic~~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.

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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 ~~and nine~~ months ended ~~January 27, 2018~~August 3, 2019 and ~~January~~July 28, ~~2017:~~2018:


	Net (loss) income			Shares	Per share (loss) income			Net income		Shares	Per share income
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 three months ended January 28, 2017
Basic (loss) earnings per share	$	(5,127	)	44,102	$	(0.12	)
Dilution associated with stock compensation plans	—			—	—
Diluted (loss) earnings per share	$	(5,127	)	44,102	$	(0.12	)
For the nine months ended January 27, 2018
For the three months ended August 3, 2019
Basic earnings per share	$	9,372		44,403	$	0.21		$	7,030	45,089	$	0.16
Dilution associated with stock compensation plans	—			395	—			—		172	—
Diluted earnings per share	$	9,372		44,798	$	0.21		$	7,030	45,261	$	0.16
For the nine months ended January 28, 2017
For the three months ended July 28, 2018
Basic earnings per share	$	9,433		44,071	$	0.21		$	4,574	44,638	$	0.10
Dilution associated with stock compensation plans	—			135	—			—		193	—
Diluted earnings per share	$	9,433		44,206	$	0.21		$	4,574	44,831	$	0.10

Options outstanding to purchase ~~1,203~~2,197 shares of common stock with a weighted average exercise price of $~~11.45~~10.03 for the three months ended ~~January 27, 2018~~August 3, 2019 and ~~1,354~~1,798 shares of common stock with a weighted average exercise price of $~~13.86~~10.46 for the three months ended ~~January~~July 28, ~~2017 were not included in the computation of diluted (loss) earnings per share because the effects would be anti-dilutive.~~

~~Options outstanding to purchase 1,281 shares of common stock with a weighted average exercise price of $12.55 for the nine months ended January 27,~~ 2018 ~~and 2,380 shares of common stock with a weighted average exercise price of $13.27 for the nine months ended January 28, 2017~~ were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

Note ~~3. Share Repurchase Program~~4. Revenue Recognition

~~On June 17, 2016,~~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 ~~Board~~disaggregation of ~~Directors approved~~revenue by segments:



	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

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	Three Months Ended July 28, 2018
	Commercial		Live Events		High School Park and Recreation		Transportation		International		Total
Type of performance obligation
Unique configuration	$	3,049	$	38,921	$	8,943	$	9,618	$	16,216	$	76,747
Limited configuration	23,867		5,818		18,547		7,083		10,778		66,093
Service and other	3,653		4,733		630		456		1,876		11,348
	$	30,569	$	49,472	$	28,120	$	17,157	$	28,870	$	154,188
Timing of revenue recognition
Goods/services transferred at a point in time	$	24,583	$	6,802	$	16,998	$	7,232	$	11,536	$	67,151
Goods/services transferred over time	5,986		42,670		11,122		9,925		17,334		87,037
	$	30,569	$	49,472	$	28,120	$	17,157	$	28,870	$	154,188

See "Note 5. Segment Reporting" for a ~~stock repurchase program~~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:



	August 3, 2019		April 27, 2019		Dollar Change		Percent Change
Contract assets	$	42,809	$	33,704	$	9,105	27.0	%
Contract liabilities - current	53,421		47,178		6,243		13.2
Contract liabilities - noncurrent	10,140		10,053		87		0.9

The changes in our contract assets and contract liabilities from April 27, 2019 to August 3, 2019 were due to the timing of billing schedules and revenue recognition, which ~~Daktronics, Inc. may purchase up to $40,000~~can vary significantly depending on the contractual payment terms and the seasonality of ~~its outstanding shares~~the sports markets. We had no material impairments of ~~common stock. Under this program,~~contract assets for the three months ended August 3, 2019.

As of April 27, 2019, we ~~may repurchase shares from time to time~~had six contracts in ~~open market transactions~~progress that were identified as loss contracts, for which we recorded a provision for losses of $2,353 and had four remaining contracts with loss estimates of $531 as of August 3, 2019. These were included 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.~~ "Accrued expenses" line item in our condensed consolidated balance sheets.

During the ~~first, second and third quarter~~three months ended August 3, 2019, we recognized revenue of ~~fiscal 2018, we had no repurchases~~$31,259 related to our contract liabilities as of ~~shares~~April 27, 2019.

Remaining performance obligations

As of August 3, 2019, the aggregate amount of the transaction price allocated to the remaining performance obligations was $263,406. We expect approximately $226,999 of our ~~outstanding common stock. During~~remaining performance obligations to be recognized over the ~~first quarter of fiscal 2017, we repurchased 284 shares of common stock at a total~~next 12 months with the remainder recognized thereafter. Remaining performance obligations related to product and service agreements are $206,990 and $56,416, 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, ~~of $1,825,~~foreign currency exchange fluctuations and ~~there were no other purchases during fiscal 2017. As of January 27, 2018, we had $38,175 of~~project deferrals are reflected or excluded in the remaining ~~capacity under our current share repurchase program.~~performance obligation balance, as appropriate.

Note 4.5. Segment ~~Disclosure~~Reporting

We ~~have organized~~organize and manage our business ~~into~~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 ~~of customer~~ or geography and are the same as our business units.

~~Our Commercial business unit primarily consists~~ We evaluate segment performance based on operating results through contribution margin, which is comprised of ~~sales of our video display systems, digital billboards, Galaxy~~gross profit less selling expense. We exclude general and^® ~~and Fuelight~~^™ product lines to resellers (primarily sign companies), Out-of-Home ("OOH") companies, national retailers, quick-serve restaurants, casinos and petroleum retailers. Our Live Events business unit primarily consists of sales of integrated scoring and video display systems to college and professional sports facilities and convention centers and sales of our mobile display technology to video rental organizations and other live events type venues. Our High School Park and Recreation business unit primarily consists of sales of scoring systems, Galaxy^® ~~displays and video display systems to primary and secondary education facilities. Our Transportation business unit primarily consists of sales of our Vanguard~~^® ~~and Galaxy~~^® product lines to governmental transportation departments, airlines and other transportation related customers. Our International business unit consists of sales of all product lines outside the United States and Canada. In our International business unit, we focus on product lines related to integrated scoring and video display systems for sports and commercial applications, OOH advertising products, and European transportation related products.

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Our segment reporting presents results through gross profit less selling costs. Gross profit is net sales less cost of goods sold. Cost of goods sold consists primarily of inventory, consumables, salaries, other employee-related costs, facilities-related costs for manufacturing locations, machinery and equipment maintenance and depreciation, site sub-contractors, warranty costs, and other service delivery expenses. Selling expenses consist primarily of salaries, other employee-related costs, travel and entertainment expenses, facilities-related costs for sales and service offices, bad debt expenses, third-party commissions and expenditures for marketing efforts, including the costs of collateral materials, conventions and trade shows, product demos, and supplies. Segment profit excludes general and administration expense, product design and development ~~expense, interest income and~~ expense, non-operating income and expense, and income tax ~~expense. Assets are not allocated to~~expense in the ~~segments. Depreciation and amortization are allocated to each~~ segment ~~based on various~~analysis. Separate financial measures; however, some depreciation and amortization are corporate in nature and remain unallocated. Our segments follow the same accounting policies as those described in Note 1 of our Annual Report on Form 10-K for the fiscal year ended April 29, 2017. Unabsorbed manufacturing costs are allocated to the business unit benefiting most from that manufacturing location's production capabilities. Unabsorbed costs of domestic field sales and services infrastructure, including most field administrative staff, are allocated to the Commercial, Live Events, High School Park and Recreation, and Transportation business units based on cost of sales. Shared manufacturing, buildings and utilities, and procurement costs are allocated based on payroll dollars, square footage and various other financial measures.

~~We do not maintain information on sales by products; therefore, disclosure of such~~ information is ~~not practical.~~

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available and regularly evaluated by our chief operating decision-maker (CODM), who is our president and chief executive officer, in making resource allocation decisions for our segments.

The following table sets forth certain financial information for each of our five reporting segments for the periods indicated:


	Three Months Ended						Nine Months Ended						Three Months Ended
	January 27, 2018			January 28, 2017			January 27, 2018			January 28, 2017			August 3, 2019			July 28, 2018
Net sales:
Commercial	$	35,483		$	36,165		$	102,723		$	112,342		$	44,035		$	30,569
Live Events	45,167			41,036			191,432			157,032			59,306			49,472
High School Park and Recreation	11,463			12,653			69,602			68,977			30,465			28,120
Transportation	11,189			9,130			46,577			39,517			19,018			17,157
International	27,014			16,735			62,019			64,989			27,432			28,870
	130,316			115,719			472,353			442,857			180,256			154,188

Gross profit:
Commercial	7,546			7,711			21,085			27,418			9,218			6,894
Live Events	9,747			6,629			43,056			30,430			12,737			10,233
High School Park and Recreation	2,768			3,198			23,672			21,900			10,187			9,502
Transportation	3,570			2,325			16,696			12,966			6,754			5,451
International	4,936			3,453			11,308			13,977			6,609			6,167
	28,567			23,316			115,817			106,691			45,505			38,247

Selling expense:
Contribution margin: (1)
Commercial	4,415			4,575			13,778			13,949			4,084			2,474
Live Events	3,843			3,417			10,562			9,686			8,872			6,985
High School Park and Recreation	2,726			2,581			8,073			7,532			6,592			6,552
Transportation	945			952			3,084			3,461			5,452			4,295
International	3,342			3,153			10,063			11,200			2,208			1,563
	15,271			14,678			45,560			45,828			27,208			21,869

Non-allocated operating expenses:
General and administrative	8,335			8,599			26,138			26,007			9,093			8,537
Product design and development	8,299			6,973			26,294			21,142			10,500			9,292
Operating (loss) income	(3,338		)	(6,934		)	17,825			13,714
Operating income													7,615			4,040

Nonoperating income (expense):
Interest income	158			183			520			559			269			197
Interest expense	(40		)	(56		)	(173		)	(174		)	(35		)	(39		)
Other (expense) income, net	(487		)	(305		)	(429		)	(250		)
Other income (expense), net													193			(154		)

(Loss) income before income taxes	(3,707		)	(7,112		)	17,743			13,849
Income before income taxes													8,042			4,044
Income tax expense (benefit)	2,482			(1,985		)	8,371			4,416			1,012			(530		)
Net (loss) income	$	(6,189	)	$	(5,127	)	$	9,372		$	9,433
Net income													$	7,030		$	4,574

Depreciation, amortization and impairment:
Depreciation and amortization:
Commercial	$	1,550		$	1,616		$	4,628		$	4,777		$	974		$	1,178
Live Events	1,192			1,245			3,626			3,798			1,398			1,172
High School Park and Recreation	401			421			1,245			1,310			512			443
Transportation	281			311			860			957			264			274
International	284			423			835			1,914			524			700
Unallocated corporate depreciation	725			683			2,141			2,015			711			721
	$	4,433		$	4,699		$	13,335		$	14,771		$	4,383		$	4,488

(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				Three Months Ended
	January��27, 2018		January 28, 2017		January 27, 2018		January 28, 2017		August 3, 2019		July 28, 2018
Net sales:
United States	$	98,297	$	94,174	$	396,155	$	363,766	$	149,460	$	121,325
Outside United States	32,019		21,545		76,198		79,091		30,796		32,863
	$	130,316	$	115,719	$	472,353	$	442,857	$	180,256	$	154,188


	January 27, 2018		April 29, 2017						August 3, 2019		April 27, 2019
Property and equipment, net of accumulated depreciation:
United States	$	58,333	$	62,425					$	59,446	$	59,192
Outside United States	5,962		4,324						7,261		6,122
	$	64,295	$	66,749					$	66,707	$	65,314

We have numerous customers worldwide for sales of our products and ~~services;~~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 except with respect to~~services.

We have numerous raw material and component suppliers, and no supplier accounts for 10% or more of our ~~dependence on two major digital billboard customers~~cost of sales; however, we have a number of single-source suppliers that could limit our supply or cause delays in ~~our Commercial business unit.~~ 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 3, 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 August 3, 2019 and April 27, 2019, our available-for-sale securities consisted of the following:



	Amortized Cost		Unrealized Losses			Fair Value
Balance as of August 3, 2019
Certificates of deposit	$	3,464	$	—		$	3,464
U.S. Government securities	1,000		—			1,000
U.S. Government sponsored entities	5,913		(2		)	5,911
Municipal bonds	1,503		—			1,503
	$	11,880	$	(2	)	$	11,878
Balance as of April 27, 2019
Certificates of deposit	$	3,464	$	—		$	3,464
U.S. Government securities	10,779		(5		)	10,774
U.S. Government sponsored entities	10,510		(28		)	10,482
Municipal bonds	1,626		(2		)	1,624
	$	26,379	$	(35	)	$	26,344

Realized gains or losses on investments are recorded in our condensed consolidated statements of operations as "Other income (expense), net." Upon the sale of a security classified as available-for-sale, the security’s specific unrealized gain (loss) is reclassified out of

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accumulated other comprehensive loss into earnings based on the specific identification method. In the three months ended August 3, 2019 and July 28, 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 August 3, 2019 were as follows:



	Less than 12 months		1-5 Years		Total
Certificates of deposit	$	2,234	$	1,230	$	3,464
U.S. Government securities	1,000		—		1,000
U.S. Government sponsored entities	3,661		2,250		5,911
Municipal bonds	1,503		—		1,503
	$	8,398	$	3,480	$	11,878

Note ~~5. Marketable Securities~~

We have a cash management program which provides for the investment of cash balances not used in current operations. We classify our investments in marketable securities as available-for-sale in accordance with the provisions of ASC 320, ~~Investments – Debt and Equity Securities.~~ Marketable securities classified as available-for-sale are reported at fair value with unrealized gains or losses, net of tax, reported in accumulated other comprehensive loss. As it relates to fixed income marketable securities, it is not likely we will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of January 27, 2018, 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 27, 2018 and April 29, 2017, our available-for-sale securities consisted of the following:~~

Amortized Cost Unrealized Gains Unrealized Losses Fair Value
Balance as of January 27, 2018
Certificates of deposit $ 8,918
$ —
$ —
$ 8,918
U.S. Government sponsored entities 9,104
—
(73 ) 9,031
Municipal bonds 6,001
—
(13 ) 5,988
$ 24,023
$ —
$ (86 ) $ 23,937
Balance as of April 29, 2017

Certificates of deposit $ 12,487
$ —
$ —
$ 12,487
U.S. Government securities 400
—
—
400
U.S. Government sponsored entities 12,260
—
(22 ) 12,238
Municipal bonds 7,574
14
—
7,588
$ 32,721
$ 14
$ (22 ) $ 32,713

Realized gains or losses on investments are recorded in our consolidated statements of operations as other income (expense), net. Upon the sale of a security classified as available-for-sale, the security’s specific unrealized gain (loss) is reclassified out of accumulated other comprehensive loss into earnings based on the specific identification method. In the nine months ended January 27, 2018 and January 28, 2017, the reclassifications from accumulated other comprehensive loss to earnings were immaterial.

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Less than 12 months 1-5 Years Total
Certificates of deposit $ 5,207
$ 3,711
$ 8,918
U.S. Government sponsored entities 999
8,032
9,031
Municipal bonds 2,598
3,390
5,988
$ 8,804
$ 15,133
$ 23,937

~~Note 6.~~7. Business Combinations

~~ADFLOW~~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 ~~a contingent liability related to a prior year~~been included in our condensed consolidated financial statements since the date of acquisition. We have not made pro forma disclosures about our acquisition of ~~ADFLOW Networks, Inc. ("ADFLOW"), on March 15, 2016. For more information related~~AJT 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 ~~ADFLOW~~market. This acquisition ~~see "Note 4. Business Combinations" of our Annual Report~~was primarily funded with cash on ~~Form 10-K for the fiscal year ended April 29, 2017. The fair value of such contingent consideration is estimated as of the acquisition date,~~hand and subsequently at the end of each reporting period, using forecasted cash flows. Projecting future cash flows requires us to make significant estimates and assumptions regarding future events, conditions, or revenues being achieved under the subject contingent agreement as well as the appropriate discount rate. Such valuation techniques include one or more significant inputs that are not observable. See "Note 13. Fair Value Measurement" for more information.

~~Note 7. Sale of Non-Digital Division~~

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 payments made over a ~~net book value of $517. We recorded a gain of $1,267 on the disposal, which is included in cost of goods sold in the International business unit.~~three-year period.

Note 8. Goodwill

The changes in the carrying amount of goodwill related to each reportable segment for the ~~nine~~three months ended ~~January 27, 2018~~August 3, 2019 were as follows:

Live Events Commercial Transportation International Total
Balance as of April 29, 2017 $ 2,274
$ 3,199
$ 45
$ 2,294
$ 7,812
Foreign currency translation 38
258
38
323
657
Balance as of January 27, 2018 $ 2,312
$ 3,457
$ 83
$ 2,617
$ 8,469



	Live Events		Commercial		Transportation		International			Total
Balance as of April 27, 2019	$	2,276	$	3,218	$	49	$	2,346		$	7,889
Foreign currency translation	8		53		8		(18		)	51
Balance as of August 3, 2019	$	2,284	$	3,271	$	57	$	2,328		$	7,940

We perform an analysis of goodwill on an annual basis, and it is tested for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. We ~~performed~~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 ~~quarter in~~ fiscal ~~2018, which was~~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 and expected market demand; our ability to grow or maintain market share and gross profit; and our 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, ~~2017. The result of the analysis indicated~~2018 and concluded no goodwill impairment ~~existed~~existed. We plan to complete our annual analysis as of ~~that date.~~the first business day of our third quarter of fiscal 2020, which will begin on November 4, 2019.

~~Note 9. Inventories~~

~~Inventories consisted of the following:~~

January 27,
2018 April 29,
2017
Raw materials $ 26,833
$ 24,801
Work-in-process 11,813
7,366
Finished goods 31,805
34,319
$ 70,451
$ 66,486

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Note 9. Selected Financial Statement Data

Inventories consisted of the following:



	August 3, 2019		April 27, 2019
Raw materials	$	36,239	$	30,789
Work-in-process	9,291		8,239
Finished goods	39,928		39,804
	$	85,458	$	78,832

Property and equipment, net consisted of the following:



	August 3, 2019		April 27, 2019
Land	$	1,754	$	1,738
Buildings	66,731		66,403
Machinery and equipment	99,055		96,486
Office furniture and equipment	6,145		6,195
Computer software and hardware	53,611		55,460
Equipment held for rental	287		287
Demonstration equipment	7,172		7,422
Transportation equipment	7,943		7,715
	242,698		241,706
Less accumulated depreciation	175,991		176,392
	$	66,707	$	65,314

Note 10. 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 ~~$2,311~~$2,292 and ~~$2,610~~$2,208 at ~~January 27, 2018~~August 3, 2019 and April ~~29, 2017,~~27, 2019, respectively. Included in accounts receivable as of ~~January 27, 2018~~August 3, 2019 and April ~~29, 2017~~27, 2019 was ~~$2,044~~$828 and ~~$1,857,~~$440, 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~~some contracts with customers, we agreed to installment payments exceeding ~~twelve months and sales-type leases.~~12 months. 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 ~~$4,147~~$6,160 and ~~$4,890~~$3,514 as of ~~January 27, 2018~~August 3, 2019 and April ~~29, 2017,~~27, 2019, respectively. Contract and lease receivables bearing annual interest rates of ~~4.8~~5.0 to ~~10.0~~9.0 percent are due in varying annual installments through ~~August~~ 2024. The face amount of long-term receivables was ~~$4,547~~ ~~and~~ ~~$5,201~~$5,501 as of ~~January~~August 3, 2019 and $3,271 as of April 27, ~~2018 and April 29, 2017, respectively.~~2019.

Note 11. 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 July 28, 2018, 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 3, 2019, we had $36,988 of remaining capacity under our current share repurchase program.

Note 12. Leases

We lease facilities and various equipment to manufacture products and provide employee collaboration space and tools. These are all classified as operating leases and have initial lease terms ranging from one to five years. These operating leases do not contain material

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residual value guarantees or material restrictive covenants. Our lease in Sioux Falls, SD has a purchase option. We do not have any financing leases.

We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use the incremental borrowing rate based on the information available at commencement date in determining the present value of future lease payments. The operating lease right-of-use asset includes any prepaid lease payments and initial direct costs and excludes any lease incentives and impairments. Some of our leases include options to extend the term, which is only included in the right-of-use assets and lease liability calculation when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, and we have elected to account for all asset classes as a single lease component. Our operating leases also typically require payment of real estate taxes, insurance, and common area maintenance. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components. Our total variable lease costs are immaterial.

Operating lease cost is recognized on a straight-line basis over the lease term, and short-term lease cost is recognized when paid. Both are recognized in cost of sales and operating expenses in the condensed consolidated statements of operations. The lease cost were as follows:



	Three Months Ended August 3, 2019
Operating lease cost⁽¹⁾	$	852

(1) Includes short-term leases, which are immaterial.

The weighted average remaining lease term and discount rate related to operating leases include:



	August 3, 2019
Weighted average remaining lease term	5.4 years
Weighted average discount rate	3.5	%

Supplemental unaudited cash flow information related to operating leases include:



	Three Months Ended August 3, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	816

Future minimum operating lease payments as of, and subsequent to, August 3, 2019 under ASC 842 are as follows:



	Operating Leases⁽¹⁾
Fiscal years ending
2020	$	2,264
2021	2,649
2022	1,924
2023	1,133
2024	1,035
Thereafter	2,377
Total lease payments	11,382
Less imputed interest	(1,008		)
Total lease liabilities	$	10,374

(1) Includes $3,879 to extend the term of our Sioux Falls, South Dakota manufacturing facility.

Note ~~11.~~13. Commitments and Contingencies

Litigation: We are a party to legal proceedings and claims which arise during the ordinary course of business. ~~We review our~~For unresolved legal proceedings ~~and~~or claims, regulatory reviews and inspections, and other legal matters on an ongoing basis and follow appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated, and we ~~disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our financial statements to not be misleading. We~~ do not record an accrual when the likelihood of loss being incurred is probable, but the amount cannot be reasonably estimated, or when the loss is believed to be only reasonably possible or remote, although disclosures will be made for material matters as required by ASC 450-20, ~~Contingencies - Loss Contingencies. Our assessment of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter following all appeals.~~

~~As of January 27, 2018 and April 29, 2017, we did~~ not believe there ~~was~~is a reasonable probability that any material loss ~~for these various claims or legal actions, including reviews, inspections or other legal proceedings, if any, would~~will be incurred. Accordingly, no material

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accrual or disclosure of a potential range of loss has been made related to these matters. ~~In the opinion of management,~~We do not expect the ultimate liability of ~~all~~these unresolved legal proceedings ~~is not expected~~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 and record a liability in the amount of such estimated costs at the time the revenue is recognized. Factors affecting our estimate of the cost of our warranty obligations include historical experience and expectations of future conditions. We continually assess the adequacy of our recorded warranty accruals and, to the extent we experience any changes in warranty claim activity or costs associated with servicing those claims, our accrued warranty obligation is adjusted accordingly.

During fiscal 2016, we discovered a warranty issue caused by a mechanical device failure within a module for displays primarily in our OOH applications built prior to fiscal 2013. The device failure causes a visual defect in the display. Over the past three years, we have deployed preventative maintenance to sites impacted and repaired the defective devices in our repair center. When certain site locations have exceeded an acceptable failure rate, we have refurbished the display to meet customers’ expectations under contractual obligations. During fiscal 2017, 2016, and 2015 we recognized warranty expense for probable and reasonably estimated costs to remediate this issue of $1,766, $9,174, and $1,168, respectively. We recognized warranty expense related to this issue of $4,034 during the nine months ended January 27, 2018. This increased expense level is not the result of a new issue, but is primarily based on our decision to preserve our market leadership. We elected to expand the refurbishments for customer relationship purposes. As of January 27, 2018, we had $3,066 remaining in accrued warranty obligations for the estimate of probable future claims related to this issue. Although many of our contractual warranty arrangements are nearing expiration for products with this issue, we may incur additional discretionary costs to maintain customer relationships or for higher than expected failure rates. Accordingly, it is possible that the ultimate cost to resolve this matter may increase and be materially different from the amount of the current estimate and accrual.

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Changes in our warranty obligation for the ~~nine~~three months ended ~~January 27, 2018~~August 3, 2019 consisted of the following:


	Amount			August 3, 2019
Beginning accrued warranty obligations	$	27,899		$	24,470
Warranties issued during the period	9,652			3,545
Settlements made during the period	(13,581		)	(2,510		)
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations	5,230			(55		)
Ending accrued warranty obligations	$	29,200		$	25,450

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~~construction-type contracts. As of ~~January 27, 2018,~~August 3, 2019, we had outstanding letters of credit and surety bonds in the amount of $~~13,396~~17,248 and $~~8,330~~21,758, respectively. Performance guarantees are issued to certain customers to guarantee the operation and installation of the equipment and our ability to complete a contract. These performance guarantees have various terms ~~which~~but are generally one year.

~~Leases:~~ We ~~lease vehicles, office space~~enter into written agreements with our customers, and ~~equipment for various global sales~~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 ~~service locations, including manufacturing space in~~limitations on the ~~United States and China. Some~~recovery of these leases, including the lease for manufacturing facilities in Sioux Falls, South Dakota, include provisions for extensions or purchase. The lease for the facilities in Sioux Falls, South Dakota, can be extended for an additional five years past its current term, which ends March 31, 2022, and it contains an option to purchase the property subject to the leasesuch damages. As of August 3, 2019, we were not aware of any indemnification claim from ~~March 31, 2017 to March 31, 2022 for~~ a customer.~~$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~~ ~~$2,568~~ ~~and~~ ~~$2,358~~ ~~for the nine months ended January 27, 2018 and January 28, 2017, 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 27, 2018:

Fiscal years ending Amount
2018 $ 775
2019 2,624
2020 2,101
2021 1,771
2022 1,437
Thereafter 544
$ 9,252

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 27, 2018,~~August 3, 2019, we were obligated under the following ~~conditional and~~ unconditional ~~purchase commitments, which included~~ ~~$350~~ ~~in conditional~~ purchase commitments:


Fiscal years ending	Amount		Amount
2018	$	665
2019	2,675
2020	1,898		$	3,254
2021	313		4,485
2022	143		2,692
2023			1,820
2024			113
Thereafter	380		153
	$	6,074	$	12,517

Note ~~12.~~14. Income Taxes

We ~~are subject to U.S. Federal income tax as well as~~calculate the provision for income taxes during interim reporting periods by applying an estimate of ~~multiple state and foreign jurisdictions.~~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. ~~As a result~~We recorded an effective tax rate of 12.6 percent for the ~~expiration~~three months ended August 3, 2019 and an effective tax rate benefit of ~~statutes~~13.1 percent for the three months ended July 28, 2018. The changes in the effective tax rates are primarily driven by the benefit of ~~limitations, our~~research and development tax credits and foreign tax credits proportionate to pre-tax book income for each period.

We are subject to U.S. federal income tax as well as income taxes of multiple state and foreign jurisdictions. Fiscal years 2016, 2017, 2018 and 2019 remain open to federal tax examinations, and fiscal years 2015, 2016, 2017, 2018 and ~~2017 are the remaining years~~2019 remain open ~~under statutes of limitations~~ for ~~federal and~~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 ~~2008.~~

~~Table~~2009. In the event of ~~contents~~

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 ~~January 27, 2018,~~August 3, 2019, undistributed earnings of our foreign subsidiaries were considered to be reinvested indefinitely. Additionally, we had ~~$3,179~~$727 of unrecognized tax benefits which would reduce our effective tax rate if recognized.

~~On December 22, 2017, President Trump signed the U.S. Tax Cuts and Jobs Act (the “Tax Act”) into law. The Tax Act makes broad and complex changes to the U.S. tax code. Some~~

Table of the most significant provisions of the Tax Act impacting us include a reduction of the U.S. federal corporate income tax rate from 35% to 21%, a one-time "deemed repatriation" tax on previously untaxed accumulated earnings and profits of certain subsidiaries in non-U.S. jurisdictions, and a transition of U.S. international taxation from a worldwide tax system to a territorial tax system.

GAAP accounting for income taxes requires us to record the impact of any tax law change in the quarter the law change is enacted. On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 which provides additional guidance allowing companies to record provisional amounts during a measurement period, not to exceed one year from the enactment date of the Tax Act, to account for the impacts of the Tax Act in their financial statements when companies do not have the necessary information available, prepared or analyzed in reasonable detail to complete their accounting for the effects of the changes in the Tax Act. We have accounted for the impacts of the Tax Act to the extent a reasonable estimate could be made during the quarter ended January 27, 2018. We will continue to refine our estimates throughout the measurement period or until the accounting is complete, and the impact of the Tax Act may differ from these estimates, possibly materially, due to, among other things, changes in estimates and assumptions that we have made.

As a result, we have recorded a provisional reduction to our net deferred tax asset (which represents future tax benefits) of $3,679 which resulted in a corresponding increase to income tax expense for the quarter ended January 27, 2018. The revaluation of our net deferred tax asset is subject to further adjustments during the measurement period due to the complexity of determining our net deferred tax asset as of the enactment date of the Tax Act. Some of the information necessary to determine the accounting impacts of the tax rate change includes finalization of our fiscal 2018 tax return as well as refining the analysis of which existing deferred balances at the enactment date will reverse in fiscal 2018 and which deferred balances will reverse after fiscal 2018.

Additionally, we have recorded a provisional increase to income tax expense of $601 for the one-time deemed repatriation tax. The estimate of the deemed repatriation tax is based, in part, on the amount of cash and other specified assets anticipated to be held by Daktronics’ foreign subsidiaries as of April 28, 2018. As a result, the final amount may change as the amounts are finalized. We plan to pay the tax payable in installments in accordance with the Tax Act.contents

Note ~~13.~~15. Fair Value Measurement

~~ASC 820,~~ ~~Fair Value Measurement,~~ defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy within ASC 820 distinguishes between the following three levels of inputs which may be utilized when measuring fair value.

~~Level 1~~ ~~- Quoted prices in active markets for identical assets or liabilities.~~

~~Level 2~~ - Observable inputs other than quoted prices included within Level 1 for the assets or liabilities, either directly or indirectly (for example, quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated input).

~~Level 3~~ ~~- Unobservable inputs supported by little or no market activity based on our own assumptions used to measure assets and liabilities.~~

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The following table sets forth by Level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis at ~~January 27, 2018~~August 3, 2019 and April ~~29, 2017~~27, 2019 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											Fair Value Measurements
	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
Balance as of January 27, 2018
Cash and cash equivalents	$	49,042	$	—		$	—		$	49,042
Restricted cash	28		—			—			28
Available-for-sale securities:
Certificates of deposit	—		8,918			—			8,918
U.S. Government sponsored entities	—		9,031			—			9,031
Municipal bonds	—		5,988			—			5,988
Derivatives - asset position	—		64			—			64
Derivatives - liability position	—		(720		)	—			(720		)
Contingent liability	—		—			(1,034		)	(1,034		)
	$	49,070	$	23,281		$	(1,034	)	$	71,317
Balance as of April 29, 2017
Balance as of August 3, 2019
Cash and cash equivalents	$	32,623	$	—		$	—		$	32,623		$	20,762	$	—		$	—		$	20,762
Restricted cash	216		—			—			216			339		—			—			339
Available-for-sale securities:
Certificates of deposit	—		12,487			—			12,487			—		3,464			—			3,464
U.S. Government securities	400		—			—			400			1,000		—			—			1,000
U.S. Government sponsored entities	—		12,238			—			12,238			—		5,911			—			5,911
Municipal bonds	—		7,588			—			7,588			—		1,503			—			1,503
Derivatives - asset position	—		64			—			64			—		334			—			334
Derivatives - liability position	—		(277		)	—			(277		)	—		(10		)	—			(10		)
Contingent liability	—		—			(1,891		)	(1,891		)
Acquisition-related contingency consideration												—		—			(1,554		)	(1,554		)
	$	33,239	$	32,100		$	(1,891	)	$	63,448		$	22,101	$	11,202		$	(1,554	)	$	31,749
Balance as of April 27, 2019
Cash and cash equivalents												$	35,383	$	—		$	—		$	35,383
Restricted cash												359		—			—			359
Available-for-sale securities:
Certificates of deposit												—		3,464			—			3,464
U.S. Government securities												10,774		—			—			10,774
U.S. Government sponsored entities												—		10,482			—			10,482
Municipal bonds												—		1,624			—			1,624
Derivatives - asset position												—		91			—			91
Derivatives - liability position												—		(4		)	—			(4		)
Acquisition-related contingency consideration												—		—			(3,065		)	(3,065		)
												$	46,516	$	15,657		$	(3,065	)	$	59,108

A roll forward of the Level 3 contingent ~~liability,~~liabilities, both short- and long-term, for the ~~nine~~three months ended ~~January 27, 2018~~August 3, 2019 is as follows:


Contingent liability as of April 29, 2017	$	1,891
Acquisition-related contingency consideration as of April 27, 2019				$	3,065
Additions				25
Settlements	(1,009		)	(1,591		)
Interest	30			18
Foreign currency translation	122			37
Contingent liability as of January 27, 2018	$	1,034
Acquisition-related contingency consideration as of August 3, 2019				$	1,554

~~The following methods and assumptions were used to estimate the fair value of each class of financial instrument.~~ There have been no changes in the valuation techniques used by us to value our financial ~~instruments.~~

~~Cash~~instruments since the end of fiscal 2019. For additional information, see our Annual Report on Form 10-K for the fiscal year ended April 27, 2019 for the methods and ~~cash equivalents~~: Consists of cash on hand in bank deposits and highly liquid investments, primarily money market accounts. The fair value was measured using quoted market prices in active markets. The carrying amount approximates fair value.

~~Restricted cash: Consists of cash and cash equivalents held in bank deposit accounts~~assumptions used to ~~secure issuances of foreign bank guarantees. The fair value of restricted cash was measured using quoted market prices in active markets. The carrying amount approximates fair value.~~

~~Certificates of deposit~~: Consists of time deposit accounts with original maturities of less than three years and various yields. The fair value of these securities was measured based on valuations observed in less active markets than Level 1 investments from a third-party financial institution. The carrying amount approximates fair value.

~~U.S. Government securities~~:Consists of U.S. Government treasury bills, notes, and bonds with original maturities of less than three years and various yields. The fair value of these securities was measured using quoted market prices in active markets.

~~U.S. Government sponsored entities~~: Consists of Fannie Mae and Federal Home Loan Bank investment grade debt securities trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on valuations observed in less active markets than Level 1 investments. The contractual maturities of these investments vary from one month to three years.

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~~Municipal bonds~~: Consist of investment grade municipal bonds trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The contractual maturities of these investments vary from two to three years. The fair value of these bonds was measured based on valuations observed in less active markets than Level 1 investments.

~~Derivatives – currency forward contracts~~: Consists of currency forward contracts trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on a valuation from a third-party bank. See "Note 14. Derivative Financial Instruments" for more information regarding our derivatives.

~~Contingent liability: Consists of~~estimate the fair value of ~~a liability measured on expected future payments relating to a business acquisition if future~~each class of financial performance measures are achieved. The contingent liability was calculated by estimating the discounted present value of expected future payments for estimated performance measure attainment. To estimate future performance measure attainment, we utilized significant unobservable inputs as of January 27, 2018 and April 29, 2017. The unobservable inputs included management expectations and forecasts for business performance and an estimated discount rate based on current borrowing interest rates. To the extent that these assumptions changed or actual results differed from these estimates, the fair value of the contingent consideration liability could change. The contingent liability is presented in other long-term obligations in our consolidated balance sheets.

~~Non-recurring measurements:~~ The fair value measurement standard also applies to certain non-financial assets and liabilities measured at fair value on a nonrecurring basis. Certain long-lived assets such as goodwill, intangible assets and property and equipment are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

~~Other measurements using fair value~~: Some of our financial instruments, such as accounts receivable, long-term receivables, prepaid expense and other assets, costs and earnings in excess of billings and billings in excess of costs, accounts payable, warranty obligations, customer deposits, deferred revenue, and other long-term obligations, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.instrument.

Note ~~14.~~16. Derivative Financial Instruments

We utilize derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on those transactions denominated in currencies other than our functional currency, which is the U.S. dollar. We enter into currency forward contracts to manage these economic risks. We account for all derivatives onin the condensed consolidated balance ~~sheet~~sheets within accounts receivable or accounts payable measured at fair value, and changes in fair values are recognized in earnings unless specific hedge accounting criteria are met for cash flow or net investment hedges. As of ~~January 27, 2018~~August 3, 2019 and April ~~29, 2017,~~27, 2019, we had not designated any of our derivative instruments as accounting hedges, and thus we recorded the changes in fair value in ~~other~~the "Other income (expense), ~~net.~~net" line item in the condensed consolidated statements of operations.

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The foreign currency exchange contracts in aggregated notional amounts in place to exchange U.S. dollars at ~~January 27, 2018~~August 3, 2019 and April ~~29, 2017~~27, 2019 were as follows:


	January 27, 2018				April 29, 2017		August 3, 2019		April 27, 2019
	U.S. Dollars		Foreign Currency		U.S. Dollars	Foreign Currency	U.S. Dollars	Foreign Currency	U.S. Dollars	Foreign Currency
Foreign Currency Exchange Forward Contracts:
U.S. Dollars/Australian Dollars	2,615		3,408		7,984	10,669	1,524	2,165	2,688	3,772
U.S. Dollars/Canadian Dollars	1,424		1,864		256	345	619	821	625	821
U.S. Dollars/British Pounds	6,402		4,778		4,936	3,959	4,747	3,639	3,547	2,680
U.S. Dollars/Singapore Dollars	237		312		605	844
U.S. Dollars/Euros	(1,277	)	(1,061	)	528	491
U.S. Dollars/Swiss Franc	998		989		—	—	—	—	927	925
U.S. Dollars/Malaysian Ringgit							60	246	60	246

As of ~~January 27, 2018,~~August 3, 2019, there was an asset and liability of ~~$64~~$334 and $~~720~~10, respectively, and as of April ~~29, 2017,~~27, 2019, there was an asset and liability of ~~$64~~$91 and $~~277~~4, respectively, representing the fair value of foreign currency exchange forward contracts, which were determined using Level 2 inputs from a third-party bank. As of August 3, 2019, all contracts mature within 20 months.

~~Note 15. Subsequent Events~~

On March 1, 2018, our Board of Directors declared a regular quarterly dividend of $0.07 per share on our common stock payable on March 22, 2018 to holders of record of our common stock on March 12, 2018.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (including exhibits and any information incorporated by reference herein) contains both historical and forward-looking statements that involve risks, uncertainties and assumptions. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21B of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, intentions and strategies for the future. These statements appear in a number of places in this Report and include all statements that are not historical statements of fact regarding the intent, belief or current expectations with respect to, among other things: (i.) our competition; (ii.) our financing plans; (iii.) trends affecting our financial condition or results of operations; (iv.) our growth ~~strategy~~ and operating ~~strategy;~~strategies; (v.) the declaration and payment of dividends; (vi.) the timing and magnitude of future contracts; (vii.) raw material shortages and lead times; (viii.) fluctuations in margins; (ix.) the seasonality of our business; (x.) the introduction of new products and technology; (xi.) the amount and frequency of warranty claims; (xii.) our ability to manage the impact that new or adjusted tariffs may have on the cost of raw materials and ~~(xii.~~components and our ability to sell product internationally; (xiii.) the resolution of litigation contingencies; and (xiv.) the timing and magnitude of any acquisitions or dispositions. The words “may,” “would,” “could,” “should,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend,” ~~“plans”~~“plan” and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond our ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors discussed herein, including those discussed in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended April ~~29, 2017~~27, 2019 in the section entitled ~~“Item~~“Part I, Item 1A. Risk Factors” and ~~"Item~~“Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations,"” and those factors discussed in detail in our other filings with the Securities and Exchange Commission.

The following discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). This discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements included in this Report. The preparation of these condensed financial statements requires us to make estimates and judgments affecting the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate our estimates, including those related to total costs on long-term construction-type contracts, costs to be incurred for product warranties and extended maintenance contracts, bad debts, excess and obsolete inventory, income taxes, share-based compensation, goodwill impairment and contingencies. Our estimates are based on historical experience and on various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates.

OVERVIEW

We design, manufacture and sell a wide range of display systems to customers throughout the world. We focus our sales and marketing efforts on markets, geographical regions and products. Our five business segments consist of four domestic business units and the International business unit. The four domestic business units consist of Commercial, Live Events, High School Park and Recreation,

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and Transportation, all of which include the geographic territories of the United States and Canada. Disclosures related to our business segments are provided in "Note 4.5. Segment ~~Disclosure"~~Reporting" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report.

Our net sales and profitability historically have fluctuated due to the impact of ~~large project~~uniquely configured orders, such as display systems for professional sports facilities, colleges and universities, and spectacular projects in the commercial area, as well as the seasonality of the sports market. ~~Large project~~Uniquely configured orders can include several displays, controllers, and subcontracted structure builds, each of which can occur on varied schedules per the customer's needs. ~~Net~~Outdoor installation sales can be impacted by outdoor weather conditions and ~~gross profit percentages also have fluctuated~~the construction season. Our third fiscal quarter tends to be a slower quarter because it includes two holidays, it is affected by sports seasonality, and generally less outdoor construction work occurs due to ~~other seasonal factors, including the impact of holidays, which primarily affects our third fiscal quarter.~~weather conditions.

Our gross margins ~~on large custom and large standard orders~~ tend to fluctuate more on uniquely configured orders than on ~~small standard~~limited configured orders. ~~Large product~~Uniquely configured orders involving competitive bidding and substantial subcontract work for product installation generally have lower gross margins. Although we follow the ~~percentage of completion~~over time method of recognizing revenues for ~~large custom~~uniquely configured orders, we nevertheless have experienced fluctuations in operating results and expect our future results of operations will be subject to similar fluctuations.

Our ~~backlog consists~~remaining performance obligations ("backlog") consist of contractually binding sales agreements or purchase orders for integrated electronic display systems and related products and service. Orders are included in backlog when we ~~expect to fill within the next 24 months. Orders, which we define as a~~are in receipt of an executed contract and any required deposits ~~are booked and included in backlog.~~or security. As a result, certain orders for which we have received binding letters of intent or contracts will not be ~~booked~~included in backlog until all required contractual documents and deposits are received. ~~In addition,~~Backlog can fluctuate due to large order bookings ~~can vary significantly on a quarterly basis as a result of~~and the timing and seasonality of ~~large orders.~~net sales. Because order backlog fluctuates and may be subject to extended delivery schedules, orders may be canceled and ~~orders~~ have varied estimated

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~~profitability, our~~ profitability. Our backlog is not necessarily indicative of future net sales or net income. ~~Backlog can fluctuate due to large order booking timing and seasonality.~~ Backlog is not a measure defined by GAAP, and our methodology for determining backlog may vary from the methodology used by other companies in determining their backlog amounts.

For a summary of recently issued accounting pronouncements and the effects of those pronouncements on our financial results, refer to "Note 1. Basis of Presentation and Summary of Critical Accounting Policies" of the Notes to the Consolidated Financial Statements included elsewhere in this Report.

GENERAL

Our mission is to be the world leader at informing and entertaining audiences through dynamic audio-visual communication systems. We ~~measure our success through estimated market share based~~organize into business units to focus on ~~estimated market demand for digital displays~~customer loyalty over time to earn new and generating profits over the long-term. Our success is contingent on the depth and quality of our products, including related control systems, the depth of our service offerings and our technology serving these market demands. These qualities are important for our long-term successreplacement business because our products have a finite ~~lifetimes,~~lifetime. See "Note 5. Segment Reporting" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report for further information. Our strategies include the creation of a comprehensive line of innovative solutions and ~~we strive~~systems and our ability to ~~win replacement business from existing customers.~~create and leverage platform designs and technologies. These strategies align us to effectively deliver value to our varied customers and their market needs, while serving our stakeholders over the long-term. We focus on creating local capabilities for sales, service, and manufacturing in geographies with expected digital market opportunities. We believe consistently generating profitable growth will provide value to our stakeholders (customers, employees, shareholders, suppliers, and communities).

~~Increases in user adoption, the acceptance of~~We measure our success using a variety of measures including:

our percentage of market share by comparing our estimated revenue to the total estimated global digital ~~solutions,~~display revenue,

our order growth compared to the overall digital market order change,

financial metrics such as annual order volume and profit change as compared to our previous financial results,

customer retention and expansion rates, and

our ability to generate profits over the long-term to provide a shareholder return.

Certain factors impact our ability to succeed in these strategies and impact our business units to varying degrees. For example, the overall cost to manufacture and the selling prices of our products have decreased over the years and are expected to continue to decrease in the future. Our competitors outside the U.S. are impacted differently by the global trade environment allowing them to avoid tariff costs or reduce prices. As a result, additional competitors have entered the market, and each year we must sell more product to generate the same or greater level of net sales as in previous fiscal years. However, the decline of digital solution pricing over the years ~~has~~and increased user adoption and applications have increased the size of the global market. ~~With this positive demand, strong competition exists across all of our business units, which causes margin constraints.~~

Competitor offerings, actions and reactions also can vary and change over time or in certain customer situations. Projects with multimillion-dollar revenue potential attracts competition, and competitors can use marketing or other tactics to win business.

Each of our business unit's long-term performance can be impacted by economic conditions in different ways and to different degrees. The effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses, although in severe economic downturns, the sports business can also ~~attract competition, which generally reduces profitability.~~be seriously impacted.

We ~~organize around customer segments~~can be impacted by short-term events like the U.S. Administrative trade actions in 2018 or a number of other factors that are disclosed in "Item 1A. Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended April 27, 2019.

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The outlook and ~~geographic regions as further described in "Note 4. Segment Disclosure" of the Notes to the Consolidated Financial Statements included elsewhere in this Report. Each business segment also has~~ unique key growth drivers and ~~challenges.~~challenges by our business units include:

Commercial Business Unit: Over the long-term, we believe growth in the Commercial business unit will result from a number of factors, including:

Standard display product market growth due to market adoption and lower product costs, which drive marketplace expansion. Standard display products are used to attract or communicate with customers and potential customers of retail, commercial, and other establishments. Pricing and economic conditions are the principal factors that impact our success in this business unit. We utilize a reseller network to distribute our standard products.

National accounts standard display market opportunities due to customers' desire to communicate their message, advertising and content consistently across the country. Increased demand is possible from national retailers, quick serve restaurants, petroleum ~~businesses,~~retailers, and other nationwide organizations.

Additional standard display offerings using micro-light emitting diode ("LED") designs.

Increasing use of LED technologies replacing signage previously using liquid crystal display ("LCD") technology by existing and new customers.

Increasing interest in spectaculars, which include very large and sometimes highly customized displays as part of entertainment venues such as casinos, shopping centers, cruise ships and Times Square type locations.

Dynamic messaging systems demand growth due to market adoption and ~~marketplace expansion.~~expanded use of this technology.

The use of architectural lighting products for commercial buildings, which real estate owners use to add accents or effects to an entire side or circumference of a building to communicate messages or to decorate the building.

The continued deployment of digital billboards as Out-of-Home ("OOH") advertising companies continue developing new sites and replacing digital billboards ~~which are~~ reaching end of life. This is dependent on ~~there being~~ no adverse changes occurring in the digital billboard regulatory environment restricting future billboard deployments, ~~of billboards,~~ as well as maintaining our current market share ~~of the~~in a business that is concentrated in a few large OOH companies.

Replacement cycles within each of these areas.

Live Events Business Unit: Over the long-term, we believe growth in the Live Events business unit will result from a number of factors, including:

Facilities spending more on larger display systems to enhance the game-day and event experience for attendees.

Lower product costs, driving an expansion of the marketplace.

Our product and service offerings, including additional micro-LED offerings which remain the most integrated and comprehensive offerings in the industry.

The competitive nature of sports teams, which strive to out-perform their competitors with display systems.

The desire for high-definition video displays, which typically drives larger displays or higher resolution displays, both of which increase the average transaction size.

Dynamic messaging ~~systems~~system needs throughout a sports facility.

Increasing use of LED technologies replacing signage previously using LCD technology in and surrounding live events facilities.

Replacement cycles within each of these areas.

High School Park and Recreation Business Unit: Over the long-term, we believe growth in the High School Park and Recreation business unit will result from a number of factors, including:

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Increased demand for video systems in high schools as school districts realize the revenue generating potential of these displays ~~versus~~compared to traditional ~~scoreboards.~~scoreboards and these systems' ability to provide or enhance academic curriculum offerings for students.

Increased demand for different types of displays and dynamic messaging systems, such as message centers at schools to communicate to students, parents and the broader community.

~~The~~Lower system costs driving the use of more sophisticated displays in school athletic facilities, such as large integrated video systems.

Expanding control system options tailored for the markets' needs.

Transportation Business Unit: Over the long-term, we believe growth in the Transportation business unit will result from increasing applications and acceptance of electronic displays to manage transportation systems, including roadway, airport, parking, transit and other applications. Effective use of the United States transportation infrastructure requires intelligent transportation systems. This growth is highly dependent on government spending, primarily by state and federal governments, along with the continuing acceptance of private/public partnerships as an alternative funding source. Growth is also expected in dynamic messaging systems for advertising and way-finding use in public transport and airport terminals due to expanded market usage and displays, with LED technology replacing prior LCD installations and additional display offerings using micro-LEDs.

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International Business Unit: Over the long-term, we believe growth in the International business unit will result from achieving greater penetration in various geographies and building products more suited to individual markets. We continue to broaden our product offerings into the transportation segment in Europe and the Middle East. We also focus on sports facility, spectacular-type, OOH advertising products, and ~~third-party advertising~~architectural lighting market opportunities and the factors listed in each of the other business units to the extent they apply outside of the United States and Canada.

~~Each~~ Additional opportunities exist with expanded market usage of ~~our business units is impacted by adverse economic conditions in different ways~~LED technology due to price considerations, usage of LED technology replacing prior LCD installations and to different degrees. The effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses, although in severe economic downturns, the sports business also can be seriously impacted. Our Commercial and International business units are highly dependent on economic conditions in general.additional display offerings using micro-LEDs.

RESULTS OF OPERATIONS

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 April 27, 2019 consisted of 52 weeks. Fiscal 2020 will be a 53-week year; therefore, the quarter ended August 3, 2019 contains operating results for 14 weeks while the quarter ended July 28, 2018 contains operating results for 13 weeks.

COMPARISON OF THE THREE MONTHS ENDED ~~JANUARY 27,~~AUGUST 3, 2019 AND JULY 28, 2018 ~~AND JANUARY 28, 2017~~

Net Sales


	Three Months Ended									Three Months Ended
(in thousands)	January 27, 2018		January 28, 2017		Dollar Change			Percent Change		August 3, 2019		July 28, 2018		Dollar Change			Percent Change
Net sales:
Commercial	$	35,483	$	36,165	$	(682	)	(1.9	)%	$	44,035	$	30,569	$	13,466		44.1	%
Live Events	45,167		41,036		4,131			10.1		59,306		49,472		9,834			19.9
High School Park and Recreation	11,463		12,653		(1,190		)	(9.4	)	30,465		28,120		2,345			8.3
Transportation	11,189		9,130		2,059			22.6		19,018		17,157		1,861			10.8
International	27,014		16,735		10,279			61.4		27,432		28,870		(1,438		)	(5.0	)
	$	130,316	$	115,719	$	14,597		12.6	%	$	180,256	$	154,188	$	26,068		16.9	%
Orders:
Commercial	$	28,745	$	32,595	$	(3,850	)	(11.8	)%	$	38,648	$	35,792	$	2,856		8.0	%
Live Events	39,911		51,590		(11,679		)	(22.6	)	66,969		39,395		27,574			70.0
High School Park and Recreation	13,451		14,178		(727		)	(5.1	)	30,552		38,449		(7,897		)	(20.5	)
Transportation	14,641		19,621		(4,980		)	(25.4	)	22,215		21,916		299			1.4
International	29,405		25,329		4,076			16.1		29,079		24,058		5,021			20.9
	$	126,153	$	143,313	$	(17,160	)	(12.0	)%	$	187,463	$	159,610	$	27,853		17.5	%

Sales and orders were impacted as a result of the first quarter of fiscal 2020 including 14 weeks compared to the more common 13 weeks. The first quarter of fiscal 2019 contained 13 weeks.

For net sales, during the first quarter of fiscal 2020, we achieved a $12.9 million per week average run rate as compared to $11.9 million per week during the first quarter of fiscal 2019, or an approximate 8.6% increase. This change was driven by the order volume reasons described below and the timing of conversion related to the seasonality in our business.

For orders, during the first quarter of fiscal 2020, we achieved a $13.4 million per week average run rate as compared to $12.3 million per week during the first quarter of fiscal 2019, or an approximate 9.1% increase. We had an increase in orders placed during the first quarter of fiscal 2020 related to new releases of our product offerings.

Commercial: The ~~decrease~~increase in net sales for the three months ended ~~January 27, 2018~~August 3, 2019 compared to the same period one year ago was primarily due to ~~lower order volumes in the on-premise niche and~~ the timing of ~~delivery of~~ large custom projects in the spectacular ~~niche, which were partially offset by an increase in the billboard niche shipment activity due to changes of timing of customer demand as compared to last year.~~and OOH niches.

The ~~decrease~~increase in orders for the three months ended ~~January 27, 2018~~August 3, 2019 compared to the same period one year ago was primarily due to the ~~net result~~timing of ~~decreases in the billboard niche and decreases~~projects in the on-premise ~~niche due to a number of factors, including competitive market pricing, a delay of national account-based opportunities,~~ and ~~the natural volatility of large project timing.~~OOH niches.

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Live Events: The increase in net sales for the three months ended January 27, 2018 compared to the same period one year ago was primarily due to continued demand and the timing of customer needs. This year, net sales were impacted by projects for professional baseball facilities renovation and construction project timeliness.

~~Orders decreased for the three months ended January 27, 2018 compared to the same period one year ago due to variability in order timing.~~

~~High School Park and Recreation:~~ ~~The decrease in net sales for the three months ended January 27, 2018~~August 3, 2019 compared to the same period one year ago was primarily due to the timing of ~~customer demand.~~the demand for upgraded or new solutions for arenas and college and universities.

Orders increased for the three months ended August 3, 2019 compared to the same period one year ago due to an increase in the number of projects for professional sports, arenas, and college and universities venues.

High School Park and Recreation: The increase in net sales for the three months ended August 3, 2019 compared to the same period one year ago was primarily due to the timing of converting orders and backlog into sales.

Orders decreased for the three months ended ~~January 27, 2018~~August 3, 2019 compared to the same period one year ago due to ~~fewer~~variability in order timing and a decrease in large video ~~project orders which have larger average selling prices in this segment during~~projects compared to the ~~period.~~same period last year.

Transportation: The increase in net sales for the three months ended ~~January 27, 2018~~August 3, 2019 compared to the same period one year ago was primarily due to ~~higher delivery needs from state transportation authorities during~~ the ~~quarter this year as compared to last year.~~variability of large order production timing caused by customer project schedules.

Orders for the three months ended ~~January 27, 2018~~August 3, 2019 compared to the same period one year ago remained relatively flat.

International: Net sales for the three months ended August 3, 2019 compared to the same period one year ago decreased primarily due to the variability of timing caused by large ~~order timing.~~

~~International:~~ ~~Net sales for the three months ended January 27, 2018 compared to the same period one year ago increased primarily due to increased market demand in OOH.~~projects of professional sports stadiums.

Orders increased for the three months ended ~~January 27, 2018~~August 3, 2019 compared to the same period one year ago primarily due to general variations in the ~~volatility~~timing of large contracts and account-based order ~~timing.~~placements.

Product Order Backlog

The product order backlog as of ~~January 27, 2018~~August 3, 2019 was ~~$151~~$207 million as compared to ~~$170~~$177 million as of ~~January~~July 28, ~~2017~~2018 and ~~$155~~$202 million at the end of the ~~second~~fourth quarter of fiscal ~~2018.~~2019. Historically, our product order backlog varies due to the seasonality of our business, the timing of large projects, and customer delivery schedules for these orders. The product order backlog as of ~~January 27, 2018 decreased from January 28, 2017 in our Commercial, Live Events and Transportation business units,~~August 3, 2019 increased in our Live Events, Transportation, and International business ~~unit,~~units from July 28, 2018 and ~~remained relatively flat~~decreased in our High School Park and Recreation business unit.

Gross Profit


	Three Months Ended								Three Months Ended
	January 27, 2018				January 28, 2017				August 3, 2019				July 28, 2018
	Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales
(in thousands)	Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales
Commercial	$	7,546	21.3	%	$	7,711	21.3	%	$	9,218	20.9	%	$	6,894	22.6	%
Live Events	9,747		21.6		6,629		16.2		12,737		21.5		10,233		20.7
High School Park and Recreation	2,768		24.1		3,198		25.3		10,187		33.4		9,502		33.8
Transportation	3,570		31.9		2,325		25.5		6,754		35.5		5,451		31.8
International	4,936		18.3		3,453		20.6		6,609		24.1		6,167		21.4
	$	28,567	21.9	%	$	23,316	20.1	%	$	45,505	25.2	%	$	38,247	24.8	%

Gross profit is net sales less cost of ~~goods sold.~~sales. Cost of ~~goods sold~~sales consists primarily of inventory, consumables, salaries, other employee-related costs, facilities-related costs for manufacturing locations, machinery and equipment maintenance and depreciation, site sub-contractors, warranty costs, and other service delivery expenses.

The increase in our gross profit percentage for the three months ended ~~January 27, 2018~~August 3, 2019 compared to the same period one year ago was primarily due to higher sales volumes over relatively fixed infrastructure ~~costs.~~costs, partly offset by $1.5 million in additional tariff expenses, or a 0.8% impact to gross profit. Total warranty as a percent of sales decreased to 2.1% for the three months ended August 3, 2019 as compared to 2.5% during the three months ended July 28, 2018. The following describes the overall impact by business unit:

Commercial: The gross profit percent decrease for the three months ended ~~January 27, 2018~~August 3, 2019 compared to the same period one year ago ~~remained~~was due to a change in product mix, which was partly offset by higher sales volumes over relatively ~~flat.~~fixed infrastructure costs.

Live Events: The gross profit percent increase for the three months ended ~~January 27, 2018~~August 3, 2019 compared to the same period one year ago was primarily due to ~~an increased volume of~~higher sales volumes over relatively fixed infrastructure costs, partly offset by an increase in warranty expenses and ~~lower warranty expenses.~~a change in sales mix.

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High School Park and Recreation: The gross profit percent ~~decrease~~ for the three months ended ~~January 27, 2018~~August 3, 2019 as compared to the same period one year ago ~~was primarily due to lower sales volumes over~~remained relatively ~~fixed infrastructure costs and a change in sales mix.~~flat.

Transportation: The gross profit percent increase for the three months ended ~~January 27, 2018~~August 3, 2019 compared to the same period one year ago was primarily due to product mix and higher sales volumes over relatively fixed infrastructure costs.

International: The gross profit percent ~~decrease~~increase for the three months ended ~~January 27, 2018~~August 3, 2019 compared to the same period one year ago was primarily the result of ~~higher~~lower warranty expenses, ~~and an unfavorable sales mix, which were~~partly offset by ~~increased volume of~~lower sales volumes over relatively fixed infrastructure costs.

~~Selling Expense~~Contribution Margin


	Three Months Ended													Three Months Ended
	January 27, 2018								January 28, 2017					August 3, 2019									July 28, 2018
	Amount		As a Percent of Net Sales			Percent Change			Amount			As a Percent of Net Sales		Amount			As a Percent of Net Sales			Percent Change			Amount				As a Percent of Net Sales
(in thousands)	Amount					Percent Change						As a Percent of Net Sales		Amount			As a Percent of Net Sales			Percent Change			Amount				As a Percent of Net Sales
Commercial	$	4,415	As a Percent of Net Sales		12.4	%		(3.5	Amount		)%		$	4,575		12.7	%	$	4,084			9.3	%		65.1	%		$	2,474	8.1	%
Live Events	3,843		8.5			12.5			3,417			8.3		8,872			15.0			27.0			6,985				14.1
High School Park and Recreation	2,726		23.8			5.6			2,581			20.4		6,592			21.6			0.6			6,552				23.3
Transportation	945		8.4			(0.7	)		952			10.4		5,452			28.7			26.9			4,295				25.0
International	3,342		12.4			6.0			3,153			18.8		2,208			8.0			41.3			1,563				5.4
	$	15,271	11.7	%		4.0	%		$	14,678		12.7	%	$	27,208		15.1	%		24.4	%		$	21,869			14.2	%

Contribution margin consists of gross profit less selling expenses. Selling expenses consist primarily of salaries, other employee-related costs, travel and entertainment expenses, ~~facilities-related~~facility-related costs for sales and service offices, bad debt expenses, third-party commissions and expenditures for marketing efforts, including the costs of collateral materials, conventions and trade shows, product ~~demos,~~demonstrations, customer relationship management systems, and supplies.

Contribution margin is impacted by the previously discussed sales and gross margin for each business unit. The impact of changes in selling expenses on each business unit's contribution margin are as follows:

All areas of selling expenses were impacted as a result of the first quarter of fiscal 2020 including 14 weeks compared to the more common 13 weeks. The first quarter of fiscal 2019 contained 13 weeks. Selling expense in our Commercial, Live Events, and High School Park and Recreation business ~~unit for~~units increased in the ~~third~~first quarter of fiscal ~~2018 decreased~~2020 compared to the same quarter a year ago due to ~~decreases in~~ personnel related expenses. Selling expense in our ~~Live Events~~International business unit ~~increased~~decreased in the ~~third~~first quarter of fiscal ~~2018~~2020 compared to the same quarter a year ago due to ~~increases~~a decrease in ~~conventions/advertising expenses and higher bad debt expenses.~~third-party commissions. Selling expense in our ~~High School Park and Recreation~~Transportation business unit ~~increased in~~for the ~~third~~first quarter of fiscal ~~2018~~2020 remained relatively flat compared to the same quarter a year ago due to travel and entertainment expenses and conventions/advertising expenses. Selling expense remained relatively flat in our Transportation business unit in the third quarter of fiscal 2018 compared to the same quarter a year ago. Selling expense in our International business unit increased in the third quarter of fiscal 2018 compared to the same quarter a year ago due to increases in personnel expenses and third-party commissions expenses.

Other Operating Expenses


	Three Months Ended										Three Months Ended
	January 27, 2018						January 28, 2017				August 3, 2019						July 28, 2018
	Amount		As a Percent of Net Sales		Percent Change		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Percent Change		Amount		As a Percent of Net Sales
(in thousands)	Amount		As a Percent of Net Sales		Percent Change		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Percent Change		Amount		As a Percent of Net Sales
General and administrative	$	8,335	6.4	%	(3.1	)%	$	8,599	7.4	%	$	9,093	5.0	%	6.5	%	$	8,537	5.5	%
Product design and development	$	8,299	6.4	%	19.0	%	$	6,973	6.0	%	$	10,500	5.8	%	13.0	%	$	9,292	6.0	%

All areas of operating expenses were impacted as a result of the first quarter of fiscal 2020 including 14 weeks compared to the more common 13 weeks. The first quarter of fiscal 2019 contained 13 weeks.

General and administrative expenses consist primarily of salaries, other employee-related costs, professional fees, shareholder relations costs, facilities and equipment-related costs for administrative departments, training costs, and the ~~costs~~cost of supplies.

General and administrative expenses in the ~~third~~first quarter of fiscal ~~2018 decreased~~2020 increased as compared to the same period one year ago primarily due to ~~decreases in personnel expenses.~~the additional week of operating results added to the first quarter of fiscal 2020.

Product design and development expenses consist primarily of salaries, other employee-related costs, professional services, facilities costs and equipment-related costs and supplies. Product design and development investments in the near term are focused on developing or improving our video technology over a wide range of pixel pitches for both indoor and outdoor applications. These new or improved

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technologies are focused on varied pixel density for image quality and use, expanded product line offerings for our various markets and geographies, improved quality and reliability, and improved cost points. We plan to make continued investments in our software and controller capabilities throughout our various product offerings. Through ~~all~~our design efforts, we focus on standardizing display components and control systems for both single site and network displays.

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Our costs for product design and development represent an allocated amount of costs based on time charges, professional services, ~~materials~~material costs and the overhead of our engineering departments. Generally, a significant portion of our engineering time is spent on product design and development, while the rest is allocated to large contract work and is included in cost of ~~goods sold.~~sales.

Product design and development expenses in the ~~third~~first quarter of fiscal ~~2018~~2020 increased as compared to the same period one year ago primarily due to the additional week of operating results added to the first quarter of fiscal 2020 and for increased labor costs and professional services assigned to product design and development ~~projects relating to our strategy to accelerate the deployment of products and solutions to our markets.~~projects. To deliver value to our customers and serve the markets' expectations, we ~~plan to~~expect an increase ~~the level of~~in expenditures for new or enhanced customer ~~solutions for the remainder of fiscal 2018 as compared to prior years.~~solutions.

Other Income and Expenses


	Three Months Ended												Three Months Ended
	January 27, 2018							January 28, 2017					August 3, 2019						July 28, 2018
	Amount			As a Percent of Net Sales		Percent Change		Amount			As a Percent of Net Sales		Amount		As a Percent of Net Sales		Percent Change		Amount			As a Percent of Net Sales
(in thousands)	Amount			As a Percent of Net Sales		Percent Change		Amount			As a Percent of Net Sales		Amount		As a Percent of Net Sales		Percent Change		Amount			As a Percent of Net Sales
Interest income, net	$	118		0.1	%	(7.1	)%	$	127		0.1	%	$	234	0.1	%	48.1	%	$	158		0.1	%
Other (expense) income, net	$	(487	)	(0.4	)%	59.7	%	$	(305	)	(0.3	)%
Other income (expense), net													$	193	0.1	%	(225.3	)%	$	(154	)	(0.1	)%

Interest income, ~~(expense),~~ net: We generate interest income through short-term cash investments, marketable securities, and product sales on an installment basis or in exchange for the rights to sell and retain advertising revenues from displays, which result in long-term receivables. Interest expense is comprised primarily of interest costs on long-term ~~marketing~~ obligations.

~~Interest~~The change in interest income, net infor the ~~third~~first quarter of fiscal ~~2018~~2020 compared to the same period one year ago ~~remained relatively flat. As a result of~~was primarily due to the change in investment levels caused by the volatility of working capital ~~needs and changes in investing and financing activities, along with changes in the interest rate environment, it is difficult to project changes in interest income.~~needs.

Other income (expense) ~~income,~~, net: The change in other income and expense, net for the ~~third~~first quarter of fiscal ~~2018~~2020 as compared to the same period one year ago was primarily due to foreign currency ~~volatility and the losses recorded from an equity method affiliate.~~volatility.

Income Taxes

~~The current-year rate was significantly impacted~~We calculate the provision for income taxes during interim reporting periods by applying an estimate of the ~~Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which was signed into law on December 22, 2017. Most notably, the Tax Act reduced the statutory federal income~~annual effective tax rate for ~~corporations from 35% to 21%. Because we file our tax return based on our~~the full fiscal year ~~the statutory tax rate for our 2018 tax return will be a blended rate of approximately 30.4%. In addition~~ to ~~the effect of the lower overall federal tax rate, the Tax Act resulted in a $3.7 million one-time expense~~“ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the ~~estimated re-measurement of our net deferred tax asset and a $0.6 million estimated one-time transition tax on certain undistributed earnings of our foreign subsidiaries~~reporting period. Due to various factors, including having operations in the quarter ended January 27, 2018. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period as provided for in accordance with Staff Accounting Bulletin No. 118 ("SAB 118"). Excluding the impact of this one-time expense,multiple jurisdictions worldwide, our effective tax rate ~~was 46.9% for the three months ended January 27, 2018.~~ is subject to fluctuation.

We ~~expect our effective tax rate to be approximately 30% for the remainder of our fiscal year. In fiscal 2019, we expect an effective~~have recorded a tax rate of ~~approximately 21%, exclusive of any SAB 118 changes in estimate.~~

~~COMPARISON OF THE NINE MONTHS ENDED JANUARY 27, 2018 AND JANUARY 28, 2017~~

~~Net Sales~~

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Nine Months Ended
(in thousands) January 27,
2018 January 28,
2017 Dollar Change Percent Change
Net sales:
    Commercial $ 102,723
$ 112,342
$ (9,619 ) (8.6 )%
    Live Events 191,432
157,032
34,400
21.9
    High School Park and Recreation 69,602
68,977
625
0.9
    Transportation 46,577
39,517
7,060
17.9
    International 62,019
64,989
(2,970 ) (4.6 )
$ 472,353
$ 442,857
$ 29,496
6.7 %
Orders:
    Commercial $ 97,816
$ 114,326
$ (16,510 ) (14.4 )%
    Live Events 145,246
135,520
9,726
7.2
    High School Park and Recreation 60,368
61,055
(687 ) (1.1 )
    Transportation 38,155
46,290
(8,135 ) (17.6 )
    International 79,909
78,164
1,745
2.2
$ 421,494
$ 435,355
$ (13,861 ) (3.2 )%

~~Commercial:~~ ~~Net sales~~12.6 percent for the nine months ended January 27, 2018 compared to the same period one year ago decreased as a result of lower order volumes in the on-premise niche and the timing of delivery of large projects in the spectacular niche, partially offset by an increase in the billboard niche.

The decrease in orders for the nine months ended January 27, 2018 compared to the same period one year ago was the net result of decreases in the on-premise and spectacular niches due to a number of factors including competitive market pricing, a delay of national account-based opportunities during the nine months ended January 27, 2018 as compared to the same period last year, and the natural volatility of large project timing.

~~Live Events:~~ The increase in net sales for the nine months ended January 27, 2018 compared to the same period one year ago was primarily due to continued demand and the timing of the demand for upgraded or new solutions for arenas, professional sports, and colleges and universities.

~~Orders increased for the nine months ended January 27, 2018 compared to the same period one year ago due to an increased number of projects in professional sport arenas.~~

~~High School Park and Recreation:~~ ~~Net sales for the nine months ended January 27, 2018 compared to the same period one year ago remained relatively flat.~~

~~Orders decreased for the nine months ended January 27, 2018 compared to the same period one year ago due to fewer large sports video projects awarded during the third~~first quarter of fiscal ~~2018 compared to the third quarter of fiscal 2017.~~

~~Transportation:~~ ~~The increase in net sales for the nine months ended January 27, 2018 compared to the same period one year ago was related to the variability caused by large order production timing.~~

~~Orders decreased for the nine months ended January 27, 2018 compared to the same period one year ago primarily due to variability caused by large order timing.~~

~~International:~~ ~~Net sales decreased in our International business unit for the nine months ended January 27, 2018 compared to the same period one year ago mainly due to timing of revenue recognition.~~

~~Orders increased for the nine months ended January 27, 2018 compared to the same period one year ago primarily due to the volatility of large order timing.~~

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~~Gross Profit~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Amount As a Percent of Net Sales
(in thousands)
Commercial $ 21,085
20.5 % $ 27,418
24.4 %
Live Events 43,056
22.5
30,430
19.4
High School Park and Recreation
23,672
34.0
21,900
31.7
Transportation 16,696
35.8
12,966
32.8
International 11,308
18.2
13,977
21.5
$ 115,817
24.5 % $ 106,691
24.1 %

~~Gross profit~~ is net sales less cost of goods sold. Cost of goods sold consists primarily of inventory, consumables, salaries, other employee-related costs, facilities-related costs for manufacturing locations, machinery and equipment maintenance and depreciation, site sub-contractors, warranty costs, and other service delivery expenses.

~~The increase in our gross profitpercentage for the nine months ended January 27, 2018 compared to the same period one year ago was the net result of the changes described below:~~

~~Commercial:~~ The gross profit percent decrease for the nine months ended January 27, 2018 compared to the same period one year ago was primarily the result of higher warranty expenses and lower sales volumes over relatively fixed infrastructure costs.

~~Live Events:~~ The gross profit percent increase for the nine months ended January 27, 2018 compared to the same period one year ago was the result of an increased volume of sales over relatively fixed infrastructure costs, improved performance on large projects as compared to original estimates.

~~High School Park and Recreation:~~ ~~The gross profit percent increase for the nine months ended January 27, 2018 as compared to the same period one year ago primarily was due to a favorable sales mix and improved productivity.~~

~~Transportation:~~ The gross profit percent increase for the nine months ended January 27, 2018 compared to the same period one year ago was primarily due to an increased volume of sales over relatively fixed infrastructure costs.

~~International:~~ The gross profit percent decrease for the nine months ended January 27, 2018 compared to the same period one year ago was primarily the result of lower sales volumes over a relatively fixed cost structure and higher warranty expenses, which were offset by the $1.2 million gain from the sale of our non-digital assets.

~~Selling Expense~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
Commercial $ 13,778
13.4 % (1.2 )% $ 13,949
12.4 %
Live Events 10,562
5.5
9.0
9,686
6.2
High School Park and Recreation 8,073
11.6
7.2
7,532
10.9
Transportation 3,084
6.6
(10.9 ) 3,461
8.8
International 10,063
16.2
(10.2 ) 11,200
17.2
$ 45,560
9.6 % (0.6 )% $ 45,828
10.3 %

~~Selling expenses~~ consist primarily of salaries, other employee-related costs, travel and entertainment expenses, facilities-related costs for sales and service offices, bad debt expenses, third-party commissions and expenditures for marketing efforts, including the costs of collateral materials, conventions and trade shows, product demos, and supplies.

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Selling expense in our Commercial business unit decreased in the nine months ended January 27, 2018 compared to the same period one year ago primarily due to third-party commission expenses. Selling expense in our Live Events business unit increased in the nine months ended January 27, 2018 compared to the same period one year ago primarily due to increased conventions/advertising expenses, bad debt expenses, and travel and entertainment expenses. Selling expense in our High School Park and Recreation business unit increased in the nine months ended January 27, 2018 compared to the same period one year ago due to increases in personnel expenses. Selling expense in our Transportation business unit decreased in the nine months ended January 27, 2018 compared to the same period one year ago primarily due to lower bad debt expense. Selling expense in our International business unit declined in the nine months ended January 27, 2018 compared to the same period one year ago due to lower bad debt expenses, lower third-party commissions expenses and a $0.2 million intangible asset impairment that had been incurred in the first nine months of fiscal 2017 that was not incurred in the first nine months of fiscal 2018.

~~Other Operating Expenses~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
General and administrative $ 26,138
5.5 % 0.5 % $ 26,007
5.9 %
Product design and development $ 26,294
5.6 % 24.4 % $ 21,142
4.8 %

~~General and administrative expenses~~ consist primarily of salaries, other employee-related costs, professional fees, shareholder relations costs, facilities and equipment-related costs for administrative departments, training costs, and the costs of supplies.

~~General and administrative expenses~~in the nine months ended January 27, 2018 increased as compared to the same period one year ago primarily due to increases in personnel expenses and information technology software and hardware expenses.

~~Product design and development expenses~~ consist primarily of salaries, other employee-related costs, professional services, facilities costs and equipment-related costs and supplies. Product development investments in the near term are focused on developing or improving our video technology over a wide range of pixel pitches for both indoor and outdoor applications. These new or improved technologies are focused on varied pixel density for image quality and use, expanded product line offerings for our various markets and geographies, improved quality and reliability, and improved cost points. We plan to make continued investments in our software and controller capabilities throughout our various product offerings. Through all design efforts, we focus on standardizing display components and control systems for both single site and network displays.

Our costs for product development represent an allocated amount of costs based on time charges, professional services, materials costs and the overhead of our engineering departments. Generally, a significant portion of our engineering time is spent on product development, while the rest is allocated to large contract work and is included in cost of goods sold.

Product development expenses in the nine months ended January 27, 2018 as compared to the same period one year ago increased primarily due to increased labor costs and professional services assigned to product development projects relating to our strategy to accelerate the deployment of products and solutions to our markets. To deliver value to our customers and serve the markets' expectations, we plan to increase the level of expenditures for new or enhanced customer solutions for the remainder of fiscal 2018 as compared to prior years.

~~Other Income and Expenses~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
Interest income, net $ 347
0.1 % (9.9 )% $ 385
0.1 %
Other (expense) income, net $ (429 ) (0.1 )% 71.6 % $ (250 ) (0.1 )%

~~Interest income (expense), net:~~ We generate interest income through short-term cash investments, marketable securities, and product sales on an installment basis or in exchange for the rights to sell and retain advertising revenues from displays, which result in long-term receivables. Interest expense is comprised primarily of interest costs on long-term marketing obligations.

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Interest income, net in the nine months ended January 27, 2018 compared to the same period one year ago decreased as a result of lower long-term receivables which bear imputed interest rates. As a result of the volatility of working capital needs and changes in investing and financing activities, along with changes in the interest rate environment, it is difficult to project changes in interest income.

~~Other (expense) income, net:~~ The change in other income and expense, net for the nine months ended January 27, 2018 compared to the same period one year ago was primarily due to foreign currency volatility, the losses recorded from an equity method affiliate, and an income tax penalty incurred on a late filing.

~~Income Taxes~~

~~Our effective tax rate was 47.2 percent for the nine months ended January 27, 2018~~2020 as compared to an effective tax rate benefit of ~~31.9~~13.1 percent for the ~~nine months ended January 28, 2017.~~

first quarter of fiscal 2019. The current-year rate was significantly impacted by the Tax Act, which was signed into law on December 22, 2017. Most notably, the Tax Act reduced the statutory federal income tax rate for corporations from 35% to 21%. Because we file our tax return based on our fiscal year, the statutory tax rate for our 2018 tax return will be a blended rate of approximately 30.4%. In addition to the effect of the lower overall federal tax rate, the Tax Act resulted in a $3.7 million one-time expense for the estimated re-measurement of our net deferred tax asset and a $0.6 million estimated one-time transition tax on certain undistributed earnings of our foreign subsidiarieschange in the quarter ended January 27, 2018. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period as provided for in accordance with SAB 118. Excluding the impact of this one-time expense, our effective tax rate ~~was 23%~~is primarily driven by the benefit of research and development tax credits and foreign tax credits proportionate to pre-tax book income for the nine months ended January 27, 2018, and we expect our effective tax rate to be approximately 48% for the remainder of our fiscal year. In fiscal 2019, we expect an effective tax rate of approximately 21%, exclusive of any SAB 118 changes in estimate.each period.

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LIQUIDITY AND CAPITAL RESOURCES


	Nine Months Ended								Three Months Ended
	January 27, 2018			January 28, 2017			Percent Change		August 3, 2019			July 28, 2018			Percent Change
(in thousands)	January 27, 2018			January 28, 2017			Percent Change		August 3, 2019			July 28, 2018			Percent Change
Net cash (used in) provided by:
Operating activities	$	26,953		$	45,387		(40.6	)%	$	(18,218	)	$	(10,260	)	77.6	%
Investing activities	(1,245		)	(11,421		)	(89.1	)	8,272			(102		)	(8,209.8	)
Financing activities	(10,144		)	(13,229		)	(23.3	)	(4,658		)	(3,522		)	32.3
Effect of exchange rate changes on cash	667			(680		)	(198.1	)	(37		)	70			(152.9	)
Net (decrease) increase in cash, cash equivalents and restricted cash	$	16,231		$	20,057		(19.1	)%
Net decrease in cash, cash equivalents and restricted cash									$	(14,641	)	$	(13,814	)	6.0	%

Net cash ~~provided by~~used in operating activities: Operating cash flows consist primarily of net income adjusted for non-cash items, including depreciation and amortization, stock-based compensation, deferred income taxes and the effect of changes in operating assets and liabilities.

Net cash ~~provided by~~used in operating activities was ~~$27.0~~$18.2 million for the first ~~nine~~three months of fiscal ~~2018~~2020 compared to net cash ~~provided by~~used in operating activities of ~~$45.4~~$10.3 million in the first ~~nine~~three months of fiscal ~~2017.~~2019. The ~~$18.4~~$7.9 million ~~decrease~~increase in cash ~~from~~used in operating activities from the first ~~nine~~three months of fiscal ~~2017~~2019 to the first ~~nine~~three months of fiscal ~~2018~~2020 was the ~~net~~ result of changes in net operating assets and liabilities of ~~$18.6~~$10.4 million ~~a $1.4~~and $0.1 million ~~decrease~~ in depreciation and amortization, ~~and impairment,~~adjusted by a ~~$1.2~~$2.5 million ~~gain on the sale of our non-digital division, a $0.9 million decrease in the provision for doubtful accounts, and a $0.1 million decrease~~increase in net income ~~adjusted by an increase of $3.7 million in deferred income taxes~~ and a $0.1 million ~~increase~~ in other non-cash items, net.

The changes in operating assets and liabilities consisted of the following:


	Nine Months Ended						Three Months Ended
	January 27, 2018			January 28, 2017			August 3, 2019			July 28, 2018
(Increase) decrease:
Accounts receivable	$	2,797		$	5,020		$	(30,973	)	$	(23,504	)
Long-term receivables	752			1,991			(2,298		)	381
Inventories	(4,462		)	7,790			(6,763		)	(4,025		)
Costs and estimated earnings in excess of billings	3,954			(3,004		)
Contract assets							(9,180		)	(10,480		)
Prepaid expenses and other current assets	221			500			(1,296		)	1,108
Income tax receivables	(2,115		)	4,556			52			(926		)
Investment in affiliates and other assets	272			139			(53		)	134
Increase (decrease):
Current marketing obligations and other payables	(385		)	(106		)
Accounts payable	(9,829		)	(4,744		)	12,535			1,217
Customer deposits (billed or collected)	(4,210		)	(1,529		)
Contract liabilities							6,341			12,126
Accrued expenses	4,220			2,859			206			5,674
Warranty obligations	(242		)	(1,717		)	158			(420		)
Billings in excess of costs and estimated earnings	3,532			1,719
Long-term warranty obligations	1,588			707			823			(282		)
Income taxes payable	(447		)	1,525			461			(122		)
Deferred revenue (billed or collected)	3,251			1,391
Long-term marketing obligations and other payables	807			1,169			(344		)	(825		)
	$	(296	)	$	18,266		$	(30,331	)	$	(19,944	)

Overall, changes in net operating assets and liabilities can be impacted by the timing of cash flows on large orders, which can cause significant short-term and seasonal fluctuations in inventory, accounts receivables, accounts payable, ~~customer deposits, costs~~contract assets and ~~earnings in excess of billings,~~liabilities, and various other operating assets and liabilities. Variability in ~~costs~~contract assets and ~~earnings in excess of billings and billings in excess of costs~~liabilities relates to the timing of billings on construction-type contracts and revenue recognition, which can vary significantly depending on contractual payment terms and build and installation schedules. Balances are also impacted by the ~~seasonality~~sports market seasonality.

Net cash provided by (used in) investing activities: Net cash provided by investing activities totaled $8.3 million in the first three months of fiscal 2020 compared to net cash used in investing activities of $0.1 million in the ~~sports markets.~~

first three months of fiscal 2019. Marketable securities, net totaled $14.5 million in the first three months of fiscal 2020 as compared to $7.2 million in the first three months of fiscal 2019. Purchases of property and equipment totaled $5.9 million in the first three months of fiscal 2020 compared to $4.7 million in the first three months of fiscal 2019. During the first three months of fiscal 2019, we had a net cash outflow of $2.3 million for the acquisition of assets of AJT Systems, Inc.

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~~Net cash used in investing activities~~:~~Net cash used in investing activities~~ totaled $1.2 million in the first nine months of fiscal 2018 compared to $11.4 million in the first nine months of fiscal 2017. The change in the amount of cash used in investing activities was the result of a net increase in marketable securities of $12.0 million in the first nine months of fiscal 2018 as compared to the first nine months of fiscal 2017. Purchases of property and equipment totaled $10.9 million in the first nine months of fiscal 2018 compared to $6.7 million in the first nine months of fiscal 2017. Proceeds from the sale of property, equipment and other assets totaled $2.1 million in the first nine months of fiscal 2018 compared to $0.2 million in the first nine months of fiscal 2017; this was mostly related to the sale of our non-digital division.

Net cash used in financing activities: Net cash used in financing activities was ~~$10.1~~$4.7 million for the ~~nine~~three months ended ~~January 27, 2018~~August 3, 2019 compared to ~~$13.2~~$3.5 million in the same period one year ago. Principal payments on long-term obligations for the three months ended August 3, 2019 were $1.2 million compared to $0.5 million during the first three months of fiscal 2019, which was mostly related to contingent liability payments. Dividends of ~~$9.3~~$2.3 million, or ~~$0.21~~$0.05 per share, were paid to Daktronics shareholders during the first ~~nine~~three months of fiscal ~~2018,~~2020, as compared to dividends of ~~$10.6~~$3.1 million, or ~~$0.24~~$0.07 per share, paid to Daktronics shareholders during the first ~~nine~~three months of fiscal ~~2017. In~~2019. During the first ~~nine~~three months of fiscal ~~2017,~~2020, we ~~used $1.8~~repurchased $1.2 million ~~to purchase our common~~of shares as part of the $40.0 million share repurchase plan authorized by ~~our~~the Board of ~~Directors, and there have been~~Directors. There were no ~~purchases~~share repurchases in the ~~nine~~first three months ~~ended January 27, 2018.~~of fiscal 2019.

Other Liquidity and Capital Resources Discussion: ~~We have $6.6 million~~The timing and amounts of ~~retainage on long-term contracts included in receivables~~working capital changes, dividend payments, stock repurchase program, and ~~costs in excess of billings as of January 27, 2018, which we expect to collect within one year.~~capital spending impact our liquidity.

Working capital was $~~142.9~~120.2 million and ~~$127.1~~$119.6 million at ~~January 27, 2018~~August 3, 2019 and April ~~29, 2017,~~27, 2019, respectively. The changes in working capital, particularly changes in accounts receivable, accounts payable, inventory, and ~~costs in excess of billings~~contract assets and ~~billings in excess of costs,~~liabilities, and the ~~seasonality of the~~ sports market seasonality can have a significant impact on the amount of net cash provided by operating activities largely due to the timing of payments and receipts. ~~We have historically financed working capital needs through a combination of cash flow from operations and borrowings under bank credit agreements.~~

~~We have used and expect to continue to use cash balances to meet our short-term working capital requirements.~~ On ~~large product~~multimillion-dollar orders, the time between order acceptance and project completion may extend up to ~~and~~or exceed 2412 months depending on the amount of custom work and a customer’s delivery needs. We often receive down payments or progress payments on these ~~product~~ orders. ~~To the extent~~

We had $4.0 million of retainage on long-term contracts included in receivables and contract assets as of August 3, 2019, which has an impact on our liquidity. We expect to collect these ~~payments are not sufficient to fund the costs and other expenses associated with these orders, we use~~amounts within one year. When working capital is needed, we have historically financed our cash needs through a combination of cash flow from operations and borrowings under bank ~~borrowings to finance these cash requirements.~~credit agreements. During the fourth quarter of fiscal 2019, we violated one of our bank covenants, but we received a waiver from our banking institution for the year ended April 27, 2019. As of August 3, 2019, we were in compliance with all applicable bank loan covenants.

On November 15, 2016, we entered into a credit agreement and a related revolving note with a U.S. bank. The ~~agreement and note have a maturity date of November 15, 2019. The~~ revolving amount of the agreement and note is $35.0 million, including up to $15.0 million for commercial and standby letters of ~~credits. The interest rate ranges from LIBOR plus 145 basis points to LIBOR plus 195 basis points depending on the ratio~~credit, with a maturity date of our interest-bearing debt to EBITDA. EBITDA is defined as net income before deductions for interest expense, income taxes, depreciation and amortization, all as determined in accordance with GAAP. The effective interest rate was 3.0 percent at January 27, 2018. We are assessed a loan fee equal to 0.125 percent per annum on any unused portion of the loan.November 15, 2019. As of ~~January 27, 2018,~~August 3, 2019, there were no advances to us under the loan portion of the line of credit, and the balance of letters of credit outstanding was approximately ~~$10.7~~$9.5 million.

~~The credit agreement is unsecured and requires us to be in compliance with the following financial ratios:~~

A minimum fixed charge coverage ratio of at least 2 to 1 at the end of any fiscal year. The ratio is equal to (a) EBITDA less dividends or other distributions (with the exception of any U.S. bank approved special cash dividend), a capital expenditure reserve of $6 million, and income tax expenses paid in cash, but excluding cash used to repurchase any Daktronics, Inc. stock over (b) all principal and interest payments with respect to debt, excluding principal payments on the line of credit; and

~~A ratio of interest-bearing debt, excluding any marketing obligations, to EBITDA of less than 1 to 1 at the end of any fiscal quarter.~~

On November 15, 2016, we entered into an amended and restated loan agreement and a continuing and unlimited guaranty agreement with another U.S. bank which supports our credit needs outside of the United States. The revolving amount of the loan ~~and guaranty have~~is $20.0 million, with a maturity date of November 15, 2019. The revolving amount of the loan is $20.0 million. We intend to use the borrowings under the agreement to support credit needs for general corporate purposes outside the United States. This credit agreement is unsecured. It contains the same covenants as the credit agreement on the line of credit and contains an inter creditor agreement whereby the debt has a cross default provision with the primary credit agreement. Total credit allowed between the two credit agreements is limited to $40.0 million. The interest rate is equal to LIBOR plus 1.5 percent. As of ~~January 27, 2018,~~August 3, 2019, there were no advances outstanding under the loan agreement and approximately ~~$2.7~~$7.8 million in bank guarantees under this line of credit.

AsFor more information on these agreements, see "Note 10. Financing Agreements" of ~~January~~the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 27, ~~2018, we were in compliance with all applicable bank~~2019. We expect to enter into a new credit facility, loan ~~covenants.~~

~~We utilize cash on hand to pay dividends~~agreement, and guaranty agreement prior to our ~~investors. The following table summarizes the quarterly dividends declared and/or paid since the prior fiscal year end of April 29, 2017:~~

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~~Date Declared~~	~~Record Date~~	~~Payment Date~~	~~Amount per Share~~
~~June 1, 2017~~	~~June 13, 2017~~	~~June 23, 2017~~	~~$0.07~~
~~August 31, 2017~~	~~September 11, 2017~~	~~September 22, 2017~~	~~$0.07~~
~~November 30, 2017~~	~~December 11, 2017~~	~~December 21, 2017~~	~~$0.07~~
~~March 1, 2018~~	~~March 12, 2018~~	~~March 22, 2018~~	~~$0.07~~

~~Although we expect to continue to pay dividends for the foreseeable future, the nature and amounts of dividends will be reviewed regularly and declared by the Board at its discretion.~~current agreements expiring in November 2019.

We are sometimes required to obtain performance bonds for display installations, and we have a bonding line available through a surety company for an aggregate of $150.0 million in bonded work outstanding. If we were unable to complete the work, and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics. At ~~January 27, 2018,~~August 3, 2019, we had $~~8.3~~21.8 million of bonded work outstanding against this line.

Our business growth and profitability improvement strategies depend on investments in capital ~~expenditures.~~expenditures and strategic investments. We are projecting capital expenditures to be less than ~~$20~~$25 million for fiscal ~~2018~~2020 for purchases of manufacturing equipment for new or enhanced product production, expanded capacity, investments in quality and reliability equipment, and continued information infrastructure investments. We also evaluate and may invest in new technologies or acquire companies aligned with our business strategy.

We believe our working capital available from all sources will be adequate to meet the cash requirements of our operations and strategies in the foreseeable future. If our growth extends beyond current expectations, ~~profitability does not continue,~~ or if we make ~~any~~significant strategic investments, we may need to utilize and possibly increase our credit facilities or seek other means of financing. We anticipate we will be able to obtain any needed funds under commercially reasonable terms from our current lenders or other sources, although ~~there can~~this availability cannot be guaranteed.

Off-Balance Sheet Arrangements and Contractual Obligations

There has been no ~~guarantee~~material change in our off-balance sheet arrangements and contractual obligations since the fiscal year ended April 27, 2019. For additional information, see our Annual Report on Form 10-K for the fiscal year ended April 27, 2019.

Significant Accounting Policies and Estimates

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We describe our significant accounting policies in "Note 1. Nature of Business and Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 27, 2019. We discuss our critical accounting estimates in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended April 27, 2019. In the first quarter of fiscal 2020, we adopted new lease guidance, as described in "Note 1. Basis of Presentation" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report. There have been no other significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2019.

New Accounting Pronouncements

For a summary of recently issued accounting pronouncements and the effects of those pronouncements on our financial results, refer to "Note 1. Basis of Presentation" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Foreign Currency Exchange Rates~~

~~Through January~~We are exposed to certain interest rate, foreign currency, and commodity risks as disclosed in our Annual Report on Form 10-K for the fiscal year ended April 27, ~~2018, most of our net sales were denominated~~2019. There have been no material changes in ~~U.S. dollars, and~~ our exposure to ~~foreign currency exchange rate changes on net sales had not been significant. For~~these risks during the ~~nine~~first three months ~~ended January 27, 2018, net sales originating outside the United States were~~ ~~16.1 percent~~of total net sales, of which a portion was denominated in Canadian dollars, Euros, Chinese renminbi, British pounds, Australian dollars, Brazilian reais or other currencies. We manufacture our products in the United States, China, Belgium, and Ireland. Our results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. If we believed currency risk in any foreign location is significant, we would utilize foreign exchange hedging contracts to manage our exposure to the currency fluctuations.

Over the long term, net sales to international markets are expected to increase as a percentage of total net sales and, consequently, a greater portion of our business could be denominated in foreign currencies. In addition, we may fund our foreign subsidiaries’ operating cash needs in the form of loans denominated in U.S. dollars. As a result, operating results may become more subject to fluctuations based upon changes in the exchange rates of certain currencies in relation to the U.S. dollar. To the extent we engage in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. This effect is also impacted by sources of raw materials from international sources. We estimate that a 10 percent change in all foreign exchange rates would impact our reported income before taxes by approximately $1.1 million. This sensitivity analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area. We will continue to monitor and minimize our exposure to currency fluctuations and, when appropriate, use financial hedging techniques, including foreign currency forward contracts and options, to minimize the effect of these fluctuations. However, exchange rate fluctuations as well as differing economic conditions, changes in political climates, differing tax structures and other rules and regulations could adversely affect our ability to effectively hedge exchange rate fluctuations in the future.

We have foreign currency forward agreements in place to offset changes in the value of contracts with customers denominated in a foreign currency. The notional amount of these derivatives is $10.4 million, and all contracts mature within 19 months. These contracts are marked to market each balance sheet date and are not designated as hedges. See "Note 14. Derivative Financial Instruments" of the Notes to the Consolidated Financial Statements included elsewhere in this Report for further details.

~~Interest Rate Risks~~

Our exposure to market rate risk for changes in interest rates relates primarily to our marketing obligations and long-term accounts receivable. As of January 27, 2018, our outstanding marketing obligations were ~~$0.5 million, all of which were in fixed rate obligations.~~

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In connection with the sale of certain display systems, we have entered into various types of financing with customers. The aggregate amounts due from customers include an imputed interest element. The majority of these financings carry fixed rates of interest. As of January 27, 2018, our outstanding long-term receivables were ~~$4.1 million. Each 25 basis point increase in interest rates would have an associated immaterial annual opportunity cost.~~

~~The following table provides maturities and weighted average interest rates on our financial instruments sensitive to changes in interest rates.~~

Fiscal Years (dollars in thousands)

2018 2019 2020 2021 2022 Thereafter
Assets:
Long-term receivables, including current maturities:
Fixed-rate $ 572
$ 2,030
$ 689
$ 447
$ 341
$ 68
Average interest rate 8.9 % 8.7 % 8.7 % 8.5 % 9.0 % 9.0 %
Liabilities:

Long- and short-term debt:

Fixed-rate $ 379
$ 575
$ 1,013
$ —
$ —
$ —
Average interest rate 5.5 % 4.5 % 3.3 % — % — % — %
Long-term marketing obligations, including current portion:

Fixed-rate $ 131
$ 200
$ 109
$ 10
$ —
$ —
Average interest rate 8.6 % 7.8 % 9.0 % 9.0 % — % — %

~~Of our $49.0 million in cash balances at January 27, 2018,~~ ~~$40.8 million~~ were denominated in U.S. dollars of which $3.7 million is held by our foreign subsidiaries. We have an additional $8.2 million in cash balances denominated in foreign currencies of which $7.1 million are maintained in accounts of our foreign subsidiaries. A portion of the cash held in foreign accounts is used to collateralize outstanding bank guarantees issued by our foreign subsidiaries.

~~Commodity Risk~~

We are dependent on basic raw materials, sub-assemblies, components, and other supplies used in our operations. Our financial results could be affected by the availability and changes in prices of these materials. Some of these materials are sourced from a limited number of suppliers or only a single supplier. These materials are also key source materials for our competitors. Therefore, if demand for these materials rises, we may experience increased costs and/or limited or unavailable supplies. As a result, we may not be able to acquire key production materials on a timely basis, which could impact our ability to produce products and satisfy incoming sales orders on a timely basis. In addition, the costs of these materials can rise suddenly and result in significantly higher costs of production. Our sourcing group works to implement strategies to mitigate these risks. Periodically, we enter into pricing agreements or purchasing contracts under which we agree to purchase a minimum amount of product in exchange for guaranteed price terms over the length of the contract, which generally does not exceed one year. We have been impacted by longer lead times because of worldwide shortages; however, we believe that we have adequate sources of supply for our key materials.fiscal 2020.

Item 4. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as of ~~January 27, 2018,~~August 3, 2019, which is the end of the period covered by this Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of ~~January 27, 2018,~~August 3, 2019, our disclosure controls and procedures were effective.

Based on the evaluation described in the foregoing paragraph, our Chief Executive Officer and Chief Financial Officer concluded that during the quarter ended ~~January 27, 2018,~~August 3, 2019, there was no change in our internal control over financial reporting which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Not applicable.

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Item 1A. RISK FACTORS

The discussion of our business and operations included in this Quarterly Report on Form 10-Q should be read together with the risk factors described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended April ~~29, 2017.~~27, 2019. They describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties, together with other factors described elsewhere in this Report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our financial condition or financial results.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Repurchases

~~During~~The following table provides information about share repurchases of common stock during the ~~nine months ended January 27, 2018, we did not~~first quarter of fiscal 2020:

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Period	Total number of shares purchased	Average price paid per share (including fees)		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the share repurchase program(1)
April 28, 2019 - June 1, 2019	—	$	—	—	$	38,174,942
June 2, 2019 - June 29, 2019	171,822	6.39		171,822	37,076,999
June 30, 2019 - August 3, 2019	14,838	6.02		14,838	36,987,674
Total	186,660			186,660

(1) The share repurchases described in the above table were made pursuant to the $40.0 million share repurchase ~~any shares~~program authorized by the Board of ~~our common stock.~~Directors on June 17, 2016.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS

A list of exhibits required to be filed as part of this report is set forth in the Index of Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.



		/s/ Sheila M. Anderson
		Daktronics, Inc.
		Sheila M. Anderson
		Chief Financial Officer
		(Principal Financial Officer and
		Principal Accounting Officer)

Date:	~~March 2, 2018~~August 30, 2019

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Index to Exhibits

Certain of the following exhibits are incorporated by reference from prior filings. The form with which each exhibit was filed and the date of filing are as indicated below; the reports described below are filed as Commission File No. 0-23246 unless otherwise indicated.



3.1	Amended and Restated Articles of Incorporation of the ~~Company~~Company. (Incorporated by reference to Exhibit 3.1 ~~filed with our Quarterly~~of the Current Report on Form ~~10-Q~~10-Q/A (Amendment No. 1) of Daktronics, Inc. filed on ~~August 30, 2013)~~December 21, 2018).
3.2	Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.4 filed with our Annual Report on Form 10-K on June 12, 2013).
4.1	Rights Agreement dated as of November 16, 2018 between Daktronics, Inc. and Equiniti Trust Company, as Rights Agent (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K of Daktronics, Inc. filed on November 16, 2018).
10.1	Credit Agreement dated November 15, 2016 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K filed on November 16, 2016).
10.2	Revolving Note dated November 15, 2016 issued by the Company to U.S. Bank National Association (Incorporated by reference to Exhibit 10.2 filed with our Current Report on Form 8-K filed on November 16, 2016).
10.3	Amended and Restated Loan Agreement dated November 15, 2016 by and between the Company and Bank of America, N.A. (Incorporated by reference to Exhibit 10.3 filed with our Current Report on Form 8-K filed on November 16, 2016).
10.4	Continuing and Unconditional Guaranty dated November 15, 2016 by and between the Company and Bank of America, N.A. (Incorporated by reference to Exhibit 10.4 filed with our Current Report on Form 8-K filed on November 16, 2016).
10.5	Amended and Restated Loan Agreement dated May 5, 2017 by and between the Company and Bank of America, N.A. (Incorporated by reference to Exhibit 10.6 filed with our Annual Report on Form 10-K filed on June 9, 2017).
10.6	Daktronics, Inc. 2015 Stock Incentive Plan ("2015 Plan"). (Incorporated by reference to Exhibit A to the Company's Definitive Proxy Statement on Schedule 14A filed on July 14, 2015).
10.7	Form of Restricted Stock Award Agreement under the 2015 Plan (Incorporated by reference to Exhibit 10.2 filed with our Current Report on Form 8-K on September 3, 2015).
10.8	Form of Non-Qualified Stock Option Agreement Terms and Conditions under the 2015 Plan (Incorporated by reference to Exhibit 10.3 filed with our Current Report on Form 8-K on September 3, 2015).
10.9	Form of Incentive Stock Option Terms and Conditions under the 2015 Plan (Incorporated by reference to Exhibit 10.4 filed with our Current Report on Form 8-K on September 3, 2015).
10.10	Form of Restricted Stock Unit Terms and Conditions under the 2015 Plan (Incorporated by reference to Exhibit 10.5 filed with our Current Report on Form 8-K on September 3, 2015).
31.1	Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
31.2	Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). (1)
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). (1)
101	The following financial information from our Quarterly Report on Form 10-Q for the period ended ~~January 27, 2018~~August 3, 2019 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, (v) Notes to Condensed Consolidated Financial Statements, and (vii) document and entity information. (1)
	(1)	Filed herewith electronically.

3531



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Balance as of January 27, 2018
Certificates of deposit	$	8,918	$	—	$	—		$	8,918
U.S. Government sponsored entities	9,104		—		(73		)	9,031
Municipal bonds	6,001		—		(13		)	5,988
	$	24,023	$	—	$	(86	)	$	23,937
Balance as of April 29, 2017
Certificates of deposit	$	12,487	$	—	$	—		$	12,487
U.S. Government securities	400		—		—			400
U.S. Government sponsored entities	12,260		—		(22		)	12,238
Municipal bonds	7,574		14		—			7,588
	$	32,721	$	14	$	(22	)	$	32,713



	Fiscal Years (dollars in thousands)
	2018			2019			2020			2021			2022			Thereafter
Assets:
Long-term receivables, including current maturities:
Fixed-rate	$	572		$	2,030		$	689		$	447		$	341		$	68
Average interest rate	8.9		%	8.7		%	8.7		%	8.5		%	9.0		%	9.0		%
Liabilities:
Long- and short-term debt:
Fixed-rate	$	379		$	575		$	1,013		$	—		$	—		$	—
Average interest rate	5.5		%	4.5		%	3.3		%	—		%	—		%	—		%
Long-term marketing obligations, including current portion:
Fixed-rate	$	131		$	200		$	109		$	10		$	—		$	—
Average interest rate	8.6		%	7.8		%	9.0		%	9.0		%	—		%	—		%