================================================================================ - --------------------------------------------------------------------------------UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-K
(MARK ONE) [X](Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 27 2002
For the Fiscal Year Ended May 1, 2004OR
[ ]| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___. COMMISSION FILE NUMBER:
For the Transition Period From __________ to __________.Commission File Number: 0-23246
DAKTRONICS, INC. (ExactDaktronics, Inc.
(Exact name of Registrant as specified in its charter)
- -------------------------------------------------------------------------------- SOUTH DAKOTA 46-0306862 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
| South Dakota | 46-0306862 | |||||||
| (State or other jurisdiction of | (I.R.S. Employer | |||||||
| incorporation or organization) | Identification Number) | |||||||
331 32ND AVENUE
BROOKINGS,32nd Avenue
Brookings, SD 57006
(Address
(Address of principal executive offices, Zip Code)
(605) 697-4000
(Registrant's
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
COMMON STOCK, NO PAR VALUE
(Title of Class)
- --------------------------------------------------------------------------------
Common Stock, No Par Value
Indicate by check mark whether the registrantregistrant: (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]|X| No [ ]
| |
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K.
Yes [ ]| | No [X]
As of June 21, 2002 18,282,884 shares of|X|
Indicate by check mark whether the registrant's Common Stock were
issued and outstanding, and theregistrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)
Yes |X| No | |
The aggregate market value of votingthe common stock held by non-affiliates of the registrant as of June 21, 2002October 31, 2003, (which is the last business day at the Registrant's most recently completed second quarter) computed by reference to the closing sales price of the registrant's Common Stock on the NASDAQ National Market on such date, was approximately $174,967,000 based$236,602,000. For purposes of determining this number, individual stockholders holding more than 10% of the Registrant's outstanding Common Stock are considered affiliates. This number is provided only for the purpose of this Annual Report on Form 10-K and does not represent an admission by either the closing priceRegistrant or any such person as to the status of $9.57 per sharesuch person.
The number of shares of the registrant's Common Stock outstanding as of June 21, 2002 on
the NASDAQ/National Market System.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions2004 was 18,913,798.
Documents Incorporated By Reference
Portions of the DefinitiveRegistrant's Proxy Statement Incorporated into Part III
Statement for theits Annual Meeting of Shareholders to be held August 21, 2002
18, 2004 are incorporated by reference in Part III hereof.
DAKTRONICS, INC. AND SUBSIDIARIES
FORM 10-K
For the Fiscal Year Ended April 27, 2002
TABLE OF CONTENTS
PAGE
Part I........................................................................2
Part II......................................................................16
Part III.....................................................................43
Part IV......................................................................43
Signatures...................................................................46May 1,
PAGE | |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS | 1 |
PART I | |
1 | |
14 | |
14 | |
14 | |
PART II | |
15 | |
15 | |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 16 |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 29 |
30 | |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 52 |
52 | |
PART III | |
52 | |
52 | |
52 | |
52 | |
53 | |
PART IV | |
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K | 53 |
55 |
This Annual Report on Form 10-K (including exhibits and 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 OFof the Securities Act of 1933, AS
AMENDED, AND THE SECURITIES EXCHANGE ACT OFas amended, and Section 21B of the Securities Exchange Act of 1934, AS AMENDED INCLUDING
STATEMENTS REGARDING THE COMPANY'S 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 OF THE COMPANY, ITS
DIRECTORS OR ITS OFFICERS WITH RESPECT TO, AMONG OTHER THINGS:as amended, including statements regarding the Company’s 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 of the Company, its directors or its officers with respect to, among other things: (i) THE COMPANY'S
FINANCING PLANS;the Company’s financing plans; (ii) TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION OR
RESULTS OF OPERATIONS;trends affecting the Company’s financial condition or results of operations; (iii) THE COMPANY'S GROWTH STRATEGY AND OPERATING
STRATEGY; ANDthe Company’s growth strategy and operating strategy; and (iv) THE DECLARATION AND PAYMENT OF DIVIDENDS. THE WORDS "MAY,"
"WOULD," "COULD," "WILL," "EXPECT," "ESTIMATE," "ANTICIPATE," "BELIEVE,"
"INTEND," "PLANS" 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
RISK AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S 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
AND THOSE FACTORS DISCUSSED IN DETAIL IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION.
the declaration and payment of dividends. The words “may,” “would,” “could,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend,” “plans” 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 risk and uncertainties, many of which are beyond the Company’s 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 the section of this Annual Report on Form 10-K entitled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Risks and Uncertainties,” and those factors discussed in detail in the Company’s filings with the Securities and Exchange Commission.
Daktronics, Inc. (the "Company"“Company”) is a leading supplier of electronic scoreboards, computer-programmablelarge electronic display systems, marketing services, digital messaging solutions and large video displaysrelated software and services for sport,sports, business and transportation applications. Its focus is on supporting customers with superior products and services that provide dynamic, reliable and often unique visual communication solutions. Its products includeIt offers a complete line of large display products, from small indoor and outdoor scoreboards and electronic displays to large, multi-million dollar, video display systems.systems as well as related control systems, timing systems and professional services. It is recognized worldwide as a technical leader with the capabilities to design, market, manufacture, install and service complete integrated systems that display real-time data, graphics, animation and video.
Services provided by the Company include project management, on-site installation support, on-siteand event support, display content creation, product maintenance, marketing assistance and large screen video display rentals.
The Company invests a significant portion of its research and development resources into monochrome and full-color LED (light emitting diode) based display systems and has done so over the past several years. During that time, it has
introduced its ProStar(R) and ProAd(R) systems and has converted much of its
display offerings from incandescent & reflective technologies to LED based
technology although these technologies remain important. The Company continues to invest in technology to develop new products and enhancements for a wide variety of existing scoreboard and display products and to find new opportunities for existing products.
Every day, millions of viewers all over the world count on Daktronics scoreboards, displays and displaysrelated products for information and entertainment. The Company has soldsells display systems ranging from small scoreboards under $1,000 to large complex display systems priced in excess of $10 million. Generally, the Company'sCompany’s product sales are either custom products built on existing technology with contract sizes ranging from approximately $25,000 to $11$10 million, or standard catalog scoreboards or displays which account for approximately 25%27% of the Company'sCompany’s total annual revenues. Its custom products are typically customized in terms of size, configuration and installation type but are built utilizing standard physical and technology platforms.
The Company's netCompany’s sales and profitability historically have fluctuated due to the impact of large product orders such as display systems for facilities where professional and major college sports events take place and large commercial projects.systems. The seasonality of the sports market has also played a part in the Company'sCompany’s sales and profit fluctuations. This seasonality has had the
effect of causing netAs a result, sales and
2
the completion ofsales related to facilities for football and other fall sports in the summer and early fall, followed by sales generally related to facilities for basketball and hockey in the fall, and finally facilities for baseball and other spring and summer sports in the early fall, followed generally by the major indoor winter
sports of basketball and hockey.to late spring. This seasonal effect is generally compounded by large product orders in the sports markets.markets and by the effects of holidays during the third quarter. The effects of seasonality not related to holidays are generally not found in the Company's businessCompany’s commercial and transportation markets, although the impact of a large orderorders in those markets can cause a significant fluctuationfluctuations in net sales and the resulting profits. Approximately two-thirds of the Company's revenuesCompany’s sales are in the sports markets, with the remaining split between business, transportation and transportation although theservices. The Company considers itself to be operating in a single industry segment, as explained in the notes to the financial statements included in this report.
The Company'sCompany’s gross margins on large orders tend to fluctuate more than those for smaller, standard orders. Large product orders that involve competitive bidding and substantial subcontract work for product installation generally have lower gross margins with greater variability in margins among the
larger orders.margins. Although the Company follows the percentage of completion method of recognizing revenues for these larger orders, the Company nevertheless has experienced fluctuations in operating results and expects that its future results of operations may be subject to similar fluctuations.
INDUSTRY
Daktronics
The Company is an established leader in computer-programmable displays
and large screen video displays. Growth of this product category was originally
stimulated byelectronic display systems. In its early years through the invention ofmid 1990s, the microprocessor and the continued development
and acceptance in society of the personal computer. Initially, computers allowed
companies the capability to bring to marketindustry predominately focused on incandescent and reflective technologies controlled by computers. In the past, these incandescent and reflectivecontrollers. These technologies were the key product categories for the Company.Company during this same time period.
During the mid-1990s,mid 1990s, a technological breakthrough in display technology occurred which contributed significantly to the growth and position of the Company as a world leader -in its markets — the development of a blue light emitting diode that was visible outdoors and that could be manufactured in largerlarge quantities. This provided the basis for significant future growth in the industry and for the Company. With this development, the Company entered the large screen video display business in 1997. Prior tobusiness. Before this development, large screen video displays were primarily made of small cathode ray tubes ("CRT"(“CRT”), that were limited in size and the suppliers were generally provided by the same companies that were in the television set business.
The Company leveraged its knowledge of the display business with the availability of high quality red, blue and green light emitting diodes to broaden its scope and provide not only computer-programmable signagetext and graphics based electronic displays but also large video displays for both outdoor and indoor usage. It also converted manymost of its
previous incandescent and reflective technologies to lower cost, more efficient, LED based technology. In fiscal years 2003 and 2004, it added LCDs (liquid crystal displays) and related software as part of an integrated solution to supplement LED display applications and as stand-alone applications.
In general, the industry is characterized by market participants that provide limited product offerings as compared to the Company. For example, most manufacturers of computer programmable computerlarge electronic displays that are used to show alphanumeric data and graphics do not manufacture large screen video displays and scoreboards. Conversely, themost large video display manufacturers do not manufacture computer programmable displaysscoreboards and scoreboards. Daktronics, however,
manufactures both computer programmable displaystext or graphics displays. In addition, most of the suppliers across all the product lines do not possess the level of integration, software solutions and large video displays and
suppliesprofessional services the software to integrate various components, as well as marketing
services, content development and scoring information.Company does. This places Daktronicsit in a uniquely beneficialunique position to serve venues that have numerous requirements, such as the typical large sports venue. Daktronics,venue and the more sophisticated commercial and transportation applications. The Company, through the use of its proprietary Venus(R)Venus® 7000 display control software and its V-Play(TM)V-Play® video server software, also has the unique capability of time sharing acontrolling and managing content on large screendisplays, such as in a large stadium or arena, between the video display functions previously provided by the large video display and the information and animation display functions previously provided by computer programmable display and providing seamless integration with standard video equipment.equipment and other software applications. Having all these functions integrated into one largea display system gives the venue ownerapplication significant flexibility in managing the information and entertainment spectators receive that hasto an extent not been available previously.
3
COMPANY BACKGROUND
Drs.matched by competitors.
Dr. Aelred Kurtenbach and Dr. Duane Sander founded the Company in 1968 while professors of electrical engineering at South Dakota State University ("SDSU"(“SDSU”) in Brookings, South Dakota, in part to utilize the talents of university graduates. One of the key factors contributing to the growth of the Company and its leadership in the industry has been its close relationship with SDSU which providesand other South Dakota colleges and universities that provide the Company an important source of highly trained engineers
and other professionaleducated full-time and student employees.
The Company produced and sold its first product in 1970 — a voting display system for the Utah Legislature. Using some of the technology developed from voting display systems, it expanded its product line to scoreboards in 1971 and commercial displays in 1973. Beginning in the late 1970's,
microprocessor-based1970s, the Company integrated computers were integrated into display controllers by the
Company to process information provided by an operator and to formulate the information for presentation on a display. At that time, the Company also began building computer-programmable information display systems utilizing standard modules in a variety of systems.configurations. The use of modular sections for both its smaller and larger display systems allowed the Company to offer customers a broad range of both standard and custom products. Innovations like these helped the Company to obtain a major scoreboard contract for the 1980 Olympic Winter Games and several large college installations early in its history. In the early to mid-1980's,mid-1980s, the Company continued to enhance its controller and display technology, acquired the Glow Cube(R)Cube® reflective display technology and a manufacturer of printed circuit boards, and installed its first scoreboard in a major leagueprofessional sports facility.
During the 1990's,1990s, the Company expanded its product lines, increased market share in its existing markets and developed new markets for it products. For example, it enhanced its Starburst(R)Starburst® multi-color incandescent display technology by developing a new lens and reflector design to capture viewer attention and reduce energy consumption. It developed display control circuitry capability to
displaycapable of displaying 16 million possible color combinations at 30 frames per second for the
Starburst(R)Starburst® displays. The Company utilized this circuitry to develop technology for LED video displays. Historically, the Company built and enhanced products through its ability to transition technology from one application to another. This remains a key initiative for the Company.
With the advent of full-color LED display systems includingand various software applications, the Company made significant progress in building market share through quality products and services utilizing its technical expertise to become one of the world'sworld’s leaders in its market.markets. Its products are now seen in many major leagueprofessional sports complexes, including fully integrated systems at the American AirlinesToyota Center in Dallas, Texas, CMGIHouston, Texas; Jacobs Field in Foxboro, Massachusetts; the Xcel CenterCleveland, Ohio; Lambeau Field in St. Paul, Minnesota;Green Bay, Wisconsin; Soldier Field in Chicago, Illinois; several major colleges, universities and other amateur facilities and events, including the 1996, 2000, 2002 and 20022004 Olympic Games; many commercial installations, including multi millionmulti-million dollar commercial displays in Times Square, New York,York; Las Vegas, Nevada; and Branson, Missouri; small message signs for national retailers and fast food chains; and complex transportation display systems, such as over the road message displays for many state and federal agencies, including Departments of Transportation includingin Virginia, New Jersey, New York, Rhode Island, California, Washington, Delaware, Illinois, Pennsylvania, Mexico, Canada and New Zealand.
Over the past few years, the Company has achieved significant recognition and awards for its products and financial performance. In 2001, the Company'sCompany’s Chairman, Dr. Aelred Kurtenbach, was awarded the national 2000 Ernst & Young Entrepreneur of the Year(R)Year® award for the manufacturing category. The Company has also been named, on numerous occasions, as the South Dakota Business of the Year by the South Dakota Chamber of Commerce and Industry. It is currentlyDaktronics was ranked 128th52ndand 38th on ForbesForbes’ list of the 200 Best Small Companies in America in 2003 and ranked 83rd2001; and 83rd and 27th in 2002 and 2001 on the list of America'sAmerica’s Fastest Growing Small Companies by Fortune Small Business magazine. Finally, accordingMagazine. It was also ranked 67th and 100th on the list of the 100 Best Small Companies in 2004 and 2001 by Business Week Magazine and 18th, 27th and 48th on the list of the 100 Fastest Growing Tech Companies by Business 2.0. in 2002, 2003, and 2004. According to a recent industry report, the Company has the largest share of the worldwide market for LED video displays at
over 26.5%.
4
PRODUCTSand is considered the number one LED text display supplier in the world.
The Company offers its customers a wide range of computer-programmable
informationelectronic display systems consisting of related products, or families of
products, that have similar functions and varying degrees of capabilities.solutions. Products within each product family use displays and controllers that are built with many of the same components to reduce the cost of production, improve delivery time and provide flexibility for standard and custom installations. The use of standard components also enhances the reliability and serviceability of the display systems. For example, the basketball scoreboard family includes products that use many of the same components and range from a small, single-faced scoreboard to a large, four-sided display with player statistics. The sizes of displays can vary significantly depending on the needs of the customer, taking into account such things as viewing angles and spectator distances.
The two principal components of most of the Company'sCompany’s systems are the display and the display controller. The display controller uses computer hardware and software to process the information provided from the operator and other integrated sources and to formulate the information, graphics or animation to be presented on the display. The display controller controls each of the pixels (dots or picture elements that make up the image) on the display to present the message or image.
Data can be transferred between the display controller and local and/or remote displays. Local connections use twisted pair cables, fiber optic cables, infrared links or radio links. Both standard, and cellular telephone connections and satellite transmissions are used to connect to remote displays. The remote
connections are generally purchased from third parties.
Within each product family, the Company produces both standard and custom displays that vary in complexity, size and resolution. Generally, a
large,Large, full-color video display is significantlysystems are generally much more complex than a standard alternating time and temperature display.display systems. The physical dimensions of a display depend on the size of the viewing area, the distance from the viewer to the display and the amount and type of information to be displayed at one time.displayed. Generally, for displays other
than fixed digit displays, the light source or pixels are spaced farther apart for longer distance viewing. The resolution of a display is determined by the
size and spacing of each pixel, with smaller, more densely packed pixels
creating higher resolution images. The type of the display may also depend on the location of the viewing audience. For example, arena scoreboards may have a viewing angle nearly as wide as 180 degrees, compared with roadside displays which typically are viewed from a passing vehicle only within a narrow angle from the display.
KEY DISPLAY AND PRODUCT TECHNOLOGIES
The majorityCompany’s display technology has changed significantly since the mid 1990s, when incandescent lamps were the primary display element, to the present, when LED and LCD technologies are the primary display elements. The invention and availability to the Company of the Company'sblue and green LED in the mid 1990s, along with the already available red LED, allowed the introduction of full color video displays using LEDs, as red, green and blue are the primary colors utilized to form all other colors in any video display. The decreasing costs of LCD components along with the drive for more numerous smaller displays led to the addition of LCD displays.
The availability of improved high brightness and cost effective red and amber LEDs has made them the preferred display systems use LED technology,
although the Company still supplies of the following display technologies: (i)
Starburst(R) multi-color incandescent, (ii) SunSpot(R)element for large monochrome displays, replacing both incandescent and (iii) Glow Cube(R) and other reflective elements. It has been and continues
to be the Company's strategy to offer customers a wide range of technologies and
products to fit their individual needs while capitalizing its ability to share
technologies acrossin most applications. The customers' selectioncost effectiveness, life and performance of aLCDs have made them the preferred indoor small display technology depends on a variety of factors, including price, location, power
consumption, operating costs, and complexity of the information, graphics or
animation to be displayed. Outdoor displays are designed to withstand the
elements and to be visible in both bright sunlight and at night.
LED DISPLAYS.solution.
The Company's LED displays use programmable light
emitting diodes as the light source for each display pixel. The LEDs turn on and
off at different intervals and rates to form the display images. One line LED
displays are used for text, and larger LED displays are used for text, graphics,
animation, and video. LED displays can be one or multiple colors. The LED
technologyCompany is advantageous because of the long life of LEDs and their low power
consumption. Daktronics manufactures both indoor and outdoor LED displays.
Displays range from small character-based DataTrac(TM) signs and standard
scoreboards to ProStar(R) and ProAd(R) video
5
displays that have the capability to show moving images in 68 billion shades of
color.now offering LED based products compriseacross its entire product line that for the most part preempt the incandescent lamp and reflective technology products it previously offered. LED technology excels over incandescent technology with superior viewing characteristics, energy efficiency, cost of maintenance and lifetime. It excels over reflective technology in all the same areas except energy efficiency, as the reflective technology is extremely energy efficient. The vast majority of the Company's products and
contribute a majority of its revenues.
REFLECTIVE DISPLAYS. The Company's Glow Cube(R) display technology uses
three-dimensional pixels or "cubes." Each pixel is programmed to rotate so that
the viewing surface of the cube flips from a bright color to a dark contrasting
color. Words and graphics form as each pixel flips from one color to the other.
Glow Cube(R) displays are generally used outdoors, use less power and can be
configured in a wide variety of sizes. Because a Glow Cube(R) display reflects
sunlight during the day and fluorescent light at night, the display consumes
relatively little power while operating. The Company's 7 x 18 feet Glow Cube(R)
displays for the PGA Tour each operate on a golf cart battery and are moved
between golf tournament sites throughout the season. The Company had also
provided Glow Cube(R) displays for the 2002 Winter Olympic Games, the 2000
Summer Olympic Games, the 1996 Summer Olympic Games, the 1994 Winter Olympic
Games, and many other sports, business and transportation applications.
Although sales of reflective displays are not expected to contribute
significantly to future revenues of the Company, the technology has been a
significant contributor in the past, including the most recently completed
Winter Olympic Games and the PGA Tour. The Company still maintains a market for
this technology in appropriate circumstances, such as low power, portability and
bright light.
SUNSPOT(R) MONOCHROME INCANDESCENT LAMP DISPLAYS. SunSpot(R) displays
use incandescent lamps without lenses or with a single color of lens, which turn
on or off at varying intervals and rates. The displays typically display black
and white, with the capability for up to 64 shades of gray color and are used
both indoors and outdoors typically for time and temperature, messaging,
graphics, and other applications where color is not required. The Company has
sold its SunSpot(R) displays for many small and large installations such as high
school football stadiums, commercial businesses, and major league baseball
stadiums in the past. It expects that most applications of this technology in
the future will be in commercial applications and standard sports products and
that over time this technology will continue to decline in use in favor of LED
technology.
STARBURST(R) COLOR DISPLAYS USING INCANDESCENT LAMPS. Starburst(R)
displays, which are not being actively sold by the Company used four colors
(red, green, blue and white) to display many shades of color when different
combinations of lights are illuminated. They also use reflectors with colored
lenses over clear lamps. Each of the display lamps is turned on and off at
different intervals and rates determined by the software in the controller to
change what is presented on the display. The Company-designed reflector and lens
system consumes less energy than a traditional incandescent lamp display while
maintaining the brightness of the display to the viewing audience. Starburst(R)
color displays are used both indoors and outdoors and provide customers the
flexibility of displaying text, numbers, graphics, animation and other types of
information. Among the Company's Starburst(R) installations are displays at
Caesars Palace, Phillips Arena, Tacoma Dome and HSBC Arena, and various indoor
and outdoor sports and entertainment facilities.
CONTROL SOFTWARE.today utilize LED technology.
Most of the Company'sCompany’s display technologies rely on one or more of the Company's controlCompany’s software products to manage the display. These software products range from scoring entry consoles to the Venus(R)Venus® 1500 display control software that allows the creation, display and scheduling of dynamic text and basic graphics content on electronic displaysdisplays; to the Venus(R)Venus® 7000 display control system that controls multi-color displays and video boards, providing the ability to create graphics and animation as well as interfacing with third-party software for content.
EVENT MANAGEMENT SOFTWARE. The Company's V-Play(TM) video servercontent; and to the V-Net® control software provides facilities with integrated and sophisticatedused to display systems
event management capabilities with integrationtargeted messages to video equipment. It controls
thingsspecific audiences. Complementary software, such as instant replays, live actionthe Company’s DakStats® and overlays of information.
6
PRODUCT FAMILIES
Daktronic'sinterfacing software, is also available and fully integrated into the control software.
The Company’s product offering is comprised of four generalmajor product groups, although duefamilies. Each product family incorporates the basic display and controller technology tailored to a specific market application. As a result, there is significant sharing of technology among the natureproduct families. The Company’s engineering resources are organized within a specific product development team assigned to each of the technologyfour product families. Each of these design teams operates autonomously in advancing the capabilities and the products, the same
technologies and products have significant amountsofferings of overlap:their respective product families. The four product families include:
o Sport Products, primarily All Sport®, Tuff Sport® and OmniSport® scoreboards, controllers and timing systems
o Video Products, primarily ProStar(R)ProStar® and ProAd(R)ProAd® displays
o Business (Commercial) Products, primarily Galaxy(R)Galaxy® displays
o Transportation Products, primarily Vanguard(R)Vanguard® displays
SPORT PRODUCTS.
Sport Products.The Sport Products groupfamily includes a full line of indoor and outdoor scoreboards.scoreboards, timing systems, digit displays, statistics software and other related products. The indoor products, which are available in LED technologies, range from two-digit shot clocks and high school basketballsmall scoreboards to large, center hungcenter-hung scoreboards incorporating message centers and advertising panels.
Outdoor scoreboards, which are available in LED incandescent and reflectiveincandescent technologies, also range from two-digit game timers to high school
footballand small scoreboards to large scoring systems incorporating message centers and advertising panels.
The Company expects that Sport ProductProducts sales in the future will continue to focus on LED technology due to the lower power consumption, longer life and resulting lower maintenance costs.costs as compared to other technologies. Substantially all current indoor
Sport Products offering sales are LED technology, while in outdoor applications,
LED technology comprises more than 50% of sales in this group. The Company
expects that technologies like reflective will continue to be used however for
appropriate applications.technology. Since most of the products within the Sport Products group have significant standardization, the Company has been able to make progress on its goal to deliver the highest quality products while maintaining consistent and favorable margins.
The Company offers a variety of internally developed controllers complementing its scoreboards and displays, which vary depending on the sport and complexity of the system. These controllers vary in price and complexity from the All Sport(R)Sport® 1600, which is an entry-level controller for scoreboards, to the All Sport(R)Sport® 5000, which is designed for more sophisticated scoring systems allowing for more user-defined systems.options. These controllers can be interfaced with the scoreboards through radio frequencies, fiber optic connections and other means. Various
The Company also offers timing solutionssystems for sports such as swimmingevents, primarily aquatics and track arecompetitions. In fiscal year 2003, the Company introduced its OmniSport® 2000 timing system. The system has the capability to not only time and rank the competitors, but also offered.to interface to event management software created by other third parties to facilitate the administration of the sporting event.
Finally, the Company markets a variety of sports statistics and results software under the DakStats(R)DakStats® trademark to complement the controllers. The DakStats(R)DakStats® software allows scorekeepers and statisticians to enter and display sports statistics and other information on certainscoreboards and other types of the Company's scoreboards.displays. The user is responsible for updating the statistics after the software has been
installed. The DakStats(R)DakStats® baseball software was first used in 1988 by the AAA minor league Buffalo Bisons and has now been installed at several major leagueprofessional sports facilities, including Oriole Park at Camden Yards in Baltimore, Maryland; Jacobs Field in Cleveland, Ohio; Ameriquest Field (formerly The BallparkBallpark) in Arlington, Texas; and Coors Field.Field in Denver, Colorado. The Company has developed proprietary statistics and results software for several other sports such as golf, football, volleyball, basketball, auto racing and skiing.
VIDEO PRODUCTS.
Video Products.The Video Products groupfamily consists primarily of displays comprised of a large number of pixels capable of creating various levels of video, graphics, animation and text and controllers which manage the operation of the display.
Within this product group the Company supplies displays that are built on LED,
incandescent, and reflective technologies forming pixels which create the
images. The Video Products group has been the most significant product group for the Company in terms of revenues.
Historically, conventional displays formed images by turning pixelsnet sales.
Video display products are based on
or off without varying the levels of intensity. Combining the on or off with the
ability to vary the intensity of each pixel allows the generation of multiple
colors. When combining the on/off and varying degrees of intensity with a
combination of red, green and blue light sourcesLEDs arranged in various combinations to form pixels or picture elements. The electronic circuitry which controls the pixels allows for varying the relative brightness of each LED to provide a display, the combinations
allow the display of graphics andfull color spectrum, thereby displaying video images in a wide range ofstriking, vibrant colors. Displays vary
by the levels of capabilities within each of
7
these areas. For example, a greater range of intensities combined with generally
more tightly packed spacing of three color pixels leads to improved resolution
and performance.
The Company offers a wide range of products within its Video
Products Group which offer the customer a great deal of flexibility to meet
their particular needs.
The Company's ProStar(R) LED video display technology, which is at the
top end of performance in terms of video capabilities and is one of the world's
leading video display products uses red, green,for different applications and blue (RGB) LEDs at a wide
rangebudgets. Variables in typical video displays include the spacing of brightness levels allowing for peak performance in indoor as well as
outdoor applications. The displays offer state-of-the-art video and animation
capability at a price significantly less than the large screen CRT video screens
used in sports stadiums into the late 1990s. The proprietary technology produces
up to 68 billion colors through varyingpixels (pixel pitch), the brightness of the LEDs. Due todisplays, the modular approachnumber of discrete colors (color resolution) that the Company takes in its manufacturing process of ProStar(R)
products, itcircuitry is able to produce and the viewing angle. In addition, modular design allows the product to be readily configured in custom sizes to meet each customer’s specific requirements, with no maximum to the size of display that can be built. In general, the more pixels and the more color resolution, the better the video image on the display.
The Company’s ProStar® video display systems offer customers virtually any sizespecifications second to none in the industry. At the high end, the product is capable of producing 4.3 trillion colors and is available with pixel spacing as welllow as portable
options.three millimeters. In addition, the uniformity of colors across the display is important to the quality of the video image. The Company’s proprietary display control circuitry along with proprietary manufacturing and calibration procedures provide uniform colors across the display.
The first ProStar(R)ProStar® video display systems were installed in the fall of 1997 and can
now be seen1997. Since that time, the Company has become the world’s leading large screen video display product manufacturer. It has installed hundreds of displays in a number ofboth indoor and outdoor applications, such as major league
sports facilities, collegesprofessional, college and universities,university, and municipal and high school sporting facilities.
This technology is also popular in commercial applications, such as Times Square in New York City, casinos, billboards and other entertainment and
business applications. Currently, the Company offers a wide range of pixel spacings, ranging from 6mm3 millimeter to 34mm.89 millimeter. The 6mm3 millimeter application provides the user with the greatest pixel density and shortest viewing distance and the 34mm89 millimeter is the most cost effective for physically large displays. The Company has been recognized by industry experts as the
world's leading supplier of LED video display systems across all markets. The
ProStar(R) systems are used to entertain, inform and advertise to spectators,
consumers and others.displays with maximum viewing distances.
In the late 1990's1990s, the Company adapted the technology used in its ProStar(R)ProStar® product line to introduce the ProAd(R)ProAd® digital advertising and information display system. ProAd(R)ProAd® technology uses similar red, green and blue LED modules configured in different height-to-width ratios to give arena and stadium facilities the ability to install long, narrower bands of displays in various locations primarily on the fascia ofin the facility. This application generally serves as a revenue generation source for facilities through advertising as well as a location to display information such as scoring, and
statistics and video designed to entertain.entertain and inform the spectators.
The Company'sCompany’s main controller for video displays is its Venus(R)Venus® 7000 controller, which is built on the Windows(R)Windows® operating system. This is a
PC-based, high-end controller that provides advanced capability for control of large animation/video displays. The V-Play(TM)V-Play® event management software which
was released in fiscal year 2001, provides facilities with integrated and sophisticated event program management capabilities with integration to video equipment. It controls things such asprovides instant replays, live action and overlays of information, and it allows for the organization and playback of digital video and audio clips. In addition to providing these software products, the Company
develops customized hardware circuit boards and software for customers who have
special information display requirements.
The Company designs interfaces between its display systems and other computer systems, allowing its scoreboard systems to receive and display information from computers used for statistics, timing or scoring. These interfaces allow the display controller to send information back to a statistics system or customer computer. These interface products automatically report continually updated sports scores and information from national wire services.
Within the Video Products group,
During fiscal year 2003, the Company acquireddeveloped its ProRail™ technology. This product, combined with the ProAd® system, typically serves as a companyreplacement for the fascia of an upper deck in 2000a stadium or arena, allowing the stadium contractor to save on construction costs. In addition, it offers ease of access to service the ProAd® displays and merged it intoin some cases improved site lines for the fans.
In fiscal year 2004, the Company underintroduced its 3 millimeter full color ProStar® VideoPlus display technology to address the brand nameneed for greater resolution. This technology is capable of Keyframe(SM).
Keyframe(SM) is primarilyproducing 4.3 trillion colors and can run high-definition content to provide the sharpest, clearest image in the industry. During the same fiscal year, it also introduced its V-Net® narrowcasting system, which provides the tools needed to author, schedule, distribute and play focused messages over an existing network, resulting in a service provider to customers who have invested in
ProStar(R) and ProAd(R) systems and require assistance in enhancing the content
displayed on the video displays. These services includedynamic medium that delivers a wide rangevariety of offerings from complete event managementcontent to creation of custom animationsentice customers, inform guests and graphics for the displays and training services.
BUSINESS PRODUCTS. entertain crowds.
Business (Commercial) Products.The key product lines developed and managed byline in the Business Products group includefamily is the Galaxy(R)Galaxy® product line, as well aswhich includes various
other indoor and outdoor business applications intended primarily as text-based message displays, someincluding displays with limited graphics capability. A significant portionAll of the current product offerings within the Business Products group products utilize LED technologies.
8
Galaxy(R)
Galaxy® displays, available in both indoor and outdoor models, have become the Company'sCompany’s leading product line for businesscommercial applications and isare expected to be a key product line for the Company'sCompany’s growth in the business
markets. Generally, Galaxy(R)future. Monochrome and full color Galaxy® displays in outdoor applications are monochrome,
ineither red, amber or amberfull color with pixel spacing ranging from 23mm7.6 millimeter to 89mm,89 millimeter, depending on size and viewing distance anddistance. They are used primarily as message centers to informconvey information and advertising to the consumers and the public. This product line has been the key driver in the Company'sCompany’s growth in national accounts used inusing exterior signage applications. The modular design of the product allows the Company offers
indoor models with pixel sizes starting at .3" for applications in commercial
accounts as well as transportation and airports.to configure a display to readily meet the size requirements of each customer. Within this productthe Galaxy® line, the Company offers customized solutions to fit the needsvarious price points for similar sized displays of the customer, which
generally focus on size of the display.same pixel spacing.
Other product familieslines within the Business Products group include its
DataTrac(TM)the Company’s DataTime®, DAKTicker(R)DataTrac™, DataMaster™ and InfoNet(TM)InfoNet™ displays. The DataTrac(TM)DataTime® product line is comprised of digit based characters and is used primarily for displaying information such as time and temperature. The DataMaster™ product line is also comprised of digit based characters and is used primarily for lottery and parking displays. The DataTrac™ product lines consist of indoor LED displays comprised of discrete characters. Each character is spaced horizontally and vertically from the adjacent character. This provides the least expensive display per character for display of text messages only. DAKTicker(R)DAKTicker® displays are used primarily in financial institutions for ticker displays and other financial information. The InfoNet(TM)InfoNet™ product line includes line-oriented displays for indoor use whichthat are available as single or multi-line units. All DataTrac(TM)DataMaster™, DAKTicker(R)DataTrac™, DAKTicker® and InfoNet(TM)InfoNet™ products have a controller in the display that is capable of receiving a downloaded display program and then operating independently to display that program until a new program is downloaded to it. This controller, called an MDC (Multi-purpose
Display Controller), is a key building block for future product growth and
expansion of the Company character-based, line-oriented and matrix display
product offering.
The majority of the Company'sCompany’s Business Products group'sgroup’s products utilize the Company's Venus(R)Company’s Venus® 1500 display control software to control the creation of messages and graphic sequences for downloading to the display. This software is designed to be useable without any special training, and it is applicable to all general advertising or message presentation applications. The Company also provides software that allows OEM customers (system integrators) to write their own software using the Venus(R)Venus® 1500 software developer'sdeveloper’s kit to communicate to other displays.displays supplied by the Company. Several system integrators have implemented the Venus(R)Venus® 1500 protocol into their specific applications, resulting in additional display sales in both
the aviation market, the automatic call distribution market (ie. credit card
processing centers), and other markets.
TRANSPORTATION PRODUCTS.sales.
Transportation Products. The Transportation Products group includes a full line of electronic displays and controllers marketed primarily under the Vanguard(R)Vanguard® product line. Vanguard(R)Vanguard® displays are typically installed over
roads to help direct traffic and inform motorists. The Company has also developed a control system for these displays whichto help manage a network of over the road signs.displays. Both the LED based displays and the software are NTCIP (National Transportation Communications for ITS Protocol) compliant and meet the various requirements imposed by government and other regulatory bodies. During fiscal year 2002, the Company also introduced its Vanguard® VP-1000 model, a portable roadside variable message sign and began marketing it.display. This display, which runs on batteries and is built on LED technology, is generally controlled by remote wireless means.
MARKETING AND SALES
The Company's display systemsCompany’s products have been sold throughout the United States and in more than 70 countries. Its products are marketed and sold
worldwidemany other countries through a combination of direct sales personnel and independent resellers. In the United States and eastern Canada, the Company utilizes primarily a direct sales force for major leagueprofessional sports, colleges and universities, convention centers and transportation and other commercial sports
entities.applications. In the smaller sports venues, primarily high schools and similar facilities, as well as commercial facilities, the Company utilizes a combination of direct sales staff and resellers.
The majority of the products sold by resellers are standard or "catalog" sports scoreboards and business products where display systems must be
installed in accordance with local zoning ordinances.“catalog” products. These are typically moderately priced and relatively easy to install. The most popularA limited number of models are built to inventory and available for quick delivery. The remainingmajority of all models are built to order and quoted for
9
and trade show exhibitions. Members of the Company'sexhibitions and direct sales force support resellers in the field, and the Company's sales staff provide
daily telephone support.field. The Company believes that it can expand market share by expanding its direct sales force, increasing the productivity of existing resellers and adding additional resellers in new geographic areas.
The Company'sCompany’s direct sales force is comprised of a network of 2937 offices located throughout the United StatesNorth America and Europe supporting all customer types in both sales of products and services.service. In addition to supporting resellers as mentioned above, the direct sales staff also sells the entire range of standard products and with
the exception of the non-domestic market, directly sells substantially all the large video display systems for the Company. Over the last few years, the Company has been transitioning fromdeveloped a regional sales and service approach to complement the customer type (market) sales focus to a regional,
geographic approach, while retaining the market specialization required to serve
that market.it had been using previously. This has caused a significant investment in sales infrastructure to encourage more team selling across markets and more efficient use of the Company'sCompany’s sales staff. For example, previously a sales person specializing in colleges and universities tended to overlook opportunities in the business
marketscommercial market, as that wasthose opportunities were covered by another direct sales person. Under the regionalcurrent approach, although they will remain specialists,the sales personnel retain a focus in a particular market or markets, they are nowalso responsible as a regional team member to uncover opportunities for the other markets and to transition their knowledge into the other markets to help close orders.
When the Company targets a potential costumercustomer for a display system, the prospect is contacted either directly or through a reseller. Frequently, engineers, technicians and direct sales personnel jointly participate in site visits to assess site conditions, evaluate the customer'scustomer’s requirements and work
onassemble and present proposals. Proposals to prospective customers include business and technical presentations as well as product demonstrations and visits to existing installations. The Company also regularly hosts prospective customers at its manufacturing facility to demonstrate product quality and delivery capability.
The Company'sCompany’s direct sales staff grouped by end user market, is also responsible for international sales in their respective markets. Its direct sales staff works primarily through resellers, and during fiscal years 2004, 2003 and 2002, 2001approximately 13%, 5%, and 2000, approximately 7.4%, 6.8% and 9.3%7% of the Company'sCompany’s net sales, respectively, were derived from international sales. International sales fluctuate from year to year based on the timing of large projects like Olympic
events.system projects. A typical term of sale for international projects includes a letter of credit or partial payment in advance in United States dollars.advance. The Company believes that in addition to substantial growth that it expects will still occur in the domestic markets, it will also achieve growth in the international markets.
The Company believes that much of its marketing and sales success in the past has been based on its ability to create new products and product enhancements for its customers through developing andby understanding of their needs and opportunities. It develops this understanding through active participation in the sales cycle by engineers and various others and through attendance at trade shows, conventions and seminars as well as through a culture of teamwork throughout the organization.
In fiscal year 2001, Daktronics acquired SportsLink, Ltd., a large
screen video rental display company based in Brookings, S.D. SportsLink was
founded in 1995 and rents out a number of large screen video displays for
various types of events. It also provides support services in connection with
the rental at events. The Company believes rentals provide an excellent method
to demonstrate the Company's product and service capabilities.
The primary markets served by the Company, along with types of customers, are as follows:
MARKETS TYPES OF CUSTOMERS
------- ------------------
SPORTS Elementary and secondary schools, colleges and
universities, recreation centers, YMCAs, major and
minor league sports teams and facilities, Olympic
games, national and international sports federations,
civic arenas and convention centers, pari-mutuel
gaming and motor racing.
10
BUSINESS Banks, auto dealers, shopping malls, casinos, retail
stores, hotels, motels, financial institutions and
other businesses.
TRANSPORTATION State and local departments of transportation,
airlines, airports and related industries, transit
authorities and legislatures and assemblies.
| Markets | Types of Customers | ||||
| Sports | Elementary and secondary schools, colleges and universities, recreation centers, professional sports teams and facilities, Olympic games, national and international sports federations, civic arenas and convention centers and motor racing. | ||||
| Commercial | Retailers, hospitality providers, quick serve restaurants, outdoor advertisers, financial institutions, casinos, pari-mutual racing and other businesses. | ||||
| Transportation | State and local departments of transportation, airlines, airports and related industries and transit authorities. | ||||
The Company has a large and diverse customer base. Due to that diverse
customer base,As a result, the loss of a major customer would not have an adverse impact on the Company.
CUSTOMER SERVICE AND SUPPORT
The Company’s Keyframe™ support group provides a variety of services for its customers, including video and animation support, event support, control room design, on-site training (hardware and software), and continuing technical support for operators of complicated display systems.
Daktronics Sports Marketing, a division of the Company, provides customers, primarily sports facilities, with a complete display system, funded in part through value added marketing services provided as part of the system. These marketing services extend beyond the marketing potential of the equipment in the facility to other facility related components. Typically, these services are limited to facilities that do not have in-house marketing programs and staff.
The Company believes that its prompt and reliable customer service distinguishes it from many of its competitors. The Company provides a limited warranty for most of its products against failure due to defective parts or workmanship for periods generally ranging from 90 daysone to 5five years after first sale or installation, depending on the product or type of customer. Under the limited warranty, the customer returns the failed component to the Company for replacement or repair. The Company also provides customer service and support, including "Help Desk"help desk access, parts repair and replacement, and programming support for video, animation and other display information.displays. The Company staffs its Help Deskhelp desk with experienced technicians who are available at the desk or on call for the extended hours required to support evening and weekend sports events. A comprehensive database of customers provides the Company with immediate access to each customer'scustomer’s equipment and service history. A repair center is staffed with trained technicians who promptly repair and return components that require service, and it offers a component exchange program for same day shipment of replacement parts. The Company'sCompany’s modular approach to the design and production of products enhances its ability to provide effective customer service.service and support. Customers can obtain periodic training and maintenance seminars at the Company'sCompany’s principal offices and also contract for on-site training and maintenance for certain types of installations, such as high profile sports events.
The Company's Keyframe(SM) group provides a variety of services for its
customers, including video and animation production, event support, control room
design, on-site training, and continuing technical support for operators of
Daktronics displays.
The Company believes that its extensive customer support program is essential to continued market penetration. To enhance the level of service available to its customers, the Company has established approximately 29 service
centersprovides maintenance and support services in all of its 37 offices throughout the United StatesNorth America and Europe and plans to open other service centers in the future. ScoreboardSales of the Company’s standard and, message display sales to schoolsa lesser degree, custom products to small and recreation
departmentsmid-sized sports venues and commercial customers are also made through these offices. TheIn addition, the Company also uses a network of authorized service companies in other domestic locations and in a number of other countries to service and maintain its products.
ENGINEERING AND PRODUCT DEVELOPMENT
The computer-programmable informationlarge screen electronic display industry is characterized by ongoing product innovations and developments in displaytechnology and controller
technology.complementary services. To remain competitive, the Company must continue to anticipate and respond to changes and developments in the industry and, more importantly, remain a leader in creating the innovations and developments. The Company intends to continue its tradition of applying engineering resources throughout its business to help achieve more effective product development, manufacturing, sales and customer support. It also remains committed to investing approximately 4% of its net sales into research and development.
The Company employs engineers and engineering technicians in the areas of mechanical design, electronics design, applications engineering, and customer and product support. Unlike some of its competitors whocompanies, which depend on contract engineering from outside vendors, the Company uses in-house engineering staff to anticipate and respond rapidly to the product development needs of customers and the marketplace. The Company assigns product managers from its engineering staff to each product or product family to assist its sales staff in customer
training, to implement product improvements requested by customers, and to ensure that each product is designed for maximum reliability and serviceability. 11
The Company'sIts product development personnel also modify existing products and develop new products to comply with rule changes for particular sports. The Company also invests in new creative technologies that appear in the market
place as well asand in companies developing these new technologies.
Daktronics
The Company’s engineering departmentstaff consists of three product-developmentthe following four product development groups aligned with the primary product groups, namely:families:
o Sport Products Engineering
o Video Products Engineering
o Business (Commercial) Products (See "Product Families" Section)Engineering
o Transportation Products Engineering
Each of these design groups is autonomous to allow it to focus on the
respectiveits product family while at the same time closely tied with eachthe other groups for sharing of ideas and technology. This organizational structure, plus a concentrated focus on standardization, which reduces the amount of engineering time allocated to one-time custom design, positions the Company for even more
effective product development in the future.
Daktronics
The Company believes its engineering capability and experience are unparalleled among its competitors and its product development capability will continue to be a very important factor in its market position.
Product development expenses for fiscal years 2002, 20012004, 2003 and 20002002 were approximately $8,126,000, $6,918,000 and $7,442,000, $5,685,000respectively.
As a vertically-integrated manufacturer of display systems, the Company performs most sub-assembly and substantially all final assembly of its products. The Company also serves as a technical contractor for customers who desire custom hardware design, custom software development, installation or specific site support.
MANUFACTURING OPERATIONSother technical services.
The Company'sCompany’s manufacturing operations include component manufacturing (printed circuit boards and Glow Cube(R) pixel assembly)boards) and system manufacturing (metal fabrication, electronic assembly, sub-assembly and final assembly). Star Circuits, Inc., a wholly owned subsidiary, manufactures printed circuit boards primarily for the Company and other customers at its separate production facility located in Brookings, South Dakota. The Company augments its production capacity which provides it with increased capacity with the use of outside subcontractors primarily for metal fabrication and loading printed circuit boards.boards, which provides it with increased capacity.
The Company uses a modular approach for manufacturing its displays. Standard product modules are designed and built to be used in a variety of different products. This modular approach reduces parts inventory and improves manufacturing efficiency. The Company inventories finished goods of smaller,a very limited supply of standard products and builds to order larger, seasonalmost other standard and custom products. It designs product modules so that a custom product may include a significant percentage of standard productscomponents to maximize reliability and ease of service. Certain components used in the Company'sCompany’s products are currently available from a limited number of sources. To reduce its inventories and enhance product quality, the Company elects to purchase certain components from a limited number of suppliers who are willing to provide components on an "as needed"“as needed” basis. From time to time, the Company enters into pricing agreements or purchasing contracts under which it agrees to purchase a minimum amount of product in exchange for guaranteed price terms over the course of the contract, which generally do not exceed one year. Through the Company's "total quality management" and
"just-in-time" methods ofIn scheduling and manufacturing, production employees work as teams to ensure quality and timely delivery while minimizing excess inventories. The Company'sCompany’s order entry, production and customer service functions are also computerizedconsolidated through an ERP (enterprise resource planning) system to facilitate communication throughout the entire sales, design, production and delivery process.
12
TECHNICAL CONTRACTING
Daktronics
The Company serves as a technical contractor for larger display system installations that require custom designs and innovative product solutions. The purchase of scoreboards and other state of the art display systems for Olympic
venues and other large installations typically involves competitive proposals by the Company and its competitors. As a part of its response to a proposal request, the Company may suggest additional products or features to assist the prospective customer in analyzing the optimal type of computer-programmable
information display system. If requested by a customer or if necessary to help secure a bid, the Company will include as a part of its contract proposal the work necessary to prepare the site and install the display system. In such cases, Daktronicsthe Company may serve as the general contractor and retain subcontractors. With each custom order, the Company forms a project team to assure that the project is completed to the customer'scustomer’s satisfaction. Key members of a project team include a project manager, sales person, mechanical design team, electronics and software team, manufacturing team, animation programmer,content specialist, installation supervisor and an executive officer.
BACKLOGa senior manager.
The Company'sCompany’s backlog consists of customer sales agreements or purchase orders that the Company expects to fill within the next 1224 months and was approximately $44 million as of June 1, 2002 and $32$54 million as of May 26, 2001.1, 2004 and $50 million as of May 3, 2003. Because sales agreements and purchase orders are typically subject to cancellation or delay by customers with limited or no penalty, the Company'sCompany’s backlog is not necessarily indicative of future net sales or net income. While orders for certain products may be shipped within 90 days, other orders may take longer depending on the size and complexity of the display.
COMPETITIONcustomer’s project schedule or other factors.
The computer-programmable informationlarge electronic display industry is highly fragmented and characterized by intense competition in certain markets. There are a number of established manufacturers of competing products who may have greater market penetration in certain market niches or greater financial, marketing and other resources than the Company. Because a customer'scustomer’s budget for the purchase of a computer-programmable informationlarge screen electronic display is often part of that customer'scustomer’s advertising budget, the Company may also compete with other forms of advertising, such as television, print media or fixed display signs. Competitors might also attempt to copy the Company'sCompany’s products or product features.
Many of the Company'sCompany’s competitors compete in only one or a few of the market niches served by the Company. There are generally more competitors in markets that require less complicated information display systems, such as the high school scoreboard market and the commercial market for time and temperature or message displays used by banks and small retail stores. As the needs of a customer increase and the display systems become more complex, there are generally fewer competitors. Nevertheless, competition may be intense even within markets that require more complex display systems.
Daktronics
During fiscal year 2003 and into 2004, there was a considerable amount of change in competitors in the video display portion of the Company’s business. The changes included new competitors, consolidation of competitors and various other changes. The Company believes that although these changes have an impact on the market as a whole, because of its experience and its approach to the market, it can continue to grow and expand its business.
The Company competes based on its broad range of products and features, complementary services, advanced technology, prompt delivery, and reliable and readily available customer service. The Company also strives to provide cost effective products and solutions for its customers. Contrary to the Company'sCompany’s focus on technologically advanced products and customer support, certain companies compete in some markets by providing lower cost display systems which, in the Company'sCompany’s belief, are of a lesser quality with lower product performance or customer support. If a customer focuses principally on price, the Company is less likely to obtain the sale. To remain competitive, Daktronicsit must continue to enhance its existing products, introduce new products and product features, and provide customers with cost effective solutions to their scoring or display needs.
13
GOVERNMENT AND OTHER REGULATION
In the United States and other countries, various laws and regulations, including zoning ordinances, restrict the installation of outdoor signs and computer-programmable information
displays.displays, particularly in the commercial market. These regulations may impose greater restrictions on computer-programmable informationelectronic displays due to alleged concerns over aesthetics or driver safety if a "moving"“moving” display is located near a road or highway. These factors may prevent or inhibit the Company from selling products to some prospective customers.
Some of the Company'sCompany’s products are tested to safety standards developed by Underwriters Laboratories(R)Laboratories® in the United States, as well as similar standards in other countries. DaktronicsThe Company designs and produces these products in accordance with these standards. The Company'sCompany’s printed circuit board manufacturing operations use certain chemical processes that are subject to various environmental rules and regulations. The Company'sCompany’s manufacturing operations must also meet various safety related rules and regulations. The Company believes it is in material compliance with all applicable governmental laws and regulations.
INTELLECTUAL PROPERTY
The Company holds a number of U.S. patents and has a number of U.S. patent applications pending. The patents pertain primarily to the Company'sCompany’s LED and incandescent display technologies and product features and to its water-submersible swimming touchpads. The Company also relies on trademarks, in addition to patents, to help establish and preserve limited proprietary protection for its products. It owns and uses a number of trademarks on or in connection with its products, including the stylized Daktronics "D"“D” logo. These trademarks are registered in the United States and other countries. The Company also has numerous trademark applications pending. Daktronics uses these trademarks to establish brand recognition and distinction in its various markets. The Company'sCompany’s product drawings, software and other works of authorship are also subject to applicable copyright laws.law protections. The Company provides software to its customers in only machine-readable object code to help preserve trade secret protection that may be applicable to the text versions of the software code. The Company also relies on nondisclosure agreements with its employees. Despite these intellectual property protections, there can be no assurance that a competitor will not copy the functions or features of the Company'sCompany’s products.
EMPLOYEES
As of June 10, 2002, TheMay 1, 2004, the Company employed 772954 full time employees and 366488 part time and temporary employees. Of these employees, approximately 523584 were in manufacturing, 316451 in sales, marketing and customer service, 242314 in engineering, and 5793 in administration. None of the Company'sCompany’s employees isare represented by a collective bargaining agreement. The Company believes its
employee relations are good. The Company has reports that a trade union local
has contacted certain of the Company's employees by phone, mail and in person.
No union representative has made any attempt to contact the Company's management
and the Company is unaware of any demand for recognition or any allegations of
unfair labor practices. The Company continues to believe its employee relations are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
The Company’s internet website is http://www.daktronics.com. The Company makes available free of charge, on or through its website, its annual, quarterly and current reports and any amendments to those reports as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission. The reports are available through a link to the Commission’s website at http://www.sec.gov. Information contained on the Company’s website or linked through its website is not part of this report.
The following sets forth information regarding the Company's officers and directors as of June 21, 2004:
| NAME | AG | E | POSITION | |||||
| Aelred J. Kurtenbach | 70 | Chairman of the Board | ||||||
| James B. Morgan | 57 | President, Chief Executive Officer, and Director | ||||||
| Frank K. Kurtenbach | 66 | Vice President, Sales and Director | ||||||
| William R. Retterath | 43 | Chief Financial Officer, Treasurer | ||||||
| Carla S. Gatzke | 43 | Personnel Manager, Corporate Secretary | ||||||
Aelred J. Kurtenbach, 67 Chairman of the Board
James B. Morgan 54 President, Chief Executive Officer, and Director
Frank K. Kurtenbach 63 Vice President, Sales and Director
William R. Retterath 41 Chief Financial Officer, Treasurer
Carla S. Gatzke 40 Personnel Manager, Corporate Secretary
AELRED J. KURTENBACH, PH.D.Ph.D. is a co-founder of the Company and has served as a director of the Company since its incorporation. Dr. Kurtenbach is currentlyDirector and Chairman of the Board.Board since its incorporation. He also served as President of the Company from 1969 until 1999, Chief Executive Officer from 1999 until 2001, and as Treasurer from 1972 until 1993. Dr. Kurtenbach has 44 years of experience in the fields
of communication engineering and control system design, technical services,
14
computer systems, electrical engineering education and small business
management. Dr. Kurtenbach hasholds B.S., M.S. and Ph.D. degrees in Electrical Engineering from the South Dakota School of Mines and Technology, the University of Nebraska and Purdue University, respectively.
JAMES
James B. MORGANMorgan joined the Company in 1969 as a part-time engineer while earning his M.S. degree in Electrical Engineering from South Dakota State University. Mr. Morgan became President and Chief Operating Officer of the Company in 1999.1999 and Chief Executive Officer in 2001. He served as its Vice President, Engineering, with responsibility for product development, contract design, project management, and corporate information and
scheduling systems, from 1976 to 1999. Mr. Morgan has also served as a directorDirector of the Company since 1984.
FRANK
Frank J. KURTENBACHKurtenbach joined the Company in 1979 as Sales Manager of the Standard Scoreboard Division of the Company, which was expanded to include other products in 1981. He has served as the Company's Vice President of Sales Manager for the Company sincefrom 1982 through 1993, as a directorDirector since 1984 and as Vice President, Sales since November 1993. Mr. Kurtenbach has aan M.S. degree from South Dakota State University. WILLIAMAelred Kurtenbach and Frank Kurtenbach are brothers.
William R. RETTERATH,Retterath, CPAjoined the Company in September 2001 as its Chief Financial Officer and Treasurer. During 2001, before joining the Company, Mr. Retterath previously served as the Chief Financial Officer of MQSoftware, Inc., and from 1999 through 2000, he was a Vice President of Finance for Computer Associates, Inc. through its acquisition of Sterling Software Inc. Prior to that time, Mr. Retterath served as the Chief Financial Officer for various public and private companies and worked for a number of years with Deloitte & Touche. Mr. Retterath holds a BS in Accounting from the University of Minnesota.
CARLA
Carla S. GATZKEGatzke joined the Company in 1981 while earning her bachelor'sbachelor’s degree in electrical engineering from South Dakota State University. Upon graduation, she worked full-time as a Systems Sales Engineer. After a leave of absence to complete a Master'sMaster’s in Business Administration at Drake University, she served as manager of Star Circuit's,Circuits, Inc., the Company'sCompany’s circuit board subsidiary. In 1992, she moved to Administration and currently manages Personnel and Enterprise Information Systems.
ITEM
The Company currently owns and occupies a total of approximately 288,000376,000 square feet in adjoining facilitiesof space located on a Company-owned 40-acre45-acre site in Brookings, South Dakota. During fiscal year 2002, SportsLink, Ltd. purchased an
88,000 square foot facility located on adjacent property to the Company's main
facilities. Star Circuits, Inc. is located at a separate site in Brookings and occupies approximately 20,000 square feet in a facility owned by that subsidiary. ITEMDaktronics Canada, Inc. occupies approximately 21,000 square feet in a sales and manufacturing facility in Montreal, Quebec under a lease agreement. The majority of the Company’s sales and service offices located throughout the United States and Europe are small offices, generally consisting of less than 5,000 square feet leased under operating leases.
The Company is involved in a variety of legal actions relating to various legal matters that arise in the normal course of business. While we are no pendingunable to predict the ultimate outcome of these legal actions, it is the opinion of management that the disposition of these matters will not have a material legal transactions against the Company.
ITEM 4.adverse effect on our consolidated financial statements taken as a whole.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of stockholders thoughthrough a solicitation of proxies or otherwise during the fourth quarter of fiscal 2002.
15
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
DaktronicsMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's common stock currently tradesis quoted on the NASDAQ National Market System under the symbol "DAKT"“DAKT”. As of April 27, 2002May 1, 2004, the Company had 511514 shareholders of record. Following are the high and low sales prices for the Company'sCompany’s common stock (amounts have been adjusted to the two-for-one stock
split approved on May 24, 2001):
FY 2002 FY 2001
High Low High Low
------- ------- ------- -------
1st Quarter $ 16.59 $ 8.50 $ 5.69 $ 4.44
2nd Quarter $ 11.50 $ 6.15 $ 7.94 $ 5.31
3rd Quarter $ 8.85 $ 6.56 $ 8.00 $ 5.78
4th Quarter $ 9.50 $ 6.28 $ 11.65 $ 7.00
On May 24, 2001, Daktronics approved a two-for-one stock split of the
Company's common stock in the form of a stock dividend. Stockholders of record
at the close of business on June 11, 2001 received one additional share for each share of common stock on that date of record. Daktronics stock began trading onquarter within the split-adjusted basis on June 25, 2001.Company’s last two fiscal years:
|
| Fiscal Year 2004 |
| Fiscal Year 2003 |
| ||||||||
|
|
|
| ||||||||||
|
| High |
| Low |
| High |
| Low |
| ||||
|
|
|
|
|
| ||||||||
1st Quarter |
| $ | 19.38 |
| $ | 14.20 |
| $ | 10.87 |
| $ | 7.30 |
|
2nd Quarter |
| $ | 17.90 |
| $ | 14.31 |
| $ | 10.95 |
| $ | 8.45 |
|
3rd Quarter |
| $ | 27.75 |
| $ | 14.62 |
| $ | 15.66 |
| $ | 9.13 |
|
4th Quarter |
| $ | 27.50 |
| $ | 21.12 |
| $ | 17.10 |
| $ | 12.86 |
|
The Company has not paid any cash dividends on its common stock and does not intend to pay cash dividends in the foreseeable future. Earnings willare expected to be retained for use in the operation and expansion of the Company'sCompany’s business. Provisions of the Company'sCompany’s bank credit agreement limit the Company'sCompany’s ability to pay cash dividends.
ITEM 6.
In connection with the purchase of the minority interest in Daktronics Canada, Inc. on March 15, 2004, the Company issued 18,500 shares of its common stock to the two corporate minority shareholders of Daktronics Canada, Inc. in exchange for their interest. In the agreement under which these transactions occurred, the corporate minority shareholders represented, among other things, that the Company’s shares were “restricted securities” under United States federal securities laws and agreed that the stock certificates evidencing the shares would bear a restrictive legend. These shares were issued pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.
Item 6. SELECTED FINANCIAL DATA.DATA (in thousands, except per share data)
The table below provides selected historical financial data of the Company, which should be read in conjunction with the financial statements and the notes to the financial statements and "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations,"” which are included elsewhere in this report. The statement of operations data for each of the threefiscal years in
the 52 week periods ended May 1, 2004, May 3, 2003 and April 27, 2002, and the balance sheet data at April 27,
2002May 1, 2004 and April 28, 2001,May 3, 2003, are derived from, and are qualified by reference to the audited financial statements included elsewhere in this report. The statement of operationsincome data for the years ended April 19992001 and April 19982000 and the balance sheet data at April 2000, 1999,2002, 2001 and May, 19982000 are derived from audited financial statements not included in this report.
|
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| 2000 |
| |||||
|
|
|
|
|
|
| ||||||||||
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| $ | 209,907 |
| $ | 177,764 |
| $ | 148,773 |
| $ | 152,331 |
| $ | 123,350 |
|
Operating Income |
|
| 27,530 |
|
| 19,825 |
|
| 9,103 |
|
| 14,451 |
|
| 9,996 |
|
Net Income |
|
| 17,727 |
|
| 12,458 |
|
| 4,892 |
|
| 8,685 |
|
| 6,224 |
|
Diluted Earnings per Share* |
|
| 0.89 |
|
| 0.64 |
|
| 0.25 |
|
| 0.46 |
|
| 0.34 |
|
Weighted Average Diluted Shares Outstanding* |
|
| 19,936 |
|
| 19,515 |
|
| 19,230 |
|
| 18,874 |
|
| 18,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital |
| $ | 49,124 |
| $ | 39,700 |
| $ | 28,353 |
| $ | 26,967 |
| $ | 20,663 |
|
Total Assets |
|
| 126,236 |
|
| 102,527 |
|
| 87,346 |
|
| 90,214 |
|
| 72,407 |
|
Long-Term Liabilities |
|
| 4,675 |
|
| 8,198 |
|
| 11,651 |
|
| 12,004 |
|
| 8,977 |
|
Shareholders' Equity |
|
| 86,264 |
|
| 65,303 |
|
| 51,501 |
|
| 45,823 |
|
| 36,231 |
|
_________________
*
Amounts have been adjusted for the two-for-one stock splits approved on December 7, 1999 and May 24, 2001.
16
ITEM
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERALOPERATIONS
The following discussion highlights the principal factors affecting changes in financial condition and analysisresults of operations. This discussion should be read in conjunction with "Selectedthe accompanying Consolidated Financial Data"Statements and the consolidated financial
statements and notes thereto appearing elsewhere in this report.Notes to Consolidated Financial Statements.
The Company designs, manufactures, and sells a wide range of computer-programmable informationlarge screen electronic display systems to customers in a variety of markets throughout the world. The Company focuses its sales and marketing efforts on geographical regions, markets rather thanand products. Major categories ofThe primary markets include
sport, business,served are the sports, commercial and transportation.transportation markets.
The Company'sCompany’s net sales and profitability historically have fluctuated due to the impact of large product orders, such as display systems for the
Olympic gamesprofessional sports facilities and major league sport facilities,colleges and universities, as well as the seasonality of the sports market. Net sales also fluctuate due to other seasonality factors, including the timing of the various sports seasons and the impact of holidays, which primarily impact the Company’s third quarter. The Company'sCompany’s gross margins on large product orders tend to fluctuate more than those for smallsmaller standard orders. Large product orders that involve competitive bidding and substantial subcontract work for product installation generally have lower gross margins. Although the Company follows the percentage of completion method of recognizing revenues for these larger custom orders, the Company nevertheless has experienced fluctuations in operating results and expects that its future results of operations may be subject to similar fluctuations.
The Company operates on a 52-5352 to 53 week fiscal year, with fiscal years ending on the Saturday closest to April 30 of each year. The Company'sFiscal years 2004 and 2002 contained 52 weeks. Fiscal year 2003 contained 53 weeks and the first quarter of fiscal year 2003 contained 52 weeks.14 weeks as compared to the more typical 52-week year and 13-week quarter.
For a summary of recently issued accounting pronouncements and the effects of those pronouncements on the financial results of the Company, refer to Note 1 of the financial statements of the Company, which are included elsewhere in this report.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following discussion and analysis of financial condition and results of operations are based upon the Company'sCompany’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-goinga regular basis, the Company evaluates its estimates, including those related to estimated total costs on long-term contracts, estimated costs to be incurred for product warranties and extended maintenance contracts, bad debts, excess and obsolete inventory and contingencies. Its estimates are based on historical experience and on various other assumptions that are 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 that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies require significant judgments and estimates used in the preparation of its consolidated financial statements:
REVENUE RECOGNITION ON LONG-TERM CONTRACTS.
Revenue recognition on long-term contracts. Earnings on long-term contracts are recognized on the percentage-of completionpercentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are estimatable.estimable. Generally, contracts entered into by the Company have fixed prices established, and to the extent the actual costs to complete contracts are higher than the amounts estimated as of the date of the financial statements, the resulting gross margin would be negatively effectedaffected in future quarters when the Company revises its estimates. The Company'sCompany’s practice is to revise estimates as soon as such changes in estimates are known.
17
ALLOWANCE FOR DOUBTFUL ACCOUNTS.become known to it.
Allowance for doubtful accounts. The Company maintains allowancesan allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. WARRANTY, EXTENDED WARRANTY AND PRODUCT MAINTENANCE.To identify impairments in the customer's ability to pay, the Company reviews aging reports, contacts customers in connection with collection efforts and reviews other available information. As of May 1, 2004, the Company had an allowance for doubtful accounts balance of approximately $1.1 million.
Warranties. The Company has created a reserve for standard warranties on its products equal to its estimate of the actual costs expected to be incurred in connection with itits performance under the warranty. It also has deferred estimated revenue related to separately
priced extended warranties and product maintenance agreements,Generally, estimates are based in part on its estimate of its costshistorical experience taking into account known or expected to be incurred in connection with these
agreements. In the event thatchanges. If the Company would become aware of an increase in its warranty and maintenance reserves, deferrals of additional reserves may become necessary, resulting in an increase in costs of goods sold. As of April
27, 2002,May 1, 2004, the Company had a total of $ 3approximately $4.2 million deferred for these costs.
Extended warranty and product maintenance.The Company has deferred revenue related to separately priced extended warranty and product maintenance agreements. If the Company would become aware of an increase in its estimated costs under these agreements in excess of its deferred revenue, additional reserves may be necessary, resulting in an increase in costs of goods sold. In determining if additional reserves are necessary, the Company examines cost trends on the contracts and revenues.
RESULTS OF OPERATIONSother information and compares that to the deferred revenue. As of May 1, 2004, approximately $0.04 million in additional reserves were provided for.
Inventory. Inventories are stated at the lower of cost or market. Market refers to the current replacement cost, except that market may not exceed the net realizable value (that is, estimated selling price in the ordinary course of business less reasonable predictable costs of completion and disposal); and market is not less than the net realizable value reduced by an allowance for normal profit margins. In valuing inventory, the Company estimates market value where it is believed to be the lower of cost or market, and any necessary charges are charged to costs of goods sold in the period in which it occurs. All other inventory is valued at cost.
The following table sets forth the percentage of net sales represented by items included in the Company'sCompany’s Consolidated Statements of Income for the fiscal years ended 2002, 2001May 1, 2004, May 3, 2003 and 2000:
YEARS ENDED
2002 2001 2000
======= ======= =======April 27, 2002:
|
| Years Ended |
| ||||
|
|
| |||||
|
| May 1, |
| May 3, |
| April 27, |
|
|
|
|
|
| |||
Net sales |
| 100.0 | % | 100.0 | % | 100.0 | % |
Cost of goods sold |
| 65.5 |
| 66.7 |
| 69.7 |
|
|
|
|
|
| |||
Gross profit |
| 34.5 |
| 33.3 |
| 30.3 |
|
Operating expenses |
| 21.4 |
| 22.1 |
| 24.2 |
|
|
|
|
|
| |||
Operating income |
| 13.1 |
| 11.2 |
| 6.1 |
|
Interest income |
| 0.5 |
| 0.4 |
| 0.6 |
|
Interest expense |
| (0.2 | ) | (0.5 | ) | (1.0 | ) |
Other income (expense), net |
| 0.3 |
| 0.5 | (0.2 | ) | |
|
|
|
|
| |||
Income before income taxes |
| 13.7 |
| 11.6 |
| 5.5 |
|
Income tax expense |
| 5.2 |
| 4.6 |
| 2.2 |
|
|
|
|
|
| |||
Net income |
| 8.5 | % | 7.0 | % | 3.3 | % |
|
|
|
|
| |||
Fiscal Year 2004 as compared to Fiscal Year 2003
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 69.7 70.3 72.2
------- ------- -------
Gross profit 30.3 29.7 27.8
Operating expenses 24.2 20.2 19.7
------- ------- -------
Operating income 6.1 9.5 8.1
Interest income 0.6 0.5 0.7
Interest expense (1.0) (1.0) (1.1)
Other income (expense), net (0.2) 0.2 0.3
------- ------- -------
Income before income taxes 5.5 9.2 8.0
Income tax expense 2.2 3.5 3.0
------- ------- -------
Net income 3.3% 5.7% 5.0%
======= ======= =======
NET SALES
Net sales decreased 2.3%increased 18.1% to $149$209.9 million for fiscal year 20022004 as compared to approximately $152$177.8 million for fiscal year 2001.2003. Net sales in all three markets of the Company increased in fiscal year 2004 over fiscal year 2003. The increase in sports markets was across all components, from smaller institutions, such as high schools and recreation centers, to professional sports facilities. The most significant area of growth was in the professional sports facilities as a result of a number of large contracts signed by the Company during the year and in the prior fiscal year. Although professional sports facilities net sales were up during the year, they are expected to decline in fiscal year 2005 from fiscal year 2004. The Company believes that sales in the sports and transportation marketsmarket increased in fiscal year 2004 due primarily to an expanding market as the Company’s products have become more affordable; additional services offered to customers, such as sports marketing services; and its overall product offerings, which the Company believes are the most complete and integrated systems in the marketplace. In addition, it benefits from its network of sales and service offices located throughout the United States and Canada and, beginning in fiscal year 2004, in Europe, giving it the ability to serve its customers more effectively. The Company believes that the effects of the economy have a lesser impact on the sports market as compared to its other markets because its products are generally revenue generation tools (through advertising) for facilities and the sports business in general is a recession resistant business. Finally, during the second half of fiscal year 2003, there were significant changes in the mix of competitors seeking business in the United States sports market, while at the same time, the Company aggressively pursued business outside of North America. Overall, the Company believes it is still well positioned with respect to its competition.
Orders in the sports markets were also up during the year in all areas. Most of the increase in order bookings was concentrated in the professional sports facilities and the smaller sports facilities for substantially similar reasons as described above.
The increase in net sales for the commercial market was the result of an expanding line of products, a growing distribution network and growth in product acceptance, as commercial establishments tend to understand the advantages of electronic displays as an advertising media. These positive factors are partially offset by the constraints that exist in the marketplace related to obtaining permits to install outdoor electronic displays. In addition, the Company has focused on sales to national accounts, primarily retail organizations and billboard companies. During the year, sales to this area of the market increased significantly due to increased sales to a limited number of national accounts, and the Company believes that this portion of the commercial market will continue to see growth in the future. The Company also believes that sales in the commercial market are expected to continue expanding at rates faster than in other markets; however, growth in this market depends on the state of the economy, which was more favorable in fiscal year 2004 as compared to fiscal year 2003. The increase in orders for the year in this market was due to the same factors affecting net sales.
The increase in sales in the transportation market was due to a number of factors, including the overall product offerings and the Company’s efforts in previous years to grow and develop its relationships with customers, including departments of transportation and transportation system integrators, resulting in repeat sales. As a result of current pending legislation in Congress related to federal spending on transportation, the Company is optimistic that the government will fund significant increases in spending within the intelligent transportation segment of the transportation market, which would benefit the Company by providing funds to purchase the Company’s products. The increase in orders for the year in this market was due to the same factors affecting sales.
Fiscal Year 2003 as compared to Fiscal Year 2002
Net sales increased 19.5% to $177.8 million for fiscal year 2003 as compared to $148.8 million for fiscal year 2002. Net sales in all three major markets of the Company increased in fiscal year 2003 over fiscal year 2001, while sales in the business markets declined, offsetting the sports and
transportation increases.2002. The increases in the sports markets were across all components, from smaller institutions, such as high schools and recreation centers, to professional sports facilities. The most significant area of growth was in the mid-sized institutions, primarily colleges, universities, minor league sports facilities and larger municipal stadiums and arenas.
Orders in smaller venuesthe sports markets were also up during fiscal year 2003 as compared to larger venues. The larger venue revenues2002. Most of the increase in order bookings were concentrated in the mid-sized institutions. Orders related to professional sports facilities were down year over year; however, in the last quarter of fiscal year 2002, the Company booked an unusually high level of orders for professional sports facilities which generated net sales in fiscal year 2003.
The increase in net sales in fiscal year 2003 as compared to 2002 for the commercial market was the result of an expanding line of products, a growing distribution network and the overall growth in product acceptance, as commercial establishments tend to understand the advantages of electronic displays. These positive factors were partially offset by declining economic conditions and the constraints that exist in the marketplace related to the obtaining of permits to install electronic displays. In addition, the Company had focused on sales to national accounts, primarily national retail type organizations and billboard companies. During the year, sales to this area of the market began to decline. The increase in orders for the year in this market was due to the same factors affecting net sales.
The increase in net sales in fiscal year 2003 as compared to 2002 in the transportation market was due to a number of factors, including the overall product offerings and the Company’s efforts in previous years to grow and develop its relationships with customers, including departments of transportation and transportation system integrators, resulting in repeat sales. The increase in the transportation market was partially offset by a decline in sales in the aviation portion of the market, which is primarily the result of the actual timingstate of that business overall but is also due to the inclusion in fiscal year 2002 of a single large order for a major airline. No similar order in that portion of the transportation market existed in fiscal year 2003. The increase in orders which werefor the year in this market was also due to the same factors affecting net sales.
The Company’s backlog at the end of fiscal year 2004 was approximately $54 million as compared to $50 million at the end of fiscal year 2003. The growth in the backlog as a percent of fiscal year 2003 backlog was the highest in the commercial market due to a couple of larger orders booked later than expected in the fourth quarter of fiscal year 2002. Order bookings were up2004. Backlog also increased over fiscal year 2003 in all
categories of the sportstransportation market, including large and small venues.but was down in sports. The decline in net sales for the business marketssports was the result of the
slowing economic conditions experienced during most of the second half of fiscal
year 2002 and the impact of a large order in fiscal year 2001 that was not
repeated in fiscal year 2002. A single large order in the business market had
contributed approximately $10 million in net sales in fiscal year 2001.
Excluding the revenue from that single large order, sales in the business market
were approximately flat in fiscal year 2002 as compared to fiscal year 2001.
Finally, offsetting the decline in the business markets due to the factors
mentionednumber of large projects the Company was an increaseinvolved in sales to national retail chain accounts inwith the fourth quarter ofNational Football League during fiscal year 2002.
Overall sales were effected by delays in booking orders across all
markets beginning late in the second quarter and through the third quarter as
customers hesitated due to the effects on the economy after the events of
September 11, 2001. As the Company progressed into the fourth quarter of fiscal
year 2002, it appeared as though the trends of flat and declining sales overall
were reversing and the Company is expecting increasing sales in the future.
18
The Company's backlog2003 that did not exist at the end of the fiscal year 2002 was in excess
of $50 million, which was the highest year end level in the Company's history
and an increase over fiscal year end 2001 backlog of $32 million. The increase
in backlog was primarily in the sports markets and resulted from a number of
large orders booked late in the fourth quarter. The backlog2004. Backlog varies significantly quarter to quarter due to the largereffects of large orders, and therefore significant variations can be expected as explained previously herein. In addition, the Company'sCompany’s backlog is not necessarily indicative of future sales or net income, also as explained previously.
Net sales for fiscal 2001 were $152.3 million, representing a 23%
increase over fiscal 2000 sales of $123.4 million. The increase was the result
of increased sales in the sports, business and transportation markets.
The Company occasionally sells products in exchange for advertising revenues from the scoreboard or display. These sales represented less than 10% of net sales for each of fiscal 2002, 2001year 2004, 2003 and 2000.2002. The gross profit margin on these net sales has historically been comparable to or higher than the gross profit margin on other net sales.
GROSS PROFITsales of similar sized installations.
Fiscal Year 2004 as compared to Fiscal Year 2003
Gross profit decreasedincreased by less than 0.5%22.6% from $45.2$59.1 million in fiscal 2001year 2003 to $45.0$72.5 million in fiscal 2002. Grossyear 2004. As a percent of net sales, gross profit percentage increased from 29.7%33.3% in fiscal year 20012003 to 30.3%34.5% in fiscal year 2002.2004. The decreaseincrease in gross margin dollars was due to the lowerhigher level of net sales mentioneddiscussed above offset by
improvements in the gross margin percentage on some specific long-term contracts
which are not expected to occur in the future and an improvement in productthe gross profit as a percent of net sales. The increase in the gross profit margins as a percent of net sales was due to a number of factors, including lower raw materials costs; the benefits of signing orders in advance of raw material price declines that were not foreseen at the time of booking the orders; improvements in on-site project costs as compared to estimates; improvements in the expected margin at contract signing; improved overhead absorption in manufacturing; and an improved mix between higher margin standard products and lowerlarge contracts. These improvements were offset by higher freight costs due to the growth in standard product orders and inventory losses due to more conservative inventory management and obsolescence. The Company continues to strive towards higher gross margins as a percent of net sales, although depending on the actual mix and level of futures sales, margin long-term contracts.percentages may not increase and are likely to decrease from the level of fiscal year 2004. However, as a result of various factors, the actual margin could vary significantly. The Company believes that the gross margin percent in fiscal year 2005 will be higher than in fiscal year 2002 but less than in fiscal year 2004.
Fiscal Year 2003 as compared to Fiscal Year 2002
Gross profit increased by 31.3% from $45.0 million in fiscal year 2002 to $59.1 million in fiscal year 2003. As a percent of net sales, gross profit increased from 30.3% in fiscal year 2002 to 33.3% in fiscal year 2003. The increase in gross margin dollars was due to the higher level of net sales discussed above and an improvement in the gross profit as a percent of net sales. The increase in the gross profit margins as a percent of net sales was due to a number of factors, including improvements in raw materials costs, an overall improvement in expected margins on certain long-term contracts resultedat contract signing in the sports and commercial markets, and improved overhead absorption due to production volumes and benefits realized from various factors suchcost reductions in fiscal year 2002. The Company experienced a decline in the gross margin percentage in the professional sports facilities portion of the sports markets during fiscal year 2003 due primarily to the competitive nature of the business in that area. It also experienced declines in gross margin percentages in its transportation markets. The increases in gross margin percentages in fiscal year 2003 as a one time improvement in certain raw materials prices
and higher negotiated margins on a few significant long-term contracts. The
increasescompared to 2002 were offset partially by negative impacts of costs incurred which are
not expected to continue into 2003 as the Company worked hard to reducereduced inventory levels, incurring higher costs of obsolescencerelated to excess and obsolete inventory.
Fiscal Year 2004 as it becomes more
aggressive in ordercompared to reduce costs of carrying the excess inventory over the
long term. The Company continues to strive towards higher margin percentages,
although depending on the actual mix of net sales in the future, margin
percentages may not actually increase.
Gross profit increased from $34.3 million in fiscal 2000 to $45.2
million in fiscal 2001. The increase was due to increased sales and continued
improvement in gross profit percentage of sales as the Company continued its
cost improvement programs, including product standardization. Gross profit as a
percentage of net sales was 27.8% in fiscal 2000 and 29.7% in fiscal 2001.
OPERATING EXPENSES
Fiscal Year 2003
Operating expenses, which are comprised of selling, general and administrative and product design and development costs, increased by approximately 17%14.3% from $30.8$39.3 million in fiscal year 20012003 to approximately $44.9 million in fiscal year 2004. For fiscal year 2003, all components of operating expenses were affected as a result of the year containing 53 weeks as opposed to the 52 weeks included in fiscal years 2004 and 2002. In addition, during the fiscal year ended May 1, 2004, the Company incurred higher profit sharing plan contributions than in fiscal year 2003, which affected all areas.
Fiscal Year 2003 as compared to Fiscal Year 2002
For fiscal year 2003, operating expenses increased by approximately 9.4% from $35.9 million in fiscal year 2002. Beginning with the third quarter of fiscal year 2001, the Company
began building its operating expense infrastructure in preparation of the
expected growth in net sales2002 to approximately $39.3 million in fiscal year 2002. This buildup continued until
the middle2003. Overall operating costs were impacted by higher costs of the second quarter of fiscal year 2002 when the Company began to
see that the anticipated level of sales for the year would not be achievable.
Beginning in the third quarter of fiscal year 2002, the Company undertook
efforts to reduce certain operating expenses, keeping in mind its belief in the
market as a wholeinsurance, personnel costs and an expectation that the current economic conditions that
the Company was experiencing were not long-term. As such, operating expenses
were not reduced to levels consistent with the fiscal year 2002 net sales.
Operating expenses were reduced to the levels that would support the Company in
a return to levels of growth which could be expected as the economy turned
around and orders started to book again. Although the levels of spending were
reduced, it is expected that in the absence of changing conditions, operating
expenses as a whole will be similar in fiscal year 2003 to fiscal year 2002.
19
SELLING EXPENSES. employee benefit costs.
Selling expensesconsist primarily of salaries, other employee relatedemployee-related costs, travel and entertainment expenses, facilities-related costs for sales and service offices, and expenditures for marketing efforts, including such
things asthe costs of collateral materials, conventions and trade shows, product demos and supplies.
Fiscal Year 2004 as compared to Fiscal Year 2003
Selling expenses increased 17%9.4% to $22.0$27.3 million for fiscal year 20022004 compared to $18.8$25.0 million in fiscal year 2001.2003. As a percentage of net sales, selling expenses were 14.8%13.0% and 12.3%14.0% of net sales in fiscal years 20022004 and 2001,2003, respectively. The increasesincrease in both actual amounts spent and the
percentage of salesselling expense dollars resulted from higher levels of personnel and related infrastructure, higher travel and entertainment costs related to international business and regional support initiatives, greater depreciation costs related to demonstration equipment and finally higher marketing and sales literature costs focused primarily on the larger sports venues as the infrastructure was builtbusiness became more competitive. These increases were offset by lower bad debt expense and lower write-downs of demonstration equipment, as explained above. During this timebelow. The Company expects that selling expenses will improve as a percent of higher costs,sales in fiscal year 2005 but that the dollar amount will increase as net sales increase. The actual amount of the increase and the percent of sales depends on a number of factors, especially those factors related to the further development of the international sales and marketing teams and the development of the commercial market, which has the most rapid growth expectations. In addition, the Company investedintends to continue investing in areas to fuel future growth opportunities it sees.
Fiscal Year 2003 as compared to Fiscal Year 2002
Selling expenses increased 13.4% to $25.0 million for fiscal year 2003 compared to $22.0 million for fiscal year 2002. As a percentage of net sales, selling expenses were 14.0% and 14.8% of net sales in fiscal years 2003 and 2002, respectively. The increase in selling expense dollars resulted from higher levels of personnel and offices as it expanded itsrelated costs due to the additional infrastructure put in place in connection with the expansion of the sales force
regionally, focusing on developing a stronger presence geographically and on
building new business units withinstaff located outside of Brookings, South Dakota. Also, during fiscal year 2003, the Company wrote down the carrying costs of demonstration equipment by approximately $0.6 million primarily its Keyframe business
to support the needsas a result of a change in estimated lives of the higher-priced, more complicated ProStar(R)equipment primarily due to technology improvements and ProAd(R) systems. In connectionreplacement with these higher personnel costs, thenewer equipment. The Company also experienced higher costs in indirect categories, such as telephonepostage, marketing, depreciation and office expenses. In addition, the Company experienced higher bad debt expenses
related to isolated issues, generally not related to product quality or service
and higher commissions paid to resellers. Finally, during the year the Company
spent more on advertising and related costs in order to achieve higher order
bookings. These increased costs were partially offset by a decline in product
demo costs and lower travelvarious other costs as a result of moreinvestments in infrastructure in its sales staff being located
in geographic regions as opposed to the Company's main facilities.
Selling expenses increased 25% in fiscal year 2001 over fiscal year
2000. This increase was primarily attributable to the expansion of sales staff
and higher travel expenses as the Company continues to expand its marketing
efforts and the Company's increasedgrowth in net sales.
GENERAL AND ADMINISTRATIVE EXPENSES.
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, amortization of intangibles and the costs of supplies.
Fiscal Year 2004 as compared to Fiscal Year 2003
General and administrative costs increased approximately 3.2%28.1% to $6.5$9.5 million in fiscal year 20022004 compared to $6.3$7.4 million for fiscal year 2001.2003. As a percent of sales, general and administrative expenses were 4.4%4.5% and 4.1%4.2% of net sales for fiscal year 20022004 and 2001,2003, respectively. The increases in both the dollars and
the percentage of sales relateincrease was due to higher costs of personnel as mentioned above,and related infrastructure to support the growth of the Company, higher professional fees as a resultassociated with international expansion and sales, patent and other intellectual property matters, implementation of higher legal and audit related fees due
to the resignationportions of the Chief Financial Officer in fiscal year 2001,Sarbanes-Oxley Act of 2002, employee relations, higher healthcosts of information systems infrastructure, charitable contributions, and other insurance costsrates related to higher claims ingrowth of the Company's self
funded health insurance program and a one time increase in the value of life
insurance policies during fiscal year 2001.Company. These increased costs were offset by thea decline in bonuses paid to the executive management of the Company. For
fiscal year 2002 no bonuses were earned by executive management.shareholder relations costs. The Company expects that general and administrative expenses may increase slightly incosts will rise during fiscal year 2003.2005 but decline as a percent of net sales. The amount of actual increase is primarily dependant on the Company’s international expansion efforts and information systems infrastructure needs, although other areas could impact this as well.
Fiscal Year 2003 as compared to Fiscal Year 2002
General and administrative expenses increased 27% in fiscal year 2001
over the previous fiscal year. The increase was due to the increased
administrative support to sustain the Company's sales growth, including
increased depreciation on computer equipment and office furniture.
PRODUCT DESIGN AND DEVELOPMENT EXPENSES. Product design and development
expenses consist primarily of salaries, other employee related costs facilities
and equipment related costs and supplies. Product development expenses increased approximately 31%14.6% to $7.4 million in fiscal year 20022003 compared to $5.7$6.5 million infor fiscal year 2001.2002. As a percent of sales, product developmentgeneral and administrative expenses were 5%4.2% and 3.7%4.4% of net sales for fiscal year 2003 and 2002, respectively. The increase in general and 2001, respectively.administrative expenses in fiscal year 2003 as compared to fiscal year 2002 related to higher compensation costs, primarily related to incentive compensation for executive management, whose incentive compensation is defined based on earnings targets; higher costs of retirement benefits for executive management; higher depreciation costs related to prior years’ capital investments; and higher professional fees related to higher audit costs for the fiscal year 2002 audit and legal transactional costs in general resulting from the increase in net sales. These increases were offset by a decline in the amortization costs as the Company implemented new accounting standards relating to the amortization of goodwill.
Product design and development expenses consist primarily of salaries, other employee-related costs, and facilities and equipment-related costs and supplies. Generally, product design and development expenses increase during times when the Company'sCompany’s engineering resources do not have to be more dedicated to long-term contracts, as the same personnel who work on research and development also work on long-term contracts. When the expected levels
Fiscal Year 2004 as compared to Fiscal Year 2003
Product development expenses increased approximately 17.5% to $8.1 million in fiscal year 2004 compared to $6.9 million in fiscal year 2003. As a percent of sales, product development expenses were 3.9% of net sales did not materialize
as expected infor both fiscal year 2002, more time was spent on researchyears 2004 and development. Included in these higher costs were increased costs of personnel
and related costs, supplies and other related items. During the year, the
Company made significant enhancements as a result of these higher costs which
are expected to benefit future years net sales. For the future,2003. In fiscal 2005, the Company expects product design and development expenses to be equal to approximately 4% of net sales. 20
Fiscal Year 2003 as compared to Fiscal Year 2002
Product development expenses increased 33%decreased approximately 7.0% to $6.9 million in fiscal year 2003 compared to $7.4 million in fiscal year 2002. As a percent of sales, product development expenses were 3.9% and 5.0% of net sales for fiscal year 2001 over2003 and 2002, respectively. As a result of the previousimpact of higher sales consuming more of the costs of labor and overhead of the engineering departments, product development costs declined in fiscal year. The increasesyear 2003 as compared to fiscal year 2002. In addition, 2002 costs were higher as the Company spent more time on product development due to the Company's commitment to
develop new productslower than anticipated net sales and continue to improve existing products to maintain a
competitive advantage.the resulting lack of work on long-term contracts required by the product development staff. The increases were primarily the result of the Company aggressively developing its family of ProStar(R) Video displaysalso experienced an overall reduction in product development infrastructure in fiscal 2003, including lower personnel costs, lower travel and ProAd(R)
digital advertisingentertainment costs, and information systems, and adapting other products to LED
technology.
INTEREST INCOMElower product management costs.
The Company occasionally sells products on an installment basis or in exchange for the rights to sell and retain advertising revenues from the scoreboard or display, both of which result in long-term receivables.receivables that generate interest income. It also invests excess cash in short-term temporary cash investments that generate interest income.
Fiscal Year 2004 as compared to Fiscal Year 2003
Interest income resulting from these long-term receivables and temporary cash investments increased 7.3%46.1% to $0.8$1.0 million for fiscal year 20022004 as compared to $0.77$0.7 million infor fiscal year 2001.2003. Interest income was approximately 0.5% and 0.4% of net sales for both years.fiscal years 2004 and 2003, respectively. The increase resulted
primarily from a higher average level of interest bearingwas attributable to the growth in long-term receivables outstandingrelated to financing of customer transactions and the growth of temporary cash investments created as a result of the increased cash flow during fiscal year 2002 as compared to fiscal year 2001.the year. The Company expectsbelieves that the levels of interest income to declinecould increase in the future as it seeks outside third parties to finance these transactionsassist customers more actively in financing purchases of equipment, assuming it can do so with acceptable levels of credit risk and interest rates.
Fiscal Year 2003 as opposedcompared to the Company.Fiscal Year 2002
Interest income decreasedresulting from these long-term receivables and temporary cash investments declined 15.7% to $0.7 million for fiscal year 2003 as compared to $0.8 million in fiscal year 2001 from2002. Interest income was approximately 0.4% and 0.6% of net sales for fiscal year 2003 and 2002, respectively.
The Company has various amounts of debt outstanding, primarily on term loans but at times including lines of credit, which result in interest expense.
Fiscal Year 2004 as compared to Fiscal Year 2003
Interest expense decreased 46.7% to $0.5 million as compared to $0.9 million in fiscal year 2000. Factors affecting the decrease include the average
balance of long-term receivables resulting from new receivables, principal
repayments, the average interest rate, and excess cash balances invested in
interest-bearing accounts.
INTEREST EXPENSE
Interest expense is comprised primarily of interest costs on the
Company's notes payable and long-term debt. Interest expenses decreased 3.6% to
$1.5 million as compared to $1.6 million in fiscal year 2001.2003. The decreasedecline was
primarily the result of lower average interest rates paid on the debt as rates
declined over the year. This decrease was however offset by higher averageoverall levels of debt over the year.outstanding under term loans. The Company expects interest expensethat it will be able to decline
intoreduce debt further in fiscal year 2003, as it limits activities causing debt to increase.2005, reducing interest expense. This expectation could change in the eventif the Company is abledecides to make strategic investments in the future.future or in the event it utilizes borrowings under available lines of credit.
Fiscal Year 2003 as compared to Fiscal Year 2002
Interest expense increaseddecreased 41.8% to $1.6$0.9 million in fiscal year 20012003 as compared to $1.3$1.5 million forin fiscal year 2000.2002. The increases in interest expensedecline was the result of increasedlower overall levels of debt outstanding under term loans and the reduction in the average loan balances asamount outstanding under the Company utilized itsCompany’s line of credit and long-term debtcredit.
Fiscal Year 2004 as compared to fund increased operating activities.
INCOME TAXESFiscal Year 2003
Income taxes decreased 38.5%increased 34.5% to $3.2$10.9 million in fiscal year 20022004 as compared to $5.3$8.1 million in fiscal year 2001. The decline2003. This increase was principally due principally to the lowerhigher net income before taxes.on a pre-tax basis. The effective incomerate of 38.1% for fiscal year 2004 compares to 39.4% in fiscal year 2003. The change in the effective rate is primarily due to the level of international sales which generate a tax rate was 39.9% and
37.8%deduction for the fiscal years 2002Company as well as lower anticipated state income taxes due to the mix of business by state. The deduction related to foreign sales currently is the subject of debate in Congress and 2001, respectively. Theis likely to change in the future, which may result in an increase in the effective rate was primarilyrate. Therefore, the result of higher state income tax expense. The Company expects that the effective income tax rate will declinebe higher in fiscal year 2003.2005. The key items reconciling the effective income tax rate to the statutory rates are contained in the financial statements included in this report.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal Year 2003 as compared to Fiscal Year 2002
Income taxes increased 149.8% to $8.1 million in fiscal year 2003 as compared to $3.2 million in fiscal year 2002. This increase was principally due to the higher net income on a pre-tax basis. The effective income tax rate was 39.4% and 39.9% for the fiscal years 2003 and 2002, respectively. The decrease in the effective rate was primarily the result of lower state income tax expense.
Working capital was $28.4$49.1 million at April 27, 2002,May 1, 2004 compared to $27.0$39.7 million at April 28, 2001.May 3, 2003. The Company historically has historically financed working capital needs through a combination of cash flow from operations and borrowings under bank credit agreements. The increase in working capital was primarily the result
of the increase in cash provided by operations which was used to pay down short
term debt and which included lower levels of inventory and receivables as the
Company converted those items to cash for debt repayment.
Cash provided by operations for fiscal year 20022004 was $17.2$20.9 million. Net income of $4.9$17.7 million plus depreciation and amortization of $5.2approximately $6.4 million plus
a decrease in accounts receivable of $2.5 million, a decrease in inventory of
$3.4 million, an increase in customer deposits of $1.0 million, a decrease in
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costs and estimated earnings in excess of billings and an increase in billings
in excess of costs and estimated earnings totalling $1.4 and various other
decreases in operating assets and increases in operating liabilities were offset
by a decrease inboth accounts payable and accrued expenses were offset by increases in accounts receivables, long-term receivables, inventories, advertising rights and income taxes receivable.
Cash used by investing activities consisted of $3.2$9.8 million used to purchase property and equipment. During fiscal year 2004, the Company invested approximately $2.0 million in equipment to be used as demonstration equipment, primarily related to new product introductions, including its new three millimeter ProStar® video display; approximately $1.2 million in rental equipment; approximately $2.1 million on information systems hardware and software; approximately $1.6 million in manufacturing equipment; and approximately $2.9 million in various other items.items, including transportation equipment and building improvements. These purchases were made to support the Company’s continued growth and to replace obsolete equipment.
Cash used by financing activities included approximately $0.6 million in proceeds from the exercise of stock options and $0.4 in additional long term debt obligations related to the Company’s sports marketing business, offset by approximately $6.0 million used to pay down the Company’s long-term debt.
Included in receivables as of April 27, 2002May 1, 2004 was approximately $0.5$2.2 million of retainage on long-term contracts, all of which is expected to be collected in one year.
The improvement in cash provided by operations resulted from Company
wide efforts to improve the levels of inventory and accounts receivable and a
focus on cash flow. The Company also used its cash more on debt reduction as
opposed funding a build up of operating assets. During the fiscal year the
Company also made efforts to convert selected long-term receivables to cash.
The Company invested approximately $2.5 million in equipment for its
SportsLink subsidiary to increase its fleet of video boards available for
rental. In addition, SportsLink purchased additional facilities within close
proximity to the Company's existing manufacturing facilities in order to
increase capacity and to house its SportsLink business. The total cost of the
new facilities, which was approximately $2.5 million, was financed through a
contract for deed with the seller of the property. During fiscal year 2002, the
Company invested approximately $2.0 million in office equipment and furniture as
it expanded its general office space to accommodate its planned growth in
personnel to support higher sales and invested $1.5 million in manufacturing
equipment, $.5 million in facility improvements, and the remaining investments
in transportation equipment, demo products and other items.
Cash used by financing activities for fiscal year 2002 was $9.8
million, which consisted primarily of $11.8 million of net payments on notes
payable and payments on long-term debt. This use was offset by borrowings under
long-term debt arrangements of $1.4 million and $.6 million from proceeds from
the exercise of stock options and warrants.
The Company has used and expects to continue to use cash reserves and, to a lesser extent, as necessary, bank borrowings to meet its short-term working capital requirements. On large product orders, the time between order acceptance and project completion may extend up to and exceed 18 months depending on the amount of custom work and the customer'scustomer’s delivery needs. The Company often receives a down payment or progress payments on these product orders. To the extent that these payments are not sufficient to fund the costs and other expenses associated with these orders, the Company uses working capital and bank borrowings to finance these cash requirements.
The Company'sCompany’s product development activities include the enhancement of existing products and the development of new products from existing technologies. Product development expenses for fiscal years 2004, 2003 and 2002 2001 and 2000
were $7.4$8.1 million, $5.7$6.9 million, and $4.3$7.4 million, respectively. The Company intends to continue to incur these expenditures to develop new display products and solutions using various display technologies to offer higher resolution, more cost-effective and energy-efficient displays as well as to complement the services and solutions that are provided with the displays. The Company also intends to continue developing software applications forrelated to its display controllerssystems to enable these products to continue to meet the needs and expectations of the marketplace.
Credit agreements: The Company has a credit agreement with a bank which provides for a $20 million line of credit and which includes up to $2.0$5.0 million for standby letters of credit. The line of credit is due on October 1, 2005. The interest rate on the line of credit is equal to LIBOR plus 1.55% (3.4%(2.81% at April 27, 2002) and is due on OctoberMay 1, 2004.2004). As of April 27, 2002,May 1, 2004, no advances under the line of credit were outstanding. The credit agreement is unsecured and requires the Company to meetcomply with certain covenants, including the maintenance of tangible net worth of at least $40 million, ($23
million prior to the amendment dated June 2002, to the loan agreement) a minimum liquidity ratio, a limit on dividends and distributions, and a minimum adjusted fixed charge coverage ratio. Servtrotech,Daktronics Canada, Inc. has a credit agreement with a bank which provides for a $0.2 million line of credit. The line of credit is due on April 20, 2005. The interest rate on the line of credit is equal to 1%1.5% above the prime rate of interest (5%(3.75% at April 27,
2002)May 1, 2004). As of April 27, 2002, of which $51,000May 1, 2004, $0.2 million had been drawn under the line. The line of credit is secured primarily by accounts receivables, inventory and other assets of the subsidiary. SportsLink, Ltd. has a credit agreement with a bank
which provides for a $100,000 line of credit. The rate on the line of credit is
equal to the prime rate of interest (4% at April 27, 2002). As of April 27,
2002, no
22
advances were outstanding under the line. The credit agreement is secured by the
assets of the subsidiary and is guaranteed by the Company.
The Company is sometimes required to obtain performance bonds for display installations. The Company currently has a bonding line available through a surety company that provides for an aggregate of $100 million in bonded work outstanding. At April 27, 2002,May 1, 2004, the Company had $18.2$5.2 million of bonded work outstanding against this line.
The Company believes that if its growth continues,extends beyond current expectations or if it makes any strategic investments, it may need to increase the amount of its credit facility. The Company anticipates that it will be able to obtain any needed funds under commercially reasonable terms from its current lender or other sources. The Company believes that its working capital available from all sources will be adequate to meet the cash requirements of its operations in the foreseeable future.
BUSINESS RISKS AND UNCERTAINTIES
During fiscal year 2004, the Company acquired the remaining minority interest in Daktronics Canada, Inc., formerly its majority owned subsidiary, in exchange for 18,500 shares of the Company’s common stock. The value of the stock on the date of purchase was approximately $0.5 million and resulted in additional goodwill.
As of May 1, 2004, the Company’s debt, lease and purchase obligations were as follows:
| Contractual Obligations | Total | Less than 1 year | 1 - 3 Years | 4 - 5 Years | After 5 Years | ||||||||||||
| Long term debt | $ | 2,794 | $ | 1,296 | $ | 1,376 | $ | 100 | $ | 22 | |||||||
| Operating leases | 1,264 | 529 | 663 | 72 | - | ||||||||||||
| Unconditional purchase obligations | 2,962 | 2,793 | 169 | - | - | ||||||||||||
| Contractual cash obligations | $ | 7,020 | $ | 4,618 | $ | 2,208 | $ | 172 | $ | 22 | |||||||
| Other commercial commitments | |||||||||||||||||
| Lines of credit | $ | 250 | $ | 250 | $ | - | $ | - | $ | - | |||||||
| Standby letters of credit | 918 | 918 | - | - | - | ||||||||||||
| Guarantees | 250 | 250 | - | - | - | ||||||||||||
| Total commercial commitments | $ | 1,418 | $ | 1,418 | $ | - | $ | - | $ | - | |||||||
Management believes that inflation has not had a material effect on the Company’s operations or its financial condition, although it could in the future.
A number of risks and uncertainties exist which could impact the Company'sCompany’s future operating results. These uncertainties include, but are not limited to, general economic conditions, competition, the Company'sCompany’s success in developing new products and technologies, market acceptance of new products, and other factors, including those set forth below.
Competition could result in lower sales and decreased margins.The Company operates in highly competitive markets that, in certain portions of the business, are highly fragmented. In addition, because a customer’s budget for the purchase of an electronic display is often part of that customer’s advertising budget, the Company’s products often compete with other forms of advertising, such as television, print media or fixed display signs. Competition could result in not only a reduction in net sales but also a reduction in the prices charged by the Company for its products. To remain competitive, the Company must be able to not only anticipate and respond quickly to its customers’ needs and enhance and upgrade its existing products and services to meet those needs but also continue to price its products competitively. Competitors of the Company may develop cheaper, more efficient products or may be willing to charge lower prices for strategic marketing or to increase market share. Some competitors have more capital and resources than the Company and may be better able to take advantage of acquisition opportunities or adapt more quickly to changes in customer requirements.
The Company’s business may suffer if it is not successful in its efforts to keep up with a rapidly changing product market.The electronic display industry is characterized by ongoing product innovations and developments in display and controller technology. Competitors could develop new or superior products to increase their share of the markets. The Company’s future success in addressing the needs of its customers will depend in part on its ability to continue to make timely and cost-effective product innovations and developments.
The Company enters into fixed-priced contracts on a regular basis. If actual costs exceed original estimates on these contracts, profits will be reduced.The majority of contracts the Company enters into are on a fixed-price basis. Although it benefits from cost savings, it has a limited ability to recover cost overruns. Because of the large scale and long duration of some contracts, unanticipated cost increases may occur as a result of several factors including, but not limited to: (1) increases in the cost or shortages of components, materials or labor; (2) unanticipated technical problems; (3) required project modifications not initiated by the customer; and (4) suppliers’ or subcontractors’ failure to perform. These factors could delay delivery of products, and contracts may provide for liquidated damages for late delivery. Unanticipated costs that cannot be passed on to customers or the payment of liquidated damages under fixed contracts would negatively impact profits.
Backlog may not be indicative of future revenue.Customers may cancel or delay projects for reasons beyond the Company’s control. Orders normally contain cancellation provisions which permit the recovery of costs expended and a portion of the anticipated profit in the event a customer cancels an order. If a customer elects to cancel, the Company may not realize the full amount of revenues included in its backlog. If projects are delayed, the timing of revenues could be affected, and projects may remain in the backlog for extended periods of time. Revenue recognition occurs over longer periods of time and is subject to unanticipated delays. If the Company receives relatively large orders in any given quarter, fluctuations in the levels of the quarterly backlog can result because the backlog in that quarter may reach levels that may not be sustained in subsequent quarters. Backlog may not be indicative of future revenues.
The Company’s ability to conduct business outside the United States may be adversely affected by factors outside of its control and, as such, net sales and profits from international sales could be adversely impacted. For fiscal year 2004, revenue outside the United States represented approximately 13% of consolidated net sales. In fiscal 2003, approximately 5% of consolidated net sales were derived from sales outside the United States. The Company’s operations and earnings throughout the world have been, and may in the future be, affected from time to time in varying degrees by war, political developments, foreign laws and regulations, regional economic uncertainty, political instability, restrictions, customs and tariffs, changing regulatory environments, fluctuations in foreign currency exchange rates and adverse tax consequences. The likelihood of such occurrences and their overall effect upon the Company vary greatly from country to country and are not predictable. These factors may result in a decline in net sales or profitability and could adversely affect the Company’s ability to expand its business outside of the United States.
The Company’s financial performance may vary significantly from quarter to quarter, making it difficult to estimate future revenue.The Company’s quarterly revenues and earnings have varied in the past and are likely to vary in the future. Contracts entered into by the Company generally stipulate customer specific delivery terms and may have contract cycles of a year or more, which subjects them to many factors beyond the Company’s control. Furthermore, as a significant portion of the Company’s operating costs are fixed, an unanticipated delay or cancellation of orders in backlog may have a significant negative impact on the Company’s quarterly operating results. Therefore, quarterly operating results may be subject to significant variations, and operating performance in one quarter may not be indicative of future performance.
The Company’s products are covered by warranties. Unanticipated warranty costs for defective products could adversely affect its financial condition and results of operations and reputation.The Company provides warranties on its products generally for terms of five years or less in the case of standard products and one year or less in the case of custom orders. In addition, in response to customer needs, it regularly offers extended warranties. These warranties require the Company to repair or replace faulty products and meet certain performance standards, among other customary warranty provisions. While the Company continually monitors its warranty claims and provides a reserve for estimated warranty issues on an on-going basis, an unanticipated claim could have a material adverse impact on operations. In some cases, the Company may be able to subrogate a claim back to a subcontractor or supplier if the subcontractor or supplier supplied the defective product or performed the service, but this may not always be possible. The need to repair or replace products with design or manufacturing defects could temporarily delay the sale of new products, reduce profits and adversely affect the Company’s reputation.
Product liability claims not covered by insurance could adversely affect the Company’s financial condition and results of operations.The Company may be subject to product liability claims involving claims of personal injury or property damage. Although the Company maintains product liability insurance coverage to protect it in the event of such a claim, its coverage may not be adequate to cover the cost of defense and the potential award. Also, a well-publicized actual or perceived problem could adversely affect the Company’s reputation and reduce the demand for its products.
Large contracts represent a significant portion of the Company’s accounts receivable and costs and estimated earnings in excess of billings.The Company closely monitors the credit worthiness of its customers and has not, to date, experienced significant credit losses. Significant portions of its sales are to customers who place large orders for custom products. The Company mitigates its exposure to credit risk, to some extent, by requiring deposits, payments prior to shipment, progress payments and letters of credit. However, as some of the exposure is outside of the Company’s control, unanticipated events could have a material adverse impact on its operating results.
The terms and conditions of the Company’s credit facility impose restrictions on the Company’s operations, and the Company may not be able to raise additional capital, if needed.The terms and conditions of the Company’s $20 million revolving credit facility impose restrictions that limit, among other things, the Company's SEC filings.
RECENT ACCOUNTING PRONOUNCEMENTSability to incur debt, merge, sell assets, make distributions and create or incur liens. Availability of the credit facility is also subject to certain covenants as explained in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report. The Company’s ability to comply with the covenants may be affected by events beyond the Company’s control, and it cannot assure that it will achieve operating results meeting the requirements of the credit facility. A breach of any of these covenants could result in a default under the credit facility. In the event of a default, the bank could elect to declare the outstanding principal amount of the credit facility and term debt, all accrued interest thereon and all other amounts payable under the credit facility to be immediately due and payable. As of May 1, 2004, the Company was in compliance with all financial and other covenants of its credit facility.
The Company's ability to satisfy any debt obligations will depend upon its future operating performance, which will be affected by prevailing economic, financial and business conditions and other factors, some of which are beyond the control of the Company. It is anticipated that borrowings from the existing credit facility and cash provided by operating activities should provide sufficient funds to finance capital expenditures, working capital and otherwise meet operating expenses and debt service requirements as they become due. However, in the event that additional capital is required, there can be no assurance that the Company will be able to raise such capital when needed or on satisfactory terms, if at all.
The Company’s business is partially subject to risks of terrorist acts and, to a lesser degree, acts of war.Terrorist acts and, to a lesser degree, acts of war may disrupt the Company's operations as well as the operations of its customers. Such acts have created an interruption of orders and delays in orders already booked primarily in sports facilities and destination sites. Any future terrorist activities and, to a lesser degree, acts of war, could create additional uncertainties forcing customers to further reduce or delay their spending or cancel or delay already planned projects, which could have a material adverse impact on the Company’s business, operating results and financial condition.
The Company’s common stock has at times been thinly traded, which may result in low liquidity and price volatility.The daily trading volume of the Company’s common stock has at times been relatively low. If this were to occur in the future, the liquidity and appreciation of the Company’s common stock may not meet shareholders’ expectations, and the prices at which it trades may be volatile. The market price of the Company’s common stock could be adversely impacted as a result of sales by existing shareholders of a large number of shares of common stock in the market or by the perception that such sales could occur.
The Company may fail to continue to attract, develop and retain key management and other key employees, including technical engineering talent, which could negatively impact its operating results. The Company depends on the performance of its senior management team and other key employees, including engineering talent in product design. The loss of certain member of its senior management, including its Chairman or Chief Executive Officer, could negatively impact its operating results and ability to execute its business strategy. The future success of the Company will also depend in part upon its ability to attract, train, motivate and retain qualified personnel. The Company does not have employment agreements with the executive officers or other employees but does maintain key person life insurance on the Chairman of the Board, the Chief Executive Officer and the Vice President — Sales.
Provisions in the Company’s charter documents and under South Dakota law might deter acquisition bids for the Company.There are provisions in the Company’s charter and other provisions under South Dakota law that could make it more difficult for a third party to acquire the Company, even if doing so would benefit the stockholders. The Company is governed by the provisions of the South Dakota Business Corporation Act (“SD Act”), which may deny shareholders the receipt of a premium on their common stock, which in turn may have a depressive effect on the market price of the common stock. In general, shares of a corporation acquired in a “control share acquisition”, as defined in the SD Act, have no rights unless voting rights are approved in a prescribed manner. There are also provisions that prohibit a public South Dakota corporation from engaging in a “business combination”, as defined in the SD Act, with an “interested shareholder”, as defined in the SD Act, for a period of four years after the date of the transaction in which the person became an interested shareholder, unless the business combination is approved in a prescribed manner.
The Company may be unable to protect its intellectual property rights.The Company relies on a variety of intellectual property rights that it uses in its products and services. It may not be able to successfully preserve these intellectual property rights in the future, and these rights could be invalidated, circumvented or challenged. In addition, the laws of some foreign countries in which the Company’s products and services have been or may be sold do not protect intellectual property rights to the same extent as the laws of the United States. A failure to protect proprietary information and any successful intellectual property challenges or infringement proceedings against the Company could materially and adversely affect its competitive position. In addition, even if the Company is successful in protecting its intellectual property rights or definding itself against a claim of infringement, any related dispute or litigation could be costly and time-consuming.
The Company maintains inventory that is subject to obsolescence and writedowns to the extent it is replaced through product enhancements or advances in technology.As a result of the Company’s products being subject to continuous enhancements and design changes, inventory held by the Company is subject to the risk of obsolescence and excess levels that may not be saleable. Losses incurred as a result could have a material impact on future profits.
In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement, which is effective for fiscal years beginning after June 15, 2002, covers the accounting for closure for removal-type costs that are incurred with respect to long-lived assets. The nature of the Company’s business and long-lived assets is such that adoption of this new standard did not have a significant impact on the Company’s financial position or results of operation.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company’s consolidated financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51” (FIN No. 46). FIN No. 46 will be effective no later than the end of the first reporting period that ends after March 15, 2004. FIN No. 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. The Company does not expect the adoption of FIN No. 46 to have a material impact on its net earnings, cash flows or financial position.
In May 2003, Emerging Issues Task Force (EITF) No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, was finalized. This issue addresses certain aspects of accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. The guidance in EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, which codifies and rescinds certain Statementssections of Financial Accounting Standards, whichSAB No. 101, Revenue Recognition, in order to make this interpretive guidance consistent with EITF No. 00-21. Adoption of this interpretation did not have required effective dates occurring
aftera material impact on the Company's April 27, 2002 year-end. The Company'sCompany’s financial statements,
including the disclosures therein, are not expected to be materially affected by
those accounting pronouncements.
ITEMposition or results of operations.
Through April 27, 2002 substantially allMay 1, 2004, most of the Company'sCompany’s net sales were denominated in United States dollars, and its exposure to foreign currency exchange rate changes has not been immaterial. Through April 27, 2002, netsignificant. Net sales originating outside the United States substantially all of whichfor fiscal year 2004 were denominated in United States dollars were 7.4%approximately 13% of total net sales.sales, of which a portion was denominated in Canadian dollars through the Company’s Canadian subsidiary, and a smaller portion was denominated in Euros. It is expected that in fiscal 2005, net sales in the future to international markets may increase as a percentage of net sales; however, the Company does not expectsales and that such increase
in such salesa greater portion of this business will be denominated in foreign currencies. As a result, operating results are not expected tomay become subject to significant fluctuations based upon changes in the exchange rates of certain currencies in relation to the United States dollar. However, toTo the extent that the Company engages in international sales denominated in United States dollars, an increase in the value of the United States dollar relative to foreign currencies could make the Company'sCompany’s products less competitive in international markets. Although theThe Company will continue to monitor and minimize its exposure to currency fluctuations and, when appropriate, may use financial hedging techniques, in the futureincluding foreign currency forward contracts and options, to minimize the effect of these fluctuations,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 the Company'sCompany’s financial results in the future.
INTEREST RATE RISKS
The Company'sCompany’s exposure to market rate risk for changes in interest rates relates primarily to the Company'sCompany’s debt and long-term accounts receivable. The Company maintains a blend of both fixed and floating rate debt instruments. As of April 27, 2002,May 1, 2004, the Company'sCompany’s outstanding debt approximated $13.8$2.8 million, with approximately $13.3 millionsubstantially all of which was in fixed rate obligations. IncreasesEach 100 basis point increase or decreasesdecrease in interest rates would not have a materialan insignificant annual effect on variable rate debt interest based on the balances of such debt as of as of April 27,
2002.May 1, 2004. For fixed rate debt, interest rate changes affectaffects its fair market value but do not impact earnings or cash flows.
23
In connection with the sale of certain display systems, the Company's products, itCompany has entered into long-term sales contracts and sales type leases.various types of financing orders 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 April 27, 2002,May 1, 2004, the Company'sCompany’s outstanding long-term receivables were approximately $7.9$14.0 million. Each 25 basis point increase in interest rates would have an associated annual opportunity cost of approximately $20,000.$0.3 million.
The following table provides information about the Company'sCompany’s financial instruments that are sensitive to changes in interest rates, including debt obligations. Weighted average variable interest rates are based on implied forward rates in the yield curve at the reporting date.
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
(in
Principal (Notional) Amount By Expected Maturity
(in thousands)
FISCAL YEAR ENDING
---------------------------------------------------- THERE-
2003 2004 2005 2006 2007 AFTER
----------------------------------------------------------------
Assets:
Long-term receivables, including
current portion
Fixed rate 2,256 1,302 1,172 996 674 1,481
Average interest rate 6.1% 6.5% 9.4% 9.5% 8.9% 8.9%
Liabilities:
Long and short term debt
Fixed rate 4,254 3,532 1,864 3,619 494 65
Average interest rate 7.5% 7.8% 8.4% 6.4% 8.1% 10.0%
Variable rate 51 - - - - -
Average interest rate 5.0% - - - - -
|
| Fiscal Year Ending |
| There- |
| ||||||||
|
|
|
| ||||||||||
|
| 2005 |
| 2006 |
| 2007 |
| 2008 |
| 2009 |
|
| |
|
|
|
|
|
|
|
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables, including current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
| 3,772 |
| 3,525 |
| 1,682 |
| 1,529 |
| 1,055 |
| 2,476 |
|
Average interest rate |
| 6.0 | % | 8.9 | % | 7.6 | % | 7.6 | % | 7.0 | % | 6.8 | % |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long and short term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
| 1,296 |
| 1,206 |
| 170 |
| 61 |
| 39 |
| 22 |
|
Average interest rate |
| 8.0 | % | 7.6 | % | 7.7 | % | 8.9 | % | 9.2 | % | 11.3 | % |
The carrying amounts reported on the balance sheet for long-term receivables and long and short-term debt approximate their fair values.
Substantially all of the Company'sCompany’s cash balances are denominated in United States dollars. Cash balances in foreign currencies are operating balances maintained in accounts of the Company'sCompany’s Canadian subsidiary
(Servtrotech, Inc.).subsidiary. These balances are immaterial to the Company as a whole.
ITEM
To the Board of Directors and Shareholders
Daktronics, Inc.
Brookings, South Dakota
We have audited the accompanying consolidated balance sheets of Daktronics, Inc. and subsidiaries as of April 27, 2002May 1, 2004 and April 28, 2001,May 3, 2003, and the related consolidated statements of income, shareholders'shareholders’ equity and cash flows for each
of the three years in the period ended April 27, 2002.then ended. These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditingthe standards generally accepted
inof the United States of America.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 2004 and 2003 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Daktronics, Inc. and subsidiaries as of April 27, 2002May 1, 2004 and April 28, 2001,May 3, 2003, and the results of their operations and their cash flows for eachthe years then ended, in conformity with U.S. generally accepted accounting principals.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill to conform to Statement of Financial Accounting Standards No. 142 effective April 29, 2002.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
May 21, 2004
To the Board of Directors and ShareholdersDaktronics, Inc.
Brookings,
South Dakota
We have audited the consolidated statements of income, shareholders' equity and cash flows of Daktronics, Inc. and subsidiaries for the year ended April 27, 2002. These financial statements are the responsibility of the three yearsCompany's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the periodfinancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of Daktronics, Inc. and subsidiaries' operations and their cash flows for the year ended April 27, 2002, in conformity with accounting principlesU.S. generally accepted in
the United States of America.
/s/accounting principles.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Sioux Falls, South Dakota
June 7, 2002
25
2004
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
APRIL 27, APRIL 28,
2002 2001
ASSETS -------- --------
CURRENT ASSETS
Cash and cash equivalents $ 2,097 $ 2,896
Accounts receivable, less allowance for doubtful accounts 17,878 21,090
Current maturities of long-term receivables 2,515 2,030
Inventories 16,472 19,719
Costs and estimated earnings in excess of billings 10,277 10,890
Prepaid expenses and other 524 529
Income taxes receivable -- 97
Deferred income taxes 2,784 2,103
-------- --------
TOTAL CURRENT ASSETS 52,547 59,354
-------- --------
Property and equipment, net 26,845 21,871
Advertising rights, net 489 1,281
Long-term receivables, less current maturities 5,366 5,269
Goodwill, net of accumulated amortization 1,037 1,469
Intangible and other assets, other than goodwill, net 1,062 970
-------- --------
$ 87,346 $ 90,214
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, bank $ 51 $ 7,911
Accounts payable 6,690 10,199
Accrued expenses 7,337 6,981
Current maturities of long-term debt 4,254 3,883
Billings in excess of costs and estimated earnings 2,944 2,177
Customer deposits 2,185 1,236
Income taxes payable 733 --
-------- --------
TOTAL CURRENT LIABILITIES 24,194 32,387
-------- --------
Long-term debt, less current maturities 9,574 10,344
Deferred income 711 531
Deferred income taxes 1,282 1,050
-------- --------
11,567 11,925
-------- --------
Minority interest in subsidiary 84 79
-------- --------
SHAREHOLDERS' EQUITY
Common stock, no par value; 60,000 and 30,000 shares authorized at
April 27, 2002 and April 28, 2001, respectively; 18,271 and
18,016 shares issued at April 27, 2002 and April 28, 2001,
respectively 13,533 12,900
Additional paid-in capital 505 341
Retained earnings 37,492 32,600
Treasury stock, at cost, 20 shares (9) (9)
Accumulated other comprehensive loss, foreign currency translation
adjustment (20) (9)
-------- --------
51,501 45,823
-------- --------
$ 87,346 $ 90,214
======== ========
(in thousands, except share data)
ASSETS |
| May 1, |
| May 3, |
| ||
|
|
|
| ||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 16,255 |
| $ | 9,277 |
|
Accounts receivable, less allowance for doubtful accounts |
|
| 28,686 |
|
| 25,912 |
|
Current maturities of long-term receivables |
|
| 3,772 |
|
| 2,650 |
|
Inventories |
|
| 16,604 |
|
| 14,863 |
|
Costs and estimated earnings in excess of billings |
|
| 12,862 |
|
| 11,467 |
|
Prepaid expenses and other |
|
| 905 |
|
| 756 |
|
Deferred income taxes |
|
| 4,524 |
|
| 3,801 |
|
Income taxes receivable |
|
| 813 |
|
| - |
|
|
|
|
| ||||
Total current assets |
|
| 84,421 |
|
| 68,726 |
|
|
|
|
| ||||
Property and equipment, net |
|
| 27,802 |
|
| 24,789 |
|
Advertising rights, net |
|
| 1,415 |
|
| 385 |
|
Long-term receivables, less current maturities |
|
| 10,267 |
|
| 6,711 |
|
Goodwill, net of accumulated amortization |
|
| 1,411 |
|
| 1,043 |
|
Intangible and other assets |
|
| 920 |
|
| 873 |
|
|
|
|
| ||||
|
| $ | 126,236 |
| $ | 102,527 |
|
|
|
|
| ||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
Notes payable, bank |
| $ | 214 |
| $ | 180 |
|
Accounts payable |
|
| 12,586 |
|
| 9,312 |
|
Accrued expenses |
|
| 11,611 |
|
| 7,790 |
|
Current maturities of long-term debt |
|
| 1,296 |
|
| 2,951 |
|
Billings in excess of costs and estimated earnings |
|
| 6,761 |
|
| 5,528 |
|
Customer deposits |
|
| 2,829 |
|
| 1,709 |
|
Income taxes payable |
|
| - |
|
| 1,556 |
|
|
|
|
| ||||
Total current liabilities |
|
| 35,297 |
|
| 29,026 |
|
|
|
|
| ||||
Long-term debt, less current maturities |
|
| 1,498 |
|
| 5,449 |
|
Deferred income |
|
| 1,134 |
|
| 1,338 |
|
Deferred income taxes |
|
| 2,043 |
|
| 1,296 |
|
|
|
|
| ||||
|
|
| 4,675 |
|
| 8,083 |
|
|
|
|
| ||||
Minority interest in subsidiary |
|
| - |
|
| 115 |
|
|
|
|
| ||||
SHAREHOLDERS' EQUITY: |
|
|
|
|
|
|
|
Common stock, no par value; authorized 60,000,000 shares; 18,886,492 and 18,574,819 shares issued at May 1, 2004 and May 3, 2003, respectively. |
|
| 16,406 |
|
| 14,654 |
|
Additional paid-in capital |
|
| 2,274 |
|
| 746 |
|
Retained earnings |
|
| 67,677 |
|
| 49,950 |
|
Treasury stock, at cost, 19,680 shares |
|
| (9 | ) |
| (9 | ) |
Accumulated other comprehensive loss |
|
| (84 | ) |
| (38 | ) |
|
|
|
| ||||
|
|
| 86,264 |
|
| 65,303 |
|
|
|
|
| ||||
|
| $ | 126,236 |
| $ | 102,527 |
|
|
|
|
| ||||
See notes to consolidated financial statements.
26
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in
(in thousands, except per share data)
YEARS ENDED
-------------------------------------
APRIL 27, APRIL 28, APRIL 29,
2002 2001 2000
--------- --------- ---------
Net sales $ 148,773 $ 152,331 $ 123,350
Cost of goods sold 103,741 107,110 89,034
--------- --------- ---------
GROSS PROFIT 45,032 45,221 34,316
--------- --------- ---------
Operating expenses:
Selling 22,009 18,805 15,091
General and administrative 6,478 6,280 4,937
Product design and development 7,442 5,685 4,292
--------- --------- ---------
35,929 30,770 24,320
--------- --------- ---------
OPERATING INCOME 9,103 14,451 9,996
Nonoperating income (expense):
Interest income 823 767 923
Interest expense (1,542) (1,599) (1,308)
Other income (expense), net (242) 346 347
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 8,142 13,965 9,958
Income tax expense 3,245 5,275 3,734
--------- --------- ---------
INCOME BEFORE MINORITY INTEREST 4,897 8,690 6,224
Minority interest in income of subsidiary 5 5 --
--------- --------- ---------
NET INCOME $ 4,892 $ 8,685 $ 6,224
========= ========= =========
Earnings per share:
Basic $ 0.27 $ 0.49 $ 0.36
========= ========= =========
Diluted $ 0.25 $ 0.46 $ 0.34
========= ========= =========
|
| Years Ended |
| |||||||
|
|
| ||||||||
|
| May 1, |
| May 3, |
| April 27, |
| |||
|
|
|
|
| ||||||
Net sales |
| $ | 209,907 |
| $ | 177,764 |
| $ | 148,773 |
|
Cost of goods sold |
|
| 137,436 |
|
| 118,633 |
|
| 103,741 |
|
|
|
|
|
| ||||||
Gross profit |
|
| 72,471 |
|
| 59,131 |
|
| 45,032 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Selling |
|
| 27,305 |
|
| 24,966 |
|
| 22,009 |
|
General and administrative |
|
| 9,510 |
|
| 7,422 |
|
| 6,478 |
|
Product design and development |
|
| 8,126 |
|
| 6,918 |
|
| 7,442 |
|
|
|
|
|
| ||||||
|
|
| 44,941 |
|
| 39,306 |
|
| 35,929 |
|
|
|
|
|
| ||||||
Operating income |
|
| 27,530 |
|
| 19,825 |
|
| 9,103 |
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating income (expense): |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 1,014 |
|
| 694 |
|
| 823 |
|
Interest expense |
|
| (478 | ) |
| (897 | ) |
| (1,542 | ) |
Other income (expense), net |
|
| 586 |
|
| 974 |
| (242 | ) | |
|
|
|
|
| ||||||
Income before income taxes and minority interest |
|
| 28,652 |
|
| 20,596 |
|
| 8,142 |
|
Income tax expense |
|
| 10,907 |
|
| 8,107 |
|
| 3,245 |
|
|
|
|
|
| ||||||
Income before minority interest |
|
| 17,745 |
|
| 12,489 |
|
| 4,897 |
|
Minority interest in income of subsidiary |
|
| (18 | ) |
| (31 | ) |
| (5 | ) |
|
|
|
|
| ||||||
Net income |
| $ | 17,727 |
| $ | 12,458 |
| $ | 4,892 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.95 |
| $ | 0.68 |
| $ | 0.27 |
|
|
|
|
|
| ||||||
Diluted |
| $ | 0.89 |
| $ | 0.64 |
| $ | 0.25 |
|
|
|
|
|
| ||||||
See notes to consolidated financial statements.
27
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in
(in thousands)
Foreign
Additional Currency
Common Paid-In Retained Treasury Translation
Stock Capital Earnings Stock Adjustment Total
-------- -------- -------- -------- -------- --------
BALANCE, MAY 1, 1999 $ 11,819 $ -- $ 17,691 $ (9) $ -- $ 29,501
Net income -- -- 6,224 -- -- 6,224
Exercise of stock options 413 -- -- -- -- 413
Issuance of warrants -- 93 -- -- -- 93
-------- -------- -------- -------- -------- --------
BALANCE, APRIL 29, 2000 12,232 93 23,915 (9) -- 36,231
Net income -- -- 8,685 -- -- 8,685
Translation adjustment -- -- -- -- (9) (9)
--------
Comprehensive income 8,676
--------
Tax benefits related to
exercise of stock options -- 248 -- -- -- 248
Exercise of stock options
and warrants 438 -- -- -- -- 438
Issuance of common
stock related to purchase
of business 230 -- -- -- -- 230
-------- -------- -------- -------- -------- --------
BALANCE, APRIL 28, 2001 12,900 341 32,600 (9) (9) 45,823
Net income -- -- 4,892 -- -- 4,892
Translation adjustment -- -- -- -- (11) (11)
--------
Comprehensive income 4,881
--------
Tax benefits related to
exercise of stock options -- 164 -- -- -- 164
Exercise of stock options
and warrants 633 -- -- -- -- 633
-------- -------- -------- -------- -------- --------
BALANCE, APRIL 27, 2002 $ 13,533 $ 505 $ 37,492 $ (9) $ (20) $ 51,501
======== ======== ======== ======== ======== ========
|
| Common |
| Additional |
| Retained |
|
|
| Accumulated |
| Total |
| ||||||
|
|
|
|
|
|
|
| ||||||||||||
Balance, April 28, 2001 |
| $ | 12,900 |
| $ | 341 |
| $ | 32,600 |
| $ | (9 | ) | $ | (9 | ) | $ | 45,823 |
|
Net income |
|
| - |
|
| - |
|
| 4,892 |
|
| - |
|
| - |
|
| 4,892 |
|
Foreign currency translation adjustment |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (11 | ) |
| (11 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Tax benefits related to exercise of stock options |
|
| - |
|
| 164 |
|
| - |
|
| - |
|
| - |
|
| 164 |
|
Exercise of stock options and warrants |
|
| 633 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 633 |
|
|
|
|
|
|
|
|
| ||||||||||||
Balance, April 27, 2002 |
|
| 13,533 |
|
| 505 |
|
| 37,492 |
|
| (9 | ) |
| (20 | ) |
| 51,501 |
|
Net income |
|
| - |
|
| - |
|
| 12,458 |
|
| - |
|
| - |
|
| 12,458 |
|
Foreign currency translation adjustment |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (18 | ) |
| (18 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,440 |
|
Tax benefits related to exercise of stock options |
|
| - |
|
| 241 |
|
| - |
|
| - |
|
| - |
|
| 241 |
|
Exercise of stock options and warrants |
|
| 718 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 718 |
|
Contributions to the employee savings plan |
|
| 403 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 403 |
|
|
|
|
|
|
|
|
| ||||||||||||
Balance, May 3, 2003 |
|
| 14,654 |
|
| 746 |
|
| 49,950 |
|
| (9 | ) |
| (38 | ) |
| 65,303 |
|
Net income |
|
| - |
|
| - |
|
| 17,727 |
|
| - |
|
| - |
|
| 17,727 |
|
Foreign currency translation adjustment |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (46 | ) |
| (46 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,681 |
|
Tax benefits related to exercise of stock options |
|
| - |
|
| 1,528 |
|
| - |
|
| - |
|
| - |
|
| 1,528 |
|
Exercise of stock options and warrants |
|
| 655 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 655 |
|
Contributions to the employee savings plan |
|
| 344 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 344 |
|
Issuances under employee stock purchase plan |
|
| 291 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 291 |
|
Issuance of common stock in connection with purchase of minority interest of subsidiary |
|
| 462 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 462 |
|
|
|
|
|
|
|
|
| ||||||||||||
Balance, May 1, 2004 |
| $ | 16,406 |
| $ | 2,274 |
| $ | 67,677 |
| $ | (9 | ) | $ | (84 | ) | $ | 86,264 |
|
|
|
|
|
|
|
|
| ||||||||||||
See notes to consolidated financial statements.
28
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
(in thousands)
YEARS ENDED
--------------------------------------
APRIL 27, APRIL 28, APRIL 29,
2002 2001 2000
-------- -------- --------
Cash flows from operating activities
Net income $ 4,892 $ 8,685 $ 6,224
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 4,800 3,560 2,656
Amortization 378 509 351
(Gain) loss on sale of property and equipment 115 (65) (1)
Provision for doubtful accounts 724 260 252
Deferred income taxes (credits) (449) (415) 204
Other 430 54 --
Change in operating assets and liabilities, net of effects
of purchase of businesses 6,342 (5,222) (6,396)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,232 7,366 3,290
-------- -------- --------
Cash flows from investing activities
Purchase of property and equipment (7,942) (7,351) (6,933)
Cash consideration paid for acquired businesses -- (1,292) --
Investment in affiliates (289) (263) --
Minority investment in subsidiary -- 74 --
Proceeds from sale of property and equipment 89 106 164
Purchase of intangible assets (140) (142) (400)
Other, net 38 (188) (87)
-------- -------- --------
NET CASH (USED IN) INVESTING ACTIVITIES (8,244) (9,056) (7,256)
-------- -------- --------
Cash flows from financing activities
Net borrowings (payments) on notes payable (7,860) 606 4,543
Proceeds from exercise of stock options and warrants 633 438 413
Principal payments on long-term debt (3,926) (2,865) (2,133)
Borrowings on long-term debt 1,377 5,199 1,310
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (9,776) 3,378 4,133
-------- -------- --------
Effect of exchange rate changes on cash (11) (9) --
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (799) 1,679 167
Cash and cash equivalents
Beginning 2,896 1,217 1,050
-------- -------- --------
Ending $ 2,097 $ 2,896 $ 1,217
======== ======== ========
|
| Years Ended |
| |||||||
|
|
| ||||||||
|
| May 1, |
| May 3, |
| April 27, |
| |||
|
|
|
|
| ||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 17,727 |
| $ | 12,458 |
| $ | 4,892 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 6,264 |
|
| 5,685 |
|
| 4,800 |
|
Amortization |
|
| 125 |
|
| 242 |
|
| 378 |
|
(Gain) loss on sale of property and equipment |
|
| (301 | ) |
| 400 |
|
| 115 | |
Minority interest in income of subsidiary |
|
| 18 |
|
| 31 |
|
| 5 |
|
Provision for doubtful accounts |
|
| 256 |
| (225 | ) |
| 724 |
| |
Deferred income taxes (credit) |
|
| 24 |
| (1,003 | ) |
| (449 | ) | |
Other |
|
| - |
|
| - |
|
| 425 |
|
Change in operating assets and liabilities |
|
| (3,196 | ) |
| (1,678 | ) |
| 6,342 | |
|
|
|
|
| ||||||
Net cash provided by operating activities |
|
| 20,917 |
|
| 15,912 |
|
| 17,232 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (9,779 | ) |
| (5,340 | ) |
| (7,942 | ) |
Proceeds from sale of property and equipment |
|
| 820 |
|
| 1,287 |
|
| 89 | |
Investment in affiliates |
|
| - |
|
| - |
| (289 | ) | |
Purchase of intangible assets |
|
| - |
|
| - |
| (140 | ) | |
Other, net |
|
| - |
|
| - |
|
| 38 | |
|
|
|
|
| ||||||
Net cash used in investing activities |
|
| (8,959 | ) |
| (4,053 | ) |
| (8,244 | ) |
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Net borrowings (payments) on notes payable |
|
| 35 |
|
| 129 |
| (7,860 | ) | |
Proceeds from exercise of stock options and warrants |
|
| 655 |
|
| 718 |
|
| 633 |
|
Principal payments on long-term debt |
|
| (5,988 | ) |
| (7,102 | ) |
| (3,926 | ) |
Proceeds from long-term debt |
|
| 358 |
|
| 1,594 |
|
| 1,377 |
|
|
|
|
|
| ||||||
Net cash used in financing activities |
|
| (4,940 | ) |
| (4,661 | ) |
| (9,776 | ) |
|
|
|
|
| ||||||
Effect of exchange rate changes on cash |
|
| (40 | ) |
| (18 | ) |
| (11 | ) |
|
|
|
|
| ||||||
Increase (decrease) in cash and cash equivalents |
|
| 6,978 |
|
| 7,180 |
| (799 | ) | |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
Beginning |
|
| 9,277 |
|
| 2,097 |
|
| 2,896 |
|
|
|
|
|
| ||||||
Ending |
| $ | 16,255 |
| $ | 9,277 |
| $ | 2,097 |
|
|
|
|
|
| ||||||
See notes to consolidated financial statements.
29
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in
(in thousands, except per share data)
NOTE
Nature of business: Daktronics, Inc. and its subsidiaries (the "Company"“Company”) are engaged principally in the design, manufacture and content developmentsale of a wide range of computer-programmable informationelectronic display systems which are sold in a variety of markets throughout the world.world and rendering related services, including content development, marketing and maintenance services. Its products are designed primarily to inform and entertain people through the communication of content.
Fiscal year: The Company operates on a 52-5352 to 53 week fiscal year end, with fiscal years ending on the Saturday closest to April 30 of each year. The years ended May 1, 2004 and April 27, 2002 April 28, 2001 and April 29, 2000 each included 52 weeks. The year ended May 3, 2003 included 53 weeks.
Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-ownedwholly owned subsidiaries — Daktronics GmbH; Star Circuits, Inc.,; SportsLink, Inc. andLtd.; MSC Technologies, Inc.; and its
majority-owned subsidiary, Servtrotech,Daktronics Canada, Inc. Investments in affiliates owned 50% or less are accounted for by the equity method. Intercompany balances and transactions have been eliminated in consolidation.
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the estimated total costs on long-term contracts, estimated costs to be incurred for product warranty, inventory valuation and the reserve for doubtful accounts.
Cash and cash equivalents: All highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents, consisting primarily of insured municipal debt obligations, government repurchase agreements and money market accounts, and are carried at cost that approximates market. The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts.
Inventories: Inventories are stated at the lower of cost (first in,(first-in, first-out method) or market.
Revenue Recognition:
recognition:
Long-term contracts: Earnings on long-term contactscontracts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. Operating expenses are charged to operations as incurred and are not allocated to contract costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are estimable.
Equipment other than long-term contracts:The Company recognizes revenue on equipment sales, other than long-term contracts, when title passes, which is usually upon shipment.
Long-term receivables and Advertising rights:Rights: The Company occasionally sells and installs its products at facilities in exchange for the rights to sell and retain future advertising revenues. It recognizes revenue for the amount of the present value of the future advertising payments at such time that all suchif enough advertising is sold for the full term ofto obtain normal margins on the contract forand records the advertising rights.related receivable in long-term receivables. On those transactions where the Company has not sold the advertising for the full termvalue of the rights,equipment, it records the related cost of equipment as advertising rights and amortizes that cost overrights. Revenue in an amount equal to the termpresent value of the rights. Revenuereceivables is recognized in long-term receivables when it is earnedbecomes fixed and determinable under the provisions of applicable advertising 30
AdvanceAt the time the revenue is recognized, costs of the equipment are recognized based on an estimate of overall margin expected. In cases where the Company receives the advertising rights, in exchange for the equipment, revenue is recognized as it becomes earned, and the related costs of the equipment are amortized over the term of the advertising rights which were owned by the Company. On these transactions, advance collections of advertising revenues are recorded as deferred income. The cost of advertising rights, net of amortization, was $489$1,415 as of April 27, 2002May 1, 2004 and $1,281$385 as of April 28, 2001.
May 3, 2003.
Product maintenance: In connection with the sale of the Company'sCompany’s products, it also occasionally sells separately priced extended warranties and product maintenance contracts. The revenue related to such contracts are deferred and recognized as net sales over the term of the agreement which varies from two to ten10 years.
Software: The Company typically sells its proprietary software bundled with its video displays and certain other products.products, but it also sells its software separately. Pursuant to American Institute of Certified Public Accountants ("AICPA"(“AICPA”) Statement of Position ("SOP"(“SOP”) 97-2, "Software“Software Revenue Recognition,"” as amended by SOP 98-4, "Deferral“Deferral of the Effective Date of a Provision of SOP 97-2"97-2” and SOP 98-9, "Modification“Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions"Transactions,” revenues from software license fees on sales, other than long-term contracts, are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable and collection is probable. For sales of software included in long-term contracts, the revenue is recognized under the percentage-of-completion method for long-term contracts starting when all of the above-mentioned criteria have been meet.
met.
Services:Revenues generated by the Company for services, such as event support, control room design, on-site training, equipment service and continuing technical support for operators of the Company'sCompany’s equipment, are recognized as net sales aswhen the services are performed.
Derivatives: The Company utilizes derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on those transactions that are denominated in a currency other than its functional currency, which is the US Dollar. The Company enters into currency forward contacts to manage these economic risks. As of January 1, 2001, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities, as amended by Statements No. 137 and No. 138. The Statements require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive gain (loss) until the hedged item is recognized in earnings. As of May 1, 2004, the Company had determined that the derivatives outstanding, which consisted of foreign currency forward contracts that are intended to minimize the Company’s exposure on certain foreign currency transactions with notional amounts equal to the Company’s exposure on certain Euro and Canadian dollar denominated transactions, were not considered hedges. Therefore, they were recognized at fair value in the statement of financial condition, and the changes in fair value for the year ended May 1, 2004 of approximately ($47) were recognized in other income, net. The fair value of these derivatives are included in prepaid expenses and other in the statement of financial condition.
Property and equipment: Property and equipment is stated at cost and depreciated principally on the straight-line method over the following estimated useful lives:
Years
------
Buildings 7 - 40
Years | |
Buildings | 7 - 40 |
Machinery and equipment | 5 - 7 |
Office furniture and equipment | 3 - 5 |
Transportation equipment | 5 - 7 |
Equipment held for rental | 2 - 7 |
Goodwill and equipment 5 - 7
Office furniture and equipment 3 - 5
Transportation equipment 5 - 7
Equipment held for rental 2 - 7
Intangible assets: Intangible assets consist primarily of consulting and
noncompete agreements and goodwill. Consulting and noncompete agreements are
stated at cost and are amortized on a straight-line method over their remaining
terms, which range from five to twelve years. Goodwill is amortized on the
straight-line method over three to fifteen years. Accumulated amortization onother intangible assets other than goodwill was $316 and $200 as of: Effective April 27, 2002, the Company adopted SFAS No. 142 “Goodwill and April 28, 2001, respectively,Other Intangible Assets.” In accordance with SFAS No. 142, the Company completes an impairment analysis at least on an annual basis and onmore frequently if circumstances warrant. The Company performed an analysis of goodwill was $182 and $143 as of April 27,November 2, 2003. The results of the analysis indicated that no goodwill impairment existed as of November 2, 2003.
Goodwill, net of accumulated amortization, was $1,411 at May 1, 2004 and $1,043 at May 3, 2003. Accumulated amortization was $157 at May 1, 2004 and May 3, 2003.
As required by SFAS No. 142, intangibles with finite lives continue to be amortized. Included in intangible assets are a non-compete agreement and a patent license. Intangible assets before accumulated amortization were $550 at May 1, 2004 and May 3, 2003. Accumulated amortization was $483 at May 1, 2004 and $419 at May 3, 2003. Amortization expense for the fiscal years 2004, 2003 and 2002 was $63, $110 and April 28, 2001,$110, respectively. Management reassesses the carrying value and remaining life of goodwill of
businesses acquired on an ongoing basis. Whenever events indicate that the
carrying values are impaired, the excess cost over fairThe net value of thoseintangible assets is included as a component of Intangible and other assets in the accompanying consolidated balance sheets. Estimated amortization expense based on intangibles as of May 1, 2004 is $40, $27, and $0 for the fiscal years ending 2005, 2006 and 2007, respectively.
A reconciliation of reported net income adjusted appropriately. Asto reflect the adoption of April 27, 2002, management believes thereSFAS No. 142 if effective in the prior years is no
impairment with respect to these assets.
provided below (in thousands):
|
| Year Ended |
| |||||||
|
|
| ||||||||
|
| May 1, |
| May 3, |
| April 27, |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Reported net income |
| $ | 17,727 |
| $ | 12,458 |
| $ | 4,892 |
|
Add-back goodwill amortization, net of tax effects |
|
| - |
|
| - |
|
| 272 |
|
|
|
|
|
| ||||||
Adjusted net income |
| $ | 17,727 |
| $ | 12,458 |
| $ | 5,164 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
Reported basic income per share |
| $ | 0.95 |
| $ | 0.68 |
| $ | 0.27 |
|
Add-back goodwill amortization, net of tax effects |
|
| - |
|
| - |
|
| 0.01 |
|
|
|
|
|
| ||||||
Adjusted net income per share |
| $ | 0.95 |
| $ | 0.68 |
| $ | 0.28 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
Reported net income per share |
| $ | 0.89 |
|
| 0.64 |
|
| 0.25 |
|
Add-back goodwill amortization, net of tax effects |
|
| - |
|
| - |
|
| 0.01 |
|
|
|
|
|
| ||||||
Adjusted net income per share |
| $ | 0.89 |
| $ | 0.64 |
| $ | 0.26 |
|
|
|
|
|
| ||||||
Foreign currency translation:translation: The assets and liabilities of foreign operations are translated at the exchange rates in effect at the balance sheet date, with the related translation gains or losses reported as a separate component of shareholders'shareholders’ equity. The operating results of foreign operations are translated at weighted average exchange rates.
Income taxes:taxes: The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS")SFAS No. 109, "Accounting“Accounting for Income Taxes"Taxes”. Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwardscarryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the amounts of assets and liabilities recorded for income tax and financial reporting purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion 31
Comprehensive income:income: The Company follows the provisions of SFAS No. 130, "Reporting“Reporting Comprehensive Income"Income”, which establishes standards for reporting and display of comprehensive income and its components. Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income represents net income adjusted for foreign currency translation adjustments. The foreign currency translation adjustment included in comprehensive income has not been tax effected, as the investment in the foreign affiliate is deemed to be permanent. In accordance with SFAS No. 130, the Company has chosen to disclose comprehensive income in the consolidated statement of shareholders'shareholders’ equity.
Product design and development: All expenses related to product design and development are charged to operations as incurred. The Company'sCompany’s product development activities include the enhancement of existing products and the development of new products from existing technologies. Product development expenses for fiscal years 2004, 2003, and 2002 2001were $8,126, $6,918 and 2000 were $7,442, $5,685 and $4,292,
respectively.
Advertising costs: The Company expenses advertising costs as incurred. Advertising expenses for fiscal years 2004, 2003, and 2002 2001were $772, $602, and 2000 were $530, $476,respectively.
Shipping and $674, respectively.
handling costs:The Company records shipping and handling costs as a component of cost of sales at the time the product is shipped.
Segment reporting: The Company'sCompany’s chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenue and certain expenses, by market and geographic region, for purposes of assessing financial performance and making operating decisions. Accordingly, the Company considers itself to be operating in a single industry segment. The Company has no individual customers which constitute a significant concentration.
The Company does not maintain information on sales by products and, therefore, disclosure of such information is not practical.
The following table presents information about the Company by geographic area:
United
States Other Total
-------- -------- --------
Net sales for the fiscal year ended:
2002 $137,792 $10,981 $148,773
2001 141,922 10,409 152,331
2000 111,838 11,512 123,350
Long-lived assets as of:
April 27, 2002 26,584 261 26,845
April 28, 2001 21,712 159 21,871
Stock-based compensation: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), in accounting for its employee stock options. Under APB 25, since
the exercise price of employee and director stock options equals the market
price of the underlying common stock on the date of grant, no compensation
expense is recognized.
|
| United States |
| Other |
| Total |
| |||
|
|
|
|
| ||||||
Net sales for the fiscal year ended: |
|
|
|
|
|
|
|
|
|
|
2004 |
| 182,124 |
| 27,783 |
| 209,907 |
| |||
2003 |
|
| 168,534 |
|
| 9,230 |
|
| 177,764 |
|
2002 |
| 137,792 |
| 10,981 |
| 148,773 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets as of: |
|
|
|
|
|
|
|
|
| |
May 1, 2004 |
| $ | 27,045 |
| $ | 757 |
| $ | 27,802 |
|
May 3, 2003 |
|
| 24,457 |
|
| 332 |
|
| 24,789 |
|
April 27, 2002 |
| 26,584 |
| 261 |
| 26,845 |
| |||
Earnings per share (EPS): Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would 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 that then shared in the earnings of the Company.
32
A reconciliation of the income and common stock share amounts used in the calculation of basic and diluted EPS for the years ended May 1, 2004, May 3, 2003 and April 27, 2002 April 28, 2001 and April 29, 2000 follows.
|
| Net |
| Shares |
| Per Share |
| ||
|
|
|
|
| |||||
For the year ended May 1, 2004: |
|
|
|
|
|
|
|
|
|
Basic EPS |
| $ | 17,727 |
| 18,708 |
| $ | 0.95 |
|
Effects of dilutive securities: |
|
|
|
|
|
|
|
|
|
Exercise of stock options and warrants |
|
| - |
| 1,228 |
|
| (0.06 | ) |
|
|
|
|
| |||||
Diluted EPS |
| $ | 17,727 |
| 19,936 |
| $ | 0.89 |
|
|
|
|
|
| |||||
For the year ended May 3, 2003: |
|
|
|
|
|
|
|
|
|
Basic EPS |
| $ | 12,458 |
| 18,372 |
| $ | 0.68 |
|
Effects of dilutive securities: |
|
|
|
|
|
|
|
|
|
Exercise of stock options and warrants |
|
| - |
| 1,143 |
|
| (0.04 | ) |
|
|
|
|
| |||||
Diluted EPS |
| $ | 12,458 |
| 19,515 |
| $ | 0.64 |
|
|
|
|
|
| |||||
For the year ended April 27, 2002: |
|
|
|
|
|
|
|
|
|
Basic EPS |
| $ | 4,892 |
| 18,135 |
| $ | 0.27 |
|
Effects of dilutive securities: |
|
|
|
|
|
|
|
|
|
Exercise of stock options and warrants |
|
| - |
| 1,095 |
|
| (0.02 | ) |
|
|
|
|
| |||||
Diluted EPS |
| $ | 4,892 |
| 19,230 |
| $ | 0.25 |
|
|
|
|
|
| |||||
Options outstanding of 72 and 116 shares of common stock and warrants
outstanding of 0 and 88 at weighted average share prices of $10.09 and $6.52
during the yearsyear ended April 27, 2002 and April 29, 2000, respectively, were not included in the computation of diluted earnings per share because the exercise price of those instruments exceeded the average market price of the common shares during the respective year.
On December 7, 1999 and
Stock-based compensation: At May 24, 2001,1, 2004, the Company declared a
two-for-one stock splithad four stock-based employee compensation plans, which are described more fully in Note 7. The Company accounts for those plans under the formrecognition and measurement principles of a stock dividendAPB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of one share ofthe underlying common stock for each one share outstanding, payable to shareholderson the date of record on
December 20, 1999 and June 11, 2001, respectively. All data related to common
shares has been retroactively adjusted based upon the new shares outstanding
aftergrant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-BasedCompensation”,to stock-based compensation.
|
| Years Ended |
| |||||||
|
|
| ||||||||
|
| May 1, |
| May 3, |
| April 27, |
| |||
|
|
|
|
| ||||||
Net income as reported |
| $ | 17,727 |
| $ | 12,458 |
| $ | 4,892 |
|
Deduct: Total stock-based method employee |
|
| (519 | ) |
| (399 | ) |
| (315 | ) |
|
|
|
|
| ||||||
Pro forma net income |
| $ | 17,208 |
| $ | 12,059 |
| $ | 4,577 |
|
|
|
|
|
| ||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
Basic-as reported |
| $ | 0.95 |
| $ | 0.68 |
| $ | 0.27 |
|
Basic-pro forma |
|
| 0.92 |
|
| 0.66 |
|
| 0.25 |
|
Diluted-as reported |
|
| 0.89 |
|
| 0.64 |
|
| 0.25 |
|
Diluted-pro forma |
|
| 0.86 |
|
| 0.62 |
|
| 0.24 |
|
Compensation expense for pro forma purposes is reflected over the two-for-one stock splits for all periods presented.
vesting period. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
|
| Years Ended |
|
| ||
|
|
| |||||
|
| May 1, |
| May 3, |
| April 27, |
|
|
| 2004 |
| 2003 |
| 2002 |
|
|
|
|
|
| |||
Dividend Yield |
| None |
| None |
| None |
|
Expected volatility |
| 40% |
| 40% |
| 41% |
|
Risk-free interest rate |
| 3.1% - 3.4% |
| 3.1% - 3.3% |
| 4.0% - 4.6 % |
|
Expected life of option |
| 5 yr. |
| 5 yr. |
| 5 yr. |
|
Recently issued accounting pronouncements: In June 2001, the Financial Accounting Standards Board ("FASB"(“FASB”) approved SFAS No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets." The
statements eliminate the pooling-of-interests method of accounting for business
combinations and require that goodwill and certain other intangible assets not
be amortized. Instead, the statements provide that these assets should be
tested, at least annually, for impairment with any related losses recognized as
incurred. SFAS No. 141 is generally effective for business combinations
completed after June 30, 2001. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001 for existing goodwill and intangible assets
and July 1, 2001 for business combinations completed after June 30, 2001. The
provisions of SFAS No.142 will be implemented by the Company in the first
quarter of its fiscal year 2003 financial statements. However, as noted above,
the remaining unamortized goodwill and intangible asset balances will be subject
to periodic impairment analysis, which could require a write-down of these
assets upon the adoption of SFAS No. 142 or thereafter. The adoption of SFAS No.
142 will not have a material impact on the Company's financial position or
results of operations.
The FASB also issued SFAS No. 143, "Accounting“Accounting for Asset Retirement Obligations."” This statement, which is effective for fiscal years beginning after June 15, 2002, covers the accounting for closure ordisclosure for removal-type costs that are incurred with respect to long-lived assets. The nature of the Company'sCompany’s business and long-lived assets is such that adoption of this new standard shoulddid not have noa significant impact on the Company'sCompany’s financial position or results of operations.
33
In August 2001,May 2003, the FASB issued SFAS No. 144, "Accounting150, “Accounting for the
Impairment or DisposalCertain Financial Instruments with Characteristics of Long-Lived Assets," which supersedesBoth Liabilities and Equity.” SFAS No. 121,
"Accounting150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." The new statement also supersedes certain aspects of APB 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," with regard to reporting the effects of a disposal of
a segment of a business and will require expected future operating losses from
discontinued operations to be reported in discontinued operations in the period
incurred rather than asbeginning of the measurement date as presently required by APB 30.
Additionally, certain dispositions may now qualify for discontinued operations
treatment. The provisions of the statement are required to be applied for fiscal
yearsfirst interim period beginning after DecemberJune 15, 2001 and interim periods within those fiscal
years.2003. The adoption of SFAS No.144 willNo. 150 did not have a material impact on the Company'sCompany’s consolidated financial position or results of operations.
NOTE
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51” (FIN No. 46). FIN No. 46 will be effective no later than the end of the first reporting period that ends after March 15, 2004. FIN No. 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. The Company does not expect the adoption of FIN No. 46 to have a material impact on its net earnings, cash flows or financial position.
In May 2003, Emerging Issues Task Force (EITF) No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”, was finalized. This issue addresses certain aspects of accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. The guidance in EITF No. 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition”, which codifies and rescinds certain sections of SAB No. 101, “Revenue Recognition”, in order to make this interpretive guidance consistent with EITF No. 00-21. Adoption of this interpretation did not have a material impact on the Company’s financial position or results of operations.
During 2001,fiscal year 2004, the Company acquired the remaining 20% in Daktronics Canada, Inc. in exchange for 18,500 shares of common stock in the Company that had a 100% interest in Sports Link, Ltd.fair market value of approximately $462. This acquisition was treated under the provisions of purchase accounting of SFAS No.142. The acquisition included a company which rents display devices and provides technical supportrestructuring of contingent payments owed to sports
events and organizations, and acquired anthe sellers who originally sold the 80% interest to the Company in Servtrotech Inc., a
Canadian based company which manufactures electronic material for displaying and
timing.fiscal year 2002. Any contingent payments made in the future will be treated as compensation expense when earned. The Company also acquired the assetsrecognized approximately $0.3 million of another small company during
2001. These acquisitions were treatedgoodwill as purchases for accounting purposes. The
aggregate cost of these acquisitions was $1,522, which includes 42 sharesa result of the Company's common stock valued at $230.
Set forth below is the unaudited pro forma combined summary of
operations for the years ended April 28, 2001 and April 29, 2000 as though the
acquisitions made during 2001 occurred on May 2, 1999:
2001 2000
--------- ---------
Net sales $ 152,995 $ 126,412
Operating income 14,448 10,040
Income before income taxes and minority interest 13,959 10,176
Net income 8,678 6,372
Earnings per share:
Basic 0.49 0.36
Diluted 0.46 0.35
The unaudited pro forma combined summary of operations does not purport
to be indicative of the results which actually would have been obtained if the
acquisitions had been made at May 2, 1999 or of those results which may be
obtained in the future. The unaudited pro forma combined summary of operations
includes the effects of additional interest expense on debt incurred in
connection with the acquisitions as if the debt had been outstanding from the
beginning of the periods presented. In addition, the summary of operations
includes amortization of the cost in excess of net assets of companies acquired
in connection with the acquisitions as if they had been acquired from the
beginning of the periods presented.
During the year ended April 29, 2000, the Company acquired three small
companies. The accounts of the acquired companies have been consolidated in the
accompanying financial statements as of the effective dates of the related
acquisitions. These acquisitions were treated as purchases for accounting
purposes for a total purchase price of $823, of which $443 was allocated to
goodwill.
34
NOTEacquisition.
|
| May 1, |
| May 3, |
| ||
|
|
|
| ||||
Inventories consist of the following: |
|
|
|
|
|
|
|
Raw materials |
| $ | 6,952 |
| $ | 5,999 |
|
Work-in-progress |
|
| 3,053 |
|
| 2,151 |
|
Finished goods |
|
| 6,599 |
|
| 6,713 |
|
|
|
|
| ||||
|
| $ | 16,604 |
| $ | 14,863 |
|
|
|
|
| ||||
Property and equipment consist of the following: |
|
|
|
|
|
|
|
Land |
| $ | 654 |
| $ | 654 |
|
Buildings |
|
| 12,415 |
|
| 12,281 |
|
Machinery and equipment |
|
| 18,123 |
|
| 13,762 |
|
Office furniture and equipment |
|
| 15,706 |
|
| 13,495 |
|
Equipment held for rent |
|
| 4,581 |
|
| 3,476 |
|
Transportation equipment |
|
| 3,054 |
|
| 2,185 |
|
|
|
|
| ||||
|
|
| 54,533 |
|
| 45,853 |
|
|
|
|
|
|
|
|
|
Less accumulated depreciation |
|
| 26,731 |
|
| 21,064 |
|
|
|
|
| ||||
|
| $ | 27,802 |
| $ | 24,789 |
|
|
|
|
| ||||
Accrued expenses consist of the following: |
|
|
|
|
|
|
|
Product warranty |
| $ | 5,048 |
| $ | 2,892 |
|
Compensation |
|
| 3,675 |
|
| 3,156 |
|
Taxes, other than income taxes |
|
| 1,229 |
|
| 1,037 |
|
Other |
|
| 1,659 |
|
| 705 |
|
|
|
|
| ||||
|
| $ | 11,611 |
| $ | 7,790 |
|
|
|
|
| ||||
Uncompleted contracts consist of the following:
2002 2001
------- -------
Costs incurred $45,423 $42,758
Estimated earnings 19,958 17,068
------- -------
65,381 59,826
Less billings to date 58,048 51,113
------- -------
$ 7,333 $ 8,713
======= =======
|
| May 1, |
| May 3, |
| ||
|
|
|
| ||||
Costs incurred |
| $ | 92,390 |
| $ | 75,600 |
|
Estimated earnings |
|
| 37,159 |
|
| 32,266 |
|
|
|
|
| ||||
|
|
| 129,549 |
|
| 107,866 |
|
Less billings to date |
|
| 123,448 |
|
| 101,927 |
|
|
|
|
| ||||
|
| $ | 6,101 |
| $ | 5,939 |
|
|
|
|
| ||||
Uncompleted contracts are included in the accompanying consolidated balance sheets as follows:
2002 2001
------- -------
Costs and estimated earnings in excess of billings $10,277 $10,890
Billings in excess of costs and estimated earnings (2,944) (2,177)
------- -------
$ 7,333 $ 8,713
======= =======
NOTE
|
| May 1, |
| May 3, |
| ||
|
|
|
| ||||
Costs and estimated earnings in excess of billings |
| $ | 12,862 |
| $ | 11,467 |
|
Billings in excess of costs and estimated earnings |
|
| (6,761 | ) |
| (5,528 | ) |
|
|
|
| ||||
|
| $ | 6,101 |
| $ | 5,939 |
|
|
|
|
| ||||
The Company sells its products throughout the United States and certain foreign countries on credit terms that the Company establishes for each customer. On the sale of certain products, the Company has the ability to file a contractor'scontractor’s lien against the product installed as collateral. Foreign sales are generally secured by irrevocable letters of credit.
35
Accounts receivable are reported net of an allowance for doubtful accounts of $1,102$1,131 and $271$875 at April 27, 2002May 1, 2004 and April 28, 2001,May 3, 2003, respectively.
The Company makes estimates regarding the collectability of its accounts receivables, costs and estimated earnings in excess of billings, and other receivables. In evaluating the adequacy of its allowance for doubtful accounts, the Company analyzes specific accounts receivable balances, customer creditworthiness, changes in customer payment cycles, and current economic trends. If the financial condition of any customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company charges off receivables at such time as it is determined that collection will not occur.
In connection with the certain sales transactions, the Company has entered into long-term sales contracts and sales type leases. The present value of the contract or lease is recorded as a receivable upon the installation and acceptance of the equipment, and profit is recognized to the extent that the present value is in excess of cost. The Company generally retains a security interest in the equipment or in the cash flow generated by the equipment until the contract is paid. Long-term contract and lease receivables, including accrued interest and current maturities, were $7,881$14,039 and $7,299$9,361 as of April 27,
2002May 1, 2004 and April 28, 2001May 3, 2003, respectively. Contract and lease receivables bearing annual interest at rates of 7.5%5.0% to 14.4% and13.5% are due in varying annual installments through April of 2011.2013. Included in accounts receivable as of April 27, 2002,May 1, 2004 was approximated $0.5 millionapproximately $2,200 of retainage oron long-term contracts, all of which is expected to be collected in one year.
NOTE
Long-term debt: Long-term debt consists of the following:
|
| May 1, |
| May 3, |
| ||
|
|
|
| ||||
8.29% note payable due to bank, due in monthly installments of $102 including interest through February 2007, subject to credit agreement financial covenants discussed below, unsecured |
| $ | 1,947 |
| $ | 5,397 |
|
7.5 % note payable due to bank, due in monthly installments of $11 including interest through July 2007, secured by equipment |
|
| 121 |
|
| 153 |
|
6.0% - 12.0% contracts payable, primarily related to advertising rights, due in annual installments, including interest, through November 2014 |
|
| 465 |
|
| 375 |
|
5% contract for deed, with interest payments only through June 2005, secured by certain real estate |
|
| - |
|
| 2,150 |
|
8.6%, installment obligations due in monthly installments of $8 including interest through April 2005, secured by equipment |
|
| 88 |
|
| 177 |
|
Other |
|
| 173 |
|
| 148 |
|
|
|
|
| ||||
|
| $ | 2,794 |
| $ | 8,400 |
|
Less current maturities |
|
| 1,296 |
|
| 2,951 |
|
|
|
|
| ||||
Total long-term debt |
| $ | 1,498 |
| $ | 5,449 |
|
|
|
|
| ||||
The future maturities on long-term debt, consist of the following:
Fiscal years ending:
--------------------
2003 $4,254
2004 3,532
2005 1,864
2006 3,619
2007 494
Thereafter 65
-------
$13,828
=======
36
Fiscal years ending: |
|
|
| |
2005 |
|
| 1,296 |
|
2006 |
| $ | 1,206 |
|
2007 |
|
| 170 |
|
2008 |
|
| 61 |
|
2009 |
|
| 39 |
|
Thereafter |
|
| 22 |
|
|
|
| ||
|
| $ | 2,794 |
|
|
|
| ||
Credit agreements: The Company has a credit agreement with a bank which provides for a $20,000 line of credit and which includes up to $2,000$5,000 for standby letters of credit. The interest rate on the line of credit is equal to LIBOR plus 1.55% (3.4%(2.81% at April 27, 2002) andMay 1, 2004). The line of credit is due on October 1, 2004.2005. As of April 27, 2002,May 1, 2004 and May 3, 2003, no advances under the line of credit were outstanding. The credit agreement is unsecured and requires the Company to meetcomply with certain covenants, including the maintenance of tangible net worth of at least $40,000, ($23,000
prior to the amendment to the loan agreement dated June, 2002), a minimum liquidity ratio, a limit on dividends and distributions, and a minimum adjusted fixed charge coverage ratio. Servtrotech, Inc.Daktronics Canada has a credit agreement with a bank which provides for a $200 line of credit. The line of credit is due on April 20, 2005. The interest rate on the line of credit is equal to 1%1.5% above the prime rate of interest (5%(3.75% at April 27, 2002)May 1, 2004). As of April 27, 2002, $51May 1, 2004 and May 3, 2003, $215 and $180, respectively, had been drawn under the line. The line of credit is secured primarily by accounts receivables, inventory and other assets of the subsidiary. SportsLink, Ltd. has a credit agreement with a bank which provides
for a $100 line of credit. The rate on the line of credit is equal to the prime
rate of interest (4% at April 27, 2002). As of April 27, 2002, no advances were
outstanding under the line. The credit agreement is secured by the assets of the
subsidiary and is guaranteed by the Company.
NOTE
Common stock: The authorized shares of 60,000 includeconsist of 50,000 shares of common stock and 10,000 shares of "undesignated stock"“undesignated stock”. In August 2001, the
shareholders approved the increase in the number of authorized common shares
from 30,000 to 60,000 shares. The Company'sCompany’s Board of Directors has the power to issue any or all of the shares of undesignated stocks,stock, including the authority to establish the rights and preferences of the undesignated stock without shareholder approval.
During the year ended May 1, 1999, the Company declared a dividend of one preferred share purchase right for each outstanding share of common stock of the Company. The dividend was paid on December 9, 1998 to the stockholders of record on such date. Each right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock at a price of $160 per one-hundredth of a preferred share, subject to the complete terms as stated in the Rights Agreement. The rights become exercisable immediately after the earlier of (i) ten10 business days following a public announcement that a person or group has acquired beneficial ownership of 20% or more of the outstanding common shares of the Company (subject to certain exclusions), or (ii) ten10 business days following the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 20% or more of such outstanding common shares. The rights expire on November 19, 2008, which date may be extended subject to certain additional conditions.
Common stock warrants: On December 29, 1999, In connection with the acquisition of a business in fiscal 2000, the Company entered into
an asset purchase agreement with another entity to purchase substantially all of
the assets of the entity. As part of the consideration for the purchase, the
Company providedissued warrants with a computed value of $93, to purchase up to 88 shares of common stock. Such amount was included in the consolidated balance
sheets as additional paid-in capital.stock at an exercise price of $6.32 per share. The warrants may be exercisedare exercisable at any time during the seven-year period beginning onthrough December 29, 1999 at a price per share
of $6.32.2006. During 2002, 38 warrants were exercised, and at April 28, 2002, 45
warrants were outstanding.
The Company, in connection with its public offering, issued the
underwriter fivefiscal year 2003, warrants to purchase up to 45314 shares of the Company's
common stock. The warrants were exercised at $2.29 per share during the year
ended April 29, 2000, in a cashless exercise. The result was to increase common stock outstanding by 144 shares.
were exercised. At May 1, 2004, warrants to purchase 31 shares remained outstanding.
Stock option plans: The Company has adopted SFAS No. 123, "Accounting
for Stock-Based Compensation." As permitted by SFAS No. 123, the Company has
elected to continue following the guidance of APB No. 25 for measurement and
recognition of stock-based transactions with employees and outside directors. No
compensation cost has been recognized for stock options issued under its plans
since the exercise price for all options granted was at least equal to the fair
value of the common
37
stock at the date of grant. If compensation cost for the Company's stock option
plans had been determined based on the fair value at the grant dates for grants
during fiscal years 2002, 2001 and 2000, consistent with the method provided in
SFAS No. 123, the Company's net income and income per share would have been as
follows:
2002 2001 2000
-------- -------- --------
Net income:
As reported $ 4,892 $ 8,685 $ 6,224
Pro forma 4,577 8,457 6,088
Earnings per Share:
As reported:
Basic .27 0.49 0.36
Diluted .25 0.46 0.34
Pro forma:
Basic .25 0.48 0.35
Diluted .24 0.45 0.33
The pro forma effects are not indicative of future amounts since, among
other reasons, the pro forma requirements have been applied only to options
granted after April 29, 1995.
The fair value of each option grant is estimated at the grant date
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
2002 2001 2000
----------- ----------- -----------
Dividend Yield None None None
Expected volatility 41% 37% 37%
Risk-free interest rate 4.0% - 4.6% 5.4% - 6.2% 5.8% - 6.2%
Expected life of option 5 yr. 5 yr. 5 yr.
("(“2001 Plans"Plans”), and ceased grantedgranting options under the 1993 Incentive Stock Option Plan, as amended, and the 1993 Outside Directors Option Plan, as amended ("(“1993 Plans"Plans”). The 2001 Plans and the 1993 Plans authorize awards of incentive stock options to employees of the Company and nonqualified stock options to non-employees and outside directors as compensation for services rendered. Under both the 2001 Plans and the 1993 Plans, options granted may have a maximum term of 10 years in the case of the Incentive Stock Option Plan and seven years in the case of the Outside Directors Stock Option Plan and containPlan. In addition, such options must have exercise prices equal to the market value of the Company’s common stock at the date of grant or 110% of market value at date of grant in the case of an employee who owns more than 10% of all voting power of all classes of the Company'sCompany’s stock then outstanding. The options generally vest ratably over a five-year period in the case of options granted under the Incentive Stock Option Plans and over a three-year period in the case of options granted under the Outside Directors Option Plans althoughPlans. However, under the 2001 Plans and the 1993 Plans, the actual period of vesting is determined at the time of the grant.
The total number of shares of stock reserved and available for distribution under the 2001 Incentive Stock Option Plan and the 2001 Outside Directors PanPlan are 1,200 and 400 shares, respectively. At April 27, 2002,May 1, 2004, there were 1,353970 shares available for granting of options under the 2001 Plans. The total number of shares reserved under the 1993 Plans was 3,040. Although the 1993 Plans remain in effect for options outstanding, no new options are expected to be granted under the 1993 Plans.
38
A summary of the status of the plans at May 1, 2004, May 3, 2003 and April 27, 2002 April 28, 2001
and April 29, 2000, and changes during the years ended on those dates follows:
|
| Years Ended |
| |||||||||||||
|
|
| ||||||||||||||
|
| 2004 |
| 2003 |
| 2002 |
| |||||||||
|
|
|
|
| ||||||||||||
Fixed Options |
| Shares |
| Weighted |
| Shares |
| Weighted |
| Shares |
| Weighted |
| |||
|
|
|
|
|
|
| ||||||||||
Outstanding at beginning of year |
| 1,823 |
| $ | 5.39 |
| 1,885 |
| $ | 4.32 |
| 1,876 |
| $ | 3.46 |
|
Granted |
| 217 |
|
| 17.58 |
| 213 |
|
| 11.37 |
| 255 |
|
| 8.11 |
|
Forfeited |
| (31 | ) |
| 2.68 |
| (17 | ) |
| 5.35 |
| (27 | ) |
| 3.77 |
|
Exercised |
| (240 | ) |
| 6.79 |
| (258 | ) |
| 2.45 |
| (219 | ) |
| 1.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Outstanding at end of year |
| 1,769 |
|
| 7.23 |
| 1,823 |
|
| 5.39 |
| 1,885 |
|
| 4.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Options for 1038, 9161,119, 1,074 and 8201,038 shares were exercisable at May 1, 2004, May 3, 2003 and April 27, 2002,
April 28, 2001 and April 29, 2000, respectively. The weighted average fair value of options granted were $3.51, $2.99$6.98, $4.51 and $2.18$3.51 for the years ended May 1, 2004 May 3, 2003 and April 27, 2002, April 28, 2001 and April 29, 2000 respectively.
The following table summarizes information about fixed options outstanding at April 27, 2002:
|
| Options Outstanding |
| Options Exercisable |
| ||||||||
|
|
|
| ||||||||||
Range of Exercise Prices |
| Number |
| Weighted |
| Weighted |
| Number |
| Weighted |
| ||
|
|
|
|
|
| ||||||||
$1.00 to $1.99 |
| 229 |
| 2.6 |
| $ | 1.30 |
| 229 |
| $ | 1.30 |
|
$2.00 to $2.99 |
| 112 |
| 3.2 |
| 2.64 |
| 112 |
| 2.64 |
| ||
$3.00 to $3.99 |
| 202 |
| 4.6 |
| 3.06 |
| 202 |
| 3.06 |
| ||
$4.00 to $4.99 |
| 45 |
| 2.3 |
| 4.15 |
| 45 |
| 4.15 |
| ||
$5.00 to $5.99 |
| 301 |
| 5.0 |
| 5.33 |
| 248 |
| 5.37 |
| ||
$6.00 to $6.99 |
| 28 |
| 6.0 |
| 6.33 |
| 20 |
| 6.34 |
| ||
$7.00 to $7.99 |
| 352 |
| 7.0 |
| 7.60 |
| 170 |
| 7.62 |
| ||
$10.00 to $10.99 |
| 108 |
| 4.6 |
| 10.22 |
| 60 |
| 10.17 |
| ||
$11.00 to $ 11.99 |
| 174 |
| 8.6 |
| 11.55 |
| 33 |
| 11.55 |
| ||
$16.00 to $ 16.99 |
| 36 |
| 6.3 |
| 16.97 |
| - |
| - |
| ||
$17.00 to $ 17.99 |
| 182 |
| 9.6 |
| 17.70 |
| - |
| - |
| ||
|
|
|
|
|
|
|
|
|
| ||||
|
| 1,769 |
| 5.7 |
| 7.23 |
| 1,119 |
| 4.59 |
| ||
|
|
|
|
|
|
|
|
|
| ||||
The Company has an employee savings plan which provides for voluntary contributions by eligible employees into designated investment funds with a matching contribution by the Company of 50% of the employee'semployee’s qualifying contribution up to 6% of such employee'semployee’s compensation (25% for fiscal years
ending 2001 and 2000).year 2001) plus other discretionary contributions as authorized by the board of directors. Employees are eligible to participate upon completion of one year of service if they have attained the age of 21 and have worked more than 1,000 hours during such plan year. The Company contributed $488, $168$1,139, $545 and $165$488 to the plan for the fiscal years ended2004, 2003 and 2002, 2001 and 2000, respectively.
The Company had an Employee Stock Ownership Plan (ESOP) and a related
trust for the benefit of its employees. The ESOP merged with the employee
savings plan effective May 1, 2000. Contributions to the plan were recognized as
compensation expense and were made at the discretion of the Board of Directors.
The contributions to the plan were $39 during
During the fiscal year ended 2000. The
plan held 917 shares as of April 29, 2000, all of which were allocated to plan
participants. No dividends were paid on plan shares in fiscal year 2000, and all
outstanding plan shares are included for purposes of earnings per share
computations.
39
Subsequent to April 27, 2002,May 3, 2003, the Board of Directors approved subject
to approval by the Company's shareholders the Daktronics, Inc. 2002 Employee Stock Purchase Plan ("(“the plan"Plan”). The Plan, which becomesbecame effective September 1, 2002, is intended to qualify under Section 423 of the Internal Revenue Code and allows employees to purchase shares of common stock of the Company, subject to annual limitations of 85% of the lower of the fair market value of the common stock at the beginning or the end of a six monthsix-month offering period. The total number of shares receivedreserved under the Plan is 500,000.
NOTE500 shares. The Company issued 29 shares during the fiscal year ended May 1, 2004. No shares were issued during the fiscal year ended May 3, 2003. As of May 1, 2004, participants in the Plan had accumulated $214 to purchase the Company’s stock.
The Company has unfunded deferred compensation agreements with certain officers and a founding director of the Company wherein each year interest is credited to each participants account in an amount equal to equal to the five-year treasury note rate as of January 1 of each plan year. Total amounts accrued for these plans as of May 1, 2004 and May 3, 2003 were $535 and $520, respectively. Contributions for the fiscal years ending May 1, 2004 and May 3, 2003 were $15 and $18, respectively. These agreements were amended and restated during fiscal year 2004 to reflect changes in the payout options available at retirement. The amounts accrued under the plans are not funded and are subject to the claims of creditors. Participants may elect various forms of withdrawals upon retirement, including a lump sum distribution or annual payments over five or 10 years.
Income tax expense consists of the following:
2002 2001 2000
-------- -------- --------
Current:
Federal $ 3,102 $ 5,344 $ 3,056
State 592 338 474
Deferred taxes (credits) (449) (407) 204
-------- -------- --------
$ 3,245 $ 5,275 $ 3,734
======== ======== ========
|
| Years Ended |
| |||||||
|
|
| ||||||||
|
| May 1, |
| May 3, |
| April 27, |
| |||
|
|
|
|
| ||||||
Current: |
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 9,585 |
| $ | 7,870 |
| $ | 3,102 |
|
State |
|
| 1,298 |
|
| 1,183 |
|
| 592 |
|
Deferred taxes (credits) |
|
| 24 |
| (946 | ) |
| (449 | ) | |
|
|
|
|
| ||||||
|
| $ | 10,907 |
| $ | 8,107 |
| $ | 3,245 |
|
|
|
|
|
| ||||||
The components of the net deferred tax asset as of April 27, 2002 and
April 28, 2001 are as follows:
2002 2001
-------- --------
Deferred tax assets:
Product warranty accruals $ 1,174 $ 1,042
Legal fees accrual -- 37
Vacation accrual 530 439
Inventories 751 437
Allowance for doubtful accounts 429 100
Other accruals and deferrals 155 126
Amortizations of intangibles 528 376
Other 20 60
-------- --------
3,587 2,617
Less valuation allowance -- --
-------- --------
3,587 2,617
Deferred tax liabilities:
Property and equipment 2,085 1,564
-------- --------
$ 1,502 $ 1,053
======== ========
|
| May 1, |
| May 3, |
| ||
|
|
|
| ||||
Deferred tax assets: |
|
|
|
|
|
|
|
Product warranty accrual |
| $ | 2,316 |
| $ | 1,532 |
|
Legal fee accrual |
|
| - |
|
| 39 |
|
Vacation accrual |
|
| 643 |
|
| 515 |
|
Reserves for excess and obsolete inventory |
|
| 944 |
|
| 1,363 |
|
Allowance for doubtful accounts |
|
| 441 |
|
| 341 |
|
Amortization of intangible assets |
|
| 486 |
|
| 517 |
|
Net operating loss carryforwards |
|
| 149 |
|
| - |
|
Other accruals and deferrals |
|
| 371 |
|
| 365 |
|
Other |
|
| 142 |
|
| 132 |
|
|
|
|
| ||||
|
|
| 5,492 |
|
| 4,804 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
Property and equipment |
|
| 3,011 |
|
| 2,299 |
|
|
|
|
| ||||
|
| $ | 2,481 |
| $ | 2,505 |
|
|
|
|
| ||||
The following is reflectedpresents the classification of the net deferred tax asset on the accompanying consolidated balance sheets:
2002 2001
-------- -----------
Current assets $ 2,784 $ 2,103
Noncurrent liabilities 1,282 1,050
-------- -----------
$ 1,502 $ 1,053
======== ===========
|
| May 1, |
| May 3, |
| ||
|
|
|
| ||||
Current assets |
| $ | 4,524 |
| $ | 3,801 |
|
Noncurrent liabilities |
|
| 2,043 |
|
| 1,296 |
|
|
|
|
| ||||
|
| $ | 2,481 |
| $ | 2,505 |
|
|
|
|
| ||||
A reconciliation of the provision for income taxes and the amount computed by applying the federal statutory rate to income before income tax expense is as follows:
2002 2001 2000
-------- -------- --------
Computed income tax expense at federal
statutory rate $ 2,850 $ 4,888 $ 3,485
State taxes,
|
| Years Ended |
| |||||||
|
|
| ||||||||
|
| May 1, |
| May 3, |
| April 27, |
| |||
|
|
|
|
| ||||||
Computed income tax expense at federal statutory rate |
| $ | 10,022 |
| $ | 7,209 |
| $ | 2,850 |
|
State taxes, net of federal benefit |
|
| 906 |
|
| 705 |
|
| 246 |
|
Meals and entertainment |
|
| 276 |
|
| 206 |
|
| 212 |
|
Extraterritorial income exclusion |
|
| (294 | ) |
| (9 | ) |
| (140 | ) |
Other, net |
|
| (3 | ) |
| (4 | ) |
| 77 | |
|
|
|
|
| ||||||
|
| $ | 10,907 |
| $ | 8,107 |
| $ | 3,245 |
|
|
|
|
|
| ||||||
At May 1, 2004, the Company had German net of federal benefit 246 236 308
Meals and entertainment 212 217 162
Foreign source income (140) (44) --
Other, net 77 (22) (221)
-------- -------- --------
$ 3,245 $ 5,275 $ 3,734
======== ======== ========
40
NOTEoperating loss carryforwards totaling $353 which have an unlimited carryforward period.
The change in operating assets and liabilities consists of the following:
|
| Years Ended |
| |||||||
|
|
| ||||||||
|
| May 1, |
| May 3, |
| April 27, |
| |||
|
|
|
|
| ||||||
(Increase) decrease: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
| $ | (3,030 | ) | $ | (7,809 | ) | $ | 2,488 |
|
Long-term receivables |
|
| (4,678 | ) |
| (1,480 | ) |
| (582 | ) |
Inventories |
|
| (1,741 | ) |
| 1,620 |
|
| 3,377 | |
Costs and estimated earnings in excess of billings |
|
| (1,395 | ) |
| (1,190 | ) |
| 613 | |
Prepaid expenses and other |
|
| (296 | ) |
| (174 | ) |
| 5 | |
Income taxes receivable |
|
| (813 | ) |
| - |
|
| 97 |
|
Advertising rights |
|
| (1,092 | ) |
| - |
|
| 704 | |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease): |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
| 7,728 |
|
| 3,155 |
| (3,153 | ) | |
Customer deposits |
|
| 1,120 |
| (477 | ) |
| 949 | ||
Billings in excess of costs and estimated earnings |
|
| 1,232 |
|
| 2,584 |
|
| 767 | |
Deferred income |
|
| (204 | ) |
| 627 |
|
| 180 |
|
Income taxes payable |
|
| (27 | ) |
| 1,466 |
|
| 897 |
|
|
|
|
|
| ||||||
|
| $ | (3,196 | ) | $ | (1,678 | ) | $ | 6,342 | |
|
|
|
|
| ||||||
Supplemental disclosures of cash flow information:
|
| Years Ended |
| |||||||
|
|
| ||||||||
|
| May 1, |
| May 3, |
| April 27, |
| |||
|
|
|
|
| ||||||
Cash payments for: |
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 506 |
| $ | 790 |
| $ | 1,570 |
|
Income taxes, net of refunds |
|
| 11,719 |
|
| 8,050 |
|
| 2,675 |
|
Supplemental schedule of non-cash investing and financing activities:
|
| Years Ended |
| |||||||
|
|
| ||||||||
|
| May 1, |
| May 3, |
| April 27, |
| |||
|
|
|
|
| ||||||
Property and equipment acquired through long term debt |
| $ | - |
| $ | - |
| $ | 2,150 |
|
Demo equipment transferred to inventories |
|
| - |
|
| 23 |
|
| 130 |
|
Tax benefits related to exercise of stock options |
|
| 1,528 |
|
| 241 |
|
| 164 |
|
Contributions of common stock under the employee savings plan |
|
| 634 |
|
| 403 |
|
| - |
|
Acquisition of minority interest in Daktronics Canada, Inc. through issuance of common stock |
|
| 462 |
|
| - |
|
| - |
|
The carrying amounts reported on the balance sheets for cash and cash equivalents approximate their fair values due to the highly liquid nature of the instruments. The fair values for fixed-rate contracts receivable are estimated using discounted cash flow analyses, using interest rates currently being offered for contracts with similar terms to customers with similar credit quality. The carrying amounts reported on the balance sheets for contracts receivable approximate fair value. Fair values for the Company'sCompany’s off-balance-sheet instruments (contingent liability for contracts sold with recourse and the contingent liability for the guarantee of debt) are not significant. The notes payable, bank are variable rate notes that reprice frequently. The fair value on these notes approximates their carrying values. The carrying amounts reported for variable rate long-term debt approximate fair value. Fair values for fixed-rate long-term debt are estimated using a discounted cash flow calculation that applies interest rates currently being offered for debt with similar terms and underlying collateral. The total carrying value of long-term debt reported on the balance sheets approximates fair value. NOTE 13. COMMITMENTS AND CONTINGENCIESThe fair values of all outstanding derivative instruments were determined using quoted market prices.
In connection with certain salesthe sale of equipment by the Company, it has agreed to accept a specified level of recourse on the money owed by its
customersa customer to otheranother financial institutions.institution. At April 27, 2002May 1, 2004 and April 28, 2001,May 3, 2003, the Company was contingently liable on such recourse agreements in the amounts of $859 and 154, respectively.
As of April 27, 2002, the Company is contingently liable for the
guarantee of debt to an unrelated party in the amount of approximately $902.$250.
The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, based upon consultation with legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the Company'sCompany’s consolidated financial position.
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company offers a standard parts coverage warranty for periods varying from one to five years for all of its products. The Company also offers additional types of warranties that include on-site labor, routine maintenance and event support. In addition, the length of warranty on some installations can vary from one to 10 years. The specific terms and conditions of these warranties primarily vary depending due to the product sold. The Company estimates the costs that may be incurred under the warranty and records a liability in the amount of such costs at the time product order is received. Factors that affect the Company’s warranty liability include historical and anticipated claims costs. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company’s product warranties during the years ended May 1, 2004 and May 3, 2003 consisted of the following:
|
| May 1, |
| May 3, |
| ||
|
|
|
| ||||
Balance |
| 3,184 |
| 2,467 |
| ||
Warranties issued during the period |
|
| 3,550 |
|
| 1,373 |
|
Settlements made during the period |
|
| (2,509 | ) |
| (495 | ) |
Changes in liability for pre-existing warranties during the period, including expirations |
|
| (41 | ) |
| (161 | ) |
|
|
|
| ||||
Balance |
| $ | 4,184 |
| $ | 3,184 |
|
|
|
|
| ||||
In connection with certain international transactions and long-term contracts, the Company has entered into various performance guarantees. As of May 1, 2004, it has outstanding $918 in standby letters of credit and $5,216 in outstanding surety bonds. Performance guarantees provided by standby letters of credit and performance bonds are issued to certain customers to guarantee the operation of the equipment and the installation thereof and to guarantee the Company’s ability to complete a contract. These performances guarantees have various terms, which are generally less than one year.
The Company leases office space for various sales and service locations across the country and various equipment, primarily office equipment. Rental expense for operating leases amounted to $1,078, $590 and $427 at May 1, 2004, May 3, 2003 and April 27, 2002, respectively. Future minimum payments under noncancelable operating leases, excluding executory cost such as management and maintenance fees with initial or remaining terms of one year or more, consisted of the following at May 1, 2004:
Fiscal Year |
|
| Amount |
|
|
|
| ||
2005 |
| $ | 529 |
|
2006 |
|
| 428 |
|
2007 |
|
| 235 |
|
2008 |
|
| 55 |
|
2009 |
|
| 17 |
|
|
|
| ||
Total |
| $ | 1,264 |
|
|
|
|
From time to time, the Company commits to purchase inventory and advertising rights over periods that extend over a year. As of May 1, 2004, the Company is obligated to purchase inventory and advertising rights through fiscal year 2006 as follows:
Fiscal Year |
| �� | Amount |
|
|
|
| ||
2005 |
| $ | 2,793 |
|
2006 |
|
| 169 |
|
|
|
| ||
Total |
| $ | 2,962 |
|
|
|
|
The following table presents summarized quarterly financial data:
Fiscal Year 2004 |
| 1st Quarter |
| 2nd Quarter |
| 3rd Quarter |
| 4th Quarter |
| ||||
|
|
|
|
|
| ||||||||
Net sales |
| $ | 48,918 |
| $ | 58,307 |
| $ | 44,745 |
| $ | 57,937 |
|
Gross profit |
|
| 17,450 |
|
| 21,750 |
|
| 14,749 |
|
| 18,522 |
|
Net income |
|
| 4,308 |
|
| 6,669 |
|
| 2,616 |
|
| 4,134 |
|
Basic earnings per share |
|
| 0.23 |
|
| 0.36 |
|
| 0.14 |
|
| 0.22 |
|
Diluted earnings per share |
|
| 0.22 |
|
| 0.34 |
|
| 0.13 |
|
| 0.21 |
|
Fiscal Year 2003 |
| 1st Quarter |
| 2nd Quarter |
| 3rd Quarter |
| 4th Quarter |
| ||||
|
|
|
|
|
| ||||||||
Net sales |
| $ | 44,107 |
| $ | 48,074 |
| $ | 38,220 |
| $ | 47,364 |
|
Gross profit |
|
| 15,324 |
|
| 15,786 |
|
| 12,365 |
|
| 15,657 |
|
Net income |
|
| 3,134 |
|
| 4,025 |
|
| 1,888 |
| 3,411 |
| |
Basic earnings per share |
|
| 0.17 |
|
| 0.22 |
|
| 0.10 |
| 0.18 |
| |
Diluted earnings per share |
|
| 0.16 |
|
| 0.21 |
|
| 0.10 |
| 0.17 |
| |
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
DISCLOSURE
On July 1, 2002, the Company dismissed McGladrey & Pullen, LLP as its independent auditors and appointed Ernst & Young LLP as the Company’s independent auditors. The report of McGladrey & Pullen, LLP on the consolidated financial statements of the Company for the fiscal year ended April 27, 2002 was unqualified and did not contain an adverse opinion, any disclaimers, qualification or modification as to uncertainty, audit scope or accounting principles. The decision to change firms was recommended by the Audit Committee of the Board of Directors. In connection with the audit of the consolidated financial statements of the Company for the fiscal year ended April 27, 2002 and during the period commencing April 27, 2002 through June 30, 2002, there were no disagreements or reportable events.
Evaluation of disclosure controls and procedures
The Company carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “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 May 1, 2004, 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 May 1, 2004, the Company’s disclosure controls and procedures were effective.
Changes in internal control over financial reporting
Based on the evaluation described in the foregoing paragraph, the Company’s Chief Executive Officer and Chief Financial Officer concluded that during the quarter ended May 1, 2004, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.REGISTRANT
Information under the heading "Election“Proposal One — Election of Directors"Directors” and "Section“Section 16(a) Beneficial Ownership Reporting Compliance"Compliance” in the Company’s Proxy Statement to be filed on or about July 9, 2004 is incorporated herein by reference. The information regarding executive officers is included in Part I, Item 1, of this report under the caption "Executive“Directors and Executive Officers of the Registrant."
ITEM”
Information regarding compensation of directors and officers for the fiscal year ended April 27, 2002May 1, 2004 is in the Proxy Statement to be filed on or about July 9, 2004 under the heading "Election“Proposal One -Election of Directors"Directors” and "Executive Compensation"“Executive Compensation” and is incorporated herein by reference.
ITEM 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The security ownership of certain beneficial owners and management is contained in the Proxy Statement to be filed on or about July 9, 2004 under the heading "Common Stock Ownership"“Security Ownership of Certain Beneficial Owners and Management” and "Securities Authorized Under Equity Compnsation Plans" and is incorporated herein by reference.
ITEM
None.
Incorporated herein by reference is the information appearing under the heading “Relationship with Independent Auditors” in the Registrant’s Proxy Statement that the Registrant anticipates filing on or about July 9, 2004.
Item 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.
1.
(a)(1)
Financial Statements
The following financial statements of the Company accompanied by an
Independent Auditor's Report, are contained in Part II, Item 8:
Ernst & Young LLP Report of Independent Registered Public Accounting Firm
McGladrey & Pullen, LLP Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, April 27, 2002May 1, 2004 and April 28, 2001
May 3, 2003
Consolidated Statements of Income for each of the three years in the period ended April 27, 2002.
May 3, 2003.
Consolidated Statements of Cash Flows for each of the three years in the period ended April 27, 2002.
May 1, 2004.
Consolidated Statement of Changes in Shareholders' Equity for Eacheach of the three years in the period ended April 27, 2002.
43
Notes to Consolidated Financial Statements
2.
(2)
Schedules
The following financial statement schedules are submitted herewith:
SCHEDULE II - Valuation Accounts
Other schedules are omitted because they are not required or are not applicable or because the required information is included in the financial statements listed above.
3.
(3)
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.
3.1
Reserved
3.2
Amended and Restated Articles of Incorporation of the Company.(1)
3.3
Amendment to the Articles of Incorporation.(5)
(2)
3.4
Amended and Restated Bylaws of the Company.(1)
4.1
Form of Stock Certificate evidencing Common Stock, without par value, of the Company.(2)
(3)
4.2
Shareholders Rights Agreement.(4)
4.3
2001 Incentive Stock Option Plan.(8)
(5)
4.4
2001 Outside Directors Stock Option Plan.(8)
10.1 Amended (5)
4.5
Daktronics Inc. 19932002 Employee Stock Option Plan.(5)
10.2 Purchase Plan (6)
10.1
Amended Daktronics, Inc. 1993 Outside Directors Stock Option
Plan.(5)
10.3 Reserved
10.4 Daktronics, Inc. 401(k) Profit Sharing Plan and Trust.(2)
10.5 Form of Indemnification Agreement between the Company and each
of its officers and directors.(1)
10.6 Loan Agreement dated October 14, 1998 between U.S. Bank
National Association and Daktronics, Inc.(3)
10.7 Term Note dated February 4, 1999 between U.S. Bank National
Association and Daktronics, Inc.(5)
10.8 Term Note dated February 2, 2000 between U.S. Bank National
Association and Daktronics, Inc.(6)
10.9 Term Note dated December 8, 2000 between U.S. Bank National
Association and Daktronics, Inc.(7)
10.10 Form of Stock OptionRestated Deferred Compensation Agreements effective May 25, 1993 betweenBetween Daktronics, Inc. and Dr. Aelred Kurtenbach Dr. Duane Sander(7)
10.2
Amended and Restated Deferred Compensation Agreements Between Daktronics, Inc. and Frank Kurtenbach (7)
10.3
Amended and Restated Deferred Compensation Agreements Between Daktronics, Inc. and James Morgan granted in consideration of their personal
guarantee of performance bonds issued to the Company.(1)
10.11 Third Amendment, dated June 20, 2002 to the Loan Agreement
dated October 14, 1998 between USBank National Association(7)
10.4
Amended and Restated Deferred Compensation Agreements Between Daktronics, Inc. 10.12 Contract for Deed dated June 18, 2001 between O. Dale Larson
and SportsLink, Inc.(9)
10.13 Term Note dated March 4, 2002 between First National Bank in
Brookings and SportsLink, Inc.(9)
Duane Sander. (7)
21.1
Subsidiaries of the Company.(9)
(7)
23.1
Consent of Ernst & Young LLP (7)
23.2
Consent of McGladrey & Pullen, LLP.(9)
(7)
24.
Power of Attorney (7)
31.1
Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (7)
31.2
Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (7)
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) (7)
32.2
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (7)
(1)
Incorporated by reference underto the exhibit with the same exhibit
number to the exhibits filed with the Company's Registration Statement on Form S-1 on December 3, 1993 as Commission File No. 33-72466.
(2)
Incorporated by reference underto the exhibit number with the same exhibit number filed with the Company's Annual Report on From 10-K on July 28, 1999 as Commission File No.0-23246.
(3)
Incorporated by reference to the exhibitsexhibit with the same exhibit number filed with the Company's Amendment No. 1 to the Registration Statement on Form S-1 on January 12, 1994 as Commission File No. 33-72466.
44
(3)
(4)
Incorporated by reference under same exhibit number
to the exhibitsexhibit with the same number filed with the Company's Current Report on Form 10Q8-K on October 31,November 20, 1998 as Commission File No. 0-23246.
(4) Incorporated by reference under same exhibit number
to the exhibits filed with from 8-K on November 30,
1998 as Commission File No. 0-23246.
(5) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10K on July 28, 1999
as Commission File No. 0-23246.
(6) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10K on July 27, 2000
as Commission File No. 0-23246.
(7) Incorporated by reference under the same exhibit
number to the exhibits filed with Form 10K on July 3,
2001 as Commission File No. 0-23246.
(8)
Incorporated by reference to Daktronics, Inc.the Company's Registration Statement on Form S-8 filed on November 8, 2001.
(9)2001 as Commission File herewith
No. 333-72990.
(6)
Incorporated by reference to the Company's Registration Statement on Form S-8 filed on October 20, 2002 as Commission File No. 333-100842.
(b). Reports on Form 8K
The Company filed two reports on Form 8-K during the fiscal year
ended April 27, 2002, as follows:
(i) Current Report on Form 8-K filed on March 11, 2002, relating
the award of a contract in excess of $5 million dollars for
scoring and video equipment for Lambeau Field
(ii) Current Report on Form 8-K filed on June 7, 2001, relating to
the two-for-one stock split on May 24, 2001
.
| During the quarter ended May 1, 2004, and during the period from May 1, 2004 until the date of this Report, the Company filed or furnished the following Current Reports on Form 8-K: |
| On February 18, 2004, the Company furnished the SEC with a Current Report on Form 8-K announcing the issuance of a press release on February 18, 2004 regarding the Company’s financial results for the three and nine months ended January 31, 2004. |
| On March 9, 2004, the Company filed with the SEC with a Current Report on Form 8-K announcing the award of a contract worth approximately $4.0 million from an undisclosed customer to design and manufacture a large light emitting diode display system. |
| On May 26, 2004, the Company filed with the SEC with a Current Report on Form 8-K announcing the issuance of a press release on May 26, 2004 regarding the Company’s financial results for the three and twelve months ended May 1, 2004. |
All Sport(R)Sport®, Daktronics(R)Daktronics®, DakStats(R)DakStats®, DakTicker(R)DakTicker®, DataTime(R)DataTime®, DataTrac(TM)DataTrac™, Galaxy(R)Galaxy®, Glow Cube(R)Cube®, InfoNet(TM)InfoNet™, Keyframe(SM) MagneView(TM)KeyframeSM, OmniSport(R)OmniSport®, ProAd(R)ProAd®, ProStar(R)ProRail™, Pro Sport(R)ProStar®, ProSport®, Scoreboard Sales and Service(R)Service®, Servtrotech(TM)Servtrotech®, SportsLink(R)SportsLink®, Starburst(R)Starburst®, SunSpot(R)SunSpot®, Vanguard(R)TuffSport®, V-Play(TM)Vanguard®, Venus(R)V-Play®, Venus®, V-Net® and V-Link(R)V-Link® are trademarks of Daktronics, Inc.
45
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized on June 27,
2002.
DAKTRONICS, INC.
By: /s/ James B. Morgan
---------------------
President
(Principal25, 2004.
DAKTRONICS, INC. | |||
By: |
| ||
James B. Morgan | |||
Chief Executive | |||
By: |
| ||
William R. Retterath | |||
Chief Financial Officer | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
By /s/ Roland J. Jensen Director June 27, 2002
- ------------------------------
Roland J. Jensen
By /s/ Aelred J. Kurtenbach Director June 27, 2002
- ------------------------------
Aelred J. Kurtenbach
By /s/ Frank J. Kurtenbach Director June 27, 2002
- ------------------------------
Frank J. Kurtenbach
By /s/ James B. Morgan Director June 27, 2002
- ------------------------------
James B. Morgan
By /s/ John L. Mulligan Director June 27, 2002
- ------------------------------
John L. Mulligan
By /s/ Charles S. Roberts Director June 27, 2002
- ------------------------------
Charles S. Roberts
By /s/ Duane E. Sander Director June 27, 2002
- ------------------------------
Duane E. Sander
By /s/ James A. Vellenga Director June 27, 2002
- ------------------------------
James A. Vellenga
By /s/ Nancy D. Frame Director June 27, 2002
- ------------------------------
Nancy D. Frame
46
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
Daktronics, Inc.
Brookings, South Dakota
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. The schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Sioux Falls, South Dakota
June 7, 2002
47
Signature | Title | Date | ||
By /s/ Roland J. Jensen | Director | June 25, 2004 | ||
Roland J. Jensen | ||||
By /s/ Aelred J. Kurtenbach | Director | June 25, 2004 | ||
Aelred J. Kurtenbach | ||||
By /s/ Frank J. Kurtenbach | Director | June 25, 2004 | ||
Frank J. Kurtenbach | ||||
By /s/ James B. Morgan | Director | June 25, 2004 | ||
James B. Morgan | ||||
By /s/ John L. Mulligan | Director | June 25, 2004 | ||
John L. Mulligan | ||||
By /s/ Robert G. Dutcher | Director | June 25, 2004 | ||
Robert G. Dutcher | ||||
By /s/ Duane E. Sander | Director | June 25, 2004 | ||
Duane E. Sander | ||||
By /s/ James A. Vellenga | Director | June 25, 2004 | ||
James A. Vellenga | ||||
By /s/ Nancy D. Frame | Director | June 25, 2004 | ||
Nancy D. Frame | ||||
DAKTRONICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended May 1, 2004, May 3, 2003 and April 27, 2002 April 28, 2001, and April 29, 2000
(in
(in thousands)
Balance at
Allowance for Beginning of (Charged to Additions/ Balance at
Doubtful Accounts Year Expense) Deductions(1) End of Year
- ----------------- ----------------- ----------------- ----------------- -----------------
2002 $ 271 $ 724 $ 107 $ 1,102
2001 232 249 (210) 271
2000 212 250 (230) 232
Allowance for Doubtful Accounts |
| Balance at |
| (Charged to |
| Additions/ |
| Balance at |
| ||||
|
|
|
|
| |||||||||
2004 |
| $ | 875 |
| $ | 407 |
| $ | (151 | ) | $ | 1,131 |
|
2003 |
| 1,102 |
| 892 |
| (1,119 | ) | 875 |
| ||||
2002 |
|
| 271 |
|
| 724 |
|
| 107 |
|
| 1,102 |
|
(1)Write-off of uncollected accounts, net of collections
48
INDEX OF EXHIBITS
3.collections.
Index of 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.
3.1
Reserved
3.2
Amended and Restated Articles of Incorporation of the Company.(1) (1)
3.3
Amendment to the Articles of Incorporation.(5)
(2)
3.4
Amended and Restated Bylaws of the Company.(1)
4.1
Form of Stock Certificate evidencing Common Stock, without par value, of the Company.(2)
(3)
4.2
Shareholders Rights Agreement(4)
Agreement. (4)
4.3
2001 Incentive Stock Option Plan.(8)
(5)
4.4
2001 Outside Directors Stock Option Plan.(8)
10.1 Amended (5)
4.5
Daktronics Inc. 19932002 Employee Stock Option Plan.(5)
10.2 Purchase Plan (6)
10.1
Amended Daktronics, Inc. 1993 Outside Directors Stock Option
Plan.(5)
10.3 Reserved
10.4 Daktronics, Inc. 401(k) Profit Sharing Plan and Trust.(2)
10.5 Form of Indemnification Agreement between the Company and each
of its officers and directors.(1)
10.6 Loan Agreement dated October 14, 1998 between U.S. Bank
National Association and Daktronics, Inc.(3)
10.7 Term Note dated February 4, 1999 between U.S. Bank National
Association and Daktronics, Inc.(5)
10.8 Term Note dated February 2, 2000 between U.S. Bank National
Association and Daktronics, Inc.(6)
10.9 Term Note dated December 8, 2000 between U.S. Bank National
Association and Daktronics, Inc.(7)
10.10 Form of Stock OptionRestated Deferred Compensation Agreements effective May 25, 1993 betweenBetween Daktronics, Inc. and Dr. Aelred Kurtenbach Dr. Duane Sander(7)
10.2
Amended and Restated Deferred Compensation Agreements Between Daktronics, Inc. and Frank Kurtenbach (7) (5)
10.3
Amended and Restated Deferred Compensation Agreements Between Daktronics, Inc. and James Morgan granted in consideration of their personal
guarantee of performance bonds issued to the Company.(1)
10.11 Third Amendment, dated June 20, 2002 to the Loan Agreement
dated October 14, 1998 between USBank National Association(7)
10.4
Amended and Restated Deferred Compensation Agreements Between Daktronics, Inc. 10.12 Contract for Deed dated June 20, 2001 between O. Dale Larson
and SportsLink, Ltd.(9)
10.13 Term Note dated March 4, 2002 between First National Bank in
Brookings and SportsLink, Ltd.(9)
Duane Sander. (7)
21.1
Subsidiaries of the Company.(9)
(7)
23.1
Consent of Ernst & Young LLP (7)
23.2
Consent of McGladrey & Pullen, LLP.(9)
(7)
24.
Power of Attorney (7)
31.1
Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (7)
31.2
Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (7)
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) (7)
32.2
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (7)
(1)
Incorporated by reference underto the exhibit with the same exhibit
number to the exhibits filed with the Company's Registration Statement on Form S-1 on December 3, 1993 as Commission File No. 33-72466.
(2)
Incorporated by reference underto the exhibit number with the same exhibit number filed with the Company's Annual Report on From 10-K on July 28, 1999 as Commission File No.0-23246.
(3)
Incorporated by reference to the exhibitsexhibit with the same exhibit number filed with the Company's Amendment No. 1 to the Registration Statement on Form S-1 on January 12, 1994 as Commission File No. 33-72466.
(3)
(4)
Incorporated by reference under same exhibit number
to the exhibitsexhibit with the same number filed with the Company's Current Report on Form 10Q8-K on October 31,November 20, 1998 as Commission File No. 0-23246.
(4) Incorporated by reference under same exhibit number
to the exhibits filed with form 8-K on November 30,
1998 as Commission File No. 0-23246.
(5) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10K on July 28, 1999
as Commission File No. 0-23246.
(6) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10K on July 27, 2000
as Commission File No. 0-23246.
(7) Incorporated by reference under the same exhibit
number to the exhibits filed with Form 10K on July 3,
2001 as Commission File No. 0-23246.
(8)
Incorporated by reference to Daktronics, Inc.the Company's Registration Statement on Form S-8 filed on November 8, 2001.
(9) Filed herewith
49
2001 as Commission File No. 333-72990.
EXHIBIT 21.1
| Name of Subsidiary | Jurisdiction of Incorporation | ||
| Star Circuits, Inc. | South Dakota | ||
| MSC Technologies, Inc. | South Dakota | ||
| Sports Link, Ltd. | South Dakota | ||
| Daktronics Canada, Inc. | Canada | ||
| Daktronics, GmbH | Germany | ||